<PAGE>
1933 Act File No. 33-62103
1940 Act File No. 811-7347
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
-
Post-Effective Amendment No. 10...................... X
-- -
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
-
Amendment No. 13..................................... X
-- -
BT ADVISOR FUNDS
(Exact Name of Registrant as Specified in Charter)
One South Street, Baltimore, Maryland 21202
(Address of Principal Executive Offices)
(410) 895-5000
(Registrant's Telephone Number)
Daniel O. Hirsch, Esq. Copies to: Burton M. Leibert, Esq.
One South Street Willkie Farr & Gallagher
Baltimore, Maryland 21202 787 Seventh Ave
(Name and Address of Agent New York, New York 10019
for Service)
It is proposed that this filing will become effective (check appropriate box):
[ ] Immediately upon filing pursuant to paragraph (b)
[X] On April 30, 2000 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] On (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] On (date) pursuant to paragraph (a)(2) of rule 485.
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
BT Investment Portfolios has also executed this Registration Statement.
<PAGE>
Deutsche Asset Management
Mutual Fund
Prospectus
April 30, 2000
Investment
Equity 500 Index
Formerly BT Investment Equity 500 Index Fund
[Like shares of all mutual funds, these securities have not been approved or
disapproved by the Securities and Exchange Commission nor has the Securities and
Exchange Commission passed upon the accuracy or adequacy of this prospectus.
Any representation to the contrary is a criminal offense.]
A Member of the
Deutsche Bank Group [/]
<PAGE>
Overview
- --------------------------------------------------------------------------------
of Equity 500 Index Investment
Goal: The Fund seeks to match, as closely as possible, before expenses, the
performance of the Standard & Poor's 500 Composite Stock Price Index (the "S&P
500 Index"), which emphasizes stocks of large U.S. companies.
Core Strategy: The Fund invests in a statistically selected sample of the
securities found in the S&P 500 Index.
INVESTMENT POLICY AND STRATEGIES
The Fund is a feeder fund that invests all of its assets in a master portfolio
with the same goal as the Fund. The Fund, through the master portfolio, seeks
to replicate, before expenses, the risk and return characteristics of the S&P
500 Index. The Fund will invest primarily in common stocks of companies that
comprise the S&P 500, in approximately the same weightings as the S&P 500. The
Fund may also use stock index futures and options.
- --------------------------------------------------------------------------------
The S&P 500 Index is a well-known stock market index that includes common
stocks of 500 companies from several industrial sectors representing a
significant portion of the market value of all stocks publicly traded on the
New York Stock Exchange. Stocks in the S&P 500 Index are weighted according to
their market capitalization (the number of shares outstanding multiplied by the
stock's current price).
Equity 500 Index Investment
Overview of Equity 500 Index
<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 Equity 500 Index
<TABLE>
<S> <C>
Objective................................................................... 7
Index Investing Versus Active Management.................................... 7
Strategy.................................................................... 7
Principal Investments....................................................... 7
Investment Process.......................................................... 7
Risks....................................................................... 8
Information Regarding the Index............................................. 8
Management of the Fund...................................................... 8
Calculating the Fund's Share Price.......................................... 9
Dividends and Distributions................................................. 10
Performance Information..................................................... 10
Tax Considerations.......................................................... 10
Buying and Selling Fund Shares.............................................. 10
Financial Highlights........................................................ 13
</TABLE>
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3
<PAGE>
Overview of Equity 500 Index Investment
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:
. Stocks could decline generally or could underperform other investments.
. Returns on large U.S. companies' stock, in which the Fund invests, could
trail the returns of stocks of medium or small companies. Each type of stock
tends to go through cycles of overperformance and underperformance in
comparison to the overall stock market.
. The Fund may not be able to mirror the S&P 500 Index closely enough to track
its performance for a number of reasons, including the Fund's cost to buy and
sell securities, the flow of money into and out of the Fund, and the
underperformance of stocks selected by us.
. The Fund could suffer losses if its futures and options positions are not
well correlated with the securities for which they are acting as a substitute
or if the Fund cannot close out its positions.
WHO SHOULD CONSIDER INVESTING IN THE FUND
You should consider investing in the Fund if you are seeking capital
appreciation over the long term, exposure to the U.S. equity market as
represented by larger companies, and investment returns that track the
performance of the S&P 500 Index. 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, cannot
tolerate fluctuations in the value of your investments, or seeking to
outperform the S&P 500 Index.
The Fund by itself does not constitute a balanced investment program. It can,
however, afford exposure to investment opportunities not available to an
investor in small- and medium-sized company stocks. 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 Equity 500 Index Investment
YEAR-BY-YEAR RETURNS
(each full calendar year since inception)
[GRAPH]
1993 9.53%
1994 1.15%
1995 37.15%
1996 22.83%
1997 33.02%
1998 28.57%
1999 20.59%
During the period shown in the bar chart, the Fund's highest return in any
calendar quarter was 21.36% (fourth quarter 1998) and its lowest quarter was
- -9.88% (third quarter 1998). Past performance offers no indication of how the
fund will perform in the future.
TOTAL RETURNS, AFTER FEES AND EXPENSES
The bar chart and table on this page can help you evaluate the potential risk
and rewards of investing in the Fund by showing changes in the Fund's
performance year to year. The bar chart shows the Fund's actual return for each
full calendar year since the Fund began selling shares on December 31, 1992
(its inception date). The table compares the Fund's average annual return with
the S&P 500 Index over the last calendar year, the last five calendar years and
since the Fund's inception. The S&P 500 Index is a model, not an actual
portfolio. An index is a group of securities whose overall performance is used
as a standard to measure investment performance. It does not factor in the
costs of buying, selling and holding stock -- costs that are reflected in the
Fund's results.
PERFORMANCE FOR PERIOD ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
Average Annual Returns
Since Inception
1 Year 5 Years (December 31, 1992)
<S> <C> <C> <C>
Equity 500 Index Investment 20.59% 28.29% 21.24%
--------------------------------------------------------------
S&P 500 Index 21.04% 28.56% 21.53%
--------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
5
<PAGE>
Overview of Equity 500 Index Investment
ANNUAL FUND OPERATING EXPENSES
(expenses paid from Fund assets)
The Annual Fees and Expenses table to the right describes the fees and expenses
that you may pay if you buy and hold shares of Equity 500 Index Investment.
Expense Example. The example below illustrates the expenses incurred on a
$10,000 investment in the Fund. It assumes that the Fund earned an annual
return of 5% over the periods shown, the Fund's operating expenses remained the
same and you sold your shares at the end of the period.
You may use this hypothetical example to compare the Fund's expense history
with other funds./1/ The example does not represent an estimate of future
returns or expenses. Actual costs may be higher or lower.
- --------------------------------------------------------------------------------
/1/Information on the annual operating expenses reflects the expenses of both
the Fund and the Equity 500 Index Portfolio, the master portfolio in which the
Fund invests its assets. (A further discussion of the relationship between the
Fund and the master portfolio appears in the "Organizational Structure" section
of this prospectus.)
/2/The investment adviser and administrator have agreed, for a 16-month period
from the Fund's fiscal year end of December 31, 1999, to waive their fees and
reimburse expenses so that total expenses will not exceed 0.25%.
/3/For the first year, the expense example takes into account fee waivers and
reimbursements.
ANNUAL FEES AND EXPENSES
<TABLE>
<CAPTION>
Percentage of Average
Daily Net Assets/1/
<S> <C>
Management Fees 0.05%
--------------------------------------------------
Distribution and
Service (12b-1) Fees None
--------------------------------------------------
Other Fund Operating
Expenses 0.31%
--------------------------------------------------
Total Fund Operating
Expenses 0.36%
--------------------------------------------------
Less: Fee Waiver or
Expense Reimbursement (0.11)%/2/
--------------------------------------------------
Net Expenses 0.25%
--------------------------------------------------
</TABLE>
EXPENSE EXAMPLE/3/
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C>
$26 $105 $191 $445
----------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
6
<PAGE>
A detailed look
- --------------------------------------------------------------------------------
at Equity 500 Index Investment
OBJECTIVE
The Fund seeks to match, as closely as possible (before the deduction of
expenses), the performance of the S&P 500 Index, which emphasizes stocks of
large U.S. companies.
The Fund invests for capital appreciation, not income; any dividend and
interest income is incidental to the pursuit of its objective. While we give
priority to matching the Index's performance, 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.
INDEX INVESTING VERSUS ACTIVE MANAGEMENT
Active management involves the investment adviser buying and selling securities
based on research and analysis. Unlike a fund that is actively managed, an
index fund tries to match, as closely as possible, the performance of a target
index by holding either all, or a representative sample, of the securities in
the index. Indexing appeals to many investors for the following reasons:
. indexing provides simplicity because it is a straightforward market-matching
strategy;
. index funds generally provide diversification by investing in a wide variety
of companies and industries;
. an index fund's performance is predictable in that the fund's value is
expected to move in the same direction, up or down, as the target index;
. index funds tend to have lower costs because they do not have many of the
expenses of actively managed funds such as research, and index funds usually
have relatively low trading activity and therefore brokerage commissions tend
to be lower; and
. index funds generally realize low capital gains.
STRATEGY
To attempt to match the risk and return characteristics of the S&P 500 Index as
closely as possible, the Fund invests in a statistically selected sample of the
securities found in the S&P 500 Index, using a process known as "optimization."
This process selects stocks for the Fund so that industry weightings, market
capitalizations and fundamental characteristics (price-to-book ratios, price-
to-earnings ratios, debt-to-asset ratios and dividend yields), closely match
those of the securities in the S&P 500 Index. Over the long term, we seek a
correlation between the performance of the Fund, before expenses, and the S&P
500 Index of 98% or better. A figure of 100% would indicate perfect
correlation.
PRINCIPAL INVESTMENTS
Under normal circumstances, the Fund intends to invest at least 80% of its
assets in stocks of companies included in the S&P 500 Index. The Fund's
securities are weighted to attempt to make the Fund's total investment
characteristics similar to those of the S&P 500 Index as a whole. We may
exclude or remove any S&P stock from the Fund, if we believe that the stock is
illiquid or that the merit of the investment has been impaired by financial
conditions or other extraordinary events.
The Fund may also hold up to 20% of its assets in short-term debt securities,
money market instruments and in derivative instruments, such as futures
contracts and options, that provide exposure to the stocks of companies in the
S&P 500 Index. Futures and options are considered derivatives because they
"derive" their value from a traditional security (like a stock or bond), asset
or index. The Fund intends to buy futures in anticipation of buying stocks.
INVESTMENT PROCESS
In an effort to run an efficient and effective strategy, the Fund uses the
process of "optimization," a statistical sampling technique. First, the Fund
buys the stocks that make up the larger portions of the Index's value in
roughly the same proportion as the Index. Second, smaller stocks are analyzed
and selected based on liquidity. In selecting smaller stocks, we try to match
the industry and risk characteristics of all of the smaller companies in the
S&P 500 Index. This approach attempts to maximize the Fund's liquidity and
returns while minimizing its costs.
- --------------------------------------------------------------------------------
Futures and options on futures contracts are used as a low-cost method of
gaining exposure to a particular securities market without investing directly
in those securities. The Fund also invests in derivatives to keep cash on hand
to meet shareholder redemptions or other needs while maintaining exposure to
the stock market.
Portfolio Turnover. The portfolio turnover rate measures the frequency that the
Fund sells and replaces the value of its securities within a given period.
Historically, this Fund has had a low portfolio turnover rate.
- --------------------------------------------------------------------------------
7
<PAGE>
A Detailed Look at Equity 500 Index Investment
RISKS
Below we set forth some of the prominent risks associated with investing in
general, with index investing and with investing in large cap stocks.
Primary Risks
Market Risk. Deteriorating market conditions might cause an overall weakness in
the market that reduces the absolute level of stock prices in that market,
including stocks held by the Fund.
Tracking Error. There are several reasons that the Fund's performance may not
track the Index exactly:
. Unlike the Index, the Fund incurs administrative expenses and transaction
costs in trading stocks.
. The composition of the Index and the stocks held by the Fund may occasionally
diverge.
. The timing and magnitude of cash inflows from investors buying shares could
create balances of uninvested cash. Conversely, the timing and magnitude of
cash outflows to investors selling shares could require ready reserves of
uninvested cash. Either situation would likely cause the Fund's performance
to deviate from the "fully invested" Index.
Futures and Options. The Fund may invest, to a limited extent, in stock index
futures or options, which are types of derivatives. The Fund will not use these
derivatives for speculative purposes or as leveraged investments that magnify
the gains or losses of an investment. The Fund invests in derivatives to keep
cash on hand to meet shareholder redemptions or other needs while maintaining
exposure to the stock market. Risks associated with derivatives include:
. the derivative is not well correlated with the security for which it is
acting as a substitute;
. derivatives used for risk management may not have the intended effects and
may result in losses or missed opportunities;
. and the risk that the Fund cannot sell the derivative because of an illiquid
secondary market.
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.
INFORMATION REGARDING THE INDEX
The Fund and the Portfolio are not sponsored, endorsed, sold or promoted by
S&P. S&P makes no representation or warranty, express or implied, to the owners
of the Fund or the Portfolio or any member of the public regarding the
advisability of investing in securities generally or in the Fund and the
Portfolio particularly or the ability of the S&P 500 Index to track general
stock market performance. S&P's only relationship to the Fund and Portfolio is
the licensing of certain trademarks and trade names of S&P and of the S&P 500
Index, which is determined, composed and calculated without regard to the Fund
or Portfolio. S&P does not guarantee the accuracy and/or completeness of the
S&P 500 Index or any data included therein.
S&P makes no warranty, express or implied, as to the results to be obtained by
the Fund or the Portfolio, to owners of the Fund or the Portfolio, or to any
other person or entity from the use of the S&P 500 Index or any data included
therein. S&P makes no express or implied warranties, and expressly disclaims
all such warranties of merchantability or fitness for a particular purpose or
use with respect to the S&P 500 Index or any data included therein.
MANAGEMENT OF THE FUND
Deutsche Asset Management is the marketing name for the asset management
activities of Deutsche Bank A.G., Deutsche Fund Management, Bankers Trust
Company, DB Alex. Brown LLC, Deutsche Asset Management, Inc. and Deutsche Asset
Management Investment Services Limited.
Board of Trustees. The Fund's shareholders, voting in proportion to the number
of shares each owns, elect a Board of Trustees, and the Trustees supervise all
the Fund's activities on their behalf.
Investment Adviser. Under the supervision of the Board of Trustees, Bankers
Trust Company, with headquarters at 130 Liberty Street, New York, NY 10006,
acts as the Fund's investment adviser. The investment adviser makes the Fund's
investment decisions and assumes responsibility for the securities the Fund
owns. It buys and sells securities for the Fund and conducts the research that
leads to the purchase and sale decisions. The Fund paid the investment adviser
a fee of 0.075% of the Fund's average daily net assets for its services in the
last fiscal year. As of March 15, 2000, the Fund will pay 0.05% of its average
daily net assets for investment advisory services.
- --------------------------------------------------------------------------------
8
<PAGE>
A Detailed Look at Equity 500 Index Investment
As of December 31, 1999, Bankers Trust had total assets of approximately $270
billion under management. Bankers Trust is dedicated to servicing the needs of
corporations, governments, financial institutions and private clients and has
invested retirement assets on behalf of the nation's largest corporations and
institutions for more than 50 years. The scope of the firm's capability is
broad--it is a leader in both the active and passive quantitative investment
disciplines and maintains a major presence in stock and bond markets worldwide.
On March 11, 1999, Bankers Trust announced that it had reached an agreement
with the United States Attorney's Office in the Southern District of New York
to resolve an investigation concerning inappropriate transfers of unclaimed
funds and related record-keeping problems that occurred between 1994 and early
1996. Bankers Trust pleaded guilty to misstating entries in the bank's books
and records and agreed to pay a $63.5 million fine to state and federal
authorities. On July 26, 1999, the federal criminal proceedings were concluded
with Bankers Trust's formal sentencing. The events leading up to the guilty
pleas did not arise out of the investment advisory or mutual fund management
activities of Bankers Trust or its affiliates.
As a result of the plea, absent an order from the SEC, Bankers Trust would not
be able to continue to provide investment advisory services to the Funds. The
SEC has granted a temporary order to permit Bankers Trust and its affiliates to
continue to provide investment advisory services to registered investment
companies. There is no assurance that the SEC will grant a permanent order.
Other Services. Bankers Trust 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 Bankers
Trust. Service agents may charge additional fees to investors only for those
services not otherwise included in the Bankers Trust servicing agreement, such
as cash management or special trust or retirement-investment reporting.
Organizational Structure. The Fund is a "feeder fund" that invests all of its
assets in a "master portfolio," the Equity 500 Index Portfolio. The Fund and
the master portfolio have the same goal. The master portfolio is advised by
Bankers Trust. 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. You can find the Fund's daily share price in the mutual fund listings
of most major newspapers.
- --------------------------------------------------------------------------------
The Exchange is open every week, Monday through Friday, except when the
following holidays are celebrated: New Year's Day, Martin Luther King, Jr. Day
(the third Monday in January), Presidents' Day (the third Monday in February),
Good Friday, Memorial Day (the last Monday in May), Independence Day, Labor Day
(the first Monday in September), Thanksgiving Day (the fourth Thursday in
November) and Christmas Day.
- --------------------------------------------------------------------------------
9
<PAGE>
A Detailed Look at Equity 500 Index Investment
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.
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.
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>
<S> <C>
TRANSACTION TAX STATUS
Income Dividends Ordinary income
---------------------------------------
Short-term capital Ordinary income
gains distributions
---------------------------------------
Long-term capital Capital gains
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>
<S> <C>
TRANSACTION TAX STATUS
Your sale of Capital gains or
shares owned losses
more than one
year
-------------------------------------------
Your sale of Gains treated as ordinary
shares owned income; losses subject to
for one year or special rules
less
-------------------------------------------
</TABLE>
The tax considerations for tax deferred accounts or non-taxable entities will
be different.
Because each investor's tax circumstances are unique and because the tax laws
are subject to change, we recommend that you consult your tax advisor about
your investment.
BUYING AND SELLING FUND SHARES
Contacting the Mutual Fund Service Center of Deutsche Asset Management
By Phone 1-800-730-1313
By Mail Deutsche Asset Management Service Center
P.O. Box 219210
Kansas City, MO 64121-9210
By Overnight Mail Deutsche Asset Management Service Center
210 West 10th Street, 8th floor
Kansas City, MO 64105-1716
Our representatives are available to assist you personally Monday through
Friday, 9:00 a.m. to 7:00 p.m., Eastern time each day the New York Stock
Exchange is open for business. You can reach the Deutsche Asset Management
Service Center's automated assistance line 24 hours a day, 7 days a week.
Minimum Account Investments
<TABLE>
<S> <C>
Initial purchase: Minimum Amount
A standard account $2,500
A retirement account $500
An automatic investment plan
account $1,000
Subsequent purchase:
A standard account $250
A retirement account $100
An automatic investment plan
account $100
Account balance:
Non-retirement account $1,000
Retirement account None
</TABLE>
The Fund and its service providers reserve the right to, from time to time, at
their discretion, waive or reduce the investment minimums.
How to Open Your Fund Account
By Mail: Complete and sign the account application that accompanies this
prospectus. (You may obtain additional applications by calling the
Deutsche Asset Management Service Center.) Mail the completed
application along with a check payable to Equity 500 Index
Investment--1662 to the Deutsche Asset Management Service Center.
The addresses are shown under "Contacting the Mutual Fund Service
Center of Deutsche Asset Management"
- --------------------------------------------------------------------------------
10
<PAGE>
A Detailed Look at Equity 500 Index Investment
By Wire: Call the Deutsche Asset Management Service Center to set up an
account.
Please note that your account cannot become activated until we receive a
completed application via mail or fax.
If this is your first investment through a tax-sheltered retirement plan, such
as an IRA, you will need a special application form. This form is available to
from your service agent, or by calling the Retirement Service Center at 1-800-
730-1313.
Two Ways to Buy and Sell Shares in Your Account
MAIL:
Buying: Send your check, payable to the Fund, to the Deutsche Asset Management
Service Center. The addresses are shown in this section under "Contacting the
Mutual Fund Service Center at Deutsche Asset Management." Be sure to include
the fund number and your account number (see your account statement) on your
check. Please note that we cannot accept starter checks or third-party checks.
If you are investing in more than one fund, make your check payable to
"Deutsche Asset Management funds" and include your account number, the names
and numbers of the funds you have selected, and the dollar amount or percentage
you would like invested in each fund.
Selling: Send a signed letter to the Deutsche Asset Management Service Center
with your name, your fund number and account number, the fund's name, and
either the number of shares you wish to sell or the dollar amount you wish to
receive. You must leave at least $1,000 invested in your account to keep it
open. Unless exchanging into another Deutsche Asset Management fund, you must
submit a written authorization to sell shares in a retirement account.
WIRE:
Buying: You may buy shares by wire only if your account is authorized to do so.
Please note that you or your service agent must call the Deutsche Asset
Management Service Center at 1-800-730-1313 to notify us in advance of a wire
transfer purchase. Inform the Deutsche Asset Management 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: Equity 500 Index Investment--1662
Refer to your account statement for the account name, number and fund number.
Selling: You may sell shares by wire only if your account is authorized to do
so. For your protection, you may not change the destination bank account over
the phone. To sell by wire, contact your service agent or the Deutsche Asset
Management Service Center at 1-800-730-1313. Inform the Deutsche Asset
Management Service Center representative of the amount of your redemption and
receive a trade confirmation number. The minimum redemption by wire is $1,000.
We must receive your order by 4:00 p.m. Eastern time to wire your account the
next business day.
Important Information about Buying and Selling Shares
. You may buy and sell shares of a fund through authorized service agents as
well as directly from us. The same terms and conditions apply. Specifically,
once you place your order with a service agent, it is considered received by
the Deutsche Asset Management Service Center. It is then your service agent's
responsibility to transmit the order to the Deutsche Asset Management Service
Center. You should contact your service agent if you have a dispute as to
when your order was placed with the fund. Your service agent may charge a fee
for buying and selling shares for you.
. You may place orders to buy and sell over the phone by calling your service
agent or the Deutsche Asset Management Service Center at 1-800-730-1313. If
you pay for shares by check and the check fails to clear, or if you order
shares by phone and fail to pay for them by 4:00 p.m. Eastern time the next
business day, we have the right to cancel your order, hold you liable or
charge you or your account for any losses or fees a fund or its agents have
incurred. To sell shares you must state whether you would like to receive the
proceeds by wire or check.
. After we or your service agent receive your order, we buy or sell your shares
at the next price calculated on a day the New York Stock Exchange is open for
business.
- --------------------------------------------------------------------------------
11
<PAGE>
A Detailed Look at Equity 500 Index Investment
. 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 Deutsche Asset Management
Service Center for more information.
. We remit proceeds from the sale of shares in U.S. dollars (unless the
redemption is so large that it is made "in-kind").
. We do not issue share certificates.
. Selling shares of trust accounts and business or organization accounts may
require additional documentation. Please contact your service agent or the
Deutsche Asset Management Service Center for more information.
. During periods of heavy market activity, you may have trouble reaching the
Deutsche Asset Management Service Center by telephone. If this occurs, you
should make your request by mail.
. We reserve the right to reject purchases of Fund shares (including exchanges)
for any reason. We will reject the purchases if we conclude that the
purchaser may be investing only for the short-term or to profit from day to
day fluctuations in the Fund's share price.
. We reserve the right to reject the purchases of Fund shares (including
exchanges) or to suspend or postpone redemptions at times when both the New
York Stock Exchange and the Fund's custodian are closed.
. Account Statements and Fund Reports: We or your service agent will furnish
you with a written confirmation of every transaction that affects your
account balance. You will also receive monthly statements reflecting the
balances in your account. We will send you a report every six months on your
fund's overall performance, its current holdings and its investing
strategies.
. Exchange Privilege. You can exchange all or part of your shares for shares of
another Deutsche Asset Management mutual fund up to four times a year (from
the date of your first exchange). When you exchange shares, you are selling
shares in one fund to purchase shares in another. Before buying shares
through an exchange, you should be sure to obtain a copy of that fund's
prospectus and read it carefully. You may complete exchanges over the phone
only if your account is authorized to do so. You will receive a written
confirmation of each transaction from the Deutsche Asset Management Service
Center or your service agent.
Please note the following conditions:
. The accounts between which the exchange is taking place must have the same
name, address and taxpayer ID number.
. You may make the exchange by phone, if your account has the exchange by
phone feature, letter or wire.
. If you are maintaining a taxable account, you may have to pay taxes on the
exchange.
Special Shareholder Services
To help make investing with us as easy as possible, and to help you build your
investment, we offer the following special services. You can obtain further
information about these programs by calling the Deutsche Asset Management
Service Center at 1-800-730-1313.
. Regular Investments: You can make regular investments of $100 or more
automatically from your checking account bi-weekly, monthly, quarterly, or
semi-annually.
. Regular Withdrawals: You can arrange regular monthly, quarterly, semi-annual
and annual sales of shares in your account. The minimum transaction is $100,
and the account must have a balance of at least $10,000 to qualify.
- --------------------------------------------------------------------------------
12
<PAGE>
A Detailed Look at Equity 500 Index Investment
The table below provides a picture of the Fund's financial performance for the
past five years. Certain information selected reflects financial results for a
single Fund share. The total returns in the table represent the rate of return
that an investor would have earned on an investment in the Fund, assuming
reinvestment of all dividends and distributions. This information has been
audited by PricewaterhouseCoopers LLP, whose report, along with the Fund's
financial statements, is included in the Fund's annual report. The annual
report is available free of charge by calling the Deutsche Asset Management
Service Center at 1-800-730-1313.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
For the Years Ended December 31,
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Per Share Operating
Performance:/1/
Net Asset Value,
Beginning of Period $155.96 $124.95 $99.06 $82.92 $62.16
--------------------------------------------------------------------------------
Income from Investment
Operations
Net Investment Income 1.98 1.84 1.81 1.80 1.74
--------------------------------------------------------------------------------
Net Realized and
Unrealized Gain on
Investment and Futures
Transactions 29.81 33.55 30.59 16.98 21.18
--------------------------------------------------------------------------------
Total from Investment
Operations 31.79 35.39 32.40 18.78 22.92
--------------------------------------------------------------------------------
Distributions to
Shareholders
Net Investment Income (1.94) (1.84) (1.78) (1.80) (1.74)
--------------------------------------------------------------------------------
Net Realized Gains from
Investment and Futures
Transactions -- (2.54) (4.73) (0.84) (0.42)
--------------------------------------------------------------------------------
In Excess of Net
Realized Gain (2.33) -- -- -- --
--------------------------------------------------------------------------------
Total Distributions (4.27) (4.38) (6.51) (2.64) (2.16)
--------------------------------------------------------------------------------
Net Asset Value, End of
Period $183.48 $155.96 $124.95 $99.06 $82.92
--------------------------------------------------------------------------------
Total Investment Return 20.59% 28.57% 33.02% 22.83% 37.15%
--------------------------------------------------------------------------------
Supplemental Data and
Ratios:
Net Assets, End of
Period (000s omitted) $1,036,354 $860,584 $637,401 $451,762 $277,140
--------------------------------------------------------------------------------
Ratios to Average Net
Assets:
--------------------------------------------------------------------------------
Net Investment Income 1.18% 1.33% 1.59% 2.05% 2.38%
--------------------------------------------------------------------------------
Expenses After Waivers,
Including Expenses of
the Equity 500 Index
Portfolio 0.25% 0.25%/2/ 0.25% 0.25% 0.25%
--------------------------------------------------------------------------------
Expenses Before Waivers,
Including Expenses of
the Equity 500 Index
Portfolio 0.39% 0.43% 0.46% 0.47% 0.48%
--------------------------------------------------------------------------------
Decrease Reflected in
Above Expense Ratio Due
to Fees Waivers or
Expenses Reimbursements 0.14% 0.18% 0.21% 0.22% 0.23%
--------------------------------------------------------------------------------
Portfolio Turnover
Rate/3/ 13% 4% 19% 15% 6%
--------------------------------------------------------------------------------
</TABLE>
/1/Per share amounts for the years ended December 31, 1995 through December
31, 1997 have been restated to reflect a 1:6 reverse stock split effective
September 4, 1997.
/2/Effective May 6, 1998, the administrator contractually agreed to receive
fees from the portfolio only to the extent of the lesser of 0.005% or the
amount that brings the total annual operating expenses as a percentage of the
portfolio's average daily net assets up to 0.08%.
/3/The portfolio turnover rate is the rate for the master portfolio in which
the Fund invests its assets.
- --------------------------------------------------------------------------------
13
<PAGE>
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<PAGE>
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<PAGE>
Additional information about the Fund's investments is available in the
Fund's annual and semi-annual reports to shareholders. In the Fund's annual
report, you will find a discussion of the market conditions and investment
strategies that significantly affected the Fund's performance during its
last fiscal year.
You can find more detailed information about the Fund in the current
Statement of Additional Information, dated April 30, 2000, which we have
filed electronically with the Securities and Exchange Commission (SEC) and
which is incorporated by reference into this Prospectus. To receive your
free copy of the Statement of Additional Information, the annual or semi-
annual report, or if you have questions about investing in a Fund, write to
us at:
Deutsche Asset Management Service Center
P.O. Box 219210
Kansas City, MO 64121-9210
or call our toll-free number: 1-800-730-1313
You can find reports and other information about the Fund on the EDGAR
Database on the SEC website (http://www.sec.gov), or you can get copies of
this information, after payment of a duplicating fee, by electronic request
at [email protected] or by writing to the Public Reference Section of the
SEC, Washington, D.C. 20549-0102. Information about the Fund, including its
Statement of Additional Information, can be reviewed and copied at the
SEC's Public Reference Room in Washington, D.C. For information on the
Public Reference Room, call the SEC at 202-942-8090.
Equity 500 Index Investment
BT Pyramid Mutual Funds
Distributed by:
ICC Distributors, Inc.
CUSIP #055847107
1662PRO (04/00)
811-6576
<PAGE>
Deutsche Asset Management
Mutual Fund
Prospectus
April 30, 2000
Premier
Equity 500 Index Premier
Formerly BT Institutional Equity 500 Index Fund
Small Cap Index--Premier Class
Formerly BT Advisor Small Cap Index Fund--Institutional Class
EAFE/(R)/ Equity Index--Premier Class
Formerly BT Advisor EAFE Equity Index Fund--Institutional Class
U.S. Bond Index--Premier Class
Formerly BT Advisor U.S. Bond Index Fund--Institutional Class
[Like shares of all mutual funds, these securities have not been approved or
disapproved by the Securities and Exchange Commission nor has the Securities and
Exchange Commission passed upon the accuracy or adequacy of this prospectus. Any
representation to the contrary is a criminal offense.]
[*The EAFE/(R)/ Index is the exclusive property of Morgan Stanley. Morgan
StanleyCapital International is a service of Morgan Stanley and has been
licensed for use by the Fund's investment adviser.]
A Member of the
Deutsche Bank Group [/]
<PAGE>
Overview
- --------------------------------------------------------------------------------
of Equity 500 Index Premier
Goal: The Fund seeks to match, as closely as possible, before expenses, the
performance of the Standard & Poor's 500 Composite Stock Price Index (the "S&P
500 Index"), which emphasizes stocks of large U.S. companies.
Core Strategy: The Fund invests in a statistically selected sample of the
securities found in the S&P 500 Index.
INVESTMENT POLICY AND STRATEGIES
The Fund is a feeder fund that invests all of its assets in a master portfolio
with the same goal as the Fund. The Fund, through the master portfolio, seeks
to replicate, before expenses, the risk and return characteristics of the S&P
500 Index. The Fund will invest primarily in common stocks of companies that
comprise the S&P 500, in approximately the same weightings as the S&P 500. The
Fund may also use stock index futures and options.
- --------------------------------------------------------------------------------
The S&P 500 Index is a well-known stock market index that includes common
stocks of 500 companies from several industrial sectors representing a
significant portion of the market value of all stocks publicly traded on the
New York Stock Exchange. Stocks in the S&P 500 Index are weighted according to
their market capitalization (the number of shares outstanding multiplied by the
stock's current price).
Equity 500 Index Premier
Overview of Equity 500 Index Premier
<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 Equity 500 Index Premier
<TABLE>
<S> <C>
Objective................................................................... 7
Index Investing Versus Active Management.................................... 7
Strategy.................................................................... 7
Principal Investments....................................................... 7
Investment Process.......................................................... 7
Risks....................................................................... 8
Information Regarding the Index............................................. 8
Financial Highlights........................................................ 9
</TABLE>
- --------------------------------------------------------------------------------
3
<PAGE>
Overview of Equity 500 Index Premier
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:
. Stocks could decline generally or could underperform other investments.
. Returns on large U.S. companies' stock, in which the Fund invests, could
trail the returns of stocks of medium or small companies. Each type of stock
tends to go through cycles of overperformance and underperformance in
comparison to the overall stock market.
. The Fund may not be able to mirror the S&P 500 Index closely enough to track
its performance for a number of reasons, including the Fund's cost to buy and
sell securities, the flow of money into and out of the Fund, and the
underperformance of stocks selected by us.
. The Fund could suffer losses if its futures and options positions are not
well correlated with the securities for which they are acting as a substitute
or if the Fund cannot close out its positions.
WHO SHOULD CONSIDER INVESTING IN THE FUND
Equity 500 Index Premier requires a minimum investment of $5 million. You
should consider investing in the Fund if you are seeking capital appreciation
over the long term, exposure to the U.S. equity market as represented by larger
companies, and investment returns that track the performance of the S&P 500
Index. 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, cannot
tolerate fluctuations in the value of your investments, or seeking to
outperform the S&P 500 Index.
The Fund by itself does not constitute a balanced investment program. It can,
however, afford exposure to investment opportunities not available to an
investor in small- and medium-sized company stocks. 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 Equity 500 Index Premier
TOTAL RETURNS, AFTER FEES AND EXPENSES
The bar chart and table on this page can help you evaluate the potential risk
and rewards of investing in the Fund by showing changes in the Fund's
performance year to year. The bar chart shows the Fund's actual return for each
full calendar year since the Fund began selling shares on December 31, 1992
(its inception date). The table compares the Fund's average annual return with
the S&P 500 Index over the last calendar year, the last five calendar years and
since the Fund's inception. The S&P 500 Index is a model, not an actual
portfolio. An index is a group of securities whose overall performance is used
as a standard to measure investment performance. It does not factor in the
costs of buying, selling and holding stocks--costs that are reflected in the
Fund's results.
[HEAD, CHART AND FOOTNOTE APPEAR HERE]
YEAR-BY-YEAR RETURNS
(each full calendar year since inception)
1993 9.84%
1994 1.40%
1995 37.59%
1996 22.75%
1997 33.23%
1998 28.72%
1999 20.75%
During the period shown in the bar chart, the Fund's highest return in any
calendar quarter was 21.41% (fourth quarter 1998) and its lowest quarter was
- -9.85% (third quarter 1998). Past performance offers no indication of how the
Fund will perform in the future.
PERFORMANCE FOR PERIOD ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
Average Annual Returns
Since Inception
1 Year 5 Years (December 31, 1992)
<S> <C> <C> <C>
Equity 500 Index Premier 20.75% 28.46% 21.45%
-------------------------------------------------------------
S&P 500 Index 21.04% 28.56% 21.53%
-------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
5
<PAGE>
Overview of Equity 500 Index Premier
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 Equity 500 Index Premier.
Expense Example. The example below illustrates the expenses you would have
incurred on a $10,000 investment in the Fund. It assumes that the Fund earned
an annual return of 5% over the periods shown, the Fund's operating expenses
remained the same and you sold your shares at the end of the period.
You may use this hypothetical example to compare the Fund's expense history
with other funds./1/ The example does not represent an estimate of future
returns or expenses. Actual costs may be higher or lower.
- --------------------------------------------------------------------------------
/1/Information on the annual operating expenses reflects the expenses of both
the Fund and the Equity 500 Index 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/For the first year, the expense example takes into account fee waivers and
reimbursements.
ANNUAL FEES AND EXPENSES
<TABLE>
<CAPTION>
Percentage of Average
Daily Net Assets/1/
<S> <C>
Management Fees 0.05%
-----------------------------------------------
Distribution and
Service (12b-1) Fees none
-----------------------------------------------
Other Fund Operating
Expenses 0.05%
-----------------------------------------------
Total Fund Operating
Expenses 0.10%
-----------------------------------------------
</TABLE>
EXPENSE EXAMPLE/2/
<TABLE>
<CAPTION>
1 Year 2 Years 5 Years 10 Years
<S> <C> <C> <C>
$10 $32 $57 $128
------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
6
<PAGE>
A detailed look
- --------------------------------------------------------------------------------
at Equity 500 Index Premier
OBJECTIVE
The Fund seeks to match, as closely as possible (before the deduction of
expenses), the performance of the S&P 500 Index, which emphasizes stocks of
large U.S. companies.
The Fund invests for capital appreciation, not income; any dividend and
interest income is incidental to the pursuit of its goal. While we give
priority to matching the Index's performance, we cannot offer any assurance of
achieving this goal. The Fund's goal is not a fundamental policy. We must
notify shareholders before we change it, but we do not require their approval
to do so.
INDEX INVESTING VERSUS ACTIVE MANAGEMENT
Active management involves the investment adviser buying and selling securities
based on research and analysis. Unlike a fund that is actively managed, an
index fund tries to match, as closely as possible, the performance of a target
index by holding either all, or a representative sample, of the securities in
the index. Indexing appeals to many investors for the following reasons:
. indexing provides simplicity because it is a straightforward market-matching
strategy;
. index funds generally provide diversification by investing in a wide variety
of companies and industries;
. an index fund's performance is predictable in that the fund's value is
expected to move in the same direction, up or down, as the target index;
. index funds tend to have lower costs because they do not have many of the
expenses of actively managed funds such as research, and index funds usually
have relatively low trading activity and therefore brokerage commissions tend
to be lower; and
. index funds generally realize low capital gains.
STRATEGY
To attempt to match the risk and return characteristics of the S&P 500 Index as
closely as possible, the Fund invests in a statistically selected sample of the
securities found in the S&P 500 Index, using a process known as "optimization."
This process selects stocks for the Fund so that industry weightings, market
capitalizations and fundamental characteristics (price-to-book ratios, price-
to-earnings ratios, debt-to-asset ratios and dividend yields), closely match
those of the securities in the S&P 500 Index. Over the long term, we seek a
correlation between the performance of the Fund, before expenses, and the S&P
500 Index of 98% or better. A figure of 100% would indicate perfect
correlation.
PRINCIPAL INVESTMENTS
Under normal circumstances, the Fund intends to invest at least 80% of its
assets in stocks of companies included in the S&P 500 Index. The Fund's
securities are weighted to attempt to make the Fund's total investment
characteristics similar to those of the S&P 500 Index as a whole. We may
exclude or remove any S&P stock from the Fund, if we believe that the stock is
illiquid or that the merit of the investment has been impaired by financial
conditions or other extraordinary events.
The Fund may also hold up to 20% of its assets in short-term debt securities,
money market instruments and in derivative instruments, such as futures
contracts and options, that provide exposure to the stocks of companies in the
S&P 500 Index. Futures and options are considered derivatives because they
"derive" their value from a traditional security (like a stock or bond), asset
or index. The Fund intends to buy futures in anticipation of buying stocks.
INVESTMENT PROCESS
In an effort to run an efficient and effective strategy, the Fund uses the
process of "optimization," a statistical sampling technique. First, the Fund
buys the stocks that make up the larger portions of the Index's value in
roughly the same proportion as the Index. Second, smaller stocks are analyzed
and selected based on liquidity. In selecting smaller stocks, we try to match
the industry and risk characteristics of all of the smaller companies in the
S&P 500 Index. This approach attempts to maximize the Fund's liquidity and
returns while minimizing its costs.
- --------------------------------------------------------------------------------
Futures and options on futures contracts are used as a low-cost method of
gaining exposure to a particular securities market without investing directly
in those securities.
Portfolio Turnover. The portfolio turnover rate measures the frequency that the
Fund sells and replaces the value of its securities within a given period.
Historically, this Fund has had a low portfolio turnover rate.
- --------------------------------------------------------------------------------
7
<PAGE>
A Detailed Look at Equity 500 Index Premier
RISKS
Below we set forth some of the prominent risks associated with investing in
general, with index investing and with investing in large cap stocks.
Primary Risks
Market Risk. Deteriorating market conditions might cause an overall weakness in
the market that reduces the absolute level of stock prices in that market,
including stocks held by the Fund.
Tracking Error. There are several reasons that the Fund's performance may not
track the Index exactly:
. Unlike the Index, the Fund incurs administrative expenses and transaction
costs in trading stocks.
. The composition of the Index and the stocks held by the Fund may occasionally
diverge.
. The timing and magnitude of cash inflows from investors buying shares could
create balances of uninvested cash. Conversely, the timing and magnitude of
cash outflows to investors selling shares could require ready reserves of
uninvested cash. Either situation would likely cause the Fund's performance
to deviate from the "fully invested" Index.
Futures and Options. The Fund may invest, to a limited extent, in stock index
futures or options, which are types of derivatives. The Fund will not use these
derivatives for speculative purposes or as leveraged investments that magnify
the gains or losses of an investment. The Fund invests in derivatives to keep
cash on hand to meet shareholder redemptions or other needs while maintaining
exposure to the stock market. Risks associated with derivatives include:
. the derivative is not well correlated with the security for which it is
acting as a substitute;
. derivatives used for risk management may not have the intended effects and
may result in losses or missed opportunities; and
. the risk that the Fund cannot sell the derivative because of an illiquid
secondary market.
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.
INFORMATION REGARDING THE INDEX
The Fund and the Portfolio are not sponsored, endorsed, sold or promoted by
S&P. S&P makes no representation or warranty, express or implied, to the owners
of the Fund or the Portfolio or any member of the public regarding the
advisability of investing in securities generally or in the Fund and the
Portfolio particularly or the ability of the S&P 500 Index to track general
stock market performance. S&P's only relationship to the Fund and Portfolio is
the licensing of certain trademarks and trade names of S&P and of the S&P 500
Index, which is determined, composed and calculated without regard to the Fund
or Portfolio. S&P does not guarantee the accuracy and/or completeness of the
S&P 500 Index or any data included therein.
S&P makes no warranty, express or implied, as to the results to be obtained by
the Fund or the Portfolio, to owners of the Fund or the Portfolio, or to any
other person or entity from the use of the S&P 500 Index or any data included
therein. S&P makes no express or implied warranties, and expressly disclaims
all such warranties of merchantability or fitness for a particular purpose or
use with respect to the S&P 500 Index or any data included therein.
- --------------------------------------------------------------------------------
8
<PAGE>
A Detailed Look at Equity 500 Index Premier
The table below provides a picture of the Fund's financial performance for the
past five years. Certain information selected reflects financial results for a
single Fund share. The total returns in the table represent the rate of return
that an investor would have earned on an investment in the Fund, assuming
reinvestment of all interest income and distributions. This information has
been audited by PricewaterhouseCoopers LLP whose report, along with the Fund's
financial statements, is included in the Fund's annual report. The annual
report is available free of charge by calling the Deutsche Asset Management
Service Center at 1-800-730-1313.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
For the Years Ended December 31,
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Per Share Operating
Performance:/1/
Net Asset Value,
Beginning of Period $156.72 $125.63 $100.08 $ 83.82 $62.64
--------------------------------------------------------------------------------
Income from Investment
Operations
Net Investment Income 2.26 2.05 2.04 1.98 1.80
--------------------------------------------------------------------------------
Net Realized and
Unrealized Gain on
Investment and Futures
Transactions 29.93 33.70 30.88 16.92 21.54
--------------------------------------------------------------------------------
Total from Investment
Operations 32.19 35.75 32.92 18.90 23.34
--------------------------------------------------------------------------------
Distributions to
Shareholders
Net Investment Income (2.22) (2.05) (2.01) (1.98) (1.80)
--------------------------------------------------------------------------------
Net Realized Gains from
Investment and Futures
Transactions -- (2.61) (5.36) (0.66) (0.36)
--------------------------------------------------------------------------------
In Excess of Net
Realized Gain (2.19) -- -- -- --
--------------------------------------------------------------------------------
Total Distributions (4.41) (4.66) (7.37) (2.64) (2.16)
--------------------------------------------------------------------------------
Net Asset Value, End of
Period $184.50 $156.72 $125.63 $100.08 $83.82
--------------------------------------------------------------------------------
Total Investment Return 20.75% 28.72% 33.23% 22.75% 37.59%
--------------------------------------------------------------------------------
Supplemental Data and
Ratios:
Net Assets, End of
Period (000s omitted) $2,990,891 $2,288,970 $1,521,647 $1,218,455 $800,551
--------------------------------------------------------------------------------
Ratios to Average Net
Assets:
Net Investment Income 1.31% 1.48% 1.74% 2.20% 2.52%
--------------------------------------------------------------------------------
Expenses After Waivers,
Including Expenses of
the Equity 500 Index
Portfolio 0.10% 0.10%/2/ 0.10% 0.10% 0.10%
--------------------------------------------------------------------------------
Expenses Before Waivers,
Including Expenses of
the Equity 500 Index
Portfolio 0.13% 0.17% 0.21% 0.21% 0.23%
--------------------------------------------------------------------------------
Decrease Reflected in
Above Expense Ratio Due
to Fees Waivers or
Expenses Reimbursements 0.03% 0.07% 0.11% 0.11% 0.13%
--------------------------------------------------------------------------------
Portfolio Turnover
Rate/3/ 13% 4% 19% 15% 6%
--------------------------------------------------------------------------------
</TABLE>
/1/Per share amounts for the years ended December 31, 1995 through December
31, 1997 have been restated to reflect a 1:6 reverse stock split effective
September 4, 1997.
/2/Effective May 6, 1998, the adviser contractually agreed to receive fees
from the portfolio only to the extent of the lesser of 0.005% or the amount
that brings the total annual operating expenses as a percentage of the
portfolio's average daily net assets up to 0.08%.
/3/The portfolio turnover rate is the rate for the master portfolio in which
the Fund invests its assets.
- --------------------------------------------------------------------------------
9
<PAGE>
Overview
- --------------------------------------------------------------------------------
of Small Cap Index--Premier Class
Goal: The Fund seeks to match, as closely as possible, before expenses, the
performance of the Russell 2000 Small Stock Index (the "Russell 2000 Index"),
which emphasizes stocks of small U.S. companies.
Core Strategy: The Fund invests in a statistically selected sample of the
securities found in the Russell 2000 Index.
INVESTMENT POLICIES AND STRATEGIES
The Fund is a feeder fund that invests all of its assets in a master portfolio
with the same goal. The Fund, through the master portfolio, seeks to match,
before expenses, the risk and return characteristics of the Russell 2000 Index.
The Fund will invest primarily in common stocks of companies that comprise the
Russell 2000 Index. The Fund may also use stock index futures and options.
- --------------------------------------------------------------------------------
The Russell 2000 Index is a widely accepted benchmark of small company stock
performance. It is a model, not an actual portfolio and is a subset of the
Russell 3000 Index, which measures the performance of the 3,000 largest U.S.
companies based on total market capitalization. The Russell 2000 tracks the
2000 smallest companies in the Russell 3000 Index. As of May 31, 1999, the
Russell 2000 Index represents approximately 8% of the total market
capitalization of the Russell 3000 Index. As of June 30, 1999, the average
market capitalization was approximately $526.4 million; the median market
capitalization was approximately $428.0 million. The largest company in the
index had an approximate market capitalization of $1,349.8 million.
Small Cap Index--Premier Class
Overview of Small Cap Index
<TABLE>
<S> <C>
Goal........................................................................ 10
Core Strategy............................................................... 10
Investment Policies and Strategies.......................................... 10
Principal Risks of Investing in the Fund.................................... 11
Who Should Consider Investing in the Fund................................... 11
Total Returns, After Fees and Expenses...................................... 12
Annual Fund Operating Expenses.............................................. 13
</TABLE>
A Detailed Look at Small Cap Index
<TABLE>
<S> <C>
Objective................................................................... 14
Index Investing Versus Active Management.................................... 14
Strategy.................................................................... 14
Principal Investments....................................................... 14
Investment Process.......................................................... 14
Risks....................................................................... 15
Financial Highlights........................................................ 16
</TABLE>
- --------------------------------------------------------------------------------
10
<PAGE>
Overview of Small Cap Index--Premier 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:
. Stocks could decline generally or could underperform other investments.
. Returns on small U.S. companies' stock, in which the Fund invests, could
trail the returns from stocks of medium or large companies. Each type of
stock tends to go through cycles of overperformance and underperformance in
comparison to the overall stock market.
. The Fund may not be able to mirror the Russell 2000 Index closely enough to
track its performance for a number of reasons, including: the Fund's costs to
buy and sell securities, the flow of money into and out of the Fund, and the
underperformance of stocks selected by us.
. The Fund could suffer losses if its futures and options positions are not
well correlated with the securities for which they are acting as a substitute
or if the Fund cannot close out its positions.
WHO SHOULD CONSIDER INVESTING IN THE FUND
Small Cap Index--Premier Class requires a minimum investment of $5 million. You
should consider investing in the Fund if you are seeking capital appreciation
over the long term, exposure to the U.S. equity market as represented by
smaller companies, and investment returns that track the performance of the
Russell 2000 Index. There is, of course, no guarantee that the Fund will
realize its goal.
You should not consider investing in Small Cap Index--Premier Class if you are
pursuing a short-term financial goal, seeking regular income and stability of
principal, cannot tolerate fluctuations in the value of your investments, or
seeking to outperform the Russell 2000 Index.
The Fund by itself does not constitute a balanced investment program. It can,
however, afford exposure to investment opportunities not available to an
investor in large- and medium-sized company stocks. Diversifying your
investments may also 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.
- --------------------------------------------------------------------------------
11
<PAGE>
Overview of Small Cap Index--Premier Class
TOTAL RETURNS, AFTER FEES AND EXPENSES
The bar chart and table on this page can help you evaluate the potential risk
and rewards of investing in the Fund by showing changes in the Fund's
performance year to year. The bar chart shows the Fund's actual return for the
calendar year since the Fund began selling shares on July 10, 1996 (its
inception date). The table compares the Fund's average annual return with the
Russell 2000 Small Stock Index over the last calendar year and since the Fund's
inception. The Russell 2000 Index is a model, not an actual portfolio. An index
is a group of securities whose overall performance is used as a standard to
measure investment performance. It does not factor in the costs of buying,
selling and holding stock--costs that are reflected in the Fund's results.
[HEAD, CHART AND FOOTNOTE APPEAR HERE]
YEAR-BY-YEAR RETURNS
(each full calendar year since inception)
1997 23.00%
1998 -2.60%
1999 21.70%
During the period shown in the bar chart, the Fund's highest return in any
calendar quarter was 18.88% (fourth quarter 1999) and its lowest quarterly
return was -19.66% (third quarter 1998). Past performance offers no indication
of how the Fund will perform in the future.
PERFORMANCE FOR PERIOD ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
Average Annual Returns
Since Inception
1 Year (July 10, 1996)/1/
<S> <C> <C>
Small Cap Index--
Premier Class 21.70% 14.41%
-----------------------------------------------
Russell 2000 Index 21.26% 14.52%
-----------------------------------------------
</TABLE>
/1/The performance of the Russell 2000 Index is calculated from July 31, 1996.
- --------------------------------------------------------------------------------
12
<PAGE>
Overview of Small Cap Index--Premier 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 Small Cap Index--Premier Class.
Expense Example. The example illustrates the expenses you would have incurred
on a $10,000 investment in the Fund. It assumes that the Fund earned an annual
return of 5% over the periods shown, that the Fund's operating expenses
remained the same and that you sold your shares at the end of the period.
You may use this hypothetical example to compare the Fund's expense history
with other funds./1/ The example does not represent an estimate of future
returns or expenses. Actual costs may be higher or lower.
- --------------------------------------------------------------------------------
/1/Information on the annual operating expenses reflects the expenses of both
the Fund and the Small Cap Index Portfolio, the master portfolio in which the
Fund invests its assets. A further discussion of the relationship between the
Fund and the master portfolio appears in the "Organizational Structure" section
of this prospectus.
/2/The investment adviser and administrator have agreed, for a 16-month period
from the Fund's fiscal year end of December 31, 1999, to waive its fees and
reimburse expenses so that total expenses will not exceed 0.25%.
/3/For the first year, the expense example takes into account fee waivers and
reimbursements.
ANNUAL FEES AND EXPENSES
<TABLE>
<CAPTION>
Percentage of Average
Daily Net Assets/1/
<S> <C>
Management Fees 0.15%
---------------------------------------------------
Distribution and
Service (12b-1) Fees None
---------------------------------------------------
Other Fund Operating
Expenses 0.33%
---------------------------------------------------
Total Fund Operating
Expenses 0.48%
---------------------------------------------------
Less: Fee Waiver or
Expense Reimbursement (0.23%)/2/
---------------------------------------------------
Net Expenses 0.25%
---------------------------------------------------
</TABLE>
EXPENSE EXAMPLE/3/
<TABLE>
<CAPTION>
1 Year 2 Years 5 Years 10 Years
<S> <C> <C> <C>
$26 $131 $246 $581
---------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
13
<PAGE>
A detailed look
- --------------------------------------------------------------------------------
at Small Cap Index--Premier Class
OBJECTIVE
The Fund seeks to match, as closely as possible (before the deduction of
expenses), the performance of the Russell 2000 Index, which emphasizes stocks
of small U.S. companies.
The Fund invests for capital appreciation, not income; any dividend and
interest income is incidental to the pursuit of its goal. While we give
priority to matching the Index's total return, we cannot offer any assurance of
achieving this goal. The Fund's goal is not a fundamental policy. We must
notify shareholders before we change it, but we do not require their approval
to do so.
INDEX INVESTING VERSUS ACTIVE MANAGEMENT
Active management involves the investment adviser buying and selling securities
based on research and analysis. Unlike a fund that is actively managed, an
index fund tries to match, as closely as possible, the performance of a target
index by holding either all, or a representative sample, of the securities in
the index. Indexing appeals to many investors for the following reasons:
. indexing provides simplicity because it is a straightforward market-matching
strategy;
. index funds generally provide diversification by investing in a wide variety
of companies and industries;
. an index fund's performance is predictable in that the Fund's value is
expected to move in the same direction, up or down, as the target index;
. index funds tend to have lower costs because they do not have many of the
expenses of actively managed funds such as research, and index funds usually
have relatively low trading activity and therefore brokerage commissions tend
to be lower; and
. index funds generally realize low capital gains.
STRATEGY
To attempt to match the risk and return characteristics of the Russell 2000
Index as closely as possible, the Fund invests in a statistically selected
sample of the securities found in the Russell 2000 Index, using a process known
as "optimization." This process selects stocks for the Fund so that industry
weightings, market capitalizations and fundamental characteristics (price-to-
book ratios, price-to-earnings ratios, debt-to-asset ratios and dividend
yields) closely match those of the securities in the Russell 2000 Index. Over
the long term, we seek a correlation between the performance of the Fund,
before expenses, and the Russell 2000 Index of 95% or better. A figure of 100%
would indicate perfect correlation.
PRINCIPAL INVESTMENTS
Under normal circumstances, the Fund intends to invest at least 80% of its
assets in stocks of companies included in the Russell 2000 Index and in
derivative instruments, such as futures contracts and options, that provide
exposure to the stocks of companies in the Russell 2000 Index. Futures and
options are considered derivatives because they "derive" their value from a
traditional security (like a stock or bond), asset or index. The Fund's
securities are weighted to attempt to make the Fund's total investment
characteristics similar to those of the Russell 2000 Index as a whole. We may
exclude or remove any Russell 2000 stock from the Fund, if we believe that the
stock is illiquid or that the merit of the investment has been impaired by
financial conditions or other extraordinary events. The Fund may also hold
short-term debt securities and money market instruments.
INVESTMENT PROCESS
The Fund normally does not hold every one of the 2,000 stocks in the Russell
2000 Index. In an effort to run an efficient and effective strategy, the Fund
uses the process of "optimization," a statistical sampling technique. In
choosing stocks, the we try to match the industry and risk characteristics of
all the companies in the Russell 2000 Index without buying all of those stocks.
This approach attempts to maximize the Fund's liquidity and returns while
minimizing its costs.
- --------------------------------------------------------------------------------
Futures and options on futures contracts are used as a low-cost method of
gaining exposure to a particular securities market without investing directly
in those securities.
Portfolio Turnover. The portfolio turnover rate measures the frequency that the
Fund sells and replaces the value of its securities within a given period.
Historically, this Fund has had a low portfolio turnover rate.
- --------------------------------------------------------------------------------
14
<PAGE>
Overview of Small Cap Index--Premier Class
RISKS
Below we set forth some of the prominent risks associated with investing in
general, index investing and investing in smaller companies.
Primary Risks
Market Risk. Deteriorating market conditions might cause an overall weakness in
the market that reduces the absolute level of stock prices in that market,
including stocks held by the fund.
Tracking Error. There are several reasons that the Fund's performance may not
track the Index exactly:
. Unlike the Index, the Fund incurs administrative expenses and transaction
costs in trading stocks.
. The composition of the Index and the stocks held by the Fund may occasionally
diverge.
. The timing and magnitude of cash inflows from investors buying shares could
create balances of uninvested cash. Conversely, the timing and magnitude of
cash outflows to investors selling shares could require ready reserves of
uninvested cash. Either situation would likely cause the Fund's performance
to deviate from the "fully invested" Index.
Small Company Risk. Small company stocks tend to experience steeper
fluctuations in price--down as well as up--than the stocks of larger companies.
A shortage of reliable information--the same information gap that creates
opportunity in small company investing--can also pose added risk. Industrywide
reversals have had a greater impact on small companies, since they lack a large
company's financial resources to deal with setbacks. Finally, small company
stocks are typically less liquid than large company stocks: when things are
going poorly, it is harder to find a buyer for a small company's shares.
Futures and Options. The Fund may invest, to a limited extent, in stock index
futures or options, which are types of derivatives. The Fund will not use these
derivatives for speculative purposes or as leveraged investments that magnify
the gains or losses of an investment. The Fund invests in derivatives to keep
cash on hand to meet shareholder redemptions or other needs while maintaining
exposure to the stock market. Risks associated with derivatives include:
. that the derivative is not well correlated with the security for which it is
acting as a substitute;
. that derivatives used for risk management may not have the intended effects
and may result in losses or missed opportunities; and
. that the Fund cannot sell the derivative because of an illiquid secondary
market.
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.
- --------------------------------------------------------------------------------
15
<PAGE>
Overview of Small Cap Index--Premier Class
The table below provides a picture of the Fund's financial performance for the
past five years. Certain information selected reflects financial results for a
single Fund share. The total returns in the table represent the rate of return
that an investor would have earned on an investment in the Fund, assuming
reinvestment of all interest income and distributions. This information has
been audited by PricewaterhouseCoopers LLP whose report, along with the Fund's
financial statements, is included in the Fund's annual report. The annual
report is available free of charge by calling the Deutsche Asset Management
Service Center at 1-800-730-1313.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
For the Period
For the Years Ended July 10, 1996/1/
December 31, to
1999 1998 1997 December 31, 1996
<S> <C> <C> <C> <C>
Per Share Operating
Performance:
Net Asset Value, Beginning of
Period $ 9.68 $11.13 $10.90 $10.00
------------------------------------------------------------------------------
Income from Investment
Operations
Net Investment Income 0.15 0.06 0.23 0.04
------------------------------------------------------------------------------
Net Realized and Unrealized
Gain on Investment and Futures
Transactions 1.96 (0.41) 2.21 0.90
------------------------------------------------------------------------------
Total from Investment
Operations 2.11 (.35) 2.44 .94
------------------------------------------------------------------------------
Net Investment Income (.15) (.08) (.21) (0.04)
------------------------------------------------------------------------------
Net Realized Gains from
Investment and Futures
Transactions -- (1.02) (2.00) (0.00)/2/
------------------------------------------------------------------------------
Total Distributions (0.15) (1.10) (2.21) (0.04)
------------------------------------------------------------------------------
Net Asset Value, End of Period $11.64 $ 9.68 $11.13 $10.90
------------------------------------------------------------------------------
Total Investment Return 21.70% (2.60%) 23.00% 9.47%
------------------------------------------------------------------------------
Supplemental Data and Ratios:
Net Assets, End of Period (000s
omitted) $143,388 $115,475 $38,312 $61,558
------------------------------------------------------------------------------
Ratios to Average Net Assets:
------------------------------------------------------------------------------
Net Investment Income 1.31% 1.32% 1.35% 1.71%/3/
------------------------------------------------------------------------------
Expenses After Waivers,
Including Expenses of the Small
Cap Index Portfolio 0.25% 0.25% 0.25% 0.25%/3/
------------------------------------------------------------------------------
Expenses Before Waivers,
Including Expenses of the Small
Cap Index Portfolio 0.48% 0.57% 0.57% 0.87%/3/
------------------------------------------------------------------------------
Decrease Reflected in Above
Expense Ratio Due to Fees
Waivers or Expenses
Reimbursements 0.23% 0.32% 0.32% 0.62%/3/
------------------------------------------------------------------------------
Portfolio Turnover Rate/4/ 171% 86% 88% 16%
------------------------------------------------------------------------------
</TABLE>
/1/The Fund's inception date.
/2/Less than $0.01.
/3/Annualized.
/4/The Portfolio turnover rate is the rate for the master portfolio in which
the Fund invests its assets.
- --------------------------------------------------------------------------------
16
<PAGE>
Overview
- --------------------------------------------------------------------------------
of EAFE Equity Index--Premier Class
Goal: The Fund seeks to match, as closely as possible, before expenses, the
performance of the Morgan Stanley Capital International (MSCI) EAFE Index
("EAFE Index") which emphasizes stocks of companies in major markets in Europe,
Australia and the Far East.
Core Strategy: The Fund invests in a statistically selected sample of the
securities found in the EAFE Index.
INVESTMENT POLICIES AND STRATEGIES
The Fund is a feeder fund that invests all of its assets in a master portfolio
with the same goal as the Fund. The Fund, through the master portfolio, seeks
to match, before expenses, the risk and return characteristics of the EAFE
Index. The Fund will invest primarily in common stocks of companies that
comprise the EAFE Index, in approximately the same weightings as the EAFE
Index. The Fund may also use stock index futures and options.
- --------------------------------------------------------------------------------
The EAFE Index of major markets in Europe, Australia and the Far East is a
widely accepted benchmark of international stock performance. It tracks stocks
in Australia, Austria, Belgium, Denmark, Finland, France, Germany, Hong Kong,
Ireland, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal,
Singapore, Spain, Sweden, Switzerland and the United Kingdom.
EAFE Equity Index--Premier Class
Overview of EAFE Equity Index
<TABLE>
<S> <C>
Goal........................................................................ 17
Core Strategy............................................................... 17
Investment Policies and Strategies.......................................... 17
Principal Risks of Investing in the Fund.................................... 18
Who Should Consider Investing in the Fund................................... 18
Total Returns, After Fees and Expenses...................................... 19
Annual Fund Operating Expenses.............................................. 20
</TABLE>
A Detailed Look at EAFE Equity Index
<TABLE>
<S> <C>
Objective................................................................... 21
Index Investing Versus Active Management.................................... 21
Strategy.................................................................... 21
Principal Investments....................................................... 21
Investment Process.......................................................... 21
Risks....................................................................... 22
Information Regarding the Index............................................. 23
Financial Highlights........................................................ 24
</TABLE>
- --------------------------------------------------------------------------------
17
<PAGE>
Overview of EAFE Equity Index--Premier 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:
. The stock market could perform poorly in one or more of the countries in
which the Fund has invested.
. Stocks could decline generally or could underperform other investments.
. Adverse political, economic or social developments could undermine the value
of the Fund's investments or prevent the Fund from realizing their full
value.
. Accounting and financial reporting standards differ from those in the U.S.
and could convey incomplete information when compared to information
typically provided by U.S. companies.
. The currency of a country in which the Fund invests may fluctuate in value
relative to the U.S. dollar, which could affect the value of the investment
itself to U.S. investors.
. The Fund may not be able to mirror the EAFE Index closely enough to track its
performance for a number of reasons, including the Fund's cost to buy and
sell securities, the flow of money into and out of the Fund, and the
underperformance of stocks selected by us.
. The Fund could suffer losses if its futures and options positions are not
well correlated with the securities for which they are acting as a substitute
or if the Fund cannot close out its positions.
WHO SHOULD CONSIDER INVESTING IN THE FUND
EAFE Equity Index--Premier Class requires a minimum investment of $5 million.
You should consider investing in the Fund if you are seeking capital
appreciation over the long term, exposure to the equity market as represented
by companies outside the U.S., and investment returns that track the
performance of the EAFE Index. There is, of course, no guarantee that the Fund
will realize its goal.
You should not consider investing in EAFE Equity Index--Premier Class if you
are pursuing a short-term financial goal, seeking regular income and stability
of principal, unable to tolerate fluctuations in the value of your investments,
or seeking to outperform the EAFE Index.
The Fund by itself does not constitute a balanced investment program. It can,
however, afford exposure to investment opportunities not available to someone
who invests in U.S. securities alone. Diversifying your investments may also
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.
- --------------------------------------------------------------------------------
18
<PAGE>
Overview of EAFE Equity Index--Premier Class
TOTAL RETURNS, AFTER FEES AND EXPENSES
The bar chart and table on this page can help you evaluate the potential risk
and rewards of investing in the Fund by showing changes in the Fund's
performance year to year. The bar chart shows the Fund's actual return for each
full calendar year since the Fund began selling shares on January 24, 1996 (its
inception date). The table compares the Fund's average annual return with the
EAFE Index over the last calendar year and since the Fund's inception. The EAFE
Index is a model, not an actual portfolio. An index is a group of securities
whose overall performance is used as a standard to measure investment
performance. It does not factor in the costs of buying, selling and holding
stock--costs that are reflected in the Fund's results.
[HEAD, CHART AND FOOTNOTE APPEAR HERE]
YEAR-BY-YEAR RETURNS
(each full calendar year since inception)
1999 2.11%
1998 19.81%
1999 27.95%
During the period shown in the bar chart, the Fund's highest return in any
calendar quarter was 20.05% (fourth quarter 1998) and its lowest quarterly
return was -14.06% (third quarter 1998). Past performance offers no indication
of how the Fund will perform in the future.
PERFORMANCE FOR PERIOD ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
Average Annual Returns
Since Inception
1 Year (January 24, 1996)
<S> <C> <C>
EAFE Equity Index--
Premier Class 27.95% 14.07%
-----------------------------------------------
EAFE Index 26.96% 13.88%
-----------------------------------------------
</TABLE>
/1/The performance of the EAFE Index is calculated from January 31, 1996.
- --------------------------------------------------------------------------------
19
<PAGE>
Overview of EAFE Equity Index--Premier 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 EAFE Equity Index--Premier
Class.
Expense Example. The example below illustrates the expenses you would have
incurred on a $10,000 investment in the Fund. It assumes that the Fund earned
an annual return of 5% over the periods shown, the Fund's operating expenses
remained the same and you sold your shares at the end of the period.
You may use this hypothetical example to compare the Fund's expense history
with other funds./1/ The example does not represent an estimate of future
returns or expenses. Actual costs may be higher or lower.
- --------------------------------------------------------------------------------
/1/Information on the annual operating expenses reflects the expenses of both
the Fund and the EAFE Equity Index Portfolio, the master portfolio in which the
Fund invests its assets. A further discussion of the relationship between the
Fund and the master portfolio appears in the "Organizational Structure" section
of this prospectus.
/2/The investment adviser and administrator have agreed, for a 16-month period
from the Fund's fiscal year end of December 31, 1999, to waive their fees and
reimburse expenses so that total expenses will not exceed 0.40%.
/3/For the first year, the expense example takes into account fee waivers and
reimbursements.
ANNUAL FEES AND EXPENSES
<TABLE>
<CAPTION>
Percentage of Average
Daily Net Assets/1/
<S> <C>
Management Fees 0.25%
---------------------------------------------------
Distribution and
Service (12b-1) Fees none
---------------------------------------------------
Other Fund Operating
Expenses 0.46%
---------------------------------------------------
Total Fund Operating
Expenses 0.71%
---------------------------------------------------
Less: Fee Waiver or
Expense Reimbursement (0.31%)/2/
---------------------------------------------------
Net Expenses 0.40%
---------------------------------------------------
</TABLE>
EXPENSE EXAMPLE/3/
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C>
$41 $195 $364 $853
----------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
20
<PAGE>
A detailed look
- --------------------------------------------------------------------------------
at EAFE Equity Index--Premier Class
OBJECTIVE
The Fund seeks to match, as closely as possible, before the deduction of
expenses, the performance of the EAFE Index, which measures international stock
market performance.
The Fund invests for capital appreciation, not income; any dividend and
interest income is incidental to the pursuit of its goal. While we give
priority to matching the Index's performance, we cannot offer any assurance of
achieving this goal. The Fund's goal is not a fundamental policy. We must
notify shareholders before we change it, but we do not require their approval
to do so.
INDEX INVESTING VERSUS ACTIVE MANAGEMENT
Active management involves the investment adviser buying and selling securities
based on research and analysis. Unlike a fund that is actively managed, an
index fund tries to match, as closely as possible, the performance of a target
index by holding either all, or a representative sample, of the securities in
the index. Indexing appeals to many investors for the following reasons:
. indexing provides simplicity because it is a straightforward market-matching
strategy;
. index funds generally provide diversification by investing in a wide variety
of companies and industries;
. an index fund's performance is predictable in that the Fund's value is
expected to move in the same direction, up or down, as the target index;
. index funds tend to have lower costs because they do not have many of the
expenses of actively managed funds, such as research, and index funds usually
have relatively low trading activity and therefore brokerage commissions tend
to be lower; and
. index funds generally realize low capital gains.
STRATEGY
To attempt to match the country, industry and risk characteristics of the EAFE
Index as closely as possible, the Fund invests in a statistically selected
sample of the securities found in the EAFE Index.
PRINCIPAL INVESTMENTS
Under normal circumstances, the Fund intends to invest at least 80% of its
assets in stocks of companies included in the EAFE Index and in derivative
instruments, such as futures contracts, options and forward currency exchange
contracts, that provide exposure to the stocks of companies in the EAFE Index.
Futures and options are considered derivatives because the "derive" their value
from a traditional security (like a stock or bond), asset or index. The Fund's
securities are weighted to attempt to make the Fund's total investment
characteristics similar to those of the EAFE Index as a whole. We may exclude
or remove any EAFE stock from the Fund, if we believe that the stock is
illiquid or that the merit of the investment has been impaired by financial
conditions or other extraordinary events. The Fund may also hold short-term
debt securities and money market instruments.
INVESTMENT PROCESS
The Fund normally does not hold every one of the roughly 1,100 stocks in the
EAFE Index. In an effort to run an efficient and effective strategy, the Fund
uses the process of "optimization," a statistical sampling technique. First,
the Fund buys the stocks that make up the larger portions of the Index's value
in roughly the same proportion as the Index. Second, smaller stocks are
analyzed and selected. In choosing smaller stocks, we try to match the industry
and risk characteristics of all of the smaller companies in the EAFE Index
without buying all of those stocks. This approach attempts to maximize the
Fund's liquidity and returns while minimizing its costs.
- --------------------------------------------------------------------------------
Futures and options on futures contracts are used as a low-cost method of
gaining exposure to a particular securities market without investing directly
in those securities.
Portfolio Turnover. The portfolio turnover rate measures the frequency that the
Fund sells and replaces the value of its securities within a given period.
Historically, this Fund has had a low portfolio turnover rate.
- --------------------------------------------------------------------------------
21
<PAGE>
A Detailed Look at EAFE Equity Index--Premier Class
RISKS
Below we set forth some of the prominent risks associated with investing in
general, with index investing and with investing in stocks outside the United
States.
Primary Risks
Market Risk. Deteriorating market conditions might cause an overall weakness in
the market that reduces the absolute level of stock prices in that market,
including stocks held by the Fund.
Tracking Error Risk. There are several reasons that the Fund's performance may
not track the Index exactly:
. Unlike the Index, the Fund incurs administrative expenses and transaction
costs in trading stocks.
. The composition of the Index and the stocks held by the Fund may occasionally
diverge.
. The timing and magnitude of cash inflows from investors buying shares could
create balances of uninvested cash. Conversely, the timing and magnitude of
cash outflows to investors selling shares could require ready reserves of
uninvested cash. Either situation would likely cause the Fund's performance
to deviate from the "fully invested" Index.
Foreign Stock Market Risk. From time to time, foreign capital markets have
exhibited more volatility than those in the United States. Trading stocks on
some foreign exchanges is inherently more difficult than trading in the United
States for reasons that include:
. Political Risk. Some foreign governments have limited the outflow of profits
to investors abroad, extended diplomatic disputes to include trade and
financial relations, and imposed high taxes on corporate profits.
. Information Risk. Financial reporting standards for companies based in
foreign markets differ from those in the United States and may present an
incomplete or misleading picture of a foreign company compared to U.S.
standards.
. Liquidity Risk. Stocks that trade infrequently or in low volumes can be more
difficult or more costly to buy, or to sell, than more liquid or active
stocks. This liquidity risk is a factor of the trading volume of a particular
stock, as well as the size and liquidity of the entire local market. On the
whole, foreign exchanges are smaller and less liquid than the U.S. market.
This can make buying and selling certain shares more difficult and costly.
Relatively small transactions in some instances can have a disproportionately
large effect on the price and supply of shares. In certain situations, it may
become virtually impossible to sell a stock in an orderly fashion at a price
that approaches our estimate of its value.
. Regulatory Risk. There is generally less government regulation of foreign
markets, companies and securities.
. Currency Risk. The Fund invests in foreign securities denominated in foreign
currencies. This creates the possibility that changes in foreign exchange
rates will affect the value of foreign securities or the U.S. dollar amount
of income or gain received on these securities.
Futures and Options. The Fund may invest, to a limited extent, in stock index
futures or options, which are types of derivatives. The Fund will not use these
derivatives for speculative purposes or as leveraged investments that magnify
the gains or losses of an investment. The Fund invests in derivatives to keep
cash on hand to meet shareholder redemptions or other needs while maintaining
exposure to the stock market. Risks associated with derivatives include:
. that the derivative is not well correlated with the security for which it is
acting as a substitute;
. that derivatives used for risk management may not have the intended effects
and may result in losses or missed opportunities; and
. that the Fund cannot sell the derivative because of an illiquid secondary
market.
- --------------------------------------------------------------------------------
22
<PAGE>
A Detailed Look at EAFE Equity Index--Premier Class
Secondary Risks
Euro Risk. On January 1, 1999, eleven countries of the European Economic and
Monetary Union (EMU) began implementing a plan to replace their national
currencies with a new currency, the euro. Full conversion to the euro is slated
to occur by July 1, 2002.
Although it is impossible to predict the impact of the conversion to the euro
on the Fund, the risks may include:
. changes in the relative strength and value of the U.S. dollar or other major
currencies;
. adverse effects on the business or financial condition of European issuers
that the Fund holds in its portfolio; and
. unpredictable effects on trade and commerce generally.
These and other factors could increase volatility in financial markets
worldwide and could adversely affect the value of securities held by the Fund.
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.
INFORMATION REGARDING THE INDEX
This Fund and master portfolio are not sponsored, endorsed, sold or promoted by
Morgan Stanley. Morgan Stanley makes no representation or warranty, express or
implied, to the owners of this Fund or any member of the public regarding the
advisability of investing in securities generally or the ability of the EAFE
Index to track general stock market performance.
Morgan Stanley is the licensor of certain trademarks, service marks and trade
names of Morgan Stanley and of the EAFE Index, which is determined, composed
and calculated by Morgan Stanley without regard to the issuer of this Fund and
master portfolio, or to this Fund and master portfolio themselves. Morgan
Stanley has no obligation to take the needs of the issuer of this Fund and
master portfolio or the owners of this Fund and master portfolio into
consideration in determining, composing or calculating the EAFE Index.
Inclusion of a security in the EAFE Index in no way implies an opinion by
Morgan Stanley as to its attractiveness as an investment. Morgan Stanley is not
responsible for and has not participated in the determination of the timing,
prices or quantities of this Fund and master portfolio to be issued, or in the
determination or calculation of the equation by which this Fund is redeemable
for cash. Morgan Stanley has no obligation or liability to owners of this Fund
and master portfolio in connection with the administration, marketing or
trading of this Fund and master portfolio. This Fund and master portfolio are
neither sponsored by nor affiliated with Morgan Stanley. Although Morgan
Stanley shall obtain information for inclusion in or for use in the calculation
of the indexes from sources that Morgan Stanley considers reliable, Morgan
Stanley does not guarantee the accuracy and/or the completeness of the indices
or any data included therein. Morgan Stanley makes no warranty, express or
implied, as to results to be obtained by licensee, licensee's customers and
counterparties, owners of the products, or any other person or entity from the
use of the indexes or any data included therein in connection with the rights
licensed hereunder or for any other use. Morgan Stanley makes no express or
implied warranties, and hereby expressly disclaims all warranties of
merchantability or fitness for a particular purpose with respect to the indexes
or any data included therein. Without limiting any of the foregoing, in no
event shall Morgan Stanley have any liability for any direct, indirect,
special, punitive, consequential or any other damages (including lost profits)
even if notified of the possibility of such damages.
- --------------------------------------------------------------------------------
23
<PAGE>
A Detailed Look at EAFE Equity Index--Premier Class
The table below provides a picture of the Fund's financial performance for the
past five years. Certain information selected reflects financial results for a
single Fund share. The total returns in the table represent the rate of return
that an investor would have earned on an investment in the Fund, assuming
reinvestment of all interest income and distributions. This information has
been audited by PricewaterhouseCoopers LLP whose report, along with the Fund's
financial statements, is included in the Fund's annual report. The annual
report is available free of charge by calling the Deutsche Asset Management
Service Center at 1-800-730-1313.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
For the Period
January 24, 1996/1/
For the Years Ended December 31, to December 31,
1999 1998/2/ 1997 1996
<S> <C> <C> <C> <C>
Per Share Operating
Performance:
Net Asset Value,
Beginning of Period $11.59 $9.98 $10.62 $10.00
--------------------------------------------------------------------------------
Income from Investment
Operations
Net Investment Income 0.08 0.16 0.23 0.12
--------------------------------------------------------------------------------
Net Realized and
Unrealized Gain on
Investment and Futures
Transactions 3.15 1.81 (0.02) 0.60
--------------------------------------------------------------------------------
Total from Investment
Operations 3.23 1.97 0.21 0.72
--------------------------------------------------------------------------------
Distributions to
Shareholders
Net Investment Income (0.08) (0.16) (0.24) (0.08)
--------------------------------------------------------------------------------
In Excess of Net
Investment Income (0.03) (0.09) -- --
--------------------------------------------------------------------------------
Net Realized Gains from
Investment Transactions (0.13) (0.01) (0.61) (0.02)
--------------------------------------------------------------------------------
In Excess of Net
Realized Gains -- (0.10) -- --
--------------------------------------------------------------------------------
Total Distributions (0.24) (0.36) (0.85) (0.10)
--------------------------------------------------------------------------------
Net Asset Value, End of
Period $14.58 $11.59 $9.98 $10.62
--------------------------------------------------------------------------------
Total Investment Return 27.95% 19.81% 2.11% 7.22%
--------------------------------------------------------------------------------
Supplemental Data and
Ratios:
Net Assets, End of
Period (000s omitted) $120,376 $42,462 $35,509 $39,667
--------------------------------------------------------------------------------
Ratios to Average Net
Assets:
Net Investment Income 1.56% 1.50% 1.70% 1.64%/3/
--------------------------------------------------------------------------------
Expenses After Waivers,
Including Expenses of
the EAFE Equity Index
Portfolio 0.40% 0.40% 0.40% 0.40%/3/
--------------------------------------------------------------------------------
Expenses Before Waivers,
Including Expenses of
the EAFE Equity Index
Portfolio 0.71% 0.83% 0.73% 0.88%/3/
--------------------------------------------------------------------------------
Decrease Reflected in
Above Expense Ratio Due
to Fees Waivers or
Expenses Reimbursements 0.31% 0.43% 0.33% 0.48%/3/
--------------------------------------------------------------------------------
Portfolio Turnover/4/ 4% 12% 44% 4%
--------------------------------------------------------------------------------
</TABLE>
/1/Commencement of Operations.
/2/Advisor Class Shares were converted to Premier Class Shares (formerly
Institutional Class Shares) on July 10, 1998.
/3/Annualized.
/4/The Portfolio turnover rate is the rate for the master portfolio in which
the Fund invests its assets.
- --------------------------------------------------------------------------------
24
<PAGE>
Overview
- --------------------------------------------------------------------------------
of U.S. Bond Index--Premier Class
Goal: The Fund seeks to match, as closely as possible, before expenses, the
performance of the Lehman Brothers Aggregate Bond Index (the "Lehman Bond
Index"), which emphasizes government mortgage-backed securities and corporate
investment grade debt securities.
Core Strategy: The Fund invests in a statistically selected sample of the
securities found in the Lehman Bond Index.
INVESTMENT POLICIES AND STRATEGIES
The Fund is a feeder fund that invests all of its assets in a master portfolio
with the same goal as the Fund. The Fund, through the master portfolio, seeks
to match, before expenses, the risk and return characteristics of the Lehman
Brothers Aggregate Bond Index. The Fund will invest primarily in debt
securities of companies that comprise the Lehman Bond Index, in approximately
the same weightings as the Lehman Bond Index. The Fund may use securities index
futures and options.
- --------------------------------------------------------------------------------
The Lehman Brothers Aggregate Bond Index is one of the most widely accepted
benchmarks of bond market total return. It includes more than 6,000 taxable
securities, divided into four classes: U.S. Treasury and agency securities,
corporate bonds, bonds issued outside the United States but payable in U.S.
dollars, and mortgage-backed securities. All of the bonds on the Index have
maturities of one year or more at the time of their issue.
U.S. Bond Index--Premier Class
Overview of U.S. Bond Index
<TABLE>
<S> <C>
Goal........................................................................ 25
Core Strategy............................................................... 25
Investment Policies and Strategies.......................................... 25
Principal Risks of Investing in the Fund.................................... 26
Who Should Consider Investing in the Fund................................... 26
Total Returns, After Fees and Expenses...................................... 27
Annual Fund Operating Expenses.............................................. 28
</TABLE>
A Detailed Look at U.S. Bond Index
<TABLE>
<S> <C>
Objective................................................................... 29
Index Investing Versus Active Management.................................... 29
Strategy.................................................................... 29
Principal Investments....................................................... 29
Investment Process.......................................................... 29
Risks....................................................................... 30
Financial Highlights........................................................ 31
</TABLE>
- --------------------------------------------------------------------------------
25
<PAGE>
Overview of U.S. Bond Index--Premier 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:
. The bond market could decline in value as a result of a rise in interest
rates.
. The creditworthiness of a bond issuer could decline, which could cause the
value of the bond to decline.
. The Fund may not be able to mirror the Lehman Bond Index closely enough to
track its performance for a number of reasons, including the Fund's cost to
buy and sell securities, the flow of money into and out of the Fund and the
underperformance of securities selected by us.
. The Fund could suffer losses if its futures and options positions are not
well correlated with the securities for which they are acting as a substitute
or if the Fund cannot close out its positions.
WHO SHOULD CONSIDER INVESTING IN THE FUND
U.S. Bond Index--Premier Class requires a minimum investment of $5 million. You
should consider investing in the Fund if you want to invest in the fixed income
market generally without regard to particular types of issuers, sectors, or
debt securities. Such investments in the past have offered current income.
There is, of course, no guarantee that the Fund will realize its goal.
You should not consider investing in U.S. Bond Index--Premier Class if you are
pursuing a short-term financial goal, seeking capital appreciation, or seeking
to outperform the Lehman Bond Index.
The Fund by itself does not constitute a balanced investment program. It can,
however, provide a complementary investment for investors seeking a more
balanced asset mix. 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.
- --------------------------------------------------------------------------------
26
<PAGE>
Overview of U.S. Bond Index--Premier Class
TOTAL RETURNS, AFTER FEES AND EXPENSES
The bar chart and table on this page can help you evaluate the potential risk
and rewards of investing in the Fund by showing changes in the Fund's
performance year to year. The bar chart shows the Fund's actual return for each
full calendar year since the Fund began selling shares on June 30, 1997 (its
inception date). The table compares the Fund's average annual return with the
Lehman Brothers Aggregate Bond Index over the last calendar year and since the
Fund's inception. The Index is a model, not an actual portfolio. An index is a
group of securities whose overall performance is used as a standard to measure
investment performance. It does not factor in the costs of buying, selling and
holding stocks--costs that are reflected in the Fund's results.
[HEAD, CHART AND FOOTNOTE APPEAR HERE]
YEAR-BY-YEAR RETURNS
(each full calendar year since inception)
1998 8.78%
1999 -1.30%
During the period shown in the bar chart, the Fund's hightest return in any
calendar quarter was 4.38% (third quarter 1999) and its lowest quarterly return
was -1.14% (second quarter 1999). Past performance offers no indication of how
the Fund will perform in the future.
PERFORMANCE FOR PERIOD ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
Average Annual Returns
Since Inception
1 Year (June 30, 1997)
<S> <C> <C>
U.S. Bond Index-
Premier Class -1.30% 5.51%
-----------------------------------------------
Lehman Brothers
Aggregate Bond Index -0.82% 5.62%
-----------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
27
<PAGE>
Overview of U.S. Bond Index--Premier Class
ANNUAL FUND OPERATING EXPENSES
(expenses paid from Fund assets)
This table describes the fees and expenses that you may pay if you buy and hold
shares of U.S. Bond Index--Premier Class.
Expense Example. The example below illustrates the expenses you would have
incurred on a $10,000 investment in the Fund. It assumes that the Fund earned
an annual return of 5% over the periods shown, that the Fund's operating
expenses remained the same and that you sold your shares at the end of the
period.
You may use this hypothetical example to compare the Fund's expense history
with other funds./1/ The example does not represent an estimate of future
returns or expenses. Actual costs may be higher or lower.
- --------------------------------------------------------------------------------
/1/Information on the annual operating expenses reflects the expenses of both
the Fund and the U.S. Bond Index Portfolio, the master portfolio in which the
Fund invests its assets. A further discussion of the relationship between the
Fund and the master portfolio appears in the "Organizational Structure" section
of this prospectus.
/2/The investment adviser and administrator have agreed, for a 16-month period
from the Fund's fiscal year end of December 31, 1999, to waive their fees and
reimburse expenses so that total expenses will not exceed 0.15%.
/3/For the first year, the expense example takes into account fee waivers and
reimbursements.
ANNUAL FEES AND EXPENSES
<TABLE>
<CAPTION>
Percentage of Average
Daily Net Assets/1/
<S> <C>
Management Fees 0.15%
---------------------------------------------------
Distribution and
Service (12b-1) Fees None
---------------------------------------------------
Other Fund Operating
Expenses 0.41%
---------------------------------------------------
Total Fund Operating
Expenses 0.56%
---------------------------------------------------
Less: Fee Waiver or
Expense Reimbursement (0.41%)/2/
---------------------------------------------------
Net Expenses 0.15%
---------------------------------------------------
</TABLE>
EXPENSE EXAMPLE/3/
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C>
$15 $138 $272 $662
----------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
28
<PAGE>
A detailed look
- --------------------------------------------------------------------------------
at U.S. Bond Index--Premier Class
OBJECTIVE
The Fund seeks to match, as closely as possible (before the deduction of
expenses) the performance of the Lehman Bond Index.
While we give priority to matching the Index's performance, we cannot offer any
assurance of achieving this goal. The Fund's goal is not a fundamental policy.
We must notify shareholders before we change it, but we do not require their
approval to do so.
INDEX INVESTING VERSUS ACTIVE MANAGEMENT
Active management involves the investment adviser buying and selling securities
based on research and analysis. Unlike a fund that is actively managed, an
index fund tries to match, as closely as possible, the performance of a target
index by holding either all, or a representative sample, of the securities in
the index. Indexing appeals to many investors for the following reasons:
. indexing provides simplicity because it is a straightforward market-matching
strategy;
. index funds generally provide diversification by investing in a wide variety
of companies and industries;
. an index fund's performance is predictable in that the Fund's value is
expected to move in the same direction, up or down, as the target index;
. index funds tend to have lower costs because they do not have many of the
expenses of actively managed funds such as research, and index funds usually
have relatively low trading activity and therefore brokerage commissions tend
to be lower; and
. index funds generally realize low capital gains.
STRATEGY
To attempt to match the investment performance of the Lehman Bond Index over
time, the Fund invests in a statistically selected sample of the securities in
the Lehman Bond Index. Over the long term, we seek a correlation between the
performance of the Fund, before expenses, and the Lehman Bond Index of 95% or
better. A figure of 100% would indicate perfect correlation.
PRINCIPAL INVESTMENTS
Under normal circumstances, the Fund intends to invest at least 80% of its
assets in securities included in the Lehman Bond Index and derivative
instruments, such as futures contracts and options, that provide exposure to
the securities in the Lehman Bond Index. Futures and options are considered
derivatives because they "derive" their value from a traditional security (like
a stock or bond), asset or index. The Fund's securities are weighted to attempt
to make the Fund's total investment characteristics similar to those of the
Lehman Bond Index as a whole. We may exclude or remove any Lehman security from
the Fund, if we believe that the stock is illiquid or that the merit of the
investment has been impaired by financial conditions or other extraordinary
events. The Fund may also hold short-term debt securities and money market
instruments.
INVESTMENT PROCESS
The Fund normally does not hold every one of the 6,000 securities in the Lehman
Bond Index. Instead it invests in a representative sample of the securities
that make up the Index, which tracks four major classes of investment grade
fixed-income securities. The chart on the next page shows the proportion as of
December 31, 1999 that each class has recently constituted of the market value
of the Index. The Fund also attempts to match the Index's duration, an
intermediate term.
- --------------------------------------------------------------------------------
Futures and options on futures contracts are used as a low-cost method of
gaining exposure to a particular securities market without investing directly
in those securities.
Duration measures the sensitivity of bond prices to changes in interest rates.
The longer the duration of a bond, the longer it will take to repay the
principal and interest obligations and the more sensitive it is to changes in
interest rates. Investors in longer-duration bonds face more risk as interest
rates rise--but also are more likely to receive more income from their
investment to compensate for the risk.
Portfolio Turnover. The annual portfolio turnover rate measures the frequency
that the Fund sells and replaces the value of its securities within a given
period. Historically, this Fund has had a low portfolio turnover rate.
- --------------------------------------------------------------------------------
29
<PAGE>
A Detailed Look at U.S. Bond Index--Premier Class
CLASS OF SECURITIES
<TABLE>
<CAPTION>
Percent of Market
Value of Index
<S> <C>
U.S. Treasury and agency
securities 70%
--------------------------------------------
Mortgage-backed
securities 2%
--------------------------------------------
Corporate Bonds 25%
--------------------------------------------
Bonds issued outside the
U.S. but payable in U.S.
Dollars 3%
--------------------------------------------
Other debt securities N/A
--------------------------------------------
</TABLE>
RISKS
Below we set forth some of the prominent risks associated with bond investing
in general and with index investing.
Primary Risks
Interest Rate Risk. Interest rate risk is the risk that fixed-income securities
will decline in value because of changes in interest rates. Generally,
investments subject to interest rate risk will decrease in value when interest
rates rise and increase in value when interest rates decline.
Tracking Error. There are several reasons that the Fund's performance may not
match the Index exactly:
. Unlike the Index, the Fund incurs administrative expenses and transaction
costs in trading bonds.
. The composition of the Index and the bonds held by the Fund may occasionally
diverge.
. The timing and magnitude of cash inflows from investors buying shares could
create balances of uninvested cash. Conversely, the timing and magnitude of
cash outflows to investors selling shares could require ready reserves of
uninvested cash. Either situation would likely cause the Fund's performance
to deviate from the "fully invested" Index.
Credit Risk. An investor purchasing bonds faces the risk that the
creditworthiness of the issuer may decline, causing the value of its bonds to
decline. In addition, the issuers may not be able to make timely payments on
the interest and principal on the bonds they have issued.
Prepayment Risk. When a bond issuer, such as an issuer of mortgage-backed
securities, retains the right to pay off a high-yielding bond before it comes
due, the Fund may have no choice but to reinvest the proceeds at lower interest
rates. Thus, prepayment may reduce the Fund's income. It may also create a
capital gains tax liability, because bond issuers usually pay a premium for the
right to pay off bonds early.
Market Risk. Deteriorating market conditions might cause an overall weakness in
the market that reduces the absolute level of securities prices in that market.
Developments in a particular class of bonds or the stock market could also
adversely affect the Fund by reducing the relative attractiveness of bonds as
an investment. Investment grade debt securities similar to those held in the
Fund have experienced a moderate level of short-term price fluctuation.
Futures and Options. The Fund may invest, to a limited extent, in securities
index futures or options, which are types of derivatives. The Fund will not use
these derivatives for speculative purposes or as leveraged investments that
magnify the gains or losses of an investment. The Fund invests in derivatives
to keep cash on hand to meet shareholder redemptions or other needs while
maintaining exposure to the stock market. Risks associated with derivatives
include:
. that the derivative is not well correlated with the securities for which it
is acting as a substitute;
. that derivatives used for risk management may not have the intended effects
and may result in losses or missed opportunities; and
. that the Fund cannot sell the derivative because of an illiquid secondary
market.
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.
- --------------------------------------------------------------------------------
30
<PAGE>
A Detailed Look at U.S. Bond Index--Premier Class
The table below provides a picture of the Fund's financial performance since
inception. Certain information selected reflects financial results for a single
Fund share. The total returns in the table represent the rates of return that
an investor would have earned on an investment in the Fund, assuming
reinvestment of all dividends and distributions. This information has been
audited by PricewaterhouseCoopers LLP, whose report, along with the Fund's
financial statements, is included in the Fund's annual report. The annual
report is available free of charge by calling the Deutsche Asset Management
Service Center at 1-800-730-1313.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
For the Period
For the Years June 30, 1997/1/
Ended December 31, through Dec. 31,
1999 1998/2/ 1997
<S> <C> <C> <C>
Per Share Operating Performance:
Net Asset Value, Beginning of Period $10.47 $10.29 $10.00
------------------------------------------------------------------------------
Income from Investment Operations
Net Investment Income 0.57 0.59 0.33
------------------------------------------------------------------------------
Net Realized and Unrealized Gain (Loss)
on Investment Transactions (0.70) 0.29 0.32
------------------------------------------------------------------------------
Total from Investment Operations (0.13) 0.88 0.65
------------------------------------------------------------------------------
Distributions to Shareholders
Net Investment Income (0.58) (0.61) (0.32)
------------------------------------------------------------------------------
Net Realized Gains from Investment
Transactions -- (0.09) (0.04)
------------------------------------------------------------------------------
Total Distributions (0.58) (0.70) (0.36)
------------------------------------------------------------------------------
Net Asset Value, End of Period $9.76 $10.47 $10.29
------------------------------------------------------------------------------
Total Investment Return (1.30)% 8.78% 6.52%
------------------------------------------------------------------------------
Supplemental Data and Ratios:
Net Assets, End of Period (000s omitted) $92,657 $39,790 $8,119
------------------------------------------------------------------------------
Ratios to Average Net Assets:
Net Investment Income 5.79% 5.70% 6.32%/3/
------------------------------------------------------------------------------
Expenses After Waivers, Including
Expenses of the U.S. Bond Index
Portfolio 0.15% 0.15% 0.15%/3/
------------------------------------------------------------------------------
Expenses Before Waivers, Including
Expenses of the U.S. Bond Index
Portfolio 0.56% 0.90% 0.86%/3/
------------------------------------------------------------------------------
Decrease Reflected in Above Expense
Ratio Due to Fees Waivers or Expenses
Reimbursements 0.41% 0.75% 0.71%/3/
------------------------------------------------------------------------------
Portfolio Turnover Rate/4/ 224% 82% 79%
------------------------------------------------------------------------------
</TABLE>
/1/Commencement of Operations.
/2/Advisor Class Shares were converted to Premier Class Shares (formerly
Institutional Shares) on July 10, 1998.
/3/Annualized.
/4/The portfolio turnover rate is the rate for the master portfolio in which
the Fund invests its assets.
- --------------------------------------------------------------------------------
31
<PAGE>
Information
- --------------------------------------------------------------------------------
concerning all Funds
MANAGEMENT OF THE FUNDS
Deutsche Asset Management is the marketing name for the asset management
activities of Deutsche Bank A.G., Deutsche Fund Management, Bankers Trust
Company, DB Alex. Brown LLC, Deutsche Asset Management, Inc. and Deutsche Asset
Management Investment Services Limited.
Board of Trustees. Each Fund's shareholders, voting in proportion to the number
of shares each owns, elect a Board of Trustees, and the Trustees supervise all
of the Fund's activities on their behalf.
Investment Adviser. Under the supervision of the Board of Trustees, Bankers
Trust Company, with headquarters at 130 Liberty Street, New York, NY 10006,
acts as each Fund's investment adviser. The investment adviser makes the Fund's
investment decisions. It buys and sells securities for the Fund and conducts
the research that leads to the purchase and sale decisions.
The Funds paid the following fees to investment adviser for investment advisory
services in the last fiscal year:
FUND
<TABLE>
<CAPTION>
Percentage of Average
Daily Net Assets
<S> <C>
Equity 500 Index
Premier 0.075%
--------------------------------------------
Small Cap Index--
Premier Class 0.15%
--------------------------------------------
EAFE Equity Index--
Premier Class 0.25%
--------------------------------------------
U.S. Bond Index--
Premier Class 0.15%
--------------------------------------------
</TABLE>
As of March 15, 2000, Equity 500 Index Premier will pay 0.05% of its average
daily net assets for investment advisory services.
As of December 31, 1999, Bankers Trust had total assets of approximately $270
billion under management. Bankers Trust is dedicated to servicing the needs of
corporations, governments, financial institutions and private clients and has
invested retirement assets on behalf of the nation's largest corporations and
institutions for more than 50 years. The scope of the firm's capability is
broad--it is a leader in both the active and passive quantitative investment
disciplines and maintains a major presence in stock and bond markets worldwide.
At a special meeting of shareholders held in 1999, shareholders of each Fund
except Equity 500 Index Premier approved a new investment advisory agreement
with Deutsche Asset Management, Inc. (formerly Morgan Grenfell Inc.). The new
investment advisory agreement may be implemented within two years of the date
of the special meeting upon approval of a majority of the members of the Board
of Trustees who are not "interested persons," generally referred to as
independent trustees. Shareholders of each Fund except Equity 500 Index Premier
also approved a new sub-investment advisory agreement, among each Fund's
portfolio, Deutsche Asset Management, Inc. and Bankers Trust under which
Bankers Trust may perform certain of Deutsche Asset Management, Inc.'s
responsibilities, at Deutsche Asset Management, Inc.'s expense, upon approval
of the independent trustees, within two years of the date of the special
meeting. Under the new investment advisory and sub-advisory agreement, the
compensation paid and the services provided would be the same as those under
the existing advisory agreement with the investment adviser.
Deutsche Asset Management, Inc. is located at 885 Third Avenue 32nd Floor, New
York, New York 10022. The firm provides a full range of investment advisory
services to institutional clients. It serves as investment adviser to 11 other
investment companies and as sub-adviser to five other investment companies.
On March 11, 1999, Bankers Trust announced that it had reached an agreement
with the United States Attorney's Office in the Southern District of New York
to resolve an investigation concerning inappropriate transfers of unclaimed
funds and related record-keeping problems that occurred between 1994 and early
1996. Bankers Trust pleaded guilty to misstating entries in the bank's books
and records and agreed to pay a $63.5 million fine to state and federal
authorities. On July 26, 1999, the federal criminal proceedings were concluded
with Bankers Trust's formal sentencing. The events leading up to the guilty
pleas did not arise out of the investment advisory or mutual fund management
activities of Bankers Trust or its affiliates.
As a result of the plea, absent an order from the SEC, Bankers Trust would not
be able to continue to provide investment advisory services to the Funds. The
SEC has granted a
- --------------------------------------------------------------------------------
32
<PAGE>
Information Concerning All Funds
temporary order to permit Bankers Trust and its affiliates to continue to
provide investment advisory services to registered investment companies. There
is no assurance that the SEC will grant a permanent order.
Other Services. Bankers Trust provides administrative services--such as
portfolio accounting, legal services and others--for the Funds. In addition,
Bankers Trust, or your service agent, performs the functions necessary to
establish and maintain your account. In addition to setting up the account and
processing your purchase and sale orders, these functions include:
. keeping accurate, up-to-date records for your individual Fund account;
. implementing any changes you wish to make in your account information;
. processing your requests for cash dividends and distributions from the Fund;
. answering your questions on the Fund's investment performance or
administration;
. sending proxy reports and updated prospectus information to you; and
. collecting your executed proxies.
Service agents include brokers, financial advisors or any other bank, dealer or
other institution that has a sub-shareholder servicing agreement with Bankers
Trust. Service agents may charge additional fees to investors only for those
services not otherwise included in the Bankers Trust servicing agreement, such
as cash management or special trust or retirement-investment reporting.
Organizational Structure. The Funds are "feeder funds" that invest all of their
assets in a "master portfolio." The Funds and their corresponding master
portfolio are listed below:
<TABLE>
<CAPTION>
FUND
Master Portfolio
<S> <C>
Equity 500 Index
Premier Equity 500 Index Portfolio
----------------------------------------------
Small Cap
Index--Premier
Class Small Cap Index Portfolio
----------------------------------------------
EAFE Equity
Index--Premier
Class EAFE Equity Index Portfolio
----------------------------------------------
U.S. Bond
Index--Premier
Class U.S. Bond Index Portfolio
----------------------------------------------
</TABLE>
Each Fund and its master portfolio have the same goal. Each master portfolio is
advised by Bankers Trust.
A master portfolio may accept investments from other feeder funds. A feeder
bears the master portfolio's expenses in proportion to its assets. Each feeder
can set its own transaction minimums, fund-specific expenses, and other
conditions. This arrangement allows a fund's Trustees to withdraw the fund's
assets from the master portfolio if they believe doing so is in the
shareholders' best interests. If the Trustees withdraw a fund's assets, they
would then consider whether the Fund should hire its own investment adviser,
invest in a different master portfolio or take other action.
CALCULATING A FUND'S SHARE PRICE
We calculate the daily price of each Fund's shares (also known as the "Net
Asset Value" or "NAV") 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 a 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. (Note
that prices for securities that trade on foreign exchanges can change
significantly on days when the New York Stock Exchange is closed and you cannot
buy or sell Fund shares. Price changes in the securities a Fund owns may
ultimately affect the price of the Fund's shares the next time the NAV is
calculated.)
We value the securities in a 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. You can find a Fund's daily share price in the mutual fund listings
of most major newspapers.
- --------------------------------------------------------------------------------
The Exchange is open every week, Monday through Friday, except when the
following holidays are celebrated: New Year's Day, Martin Luther King, Jr. Day
(the third Monday in January), Presidents' Day (the third Monday in February),
Good Friday, Memorial Day (the last Monday in May), Independence Day, Labor Day
(the first Monday in September), Thanksgiving Day (the fourth Thursday in
November) and Christmas Day.
- --------------------------------------------------------------------------------
33
<PAGE>
Information Concerning All Funds
DIVIDENDS AND DISTRIBUTIONS
The Funds distribute substantially all of their dividends and capital gains to
shareholders each year. Capital gains, if any, are paid annually. The Funds pay
income dividends as described below:
FUND
<TABLE>
<CAPTION>
Income
Dividends are
Paid:
<S> <C>
Equity 500 Index Premier Quarterly
--------------------------------------------
Small Cap Index--Premier
Class Annually
--------------------------------------------
EAFE Equity Index--
Premier Class Annually
--------------------------------------------
U.S. Bond Index--Premier
Class Monthly
--------------------------------------------
</TABLE>
We will automatically reinvest all of your distributions in shares of your Fund
unless you elect to receive your distributions in cash.
PERFORMANCE INFORMATION
Each Fund's performance can be used in advertisements that appear in various
publications. It may be compared to the performance of various indices and
investments for which reliable performance data is available. Each Fund's
performance may also be compared to averages, performance rankings, or other
information prepared by recognized mutual fund statistical services.
TAX CONSIDERATIONS
A 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 distributions Capital gains
------------------------------------------------------------------------------
</TABLE>
Every year your 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 owned
more than one year Capital gains or losses
------------------------------------------------------------------------------
Your sale of shares owned
for one year or less Ordinary Income
------------------------------------------------------------------------------
Long-term capital gains distributions Gains treated as ordinary income;
losses subject to special rules.
------------------------------------------------------------------------------
</TABLE>
The tax considerations for tax deferred accounts or non-taxable entities are
different.
Because each investor's tax circumstances are unique and because the tax laws
are subject to change, we recommend that you consult your tax advisor about
your investment.
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
Minimum Account Investments
<TABLE>
<S> <C>
To open an account $5 million
To add to an account $1 million
Minimum account balance $1 million
</TABLE>
Shares of each Fund may be purchased without regard to the investment minimums
by employees of Deutsche Bank A.G., any of its affiliates or subsidiaries,
their spouses and minor children, and Directors or Trustees of any investment
company advised or administered by Deutsche Bank A.G. or any of its affiliates
or subsidiaries, their spouses and minor children. Each Fund and its service
providers reserve the right to, from time to time, at their discretion, waive
or reduce the investment minimums.
- --------------------------------------------------------------------------------
34
<PAGE>
Information Concerning all Funds
How to Open Your Fund Account
By Mail: Complete and sign the account application that accompanies this
prospectus. (You may obtain additional applications by calling the
Deutsche Asset Management Service Center.) Mail the completed
application along with a check payable to the Fund you have
selected to the Deutsche Asset Management Service Center. The
addresses are shown under "Contacting the Mutual Fund Service
Center of Deutsche Asset Management"
By Wire: Call the Deutsche Asset Management Service Center to set up a wire
account.
Please note that your account cannot become activated until we receive a
completed application via mail or fax.
Two Ways to Buy and Sell Shares in Your Account
MAIL:
Buying: Send your check, payable to the Deutsche Asset Management Fund you have
selected, to the Deutsche Asset Management Service Center. The addresses are
shown in this section under "Contacting the Mutual Fund Service Center at
Deutsche Asset Management." Be sure to include the fund number and your account
number (see your account statement) on your check. Please note that we cannot
accept starter checks or third-party checks. If you are investing in more than
one fund, make your check payable to "Deutsche Asset Management funds" and
include your account number, the names and numbers of the funds you have
selected, and the dollar amount or percentage you would like invested in each
fund.
Selling: Send a signed letter to the Deutsche Asset Management Service Center
with your name, your fund number and account number, the fund's name, and
either the number of shares you wish to sell or the dollar amount you wish to
receive. You must leave at least $1 million worth of shares in your account to
keep it open. Unless exchanging into another Deutsche Asset Management fund,
you must submit a written authorization to sell shares in a retirement account.
WIRE:
Buying: You may buy shares by wire only if your account is authorized to do so.
Please note that you or your service agent must call the Deutsche Asset
Management Service Center at 1-800-730-1313 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: (Fund name and number)
Equity 500 Index Premier (1681)
Small Cap Index--Premier Class (1713)
EAFE Equity Index--Premier Class (1714)
U.S. Bond Index--Premier Class (1711)
Refer to your account statement for the account name and number.
Selling: You may sell shares by wire only if your account is authorized to do
so. For your protection, you may not change the destination bank account over
the phone. To sell by wire, contact your service agent or the Deutsche Asset
Management Service Center at 1-800-730-1313. Inform the Service Center
representative of the amount of your redemption and receive a trade
confirmation number. The minimum redemption by wire is $1,000. We must receive
your order by 4:00 p.m. Eastern time to wire your account the next business
day.
Important Information About Buying and Selling Shares
. You may buy and sell shares of a fund through authorized service agents as
well as directly from us. The same terms and conditions apply. Specifically,
once you place your order with a service agent, it is considered received by
the Deutsche Asset Management Service Center. It is then your service agent's
responsibility to transmit the order to the Deutsche Asset Management Service
Center. You should contact your service agent if you have a dispute as to
when your order was placed with the fund. Your service agent may charge a fee
for buying and selling shares for you.
. You may place orders to buy and sell over the phone by calling your service
agent or the Deutsche Asset Management Service Center at 1-800-730-1313. If
you pay for shares by check and the check fails to clear, or if you order
shares by phone and fail to pay for them by 4:00 p.m. Eastern time the next
business day, we have the right to cancel your order, hold you liable or
charge you or your
- --------------------------------------------------------------------------------
35
<PAGE>
Information Concerning All Funds
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 but no
later than seven days.
. We reserve the right to close your account on 30 days' notice if it fails to
meet minimum balance requirements for any reason other than a change in
market value.
. If you sell shares by mail or wire, you may be required to obtain a signature
guarantee. Please contact your service agent or the Deutsche Asset Management
Service Center for more information.
. We remit proceeds from the sale of shares in U.S. dollars (unless the
redemption is so large that it is made "in-kind").
. We do not issue share certificates.
. Selling shares of trust accounts and business or organization accounts may
require additional documentation. Please contact your service agent or the
Deutsche Asset Management Service Center for more information.
. During periods of heavy market activity, you may have trouble reaching the
Deutsche Asset Management Service Center by telephone. If this occurs, you
should make your request by mail.
. We reserve the right to reject purchases of Fund shares (including exchanges)
for any reason. We will reject the purchases if we conclude that the
purchaser may investing only for the short-term or to profit from day to day
fluctuations in the Fund's share price.
. We reserve the right to reject the purchases of Fund shares (including
exchanges) or to suspend or postpone redemptions at times when both the New
York Stock Exchange and the Fund's custodian are closed.
. Account Statements and Fund Reports: We or your service agent will furnish
you with a written confirmation of every transaction that affects your
account balance. You will also receive monthly statements reflecting the
balances in your account. We will send you a report every six months on your
fund's overall performance, its current holdings and its investing
strategies.
Exchange Privilege. You can exchange all or part of your shares for shares of
another Deutsche Asset Management mutual fund up to four times a year (from the
date of your first exchange). When you exchange shares, you are selling shares
in one fund to purchase shares in another. Before buying shares through an
exchange, you should be sure to obtain a copy of that fund's prospectus and
read it carefully. You may order exchanges over the phone only if your account
is authorized to do so. You will receive a written confirmation of each
transaction from the Deutsche Asset Management Service Center or your service
agent.
Please note the following conditions:
. The accounts between which the exchange is taking place must have the same
name, address and taxpayer ID number.
. You may make the exchange by phone if your account has the exchange by phone
feature or by letter or wire.
. If you are maintaining a taxable account, you may have to pay taxes on the
exchange.
- --------------------------------------------------------------------------------
36
<PAGE>
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<PAGE>
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<PAGE>
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<PAGE>
Additional information about each Fund's investments is available in the
Fund's annual and semi-annual reports to shareholders. In the Fund's annual
report, you will find a discussion of the market conditions and investment
strategies that significantly affected the Fund's performance during its
last fiscal year.
You can find more detailed information about each Fund in the current
Statement of Additional Information, dated April 30, 2000, which we have
filed electronically with the Securities and Exchange Commission (SEC) and
which is incorporated by reference into this Prospectus. To receive your
free copy of the Statement of Additional Information, the annual or semi-
annual report, or if you have questions about investing in a Fund, write to
us at:
Deutsche Asset Management Service Center
P.O. Box 219210
Kansas City, MO 64121-9210
or call our toll-free number: 1-800-730-1313
You can find reports and other information about each Fund on the EDGAR
Database on the SEC website (http://www.sec.gov), or you can get copies of
this information, after payment of a duplicating fee, by electronic request
at [email protected] or by writing to the Public Reference Section of the
SEC, Washington, D.C. 20549-0102. Information about each Fund, including
its Statement of Additional Information, can be reviewed and copied at the
SEC's Public Reference Room in Washington, D.C. For information on the
Public Reference Room, call the SEC at 202-942-8090.
Equity 500 Index Premier
BT Institutional Funds
Small Cap Index--Premier Class
EAFE Equity Index--Premier Class
U.S. Bond Index--Premier Class
BT Advisor Funds
Distributed by:
ICC Distributors, Inc. CUSIP #055924500
05576L882
05576L874
05576L700
COMBINXPRO (04/00)
811-6071
811-7347
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
April 30, 2000
BT Pyramid Mutual Funds
Equity 500 Index--Investment Class
formerly BT Investment Equity 500 Index Fund
BT Pyramid Mutual Funds (the "Trust") is an open-end management investment
company that offers investors a selection of investment portfolios, each having
distinct investment objectives and policies. This Statement of Additional
Information relates only to Equity 500 Index--Investment Class (the "Fund").
The Fund seeks to match, as closely as possible, before expenses, the
performance of the Standard & Poor's Composite Stock Price Index (the "S&P 500
Index"), which emphasizes stocks of large U.S. companies. The Trust seeks to
achieve the investment objective of the Fund by investing all the investable
assets of the Fund in the Equity 500 Index Portfolio (the "Portfolio"), an open-
end management investment company having the same investment objective as the
Fund.
Shares of the Fund are sold by ICC Distributors, Inc. ("ICC Distributors"), the
Trust's distributor ("Distributor"), to clients and customers (including
affiliates and correspondents) of Bankers Trust Company ("Bankers Trust"), the
Portfolio's investment adviser ("Adviser"), and to clients and customers of
other organizations.
The Fund's Prospectus dated April 30, 2000, which may be amended from time to
time provides the basic information investors should know before investing.
This 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 Prospectus. You may request a copy of a prospectus
or a paper copy of this SAI, if you have received it electronically, free of
charge by calling the Trust at the telephone number listed below or by
contacting any Bankers Trust service agent ("Service Agent"). Capitalized terms
not otherwise defined in this SAI have the meanings accorded to them in the
Fund's Prospectus. The financial statements for the Fund and the Portfolio for
the fiscal year ended December 31, 1999, are incorporated herein by reference to
the Annual Report to shareholders for the Fund and Portfolio dated December 31,
1999. A copy of the Fund's and the Portfolio's Annual Report may be obtained
without charge by calling the Fund at the telephone number listed below.
BANKERS TRUST COMPANY
Investment Adviser of the Portfolio
Administrator of the Fund and Portfolio
ICC DISTRIBUTORS, INC.
Distributor
1-800-730-1313
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Page
--
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS.............. 1
Investment Objectives..................................... 1
Investment Policies....................................... 1
Additional Risk Factors................................... 8
Investment Restrictions................................... 10
Portfolio Transactions and Brokerage Commissions.......... 13
PERFORMANCE INFORMATION...................................... 15
Standard Performance Information.......................... 15
Comparison of Fund Performance............................ 17
Economic and Market Information........................... 18
VALUATION OF SECURITIES, REDEMPTIONS AND PURCHASES IN KIND... 19
Valuation of Securities................................... 19
Redemptions and Purchases in Kind......................... 20
Purchase of Shares........................................ 20
Redemption of Shares...................................... 21
MANAGEMENT OF THE TRUST AND PORTFOLIO........................ 22
Trustees of the Trust and Portfolio....................... 23
Officers of the Trust and Portfolio....................... 25
Trustee Compensation Table................................ 26
Code of Ethics............................................ 28
Investment Adviser........................................ 28
Administrator............................................. 30
Distributor............................................... 31
Service Agent............................................. 31
Custodian and Transfer Agent.............................. 32
Expenses.................................................. 32
Use of Name............................................... 32
Banking Regulatory Matters................................ 32
Counsel and Independent Accountants....................... 33
ORGANIZATION OF THE TRUST.................................... 33
TAXATION..................................................... 34
Taxation of the Fund...................................... 34
Distributions............................................. 35
Taxation of the Portfolio................................. 36
Backup Withholding........................................ 36
Foreign Shareholders...................................... 36
Other Taxation............................................ 36
FINANCIAL STATEMENTS......................................... 36
APPENDIX..................................................... 37
</TABLE>
<PAGE>
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS
Investment Objective
The Fund's investment objective is to match as closely as possible (before the
deduction of expenses) the total return of the S&P 500 Index which emphasizes
stocks of large U.S. Companies. There can, of course, be no assurance that the
Fund will achieve its investment objective.
Investment Policies
The Fund seeks to achieve 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.
Equity Securities. The Portfolio may invest in equity securities listed on any
domestic or foreign securities exchange or traded in the over-the-counter market
as well as certain restricted or unlisted securities. As used herein, "equity
securities" are defined as common stock, preferred stock, trust or limited
partnership interests, rights and warrants to subscribe to or purchase such
securities, sponsored or unsponsored ADRs, EDRs, GDRs, and convertible
securities, consisting of debt securities or preferred stock that may be
converted into common stock or that carry the right to purchase common stock.
Common stocks, the most familiar type, represent an equity (ownership) interest
in a corporation. They may or may not pay dividends or carry voting rights.
Common stock occupies the most junior position in a company's capital structure.
Although equity securities have a history of long-term growth in value, their
prices fluctuate based on changes in a company's financial condition and on
overall market and economic conditions. Smaller companies are especially
sensitive to these factors.
Short-Term Instruments. When the Portfolio experiences large cash inflows
through the sale of securities and desirable equity securities, that are
consistent with the Portfolio's investment objective, which are unavailable in
sufficient quantities or at attractive prices, the Portfolio may hold short-term
investments (or shares of money market mutual funds) for a limited time pending
availability of such equity securities. Short-term instruments consist of
foreign and domestic: (i) short-term obligations of sovereign governments, their
agencies, instrumentalities, authorities or political subdivisions; (ii) other
short-term debt securities rated AA or higher by Standard & Poor's Ratings
Services ("S&P") or Aa or higher by Moody's Investors Service, Inc. ("Moody's")
or, if unrated, of comparable quality in the opinion of Bankers Trust; (iii)
commercial paper; (iv) bank obligations, including negotiable certificates of
deposit, time deposits and banker's acceptances; and (v) repurchase agreements.
At the time the Portfolio invests in commercial paper, bank obligations or
repurchase agreements, the issuer of the issuer's parent must have outstanding
debt rated AA or higher by S&P or Aa or higher by Moody's or outstanding
commercial paper or bank obligations rated A-1 by S&P or Prime-1 by Moody's; or,
if no such ratings are available, the instrument must be of comparable quality
in the opinion of Bankers Trust.
<PAGE>
Certificates of Deposit and Bankers' Acceptances. Certificates of deposit are
receipts issued by a depository institution in exchange for the deposit of
funds. The issuer agrees to pay the amount deposited plus interest to the
bearer of the receipt on the date specified on the certificate. The certificate
usually can be traded in the secondary market prior to maturity. Bankers'
acceptances typically arise from short-term credit arrangements designed to
enable businesses to obtain funds to finance commercial transactions.
Generally, an acceptance is a time draft drawn on a bank by an exporter or an
importer to obtain a stated amount of funds to pay for specific merchandise.
The draft is then "accepted" by a bank that, in effect, unconditionally
guarantees to pay the face value of the instrument on its maturity date. The
acceptance may then be held by the accepting bank as an earning asset or it may
be sold in the secondary market at the going rate of discount for a specific
maturity. Although maturities for acceptances can be as long as 270 days, most
acceptances have maturities of six months or less.
Commercial Paper. Commercial paper consists of short-term (usually from 1 to
270 days) unsecured promissory notes issued by corporations in order to finance
their current operations. A variable amount master demand note (which is a type
of commercial paper) represents a direct borrowing arrangement involving
periodically fluctuating rates of interest under a letter agreement between a
commercial paper issuer and an institutional lender pursuant to which the lender
may determine to invest varying amounts.
For a description of commercial paper ratings, see Appendix.
Derivatives. The Portfolio may invest in various instruments that are commonly
known as "derivatives." Generally, a derivative is a financial arrangement, the
value of which is based on, or "derived" from, a traditional security, asset, or
market index. Some derivatives such as mortgage-related and other asset-backed
securities are in many respects like any other investment, although they may be
more volatile or less liquid than more traditional debt securities. There are,
in fact, many different types of derivatives and many different ways to use
them. There are a range of risks associated with those uses. Futures and
options are commonly used for traditional hedging purposes to attempt to protect
a fund from exposure to changing interest rates, securities prices, or currency
exchange rates and as a low cost method of gaining exposure to a particular
securities market without investing directly in those securities. However, some
derivatives are used for leverage, which tends to magnify the effects of an
instrument's price changes as market conditions change. Leverage involves the
use of a small amount of money to control a large amount of financial assets,
and can in some circumstances, lead to significant losses. The Adviser will use
derivatives only in circumstances where they offer the most efficient means of
improving the risk/reward profile of the Portfolio and when consistent with the
Portfolio's investment objective and policies. The use of derivatives for non-
hedging purposes may be considered speculative.
Illiquid Securities. Historically, illiquid securities have included securities
subject to contractual or legal restrictions on resale because they have not
been registered under the Securities Act of 1933, as amended (the "1933 Act"),
securities which are otherwise not readily marketable and repurchase agreements
having a maturity of longer than seven days. Securities which have not been
registered under the 1933 Act are referred to as private placements or
restricted securities and are purchased directly from the issuer or in the
secondary market. Mutual funds do not typically hold a significant amount of
these restricted or other illiquid securities because of the
<PAGE>
potential for delays on resale and uncertainty in valuation. Limitations on
resale may have an adverse effect on the marketability of portfolio securities
and a mutual fund might be unable to dispose of restricted or other illiquid
securities promptly or at reasonable prices and might thereby experience
difficulty satisfying redemptions within seven days. A mutual fund might also
have to register such restricted securities in order to dispose of them
resulting in additional expense and delay. Adverse market conditions could
impede such a public offering of securities.
A large institutional market has developed for certain securities that are not
registered under the 1933 Act, including repurchase agreements, commercial
paper, foreign securities, municipal securities and corporate bonds and notes.
Institutional investors depend on an efficient institutional market in which the
unregistered security can be readily resold or on an issuer's ability to honor a
demand for repayment. The fact that there are contractual or legal restrictions
on resale of such investments to the general public or to certain institutions
may not be indicative of their liquidity.
The Securities and Exchange Commission (the "SEC") has adopted Rule 144A, which
allows a broader institutional trading market for securities otherwise subject
to restriction on their resale to the general public. Rule 144A establishes a
"safe harbor" from the registration requirements of the 1933 Act of resales of
certain securities to qualified institutional buyers. The Adviser anticipates
that the market for certain restricted securities such as institutional
commercial paper will expand further as a result of this regulation and the
development of automated systems for the trading, clearance and settlement of
unregistered securities of domestic and foreign issuers, such as the PORTAL
System sponsored by the National Association of Securities Dealers, Inc.
Rule 144A Securities are securities in the United States that are not registered
for sale under federal securities laws but which can be resold to institutions
under SEC Rule 144A. Provided that a dealer or institutional trading market in
such securities exists, these restricted securities are treated as exempt from
the 15% limit on illiquid securities. Under the supervision of the Board of
Trustees of the Portfolio, the Adviser determines the liquidity of restricted
securities and, through reports from the Adviser, the Board will monitor trading
activity in restricted securities. If institutional trading in restricted
securities were to decline, the liquidity of the Portfolio could be adversely
affected.
In reaching liquidity decisions, the Adviser will consider, among other things,
the following factors: (i) the frequency of trades and quotes for the security;
(ii) the number of dealers and other potential purchasers wishing to purchase or
sell the security; (iii) dealer undertakings to make a market in the security
and (iv) the nature of the security and of the marketplace trades (e.g., the
time needed to dispose of the security, the method of soliciting offers and the
mechanics of the transfer).
When-Issued and Delayed Delivery Securities. The Portfolio may purchase
securities on a when-issued or delayed delivery basis. Delivery of and payment
for these securities can take place a month or more after the date of the
purchase commitment. The purchase price and the interest rate payable, if any,
on the securities are fixed on the purchase commitment date or at the time the
settlement date is fixed. The value of such securities is subject to market
fluctuation and no interest accrues to the Portfolio until settlement takes
place. At the time the Portfolio makes
<PAGE>
the commitment to purchase securities on a when-issued or delayed delivery
basis, it will record the transaction, reflect the value each day of such
securities in determining its net asset value and, if applicable, calculate the
maturity for the purposes of average maturity from that date. At the time of
settlement a when-issued security may be valued at less than the purchase price.
To facilitate such acquisitions, the Portfolio segregates cash or liquid
securities, in an amount at least equal to such commitments. On delivery dates
for such transactions, the Portfolio will meet its obligations from maturities
or sales of the segregated securities and/or from cash flow. If the Portfolio
chooses to dispose of the right to acquire a when-issued security prior to its
acquisition, it could, as with the disposition of any other portfolio
obligation, incur a gain or loss due to market fluctuation. It is the current
policy of the Portfolio not to enter into when-issued commitments exceeding in
the aggregate 15% of the market value of the Portfolio's total assets, less
liabilities other than the obligations created by when-issued commitments.
Lending of Portfolio Securities. The Portfolio has the authority to lend up to
30% of the total value of its portfolio securities to brokers, dealers and other
financial organizations. By lending its securities, the Portfolio may increase
its income by continuing to receive payments in respect of dividends and
interest on the loaned securities as well as by either investing the cash
collateral in short-term securities or obtaining yield in the form of a fee paid
by the borrower when irrevocable letters of credit and U.S. Government
Obligations are used as collateral. The Portfolio will adhere to the following
conditions whenever its securities are loaned: (i) the Portfolio must receive
at least 100% collateral from the borrower; (ii) the borrower must increase this
collateral whenever the market value of the securities including accrued
interest rises above the level of the collateral; (iii) the Portfolio must be
able to terminate the loan at any time; (iv) the Portfolio must substitute
payments in respect of all dividends, interest or other distributions on the
loaned securities; and (v) voting rights on the loaned securities may pass to
the borrower; provided, however, that if a material event adversely affecting
-----------------
the investment occurs, the Board of Trustees must retain the right to terminate
the loan and recall and vote the securities. Cash collateral may be invested in
a money market fund managed by Bankers Trust (or its affiliates) and Bankers
Trust may serve as the Portfolio's lending agent and may share in revenue
received from securities lending transactions as compensation for this service.
Repurchase Agreements. In a repurchase agreement, the Portfolio buys a security
at one price and simultaneously agrees to sell it back at a higher price at a
future date. In the event of the bankruptcy of the other party to a repurchase
agreement, the Portfolio could experience delays in recovering either its cash
or selling securities subject to the repurchase agreement. To the extent that,
in the meantime, the value of the securities repurchased had decreased or the
value of the securities had increased, the Portfolio could experience a loss.
In all cases, the Adviser must find the creditworthiness of the other party to
the transaction satisfactory.
Index Futures Contracts and Options on Index Futures Contracts
Futures Contracts. Futures contracts are contracts to purchase or sell a fixed
amount of an underlying instrument, commodity or index at a fixed time and place
in the future. U.S. futures contracts have been designed by exchanges which
have been designated "contracts markets" by the Commodity Futures Trading
Commission ("CFTC"), and must be executed through a futures commission merchant,
or brokerage firm, which is a member of the relevant contract market.
<PAGE>
Futures contracts trade on a number of exchanges and clear through their
clearing corporations. The Portfolio may enter into contracts for the purchase
or sale for future delivery of the Index.
At the same time a futures contract on the Index is entered into, the
Portfolio must allocate cash or securities as a deposit payment ("initial
margin"). Daily thereafter, the futures contract is valued and the payment of
"variation margin" may be required, since each day the Portfolio would provide
or receive cash that reflects any decline or increase in the contract's
value.
Although futures contracts (other than those that settle in cash) by their terms
call for the actual delivery or acquisition of the instrument underlying the
contract, in most cases the contractual obligation is fulfilled by offset before
the date of the contract without having to make or take delivery of the
instrument underlying the contract. The offsetting of a contractual obligation
is accomplished by entering into an opposite position in the identical futures
contract on the commodities exchange on which the futures contract was entered
into (or a linked exchange). Such a transaction, which is effected through a
member of an exchange, cancels the obligation to make or take delivery of the
instrument underlying the contract. Since all transactions in the futures
market are made, offset or fulfilled through a clearinghouse associated with the
exchange on which the contracts are traded, the Portfolio will incur brokerage
fees when it enters into futures contracts.
The ordinary spreads between prices in the cash and futures market, due to
differences in the nature of those markets, are subject to distortions. First,
all participants in the futures market are subject to initial deposit and
variation margin requirements. Rather than meeting additional variation margin
requirements, investors may close futures contracts through offsetting
transactions which could distort the normal relationship between the cash and
futures markets. Second, the liquidity of the futures market depends on most
participants entering into offsetting transactions rather than making or taking
delivery. To the extent that many participants decide to make or take delivery,
liquidity in the futures market could be reduced, thus producing distortion.
Third, from the point of view of speculators, the margin deposit requirements in
the futures market are less onerous than margin requirements in the securities
market. Therefore, increased participation by speculators in the futures market
may cause temporary price distortions. Due to the possibility of distortion, a
correct forecast of securities price trends by the Adviser may still not result
in a successful transaction.
In addition, futures contracts entail risks. Although the Adviser believes that
use of such contracts will benefit the Portfolio, if the Adviser's investment
judgment about the general direction of the Index is incorrect, the Portfolio's
overall performance would be poorer than if it had not entered into any such
contract. For example, if the Portfolio has hedged against the possibility of a
decrease in the Index which would adversely affect the value of securities held
in its portfolio and securities prices increase instead, the Portfolio will lose
part or all of the benefit of the increased value of its securities which it has
hedged because it will have offsetting losses in its futures positions. In
addition, in such situations, if the Portfolio has insufficient cash, it may
have to sell securities from its portfolio to meet daily variation margin
requirements. Such sales of securities may be, but will not necessarily be, at
increased prices which reflect the rising market. The Portfolio may have to
sell securities at a time when it may be disadvantageous to do so.
<PAGE>
Options on Index Futures Contracts. The Portfolio may purchase and write
options on futures contracts with respect to the Index. The purchase of a call
option on an index futures contract is similar in some respects to the purchase
of a call option on such an index. For example, when the Portfolio is not fully
invested it may purchase a call option on an index futures contract to hedge
against a market advance.
The writing of a call option on a futures contract with respect to the Index may
constitute a partial hedge against declining prices of the underlying securities
which are deliverable upon exercise of the futures contract. If the futures
price at expiration of the option is below the exercise price, the Portfolio
will retain the full amount of the option premium which provides a partial hedge
against any decline that may have occurred in the Portfolio's holdings. The
writing of a put option on an index futures contract may constitute a partial
hedge against increasing prices of the underlying securities which are
deliverable upon exercise of the futures contract. If the futures price at
expiration of the option is higher than the exercise price, the Portfolio will
retain the full amount of the option premium which provides a partial hedge
against any increase in the price of securities which the Portfolio intends to
purchase. If a put or call option the Portfolio has written is exercised, the
Portfolio will incur a loss which will be reduced by the amount of the premium
it receives. Depending on the degree of correlation between changes in the
value of its portfolio securities and changes in the value of its futures
positions, the Portfolio's losses from existing options on futures may to some
extent be reduced or increased by changes in the value of portfolio securities.
The purchase of a put option on a futures contract with respect to the Index is
similar in some respects to the purchase of protective put options on the Index.
For example, the Portfolio may purchase a put option on an index futures
contract to hedge against the risk of lowering securities values.
The amount of risk the Portfolio assumes when it purchases an option on a
futures contract with respect to the Index is the premium paid for the option
plus related transaction costs. In addition to the correlation risks discussed
above, the purchase of such an option also entails the risk that changes in the
value of the underlying futures contract will not be fully reflected in the
value of the option purchased.
The Board of Trustees of the Portfolio has adopted the requirement that index
futures contracts and options on index futures contracts be used only for cash
management purposes. In compliance with current CFTC regulations, the Portfolio
will not enter into any futures contracts or options on futures contracts if
immediately thereafter the amount of margin deposits on all the futures
contracts of the Portfolio and premiums paid on outstanding options on futures
contracts owned by the Portfolio would exceed 5% of the Portfolio's net asset
value, after taking into account unrealized profits and unrealized losses on any
such contracts.
Options on Securities Indexes. The Portfolio may write (sell) covered call and
put options to a limited extent on the Index ("covered options") in an attempt
to increase income. Such options give the holder the right to receive a cash
settlement during the term of the option based upon the difference between the
exercise price and the value of the index. The Portfolio may forgo the benefits
of appreciation on the Index or may pay more than the market price of the Index
pursuant to call and put options written by the Portfolio.
<PAGE>
By writing a covered call option, the Portfolio forgoes, in exchange for the
premium less the commission ("net premium"), the opportunity to profit during
the option period from an increase in the market value of the Index above the
exercise price. By writing a covered put option, the Portfolio, in exchange for
the net premium received, accepts the risk of a decline in the market value of
the Index below the exercise price.
The Portfolio may terminate its obligation as the writer of a call or put option
by purchasing an option with the same exercise price and expiration date as the
option previously written.
When the Portfolio writes an option, an amount equal to the net premium received
by the Portfolio is included in the liability section of the Portfolio's
Statement of Assets and Liabilities as a deferred credit. The amount of the
deferred credit will be subsequently marked to market to reflect the current
market value of the option written. The current market value of a traded option
is the last sale price or, in the absence of a sale, the mean between the
closing bid and asked price. If an option expires on its stipulated expiration
date or if the Portfolio enters into a closing purchase transaction, the
Portfolio will realize a gain (or loss if the cost of a closing purchase
transaction exceeds the premium received when the option was sold), and the
deferred credit related to such option will be eliminated. If a call option is
exercised, the Portfolio will realize a gain or loss from the sale of the
underlying security and the proceeds of the sale will be increased by the
premium originally received. The writing of covered call options may be deemed
to involve the pledge of the securities against which the option is being
written. Securities against which call options are written will be segregated
on the books of the custodian for the Portfolio.
The Portfolio may purchase call and put options on the Index. The Portfolio
would normally purchase a call option in anticipation of an increase in the
market value of the Index. The purchase of a call option would entitle the
Portfolio, in exchange for the premium paid, to purchase the underlying
securities at a specified price during the option period. The Portfolio would
ordinarily have a gain if the value of the securities increased above the
exercise price sufficiently to cover the premium and would have a loss if the
value of the securities remained at or below the exercise price during the
option period.
The Portfolio would normally purchase put options in anticipation of a decline
in the market value of the Index ("protective puts"). The purchase of a put
option would entitle the Portfolio, in exchange for the premium paid, to sell
the underlying securities at a specified price during the option period. The
purchase of protective puts is designed merely to offset or hedge against a
decline in the market value of the Index. The Portfolio would ordinarily
recognize a gain if the value of the Index decreased below the exercise price
sufficiently to cover the premium and would recognize a loss if the value of the
Index remained at or above the exercise price. Gains and losses on the purchase
of protective put options would tend to be offset by countervailing changes in
the value of the Index.
The Portfolio has adopted certain other nonfundamental policies concerning index
option transactions which are discussed below. The Portfolio's activities in
index options may also be restricted by the requirements of the Code, for
qualification as a regulated investment company.
The hours of trading for options on the Index may not conform to the hours
during which the underlying securities are traded. To the extent that the
option markets close before the markets
<PAGE>
for the underlying securities, significant price and rate movements can take
place in the underlying securities markets that cannot be reflected in the
option markets. It is impossible to predict the volume of trading that may exist
in such options, and there can be no assurance that viable exchange markets will
develop or continue.
Because options on securities indices require settlement in cash, the Adviser
may be forced to liquidate portfolio securities to meet settlement obligations.
Asset Coverage. To assure that the Portfolio's use of futures and related
options, as well as when-issued and delayed-delivery securities and foreign
currency exchange transactions, are not used to achieve investment leverage, the
Portfolio will cover such transactions, as required under applicable
interpretations of the SEC, either by owning the underlying securities or by
segregating with the Portfolio's Custodian or futures commission merchant liquid
securities in an amount at all times equal to or exceeding the Portfolio's
commitment with respect to these instruments or contracts.
Additional Risk Factors
In addition to the risks discussed above, the Portfolio's investments may be
subject to the following risk factors:
Special Information Concerning Master-Feeder Fund Structure. Unlike other open-
end management investment companies (mutual funds) which directly acquire and
manage their own portfolio securities, the Fund seeks to achieve its investment
objective by investing all of its assets in the Portfolio, a separate registered
investment company with the same investment objective as the Fund. Therefore,
an investor's interest in the Portfolio's securities is indirect. In addition
to selling a beneficial interest to the Fund, the Portfolio may sell beneficial
interests to other mutual funds, investment vehicles or institutional investors.
Such investors will invest in the Portfolio on the same terms and conditions and
will pay a proportionate share of the Portfolio's expenses. However, the other
investors investing in the Portfolio are not required to sell their shares at
the same public offering price as the Fund due to variations in sales
commissions and other operating expenses. Therefore, investors in the Fund
should be aware that these differences may result in differences in returns
experienced by investors in the different funds that invest in the Portfolio.
Such differences in returns are also present in other mutual fund structures.
Information concerning other holders of interests in the Portfolio is available
from Bankers Trust at 1-800-730-1313.
Smaller funds investing in the Portfolio may be materially affected by the
actions of larger funds investing in the Portfolio. For example, if a large
fund withdraws from the Portfolio, the remaining funds may experience higher pro
rata operating expenses, thereby producing lower returns (however, this
possibility exists as well for traditionally structured funds which have large
institutional investors). Additionally, the Portfolio may become less diverse,
resulting in increased portfolio risk. Also, funds with a greater pro rata
ownership in the Portfolio could have effective voting control of the operations
of the Portfolio. Except as permitted by the SEC, whenever the Trust is
requested to vote on matters pertaining to the Portfolio, the Trust will hold a
meeting of shareholders of the Fund and will cast all of its votes in the same
proportion as the votes of the Fund's shareholders. Fund shareholders who do
not vote will not affect the Trust's votes at the Portfolio meeting. The
percentage of the Trust's votes representing the Fund's
<PAGE>
shareholders not voting will be voted by the Trustees or officers of the Trust
in the same proportion as the Fund shareholders who do, in fact, vote.
Certain changes in the Portfolio's investment objectives, policies or
restrictions may require the Fund to withdraw its interest in the Portfolio.
Any such withdrawal could result in a distribution "in kind" of portfolio
securities (as opposed to a cash distribution from the Portfolio). If
securities are distributed, the Fund could incur brokerage, tax or other charges
in converting the securities to cash. In addition, the distribution in kind may
result in a less diversified portfolio of investments or adversely affect the
liquidity of the Fund. Notwithstanding the above, there are other means for
meeting redemption requests, such as borrowing.
The Fund may withdraw its investment from the Portfolio at any time, if the
Board of Trustees of the Trust determines that it is in the best interests of
the shareholders of the Fund to do so. Upon any such withdrawal, the Board of
Trustees of the Trust would consider what action might be taken, including the
investment of all the assets of the Fund in another pooled investment entity
having the same investment objective as the Fund or the retaining of an
investment adviser to manage the Fund's assets in accordance with the investment
policies described herein with respect to the Portfolio.
The Fund's investment objective is not a fundamental policy and may be changed
upon notice to, but without the approval of, the Fund's shareholders. If there
is a change in the Fund's investment objective, the Fund's shareholders should
consider whether the Fund remains an appropriate investment in light of their
then-current needs. The investment objective of the Portfolio is also not a
fundamental policy. Shareholders of the Fund will receive 30 days prior written
notice with respect to any change in the investment objective of the Fund or the
Portfolio.
Rating Services. The ratings of Moody's and S&P represent their opinions as to
the quality of the securities that they undertake to rate. It should be
emphasized, however, that ratings are relative and subjective and are not
absolute standards of quality. Although these ratings are an initial criterion
for selection of portfolio investments, the Adviser also makes its own
evaluation of these securities, subject to review by the Board of Trustees.
After purchase by the Portfolio, an obligation may cease to be rated or its
rating may be reduced below the minimum required for purchase by the Portfolio.
Neither event would require the Portfolio to eliminate the obligation from its
portfolio, but the Adviser will consider such an event in its determination of
whether the Portfolio should continue to hold the obligation. A description of
the ratings categories of Moody's and S&P is set forth in the Appendix to this
SAI.
Investment Restrictions
Fundamental Policies. The following investment restrictions are "fundamental
policies" of the Fund and the Portfolio and may not be changed with respect to
the Fund or the Portfolio without the approval of a "majority of the outstanding
voting securities" of the Fund or the Portfolio, as the case may be. "Majority
of the outstanding voting securities" under the Investment Company Act of 1940,
as amended (the "1940 Act"), and as used in this SAI and the Prospectus, 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
<PAGE>
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 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 of the Trust in the same
proportion as the Fund shareholders who do, in fact, vote.
As a matter of fundamental policy, the Portfolio (or Fund) may not (except that
no investment restriction of the Fund shall prevent the Fund from investing all
of its assets in an open-end investment company with substantially the same
investment objective):
(1) borrow money or mortgage or hypothecate assets of the Portfolio (Fund),
except that in an amount not to exceed 1/3 of the current value of the
Portfolio's (Fund's) net assets, it may borrow money as a temporary measure
for extraordinary or emergency purposes and enter into reverse repurchase
agreements or dollar roll transactions, and except that it may pledge,
mortgage or hypothecate not more than 1/3 of such assets to secure such
borrowings (it is intended that money would be borrowed only from banks and
only either to accommodate requests for the withdrawal of beneficial
interests (redemption of shares) while effecting an orderly liquidation of
portfolio securities or to maintain liquidity in the event of an
unanticipated failure to complete a portfolio security transaction or other
similar situations) or reverse repurchase agreements, provided that
collateral arrangements with respect to options and futures, including
deposits of initial deposit and variation margin, are not considered a
pledge of assets for purposes of this restriction and except that assets
may be pledged to secure letters of credit solely for the purpose of
participating in a captive insurance company sponsored by the Investment
Company Institute; for additional related restrictions, see clause (i)
under the caption "Additional Restrictions" below. (As an operating policy,
the Portfolio may not engage in dollar roll transactions);
(2) underwrite securities issued by other persons except insofar as the
Portfolio (Trust or the Fund) may technically be deemed an underwriter
under the 1933 Act in selling a portfolio security;
(3) make loans to other persons except: (a) through the lending of the
Portfolio's (Fund's) portfolio securities and provided that any such loans
not exceed 30% of the Portfolio's (Fund's) net assets (taken at market
value); (b) through the use of repurchase agreements or the purchase of
short-term obligations; or (c) by purchasing a portion of an issue of debt
securities of types distributed publicly or privately;
(4) purchase or sell real estate (including limited partnership interests but
excluding securities secured by real estate or interests therein),
interests in oil, gas or mineral leases, commodities or commodity contracts
(except futures and options contracts) in the ordinary course of business
(except that the Portfolio (Trust) may hold and sell, for the Portfolio's
(Fund's) portfolio, real estate acquired as a result of the Portfolio's
(Fund's) ownership of securities);
<PAGE>
(5) concentrate its investments in any particular industry (excluding U.S.
government securities), but if it is deemed appropriate for the achievement
of the Portfolio's (Fund's) investment objective, up to 25% of its total
assets may be invested in any one industry; and
(6) issue any senior security (as that term is defined in the 1940 Act) if such
issuance is specifically prohibited by the 1940 Act or the rules and
regulations promulgated thereunder, provided that collateral arrangements
with respect to options and futures, including deposits of initial deposit
and variation margin, are not considered to be the issuance of a senior
security for purposes of this restriction.
(7) with respect to 75% of the Fund's (Portfolio's) total assets, invest more
than 5% of its total assets in the securities of any one issuer (excluding
cash and cash-equivalents, U.S. government securities and the securities of
other investment companies) or own more than 10% of the voting securities
of any issuer.
Additional Restrictions. 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 non-
fundamental 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 objective):
(i) borrow money (including through dollar roll transactions) for any
purpose in excess of 10% of the Portfolio's (Fund's) total assets
(taken at market), except that the Portfolio (Fund) may borrow for
temporary or emergency purposes up to 1/3 of its net assets;
(ii) pledge, mortgage or hypothecate for any purpose in excess of 10% of
the Portfolio's (Fund's) total assets (taken at market value),
provided that collateral arrangements with respect to options and
futures, including deposits of initial deposit and variation margin,
and reverse repurchase agreements are not considered a pledge of
assets for purposes of this restriction;
(iii) purchase any security or evidence of interest therein on margin,
except that such short-term credit as may be necessary for the
clearance of purchases and sales of securities may be obtained and
except that deposits of initial deposit and variation margin may be
made in connection with the purchase, ownership, holding or sale of
futures;
(iv) sell any security which it does not own unless by virtue of its
ownership of other securities it has at the time of sale a right to
obtain securities, without payment of further consideration,
equivalent in kind and amount to the securities sold and provided that
if such right is conditional the sale is made upon the same
conditions;
(v) invest for the purpose of exercising control or management;
(vi) purchase securities issued by any investment company except by
purchase in the open market where no commission or profit to a sponsor
or dealer results from such purchase other than the customary broker's
commission, or except when such purchase, though not made in the open
market, is part of a plan of merger or consolidation; provided,
---------
however, that securities of any investment company will not be
--------
purchased for the Portfolio (Fund) if such purchase at the time
thereof would cause (a) more than 10% of the Portfolio's (Fund's)
total assets (taken at the greater of cost or market value) to be
invested in the securities of such issuers; (b) more than 5% of the
Portfolio's (Fund's) total assets (taken at the greater of
<PAGE>
cost or market value) to be invested in any one investment company; or
(c) more than 3% of the outstanding voting securities of any such
issuer to be held for the Portfolio (Fund), unless permitted to exceed
these limitations by an exemptive order of the SEC; provided further
that, except in the case of merger or consolidation, the Portfolio
(Fund) shall not purchase any securities of any open-end investment
company unless the Portfolio (Fund) (1) waives the investment advisory
fee with respect to assets invested in other open-end investment
companies and (2) incurs no sales charge in connection with the
investment;
(vii) invest more than 15% of the Portfolio's (Fund's) net assets (taken at
the greater of cost or market value) in securities that are illiquid
or not readily marketable not including (a) Rule 144A securities that
have been determined to be liquid by the Board of Trustees; and (b)
commercial paper that is sold under section 4(2) of the 1933 Act
which: (i) is not traded flat or in default as to interest or
principal; and (ii) is rated in one of the two highest categories by
at least two nationally recognized statistical rating organizations
and the Portfolio's (Fund's) Board of Trustees have determined the
commercial paper to be liquid; or (iii) is rated in one of the two
highest categories by one nationally recognized statistical rating
agency and the Portfolio's (Fund's) Board of Trustees have determined
that the commercial paper is equivalent quality and is liquid;
(viii) make short sales of securities or maintain a short position, unless
at all times when a short position is open it owns an equal amount of
such securities or securities convertible into or exchangeable,
without payment of any further consideration, for securities of the
same issue and equal in amount to, the securities sold short, and
unless not more than 10% of the Portfolio's (Fund's) net assets (taken
at market value) is represented by such securities, or securities
convertible into or exchangeable for such securities, at any one time
(the Portfolio (Fund) have no current intention to engage in short
selling);
(ix) write puts and calls on securities unless each of the following
conditions are met: (a) the security underlying the put or call is
within the investment policies of the Portfolio (Fund) and the option
is issued by the Options Clearing Corporation, except for put and call
options issued by non-U.S. entities or listed on non-U.S. securities
or commodities exchanges; (b) the aggregate value of the obligations
underlying the puts determined as of the date the options are sold
shall not exceed 5% of the Portfolio's (Fund's) net assets; (c) the
securities subject to the exercise of the call written by the
Portfolio (Fund) must be owned by the Portfolio (Fund) at the time the
call is sold and must continue to be owned by the Portfolio (Fund)
until the call has been exercised, has lapsed, or the Portfolio (Fund)
has purchased a closing call, and such purchase has been confirmed,
thereby extinguishing the Portfolio's (Fund's) obligation to deliver
securities pursuant to the call it has sold; and (d) at the time a put
is written, the Portfolio (Fund) establishes a segregated account with
its custodian consisting of cash or short-term U.S. government
securities equal in value to the amount the Fund will be obligated to
pay upon exercise of the put (this account must be maintained until
the put is exercised, has expired, or the Portfolio (Fund) has
purchased a closing put, which is a put of the same series as the one
previously written); and
(x) buy and sell puts and calls on securities, stock index futures or
options on stock index futures, or financial futures or options on
financial futures unless such options are written by other persons
and: (a) the options or futures are offered through the facilities
of a
<PAGE>
national securities association or are listed on a national
securities or commodities exchange, except for put and call options
issued by non-U.S. entities or listed on non-U.S. securities or
commodities exchanges; (b) the aggregate premiums paid on all such
options which are held at any time do not exceed 20% of the
Portfolio's (Fund's) total net assets; and (c) the aggregate margin
deposits required on all such futures or options thereon held at any
time do not exceed 5% of the Portfolio's (Fund's) total assets.
There will be no violation of any investment restrictions or policies (except
with respect to fundamental investment restriction (1) above) if that
restriction is complied with at the time the relevant action is taken,
notwithstanding a later change in the market value of an investment, in net or
total assets, or in the change of securities rating of the investment, or any
other later change.
Portfolio Transactions and Brokerage Commissions
The Adviser is responsible for decisions to buy and sell securities, futures
contracts and options on such securities and futures for the Portfolio, the
selection of brokers, dealers and futures commission merchants to effect
transactions and the negotiation of brokerage commissions, if any. Broker-
dealers may receive brokerage commissions on portfolio transactions, including
options, futures and options on futures transactions and the purchase and sale
of underlying securities upon the exercise of options. Orders may be directed
to any broker-dealer or futures commission merchant, including to the extent and
in the manner permitted by applicable law, Bankers Trust or its subsidiaries or
affiliates. Purchases and sales of certain portfolio securities on behalf of
the Portfolio are frequently placed by the Adviser with the issuer or a primary
or secondary market-maker for these securities on a net basis, without any
brokerage commission being paid by the Portfolio. Trading does, however,
involve transaction costs. Transactions with dealers serving as market-makers
reflect the spread between the bid and asked prices. Transaction costs may also
include fees paid to third parties for information as to potential purchasers or
sellers of securities. Purchases of underwritten issues may be made which will
include an underwriting fee paid to the underwriter.
The Adviser seeks to evaluate the overall reasonableness of the brokerage
commissions paid (to the extent applicable) in placing orders for the purchase
and sale of securities for the Portfolio taking into account such factors as
price, commission (negotiable in the case of national securities exchange
transactions), if any, size of order, difficulty of execution and skill required
of the executing broker-dealer through familiarity with commissions charged on
comparable transactions, as well as by comparing commissions paid by the
Portfolio to reported commissions paid by others. The Adviser reviews on a
routine basis commission rates, execution and settlement services performed,
making internal and external comparisons.
The Adviser is authorized, consistent with Section 28(e) of the Securities
Exchange Act of 1934, as amended, when placing portfolio transactions for the
Portfolio with a broker to pay a brokerage commission (to the extent applicable)
in excess of that which another broker might have charged for effecting the same
transaction on account of the receipt of research, market or statistical
information. The term "research, market or statistical information" includes
advice as to the value of securities; the advisability of investing in,
purchasing or selling securities; the availability of securities or purchasers
or sellers of securities; and furnishing analyses and reports
<PAGE>
concerning issuers, industries, securities, economic factors and trends,
portfolio strategy and the performance of accounts.
Consistent with the policy stated above, the Conduct Rules of the National
Association of Securities Dealers, Inc. and such other policies as the Trustees
of the Portfolio may determine, the Adviser may consider sales of shares of the
Fund as a factor in the selection of broker-dealers to execute portfolio
transactions. Bankers Trust will make such allocations if commissions are
comparable to those charged by nonaffiliated, qualified broker-dealers for
similar services.
Higher commissions may be paid to firms that provide research services to the
extent permitted by law. Bankers Trust may use this research information in
managing the Portfolio's assets, as well as the assets of other clients.
Except for implementing the policies stated above, there is no intention to
place portfolio transactions with particular brokers or dealers or groups
thereof. In effecting transactions in over-the-counter securities, orders are
placed with the principal market-makers for the security being traded unless,
after exercising care, it appears that more favorable results are available
otherwise.
Although certain research, market and statistical information from brokers and
dealers can be useful to the Portfolio and to the Adviser, it is the opinion of
the management of the Portfolio that such information is only supplementary to
the Adviser's own research effort, since the information must still be analyzed,
weighed and reviewed by the Adviser's staff. Such information may be useful to
the Adviser in providing services to clients other than the Portfolio, and not
all such information is used by the Adviser in connection with the Portfolio.
Conversely, such information provided to the Adviser by brokers and dealers
through whom other clients of the Adviser effect securities transactions may be
useful to the Adviser in providing services to the Portfolio.
In certain instances there may be securities which are suitable for the
Portfolio as well as for one or more of the Adviser's other clients. Investment
decisions for the Portfolio and for the Adviser's other clients are made with a
view to achieving their respective investment objectives. It may develop that a
particular security is bought or sold for only one client even though it might
be held by, or bought or sold for, other clients. Likewise, a particular
security may be bought for one or more clients when one or more clients are
selling that same security. Some simultaneous transactions are inevitable when
several clients receive investment advice from the same investment adviser,
particularly when the same security is suitable for the investment objectives of
more than one client. When two or more clients are simultaneously engaged in
the purchase or sale of the same security, the securities are allocated among
clients in a manner believed to be equitable to each. It is recognized that in
some cases this system could have a detrimental effect on the price or volume of
the security as far as the Portfolio in concerned. However, it is believed that
the ability of the Portfolio to participate in volume transactions will produce
better executions for the Portfolio.
For the fiscal years ended December 31, 1999, 1998 and 1997, Equity 500 Index
Portfolio paid brokerage commissions in the amount of $678,820, $534,801 and
$341,058, respectively. For the year ended December 31, 1998, the Portfolio paid
$333 in brokerage commissions to Bankers Trust, an affiliate of the Fund and
Portfolio. This represents 0.06% of the Portfolio's
<PAGE>
aggregate brokerage commissions and 0% of the Portfolio's aggregate dollar
amount of transactions involving the payment of commissions during the fiscal
year. For the years ended December 31, 1999 and 1997, the Equity 500 Index
Portfolio did not pay brokerage commissions to an affiliate.
PERFORMANCE INFORMATION
Standard Performance Information
From time to time, quotations of the Fund's performance may be included in
advertisements, sales literature or shareholder reports. Mutual fund
performance is commonly measured as total return and/or yield. The Fund's
performance is affected by its expenses. These performance figures are
calculated in the following manner:
Yield: Yield refers to the income generated by an investment in a Fund over a
given period of time, expressed as an annual percentage rate. Yields for the
Fund used in advertising are computed by dividing the Fund's interest and
dividend income for a given 30-day or one-month period, net of expenses, by the
average number of shares entitled to receive distributions during the period,
dividing this figure by the Fund's net asset value ("NAV") per share at the end
of the period, and annualizing the result (assuming compounding of income) in
order to arrive at an annual percentage rate. Income is calculated for purpose
of yield quotations in accordance with standardized methods applicable to all
stock and bond mutual funds. Dividends from equity investments are treated as
if they were accrued on a daily basis, solely for the purpose of yield
calculations. In general, interest income is reduced with respect to bonds
trading at a premium over their par value by subtracting a portion of the
premium from income on a daily basis, and is increased with respect to bonds
trading at a discount by adding a portion of the discount to daily income.
Capital gains and losses generally are excluded from the calculation.
Income calculated for the purposes of calculating the Fund's yield differs from
income as determined for other accounting purposes. Because of the different
accounting methods used, and because of the compounding assumed in yield
calculations, the yield quoted for the Fund may differ from the rate of
distributions of the Fund paid over the same period or the rate of income
reported in the Fund's financial statements.
The 30-day SEC yield for the period ended December 31, 1999 was 1.04%.
Total return: Total return is the change in value of an investment in the Fund
over a given period, assuming reinvestment of any dividends and capital gains.
A cumulative total return reflects actual performance over a stated period of
time. An average annual total return is a hypothetical rate of return that, if
achieved annually, would have produced the same cumulative total return if
performance had been constant over the entire period. Average annual total
return calculations smooth out variations in performance; they are not the same
as actual year-by-year results. Average annual total returns covering periods
of less than one year assume that performance will remain constant for the rest
of the year. The Fund's average annual total return will be 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
<PAGE>
end of the periods. The Fund may also calculate total return figures which
represent aggregate performance over a period or year-by-year performance.
The Fund's total return for the one-year period ended December 31, 1999 was
20.59%. The Fund's cumulative total return for the five-year period ended
December 31, 1999 was 247.45%. The Fund's cumulative total return for the
period from December 31, 1992 (commencement of operations) to December 31, 1999
was 284.93%.
Performance Results: Total returns and yields are based on past results and are
not an indication of future performance. 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 NAV 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.
Comparison of Fund Performance
Comparison of the quoted nonstandardized performance of various investments is
valid only if performance is calculated in the same manner. Since there are
different methods of calculating performance, investors should consider the
effect of the methods used to calculate performance when comparing performance
of a Fund with performance quoted with respect to other investment companies or
types of investments.
In connection with communicating its performance to current or prospective
shareholders, 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 a Fund's performance information could include
the following:
Asian Wall Street Journal, a weekly Asian newspaper that often reviews U.S.
- -------------------------
mutual funds investing internationally.
Barron's, a Dow Jones and Company, Inc. business and financial weekly that
- --------
periodically reviews mutual fund performance data.
Business Week, a national business weekly that periodically reports the
- -------------
performance rankings and ratings of a variety of mutual funds investing abroad.
Changing Times, The Kiplinger Magazine, a monthly investment advisory
- --------------
publication that periodically features the performance of a variety of
securities.
Consumer Digest, a monthly business/financial magazine that includes a "Money
- ---------------
Watch" section featuring financial news.
Financial Times, Europe's business newspaper, which features from time to time
- ---------------
articles on international or country-specific funds.
<PAGE>
Financial World, a general business/financial magazine that includes a "Market
- ---------------
Watch" department reporting on activities in the mutual fund industry.
Forbes, a national business publication that from time to time reports the
- ------
performance of specific investment companies in the mutual fund industry.
Fortune, a national business publication that periodically rates the performance
- -------
of a variety of mutual funds.
Global Investor, a European publication that periodically reviews the
- ---------------
performance of U.S. mutual funds investing internationally.
Investor's Daily, a daily newspaper that features financial, economic and
- ----------------
business news.
Lipper Analytical Services, Inc.'s Mutual Fund Performance Analysis, a weekly
- --------------------------
publication of industry-wide mutual fund averages by type of fund.
Money, a monthly magazine that from time to time features both specific funds
- -----
and the mutual fund industry as a whole.
Morningstar Inc., a publisher of financial information and mutual fund research.
- ---------------
New York Times, a nationally distributed newspaper which regularly covers
- --------------
financial news.
Personal Investing News, a monthly news publication that often reports on
- -----------------------
investment opportunities and market conditions.
Personal Investor, a monthly investment advisory publication that includes a
- -----------------
"Mutual Funds Outlook" section reporting on mutual fund performance measures,
yields, indices and portfolio holdings.
Success, a monthly magazine targeted to the world of entrepreneurs and growing
- -------
business, often featuring mutual fund performance data.
U.S. News and World Report, a national business weekly that periodically reports
- --------------------------
mutual fund performance data.
Value Line, a biweekly publication that reports on the largest 15,000 mutual
- ----------
funds.
Wall Street Journal, a Dow Jones and Company, Inc. newspaper which regularly
- -------------------
covers financial news.
Weisenberger Investment Companies Services, an annual compendium of information
- ------------------------------------------
about mutual funds and other investment companies, including comparative data on
funds' backgrounds, management policies, salient features, management results,
income and dividend records, and price ranges.
Working Women, a monthly publication that features a "Financial Workshop"
- -------------
section reporting on the mutual fund/financial industry.
Economic and Market Information
Advertising and sales literature of a Fund may include discussions of economic,
financial and political developments and their effect on the securities market.
Such discussions may take the form of commentary on these developments by Fund
portfolio managers and their views and
<PAGE>
analysis on how such developments could affect the Fund. In addition,
advertising and sales literature may quote statistics and give general
information about the mutual fund industry, including the growth of the
industry, from sources such as the Investment Company Institute ("ICI"). For
example, according to the ICI, thirty-seven percent of American households are
pursuing their financial goals through mutual funds. These investors, as well as
businesses and institutions, have entrusted over $4.4 trillion to the more than
6,700 funds available.
<PAGE>
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 Fund and other assets), less all liabilities attributable to the Shares, by
the total number of Shares outstanding as of the Valuation Time. The Fund's
securities and other assets are valued primarily on the basis of market
quotations or, if quotations are not readily available, by a method which the
Fund's Board of Trustees believes accurately reflects fair value.
Equity and debt securities (other than short-term debt obligations maturing in
60 days or less), including listed securities and securities for which price
quotations are available, will normally be valued on the basis of market
valuations furnished by a pricing service. Short-term debt obligations and money
market securities maturing in 60 days or less are valued at amortized cost,
which approximates market.
Securities for which market quotations are not readily available are valued by
Bankers Trust pursuant to procedures adopted by the Trust's Board of Trustees.
It is generally agreed that securities for which market quotations are not
readily available should not be valued at the same value as that carried by an
equivalent security which is readily marketable.
The problems inherent in making a good faith determination of value are
recognized in the codification effected by SEC Financial Reporting Release No. 1
("FRR 1" (formerly Accounting Series Release No. 113)) which concludes that
there is "no automatic formula" for calculating the value of restricted
securities. It recommends that the best method simply is to consider all
relevant factors before making any calculation. According to FRR 1 such factors
would include consideration of the:
type of security involved, financial statements, cost at date of purchase,
size of holding, discount from market value of unrestricted securities of
the same class at the time of purchase, special reports prepared by
analysts, information as to any transactions or offers with respect to the
security, existence of merger proposals or tender offers affecting the
security, price and extent of public trading in similar securities of the
issuer or comparable companies, and other relevant matters.
To the extent that the Fund purchases securities which are restricted as to
resale or for which current market quotations are not readily available, the
Adviser will value such securities based upon all relevant factors as outlined
in FRR 1.
Redemptions and Purchases in Kind
The Trust, on behalf of the Fund, reserves the right, if conditions exist which
make cash payments undesirable, to honor any request for redemption or
withdrawal by making payment in whole or in part in readily marketable
securities chosen by the Trust, and valued as they are for
<PAGE>
purposes of computing the Class' net asset values (a redemption in kind). If
payment is made to a Fund shareholder in securities, an investor, including the
Fund, may incur transaction expenses in converting these securities into cash.
The Trust, on behalf of the Fund, has elected, however, to be governed by Rule
18f-1 under the 1940 Act as a result of which the Fund is obligated to redeem
shares 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's Classes
at the beginning of the period.
The Fund may, at its own option, accept securities in payment for shares of a
class. The securities delivered in payment for shares are valued by the method
described above as of the day the Fund receives the securities. This may be a
taxable transaction to the shareholder. (Consult your tax adviser for future tax
guidance.) Securities may be accepted in payment for shares only if they are, in
the judgment of Bankers Trust, appropriate investments for the Fund. In
addition, securities accepted in payment for shares must: (i) meet the
investment objective and policies of the acquiring Fund; (ii) be acquired by the
applicable Fund for investment and not for resale (other than for resale to the
Fund); (iii) be liquid securities which are not restricted as to transfer either
by law or liquidity of the market; and (iv) if stock, have a value which is
readily ascertainable as evidenced by a listing on a stock exchange, over-the-
counter market or by readily available market quotations from a dealer in such
securities. The Fund reserves the right to accept or reject at its own option
any and all securities offered in payment for its shares. The Fund and the
Portfolio each reserve the right to redeem all of its shares, if the Board of
Trustees votes to liquidate the Fund and/or the Portfolio.
Purchase of Shares
The Trust accepts purchase orders for shares of the Fund at the NAV per share
next determined after the order is received on each Valuation Day. Shares may
be available through Investment Professionals, such as broker/dealers and
investment advisers (including Service Agents).
Purchase orders for shares (including those purchased through a Service Agent)
that are transmitted to the Trust's Transfer Agent (the "Transfer Agent"), prior
to the Valuation Time on any Valuation Day will be effective at that day's
Valuation Time. 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 the Custodian purchase payments by the following business day (trade
date + 1) after an order for shares is placed. A shareholder must settle with
the Service Agent for his or her entitlement to an effective purchase or
redemption order as of a particular time. Because Bankers Trust is the
Custodian and Transfer Agent of the Trust, funds may be transferred directly
from or to a customer's account held with Bankers Trust to settle transactions
with the Fund without incurring the additional costs or delays associated with
the wiring of federal funds.
The Trust and Bankers Trust have authorized one or more brokers to accept
on the Trust's behalf purchase and redemption orders. Such brokers are
authorized to designate other intermediaries to accept purchase and redemption
orders on the Trust's behalf. The Transfer Agent will be deemed to have
received a purchase or redemption order when an authorized
<PAGE>
broker or, if applicable, a broker's authorized designee, accepts the order.
Customer orders will be priced at the Fund's NAV next computed after they are
accepted by an authorized broker or the broker's authorized designee.
Redemption of Shares
You can arrange to take money out of your Fund account at any time by selling
(redeeming) some or all of your shares. Your shares shall be sold at the next
NAV calculated after an order is received by the Transfer Agent. Redemption
requests should be transmitted by customers in accordance with procedures
established by the Transfer Agent and the shareholder's Service Agent.
Redemption requests for shares received by the Service Agent and transmitted to
the Transfer Agent prior to the Valuation Time on each Valuation Day will be
effective at the 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.
Redemption orders are processed without charge by the Trust. A Service Agent
may on at least 30 days' notice involuntarily redeem a shareholder's account
with the Fund having a balance below the minimum, but not if an account is below
the minimum due to change in market value. See "Minimum Investments" above for
minimum balance amounts.
The Trust may suspend the right of redemption or postpone the date of payment
for shares of the Fund during any period when: (a) trading on the NYSE is
restricted by applicable rules and regulations of the SEC; (b) the NYSE is
closed for other than customary weekend and holiday closings; (c) the SEC has by
order permitted such suspension; or (d) an emergency exists as determined by the
SEC.
To sell shares in a retirement account, your request must be made in writing,
except for exchanges to other eligible funds in the BT Family of Funds, which
can be requested by phone or in writing. For information on retirement
distributions, contact your Service Agent or call the BT Service Center at
1-800-730-1313.
If you are selling some but not all of your non-retirement account shares, leave
at least $1,000 worth of shares in the account to keep it open.
<PAGE>
Certain requests must include a signature guarantee to protect you and Bankers
Trust from fraud. Redemption requests in writing must include a signature
guarantee if any of the following situations apply:
. Your account registration has changed within the last 30 days,
. The check is being mailed to a different address than the one on your account
(record address),
. The check is being made payable to someone other than the account owner,
. The redemption proceeds are being transferred to a BT account with a
different registration, or
. You wish to have redemption proceeds wired to a non-predesignated bank
account.
A signature guarantee is also required if you change the pre-designated bank
information for receiving redemption proceeds on your account.
You should be able to obtain a signature guarantee from a bank, broker, dealer,
credit union (if authorized under state law), securities exchange or
association, clearing agency, or savings association. A notary public cannot
provide a signature guarantee.
Tax-Saving Retirement Plans
Retirement plans offer significant tax savings and are available to individuals,
partnerships, small businesses, corporations, nonprofit organizations and other
institutions. Contact your Service Agent or Bankers Trust for further
information. Bankers Trust can set up your new account in the Fund under a
number of several tax-savings or tax-deferred plans. Minimums may differ from
those listed elsewhere in this SAI.
MANAGEMENT OF THE TRUST AND PORTFOLIO
The Trust and the Portfolio are governed by their respective Boards of
Trustees which are responsible for protecting the interests of investors. By
virtue of the responsibilities assumed by Bankers Trust, the administrator of
the Trust and the Portfolio, neither the Trust nor the Portfolio requires
employees other than their executive officers. None of the executive officers
of the Trust or the Portfolio devote full time to the affairs of the Trust or
the Portfolio.
A majority of the Trustees who are not "interested persons" (as defined in the
1940 Act) of the Trust or Portfolio, as the case may be, have adopted written
procedures reasonably appropriate to deal with potential conflicts of interest
arising from the fact that the same individuals are Trustees of such Trust and
Portfolio, up to and including creating separate boards of trustees.
Each Board of Trustees is composed of persons experienced in financial matters
who meet throughout the year to oversee the activities of the Fund or Portfolio
they represent. In addition, the Trustees review contractual arrangements with
companies that provide services to the Fund/Portfolio and review the Fund's
performance.
The Trustees and officers of the Trust and Portfolio their birthdates, their
principal occupations during the past five years, and addresses are set forth
below. Their titles may have varied during that period.
<PAGE>
Trustees of the Trust and Portfolio
CHARLES P. BIGGAR (birth date: October 13, 1930) -- Trustee of the Trust and
Portfolio Trust; Trustee of each of the other investment companies in the Fund
Complex/1/; Retired; formerly Vice President, International Business Machines
("IBM") and President, National Services and the Field Engineering Divisions of
IBM. His address is 12 Hitching Post Lane, Chappaqua, New York 10514.
S. LELAND DILL (birth date: March 28, 1930) -- Trustee of the Trust and
Portfolio Trust; Trustee of each of the other investment companies in the Fund
Complex; Retired; formerly Partner, KPMG Peat Marwick; Director, Vintners
International Company Inc.; Director, Coutts (U.S.A.) International; Trustee,
Phoenix Zweig Series Trust; Trustee, Phoenix Euclid Market Neutral Fund;
Director, Coutts Trust Holdings Ltd., Director, Coutts Group; General Partner,
Pemco/2/. His address is 5070 North Ocean Drive, Singer Island, Florida 33404.
MARTIN J. GRUBER (birth date: July 15, 1937) -- Trustee of the Trust and
Portfolio Trust; Trustee of each of the other investment companies in the Fund
Complex; Nomura Professor of Finance, Leonard N. Stern School of Business, New
York University (since 1964); Trustee, TIAA/2/; Director, S.G. Cowen Mutual
Funds/2/; Director, Japan Equity Fund, Inc./2/; Director, Taiwan Equity Fund,
Inc./2/ His address is 229 South Irving Street, Ridgewood, New Jersey 07450.
RICHARD HALE* (birth date: July 17, 1945) -- Trustee of the Trust and Portfolio
Trust; Trustee of each of the other investment companies in the Fund Complex;
Managing Director, Deutsche Asset Management; Director, Flag Investors Funds/2/;
Managing Director, Deutsche Banc Alex. Brown Incorporated; Director and
President, Investment Company Capital Corp. His address is 205 Woodbrook Lane,
Baltimore, Maryland 21202.
RICHARD J. HERRING (birth date: February 18, 1946) -- Trustee of the Trust and
Portfolio Trust; Trustee of each of the other investment companies in the Fund
Complex; Jacob Safra Professor of International Banking and Professor, Finance
Department, The Wharton School, University of Pennsylvania (since 1972). His
address is 325 South Roberts Road, Bryn Mawr, Pennsylvania 19010.
- -----------------------
/1/ The "Fund Complex" consists of BT Investment Funds, BT Institutional Funds,
BT Pyramid Mutual Funds, BT Advisor Funds, Cash Management Portfolio,
Intermediate Tax Free Portfolio, Tax Free Money Portfolio, NY Tax Free Money
Portfolio, Treasury Money Portfolio, International Equity Portfolio, Equity 500
Index Portfolio, Capital Appreciation Portfolio, Asset Management Portfolio and
BT Investment Portfolios.
/2/ An investment company registered under the 1940 Act
<PAGE>
BRUCE E. LANGTON (birth date: May 10, 1931) -- Trustee of the Trust and
Portfolio Trust; Trustee of each of the other investment companies in the Fund
Complex; Retired; formerly Assistant Treasurer of IBM Corporation (until 1986);
Trustee and Member, Investment Operations Committee, Allmerica Financial Mutual
Funds (1992-present); Member, Investment Committee, Unilever U.S. Pension and
Thrift Plans (1989 to present)/3/ Director, TWA Pilots Directed Account Plan and
401(k) Plan (1988 to present)/2/. His address is 99 Jordan Lane, Stamford,
Connecticut 06903.
PHILIP SAUNDERS, JR. (birth date: October 11, 1935) -- Trustee of the Trust and
Portfolio Trust; Trustee of each of the other investment companies in the Fund
Complex; Principal, Philip Saunders Associates (Economic and Financial
Consulting); former Director, Financial Industry Consulting, Wolf & Company;
President, John Hancock Home Mortgage Corporation; Senior Vice President of
Treasury and Financial Services, John Hancock Mutual Life Insurance Company,
Inc. His address is Philip Saunders Associates, 445 Glen Road, Weston,
Massachusetts 02493.
HARRY VAN BENSCHOTEN (birth date: February 18, 1928) -- Trustee of the Trust and
Portfolio Trust; Trustee of each of the other investment companies in the Fund
Complex; Retired; Corporate Vice President, Newmont Mining Corporation (prior to
1987); Director, Canada Life Insurance Corporation of New York (since 1987).
His address is 6581 Ridgewood Drive, Naples, Florida 34108.
* "Interested Person" within the meaning of Section 2(a)(19) of the Act. Mr.
Hale is a Managing Director of Deutsche Asset Management, the U.S. asset
management unit of Deutsche Bank A.G. and its affiliates.
The Board has an Audit Committee that meets with the Trust's and the Portfolio
Trust's independent accountants to review the financial statements of the Trust
and Portfolio Trust, the adequacy of internal controls and the accounting
procedures and policies of the Trust and Portfolio Trust. Each member of the
Board except Mr. Hale is a member of the Audit Committee.
Officers of the Trust and the Portfolio Trust
DANIEL O. HIRSCH (birth date: March 27, 1954) -- Secretary of the Trust and
Portfolio Trust; Director, Deutsche Banc Alex. Brown Incorporated and Investment
Company Capital Corp. since July 1998; Assistant General Counsel, Office of the
General Counsel, United States Securities and Exchange Commission from 1993 to
1998. His address is One South Street, Baltimore, Maryland 21202.
JOHN A. KEFFER (birth date: July 14, 1942) -- President and Chief Executive
Officer of the Trust and Portfolio Trust; President, Forum Financial Group
L.L.C. and its affiliates; President,
- -----------------------
/3/ A publicly held company with securities registered pursuant to Section 12 of
the Securities Exchange Act of 1934, as amended.
<PAGE>
ICC Distributors, Inc./4/ His address is ICC Distributors, Inc., Two Portland
Square, Portland, Maine 04101.
CHARLES A. RIZZO (birth date: August 5, 1957) Treasurer of the Trust and
Portfolio Trust; Director and Department Head, Deutsche Asset Management since
1998; Senior Manager, PricewaterhouseCoopers LLP from 1993 to 1998. His address
is One South Street, Baltimore, MD 21202.
Messrs. Hirsch, Keffer and Rizzo also hold similar positions for other
investment companies for which ICC Distributors, or an affiliate serves as the
principal underwriter.
No person who is an officer or director of Bankers Trust is an officer or
Trustee of the Trust. No director, officer or employee of ICC Distributors,
Inc. or any of its affiliates will receive any compensation from the Trust for
serving as an officer or Trustee of the Trust.
Trustee Compensation Table
<TABLE>
<CAPTION>
Aggregate Aggregate Total
Compensation Compensation Compensation from
Trustee from Trust* From Portfolio** Fund Complex***
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Charles P. Biggar $ 1,698 $1,235 $43,750
- ----------------------------------------------------------------------------------------------------
S. Leland Dill $ 1,698 $1,074 $43,750
- ----------------------------------------------------------------------------------------------------
Martin Gruber $26,442 $ 212 $45,000
- ----------------------------------------------------------------------------------------------------
Richard J. Herring $ 1,509 $ 189 $43,750
- ----------------------------------------------------------------------------------------------------
Kelvin Lancaster $ 6,133 N/A $18,750
- ----------------------------------------------------------------------------------------------------
Bruce E. Langton $ 1,698 $ 212 $43,750
- ----------------------------------------------------------------------------------------------------
Philip Saunders, Jr. $ 1,698 $1,108 $45,000
- ----------------------------------------------------------------------------------------------------
Harry Van Benschoten $26,442 $ 212 $45,000
- ----------------------------------------------------------------------------------------------------
</TABLE>
- ---------------------------
/4/ Underwriter/distributor for the Trust. Mr. Keffer owns 100% of the shares of
ICC Distributors, Inc.
<PAGE>
* The information provided is for the BT Pyramid Mutual Funds, which is
comprised of 5 funds, for the year ended December 31, 1999.
** The information provided is for Equity 500 Index Portfolio for the
Portfolio's most recent fiscal year ended December 31, 1999.
*** Aggregated information is furnished for the Deustche Asset Management funds
which consists of the following: BT Investment Funds, BT Institutional Funds, BT
Pyramid Mutual Funds, BT Advisor Funds, BT Investment Portfolios, Cash
Management Portfolio, Treasury Money Portfolio, Tax Free Money Portfolio, NY Tax
Free Money Portfolio, International Equity Portfolio, Intermediate Tax Free
Portfolio, Asset Management Portfolio, Equity 500 Index Portfolio and Capital
Appreciation Portfolio for the year ended December 31, 1999.
Bankers Trust reimbursed the Fund and Portfolio for a portion of their Trustees
fees for the period above. See "Investment Adviser" and "Administrator" below.
As of March 31, 2000, the Trustees and officers of the Trust and the Portfolio
owned in the aggregate less than 1% of the shares of the Fund or the Trust (all
series taken together).
As of March 31, 2000, the following shareholders of record owned 5% or more of
the outstanding shares of the Fund: Mac & Co. Cust. Westinghouse Electric
Savings & Investment Plan A/C WSPF 1801142, Attn Mutual Funds Operations, P.O.
Box 3198, Pittsburgh, PA 15230-3198 (16.312%); State Street Bank and Trust Cust.
Northrop Grumman Essd Savings Plan Attn: Annette Johnson, 34 Exchange Pl
#6-3064, Jersey City, NJ 07302-3885 (11.110%); Bechtel Bettis Inc. Savings Plan
C/O Bankers Trust Company 100 Plaza One, Jersey City, NJ 07311-3901 (5.192%);
Private Bank Sweep, Investment Advisory, New York, NY (39.977%); Private Bank
Sweep, Custody, New York, NY (30.917%);
Bankers Trust Co. Cust 401(k) Framatome Technologies, Attn. Tom Arnold,
Recordkeeping, 800 Crescent Centre Drive, Franklin, TN 37067-6221 (5.186%).
<PAGE>
Code of Ethics
The Board of Trustees of the Fund has adopted a Code of Ethics pursuant to Rule
17j-1 under the 1940 Act. The Fund's Code of Ethics permits Fund personnel to
invest in securities for their own accounts, but requires compliance with the
Code's pre-clearance requirements (with certain exceptions). In addition, the
Fund's Code of Ethics provides for trading "blackout periods" that prohibit
trading by personnel within periods of trading by the Fund in the same security.
The Fund's Code of Ethics also prohibits short term trading profits and personal
investment in initial public offerings. The Code requires prior approval with
respect to purchases of securities in private placements.
The Fund's adviser, Bankers Trust, has also adopted a Code of Ethics. The Code
of Ethics allows personnel to invest in securities for their own accounts, but
requires compliance with the Code's pre-clearance requirements and other
restrictions including "blackout periods" and minimum holding periods, subject
to limited exceptions. The Code prohibits purchases of securities in initial
public offerings (the prohibition is limited to U.S. public offerings) and
requires prior approval for purchases of securities in private placements.
The Fund's principal underwriter, ICC Distributors, Inc. ("ICC"), has adopted a
Code of Ethics applicable to ICC's distribution services to registered
investment companies such as the Fund. The distributor's Code of Ethics
prohibits access persons and investment personnel from executing personal trades
on a day during which the individual knows or should have known that a Fund has
a pending "buy" or "sell" order in the same security, subject to certain
exceptions. In addition, investment personnel are prohibited from executing
personal trades during a "blackout period" surrounding trades by funds for which
such investment personnel make investment recommendations, subject to certain
exceptions. The ICC Distributors' Code of Ethics also requires investment
personnel to obtain pre-clearance for purchases of securities in an initial
public offering or private placement.
Investment Adviser
The Trust has not retained the services of an investment adviser since the Trust
seeks to achieve the investment objective of the Fund by investing all the
assets of the Fund in the Portfolio. The Portfolio has retained the services of
Bankers Trust as Adviser.
Bankers Trust is a wholly owned subsidiary of Deutsche Bank A.G. ("Deutsche
Bank"). Deutsche Bank is a banking company with limited liability organized
under the laws of the Federal Republic of Germany. Deutsche Bank is the parent
company of a group consisting of banks, capital markets companies, fund
management companies, mortgage banks, a property finance company, installments
financing and leasing companies, insurance companies, research and consultancy
companies and other domestic and foreign companies.
Bankers Trust may have deposit, loan and other commercial banking relationships
with the issuers of obligations which may be purchased on behalf of the
Portfolio, including outstanding loans to such issuers which could be repaid in
whole or in part with the proceeds of securities so purchased. Such affiliates
deal, trade and invest for their own accounts in such obligations and are among
the leading dealers of various types of such obligations. Bankers Trust has
informed the Portfolio that, in making its investment decisions, it does not
obtain or use material inside
<PAGE>
information in its possession or in the possession of any of its affiliates, In
making investment recommendations for the Portfolio, Bankers Trust will not
inquire or take into consideration whether an issuer of securities proposed for
purchase or sale by the Portfolio is a customer of Bankers Trust, its parent or
its subsidiaries or affiliates, Also, in dealing with its customers, Bankers
Trust, its parent , subsidiaries, and affiliates will not inquire or take into
consideration whether securities of such customers are held by any fund managed
by Bankers Trust or any such affiliate.
Bankers Trust, subject to the supervision and direction of the Board of Trustees
of the Portfolio, manages the Portfolio in accordance with the Portfolio's
investment objective and stated investment policies, makes investment decisions
for the Portfolio, places orders to purchase and sell securities and other
financial instruments on behalf of the Portfolio and employs professional
investment managers and securities analysts who provide research services to the
Portfolio. Bankers Trust may utilize the expertise of any of its worldwide
subsidiaries and affiliates to assist it in its role as investment adviser. All
orders for investment transactions on behalf of the Portfolio are placed by
Bankers Trust with brokers, dealers and other financial intermediaries that it
selects, including those affiliated with Bankers Trust. A Bankers Trust
affiliate will be used in connection with a purchase or sale of an investment
for the Portfolio only if Bankers Trust believes that the affiliate's charge for
transaction does not exceed usual and customary levels. The Portfolio will not
invest in obligations for which Bankers Trust or any of its affiliates is the
ultimate obligor or accepting bank. The Portfolio may, however, invest in the
obligations of correspondents or customers of Bankers Trust.
Under the Advisory Agreement, Bankers Trust receives a fee from the Portfolio,
computed daily and paid monthly, at the annual rate of 0.075% of the average
daily net assets of the Portfolio.
For the fiscal years ended December 31, 1999, 1998 and 1997, Bankers Trust
earned $5,134,906, $3,186,503 and $2,430,147, respectively, as compensation for
investment advisory services provided to the Portfolio. During the same
periods, Bankers Trust did not reimburse in 1999 and reimbursed $799,296 in 1998
and $1,739,490 in 1997 to the Portfolio to cover expenses.
The Fund's prospectus contains disclosure as to the amount of Bankers Trust's
investment advisory and administration and services fees, including waivers
thereof. Bankers Trust may not recoup any of its waived investment advisory or
administration and services fees.
The Fund's prospectus contains disclosure as to the amount of Bankers Trust's
investment advisory and administration and services fees, including waivers
thereof. Bankers Trust may not recoup any of its waived investment advisory or
administration and services fees.
The Fund's prospectus contains disclosure as to the amount of Bankers Trust's
investment advisory and administration and services fees, including waivers
thereof. Bankers Trust may not recoup any of its waived investment advisory or
administration and services fees.
Administrator
Under its Administration and Services Agreement with the Trust, the Adviser
calculates the net asset value of the Fund and generally assists the Board of
Trustees of the Trust in all aspects of the administration and operation of the
Trust. The Administration and Services Agreement
<PAGE>
provides for the Trust to pay the Adviser a fee, computed daily and paid
monthly, equal on an annual basis to 0.30% of the average daily net assets of
the Fund.
Under Administration and Services Agreement with the Portfolio, the Adviser
calculates the value of the assets of the Portfolio and generally assists the
Board of Trustees of the Portfolio in all aspects of the administration and
operation of the Portfolio. The Administration and Services Agreement provides
for the Portfolio to pay the Adviser a fee, accrued daily and paid monthly,
computed as a percentage of the average daily net assets of the Portfolio which
on an annual basis is equal to the lesser of (1) 0.005%, or (2) the amount that
brings the total annual operating expenses as a percentage of the Portfolio's
average daily net assets up to 0.08%. For the period January 1, 1998 to May 6,
1998, the Administration and Services fee was 0.05% on an annual basis. Under
the Administration and Services Agreement, the Adviser may delegate one or more
of its responsibilities to others at the Adviser's expense.
Under the Administration and Services Agreement, Bankers Trust is obligated on a
continuous basis to provide such administrative services as the Board of
Trustees of the Trust and the Portfolio reasonably deem necessary for the proper
administration of the Trust or the Portfolio. Bankers Trust will generally
assist in all aspects of the Fund's and Portfolio's operations; supply and
maintain office facilities (which may be in Bankers Trust's own offices),
statistical and research data, data processing services, clerical, accounting,
bookkeeping and recordkeeping services (including without limitation the
maintenance of such books and records as are required under the 1940 Act and the
rules thereunder, except as maintained by other agents), internal auditing,
executive and administrative services, and stationery and office supplies;
prepare reports to shareholders or investors; prepare and file tax returns;
supply financial information and supporting data for reports to and filings with
the SEC and various state Blue Sky authorities; supply supporting documentation
for meetings of the Board of Trustees; provide monitoring reports and assistance
regarding compliance with Declarations of Trust, by-laws, investment objectives
and policies and with Federal and state securities laws; arrange for appropriate
insurance coverage; calculate net asset values, net income and realized capital
gains or losses; and negotiate arrangements with, and supervise and coordinate
the activities of, agents and others to supply services.
For the years ended December 31, 1999, 1998 and 1997, Bankers Trust earned
$2,795,831, 2,262,552 and $1,666,151, respectively, in compensation for
administrative and other services provided to the Fund. During the same
periods, Bankers Trust reimbursed $1,333,892, $1,112,494 and $774,879,
respectively, to the Fund to cover expenses.
For the years ended December 31, 1999, 1998 and 1997, Bankers Trust earned
$344,960, $676,625 and $1,215,073, respectively, in compensation for
administrative and other services provided to the Portfolio.
Distributor
ICC Distributors is the principal Distributor for shares of the Fund. ICC
Distributors is a registered broker/dealer and is unaffiliated with Bankers
Trust. The principal business address of ICC Distributors is Two Portland
Square, Portland, Maine 04101. In addition to ICC Distributors's duties as
Distributor, ICC Distributors and its affiliates may, in their discretion,
perform additional functions in connection with transactions in the shares of
the Fund.
<PAGE>
Service Agent
The Adviser acts as a Service Agent pursuant to its Administration and
Services Agreement with the Trust and receives no additional compensation from
the Fund for such shareholder services. The service fees of any other Service
Agents, including broker-dealers, will be paid by the Adviser from its fees.
The services provided by a Service Agent may include establishing and
maintaining shareholder accounts, processing purchase and redemption
transactions, performing shareholder sub-accounting, answering client inquiries
regarding the Trust, investing client cash account balances automatically in
Fund shares and processing redemption transactions at the request of clients,
assisting clients in changing dividend options, account designations and
addresses, providing periodic statements showing the client's account balance
and integrating these statements with those of other transactions and balances
in the client's other accounts serviced by the Service Agent, transmitting proxy
statements, periodic reports, updated prospectuses and other communications to
shareholders and, with respect to meetings of shareholders, collecting,
tabulating and forwarding to the Trust executed proxies, arranging for bank
wires and obtaining such other information and performing such other services as
the Administrator or the Service Agent's clients may reasonably request and
agree upon with the Service Agent. Service Agents may separately charge their
clients additional fees only to cover provision of additional or more
comprehensive services not already provided under the Administration and
Services Agreement with the Adviser, or of the type or scope not generally
offered by a mutual fund, such as cash management services or enhanced
retirement or trust reporting. In addition, investors may be charged a
transaction fee if they effect transactions in Fund shares through a broker or
agent. Each Service Agent has agreed to transmit to shareholders, who are its
customers, appropriate disclosures of any fees that it may charge them
directly.
Custodian and Transfer Agent
Bankers Trust, 130 Liberty Street (One Bankers Trust Plaza), New York, New York
10006, serves as Custodian for the Trust and for the Portfolio pursuant to the
administration and services agreements. As Custodian, it holds the Fund's and
the Portfolio's assets. Bankers Trust also serves as transfer agent of the
Trust and of the Portfolio pursuant to the respective administration and
services agreement. Under its transfer agency agreement with the Trust, Bankers
Trust maintains the shareholder account records for the Fund, handles certain
communications between shareholders and the Trust and causes to be distributed
any dividends and distributions payable by the Trust. Bankers Trust may be
reimbursed by the Fund or the Portfolio for its out-of-pocket expenses. Bankers
Trust will comply with the self-custodian provisions of Rule 17f-2 under the
1940 Act.
Expenses
The Fund bears its own expenses. Operating expenses for the Fund generally
consist of all costs not specifically borne by the Adviser or ICC Distributors,
including administration and services fees, fees for necessary professional
services, amortization of organizational expenses and costs associated with
regulatory compliance and maintaining legal existence and shareholder relations.
The Portfolio bears its own expenses. Operating expenses for the Portfolio
generally consist of all costs not specifically borne by the Adviser or ICC
Distributors, including investment advisory
<PAGE>
and administration and service fees, fees for necessary professional services,
amortization of organizational expenses, the costs associated with regulatory
compliance and maintaining legal existence and investor relations.
Use of Name
The Trust and Bankers Trust have agreed that the Trust may use "BT" as part of
its name for so long as Bankers Trust serves as investment adviser to the
Portfolio. 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 counsel's opinion,
Bankers Trust currently may perform the services for the Trust and the Portfolio
contemplated by the investment advisory agreements and other activities for the
Fund and the Portfolio described in the Prospectus and this SAI without
violation of the Glass-Steagall Act or other applicable banking laws or
regulations. However, counsel has pointed out that future changes in either
Federal or state statutes and regulations concerning the permissible activities
of banks or trust companies, as well as future judicial or administrative
decisions or interpretations of present and future statutes and regulations,
might prevent Bankers Trust from continuing to perform those services for the
Trust and the Portfolio. State laws on this issue may differ from the
interpretations of relevant Federal law and banks and financial institutions may
be required to register as dealers pursuant to state securities law. If the
circumstances described above should change, the Boards of Trustees would review
the relationships with Bankers Trust and consider taking all actions necessary
in the circumstances.
Counsel and Independent Accountants
Willkie Farr & Gallagher, 787 Seventh Avenue, New York, New York 10019-6099,
serves as Counsel to the Trust and from time to time provides certain legal
services to Bankers Trust. PricewaterhouseCoopers LLP, 250 W. Pratt Street,
Baltimore, Maryland 21201 has been selected as Independent Accountants for the
Trust.
ORGANIZATION OF THE TRUST
The Trust was organized on February 28, 1992 under the laws of the Commonwealth
of Massachusetts. The Fund is a separate series of the Trust. The Trust offers
shares of beneficial interest of separate series, par value $0.001 per share.
The shares of the other series of the Trust are offered through separate
prospectuses. The shares of each 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 a
series. Each share represents an equal proportionate interest in a series
<PAGE>
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.
The Trust is an entity commonly known as a "Massachusetts business trust."
Massachusetts law provides that shareholders could under certain circumstances
be held personally liable for the obligations of the Trust. However, the
Declaration of Trust disclaims shareholder liability for acts or obligations of
the Trust and requires that notice of this disclaimer be given in each
agreement, obligation or instrument entered into or executed by the Trust or a
Trustee. The Declaration of Trust provides for indemnification from the Trust's
property for all losses and expenses of any shareholder held personally liable
for the obligations of the Trust. Thus, the risk of shareholders incurring
financial loss on account of shareholder liability is limited to circumstances
in which both inadequate insurance existed and the Trust itself was unable to
meet its obligations, a possibility that the Trust believes is remote. Upon
payment of any liability incurred by the Trust, the shareholder paying the
liability will be entitled to reimbursement from the general assets of the
Trust. The Trustees intend to conduct the operations of the Trust in a manner
so as to avoid, as far as possible, ultimate liability of the shareholders for
liabilities of the Trust.
The Portfolio, in which all the assets of the Fund will be invested, is
organized as a trust under the laws of the State of New York. The Portfolio's
Declaration of Trust provides that the Fund and other entities investing in the
Portfolio (e.g., other investment companies, insurance company separate accounts
and common and commingled trust funds) will each be liable for all obligations
of the Portfolio. However, the risk of the Fund incurring financial loss on
account of such liability is limited to circumstances in which both inadequate
insurance existed and the Portfolio itself was unable to meet its obligations.
Accordingly, the Trustees of the Trust believe that neither the Fund nor its
shareholders will be adversely affected by reason of the Fund's investing in the
Portfolio. In addition, whenever the Trust is requested to vote on matters
pertaining to the fundamental policies of the Portfolio, the Trust will hold a
meeting of the Fund's shareholders and will cast its vote as instructed by the
Fund's shareholders.
Shares of the Trust do not have cumulative voting rights, which means that
holders of more than 50% of the shares voting for the election of Trustees can
elect all Trustees. Shares are transferable but have no preemptive, conversion
or subscription rights. Shareholders generally vote by Fund, except with
respect to the election of Trustees.
The Trust is not required to hold annual meetings of shareholders but will
hold special meetings of shareholders when in the judgment of the Trustees it is
necessary or desirable to submit matters for a shareholder vote. Shareholders
have under certain circumstances the right to communicate with other
shareholders in connection with requesting a meeting of shareholders for the
purpose of removing one or more Trustees without a meeting. Upon liquidation of
the Fund, shareholders of that Fund would be entitled to share pro rata in the
net assets of the Fund available for distribution to shareholders.
Whenever the Trust is requested to vote on a matter pertaining to the Portfolio,
the Trust will vote its shares without a meeting of shareholders of the Fund if
the proposal is one, if which made with respect to the Fund, would not require
the vote of shareholders of the Fund as long as such action is permissible under
applicable statutory and regulatory requirements. For all other
<PAGE>
matters requiring a vote, the Trust will hold a meeting of shareholders of the
Fund and, at the meeting of investors in the Portfolio, the Trust will cast all
of its votes in the same proportion as the votes all its shares at the Portfolio
meeting, other investors with a greater pro rata ownership of the Portfolio
could have effective voting control of the operations of the Portfolio.
As of March 31, 2000, no shareholders of record owned 25% or more of the
voting securities of Equity 500 Index--Investment Class, and, therefore, are not
deemed to control the Fund and be able to affect the outcome of certain matters
presented for a vote of its shareholders.
TAXATION
Taxation of the Fund
The Trust intends to qualify annually and to elect for the Fund to be treated as
a regulated investment company under the Code. 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, and therefore does not anticipate
incurring a Federal income tax liability. The Fund also does not anticipate
paying any excise taxes. The Fund's dividends and distributions will not
qualify for the dividends-received deduction for corporations.
If for any taxable year the Fund does not qualify for the special federal income
tax treatment afforded regulated investment companies, all of its taxable income
will be subject to federal income tax at regular corporate rates (without any
deduction for distributions to its shareholders). In such event, dividend
distributions would be taxable to shareholders to the extent of current
accumulated earnings and profits, and would be eligible for the dividends
received deduction for corporations in the case of corporate shareholders.
The Fund's investment in Section 1256 contracts, such as regulated futures
contracts and options on most stock indices, is subject to special tax rules.
All section 1256 contracts held by the Fund at the end of its taxable year are
required to be marked to their market value, and any unrealized gain or loss on
those positions will be included in the Fund's income as if each position had
been sold for its fair market value at the end of the taxable year. The
resulting gain or loss will be combined with any gain or loss realized by the
Fund from positions in section 1256 contracts closed during the taxable year.
Provided such positions were held as capital assets and were not part of a
"hedging transaction" nor part of a "straddle," 60% of the resulting net gain or
loss will be treated as long-term capital gain or loss, and 40% of such net gain
or loss will be treated as short-term capital gain or loss, regardless of the
period of time the positions were actually held by the Fund.
Distributions
The Fund distributes substantially all of its net income and capital gains to
shareholders each year. Income dividends are distributed quarterly. In
addition, the Fund will distribute net capital gains, if any, at least annually
and potentially semi-annually, if required, to remain in compliance
<PAGE>
with the applicable tax regulations. Unless a shareholder instructs the Trust to
pay such dividends and distributions in cash, they will be automatically
reinvested in additional shares of the Fund.
Dividends paid out of the Fund's investment company taxable income and short-
term capital gains 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 Fund's distributions are taxable when they are paid, whether you
take them in cash or reinvest them in additional shares. Distributions declared
to shareholders of record in October, November or December and paid in January
are taxable as if paid on December 31. Shareholders receiving distributions in
the form of additional shares, rather than cash, generally will have a taxable
amount, and 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 income tax status of distributions.
Shareholders should consult their own tax adviser concerning the application of
federal, state and local taxes to the distributions they receive from the Fund.
You may realize a capital gain or loss when you redeem (sell) or exchange
shares. Because the tax treatment also depends on your purchase price and your
personal tax position, you should keep your regular account statements to use in
determining your tax.
On the ex-date for a distribution from capital gains, the Fund's share value is
reduced by the amount of the distribution. If you buy shares just before the
ex-date ("buying a dividend"), you will pay the full price for the shares and
then receive a portion of the price back as a taxable distribution.
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.
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 a Fund may be
different from those described herein. Foreign shareholders are advised to
consult their own tax advisers with respect to the particular tax consequences
to them of an investment in the Fund.
<PAGE>
Other Taxation
The Trust is organized as a Massachusetts business trust and, under current law,
neither the Trust nor any 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.
The Portfolio is organized as a New York trust. The Portfolio is not subject to
any income or franchise tax in the State of New York or the Commonwealth of
Massachusetts.
FINANCIAL STATEMENTS
The financial statements for the Fund or Portfolio for the period ended
December 31, 1999, are incorporated herein by reference to the Annual Report to
shareholders for the Fund dated December 31, 1999. A copy of the Fund's Annual
Report may be obtained without charge by contacting the Service Center at 1-800-
730-1313.
<PAGE>
APPENDIX
Bond and Commercial Paper Ratings
Set forth below are descriptions of the ratings of Moody's and S&P, which
represent their opinions as to the quality of the securities which they
undertake to rate. It should be emphasized, however, that ratings are relative
and subjective and are not absolute standards of quality.
S&P's Bond Ratings
An S&P corporate debt rating is a current assessment of the creditworthiness of
an obligor with respect to a specific obligation. Debt rated "AAA" has the
highest rating assigned by S&P. Capacity to pay interest and repay principal is
extremely strong. Debt rated "AA" has a very strong capacity to pay interest
and to repay principal and differs from the highest rated issues only in small
degree.
The rating "AA" may be modified by the addition of a plus or minus sign to show
relative standing within such category.
Moody's Bond Ratings
Excerpts from Moody's description of its corporate bond ratings: Aaa judged to
be the best quality, carry the smallest degree of investment risk; Aa judged to
be of high quality by all standards.
S&P's Commercial Paper Ratings
A is the highest commercial paper rating category utilized by S&P, which uses
the numbers 1+, 1, 2 and 3 to denote relative strength within its A
classification. Commercial paper issues rated A by S&P have the following
characteristics: Liquidity ratios are better than industry average. Long-term
debt rating is A or better. The issuer has access to at least two additional
channels of borrowing. Basic earnings and cash flow are in an upward trend.
Typically, the issuer is a strong company in a well-established industry and has
superior management.
Moody's Commercial Paper Ratings
Issuers rated Prime-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. Prime-1 repayment
capacity will normally be evidenced by the following characteristics: leading
market positions in well-established industries; high rates of return on funds
employed; conservative capitalization structures with moderate reliance on debt
and ample asset protection; broad margins in earnings coverage of fixed
financial charges and high internal cash generation; well-established access to
a range of financial markets and assured sources of alternate liquidity.
Issuers rated Prime-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Issuers rated Prime-3 (or related supporting institutions) have an acceptable
capacity for repayment of short-term promissory obligations. The effect of
industry characteristics and market composition may be more pronounced.
Variability in earnings and profitability may result in changes in the level of
debt protection measurements and the requirement for relatively high financial
leverage. Adequate alternate liquidity is maintained.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
APRIL 30, 2000
Investment Adviser of the Portfolio
Administrator of the Fund and Portfolio
BANKERS TRUST COMPANY
130 Liberty Street
(One Bankers Trust Plaza)
New York, NY 10006
Distributor
ICC DISTRIBUTORS, INC.
Custodian and Transfer Agent
BANKERS TRUST COMPANY
130 Liberty Street
(One Bankers Trust Plaza)
New York, NY 10006
Independent Accountants
PRICEWATERHOUSECOOPERS LLP
250 West Pratt Street
Baltimore, MD 21201
Counsel
WILLKIE FARR & GALLAGHER LLP
787 Seventh Avenue
New York, NY 10019
No person has been authorized to give any information or to make any
representations other than those contained in the Trust's Prospectus, its
Statement of Additional Information or the Trust's official sales literature in
connection with the offering of the Trust's shares and, if given or made, such
other information or representations must not be relied on as having been
authorized by the Trust. Neither the Prospectus nor this Statement of Additional
Information constitutes an offer in any state in which, or to any person to
whom, such offer may not lawfully be made.
CUSIP #055847107
SAI1662 (0/00)
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
April 30, 2000
BT INSTITUTIONAL FUNDS
Equity 500 Index Premier
formerly Institutional Equity 500 Index Fund
BT ADVISOR FUNDS--PREMIER CLASS
U.S. Bond Index--Premier Class
formerly U.S. Bond Index Fund--Institutional Class
Small Cap Index--Premier Class
formerly Small Cap Index Fund--Institutional Class
EAFE(R) Equity Index--Premier Class
formerly EAFE(R) Equity Index Fund--Institutional Class
BT Advisor Funds (the "Trust") comprise series funds. The funds listed above
(each, a "Fund" and together the "Funds") are, with the exception of Equity 500
Index Premier, each a series of the Trust. Equity 500 Index Premier is a series
of BT Institutional Funds (the "Institutional Trust") (together with the Trust,
the "Trusts").
Unlike other mutual funds, the Trusts seek to achieve the investment objective
of each Fund by investing all the investable assets of the Fund in a diversified
open-end management investment company (or a series thereof) having the same
investment objective as such Fund. These investment companies are, respectively,
BT Investment Portfolios and Equity 500 Index Portfolio. U.S. Bond Index
Portfolio, Small Cap Index Portfolio and EAFE(R) Equity Index Portfolio are each
a series of BT Investment Portfolios (each, a "Portfolio" and collectively, the
"Portfolios").
Shares of the Funds are sold by ICC Distributors, Inc. ("ICC Distributors"), the
Trusts' distributor (the "Distributor"), to clients and customers (including
affiliates and correspondents) of Bankers Trust Company ("Bankers Trust"), the
Portfolios' investment adviser ("Adviser"), and to clients and customers of
other organizations.
The Prospectuses for each Fund, dated April 30, 2000, provide the basic
information investors should know before investing. This Statement of Additional
Information ("SAI"), which is not a Prospectus, is intended to provide
additional information regarding the activities and operations of the Trusts and
should be read in conjunction with the Prospectuses. You may request a copy of a
Prospectus or a paper copy of this SAI, if you have received it electronically,
free of charge by calling the Trusts at the telephone number listed below or by
contacting any Bankers Trust service agent ("Service Agent"). Capitalized terms
not otherwise defined in this Statement of Additional Information have the
meanings accorded to them in each Fund's Prospectus. The financial statements
for each Fund and the corresponding Portfolio for the fiscal year ended December
31, 1999, are incorporated herein by reference to the Annual Report to
shareholders for each Fund and each Portfolio dated December 31, 1999. A copy of
each Fund's and the corresponding Portfolio's Annual Report may be obtained
without charge by calling each Fund at the telephone number listed below.
BANKERS TRUST COMPANY
Investment Adviser and Administrator of the Portfolios
ICC DISTRIBUTORS, INC.
Distributor
Two Portland Square
Portland, Maine 04101
1-800-368-4031
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<TABLE>
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TABLE OF CONTENTS
Page
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INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS............ 1
Investment Policies........................................ 1
Futures Contracts and Options on Futures Contracts......... 15
Additional Risk Factors.................................... 15
Investment Restrictions.................................... 15
Portfolio Transactions and Brokerage Commissions........... 15
PERFORMANCE INFORMATION..................................... 15
Standard Performance Information........................... 15
Comparison of Fund Performance............................. 15
Economic and Market Information............................ 15
VALUATION OF SECURITIES; REDEMPTIONS AND PURCHASES IN KIND.. 15
Valuation of Securities.................................... 15
Purchase of Shares......................................... 15
Redemption of Shares....................................... 15
Redemptions and Purchases in Kind.......................... 15
Trading in Foreign Securities.............................. 15
MANAGEMENT OF THE TRUSTS AND THE PORTFOLIOS................. 15
Trustees of the Trusts and Portfolios...................... 40
Officers of the Trusts and Portfolios...................... 15
Trustee Compensation Table................................. 45
Code of Ethics............................................. 47
Investment Adviser......................................... 58
Administrator.............................................. 15
Distributor................................................ 51
Service Agent.............................................. 51
Custodian and Transfer Agent............................... 15
Expenses................................................... 15
Use of Name................................................ 15
Banking Regulatory Matters................................. 15
Counsel and Independent Accountants........................ 15
ORGANIZATION OF THE TRUSTS.................................. 15
TAXATION.................................................... 55
Taxation of the Funds...................................... 55
Taxation of the Portfolios................................. 56
Distributions.............................................. 56
Backup Withholding......................................... 57
Foreign Shareholders....................................... 57
Other Taxation............................................. 57
Foreign Withholding Taxes.................................. 57
FINANCIAL STATEMENTS........................................ 57
APPENDIX.................................................... 58
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INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
Investment Objectives
The following is a description of each Fund's investment objective. There can,
of course, be no assurance that any Fund will achieve its investment
objective(s).
Equity 500 Index Premier seeks to match as closely as possible (before expenses)
the performance of the Standard & Poor's 500 Composite Stock Price Index (the
"S&P 500 Index") which emphasizes stocks of large U.S. Companies.
U.S. Bond Index--Premier Class seeks to match as closely as possible (before
expenses) the investment performance of the Lehman Brothers Aggregate Bond Index
(the "Aggregate Bond Index"), which emphasizes government and corporate
investment grade debt securities.
Small Cap Index--Premier Class seeks to match as closely as possible (before
expenses) the performance of the Russell 2000 Small Stock Index (the "Russell
2000 Index"), which emphasizes stocks of small U.S. companies.
EAFE(R) Equity Index--Premier Class seeks to match as closely as possible
(before expenses) the performance of the Morgan Stanley Capital International
Europe, Australia, Far East (EAFE) Index with net dividends (the "EAFE Index"),
which emphasizes stocks of companies in major markets in Europe, Australia and
the Far East.
Investment Policies
Each Fund seeks to achieve its investment objective by investing all of its
assets in the corresponding Portfolio. The Trusts may withdraw a Fund's
investment from the corresponding Portfolio at any time if the Board of Trustees
of the respective Trust determines that it is in the best interests of the Fund
to do so.
Since the investment characteristics of each Fund will correspond directly to
those of the corresponding Portfolio, the following is a discussion of the
various investments of and techniques employed by the Portfolios.
Equity Securities. With the exception of the U.S. Bond Index Portfolio, each
Portfolio may invest in equity securities listed on any domestic or foreign
securities exchange or traded in the over-the-counter market as well as certain
restricted or unlisted securities. As used herein, "equity securities" are
defined as common stock, preferred stock, trust or limited partnership
interests, rights and warrants to subscribe to or purchase such securities,
sponsored or unsponsored ADRs, EDRs, GDRs, and convertible securities,
consisting of debt securities or preferred stock that may be converted into
common stock or that carry the right to purchase common stock. Common stocks,
the most familiar type, represent an equity (ownership) interest in a
corporation. They may or may not pay dividends or carry voting rights. Common
stock occupies the most junior position in a company's capital structure.
Although equity securities have a history of long-term growth in value, their
prices fluctuate based on changes in a
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company's financial condition and on overall market and economic conditions.
Smaller companies are especially sensitive to these factors.
Debt Securities. Bonds and other debt instruments are used by issuers to borrow
money from investors. The issuer pays the investor a fixed or variable rate of
interest, and must repay the amount borrowed at maturity. Some debt securities,
such as zero coupon bonds, do not pay current interest, but are purchased at a
discount from their face values. Debt securities, loans, and other direct debt
have varying degrees of quality and varying levels of sensitivity to changes in
interest rates. Longer-term bonds are generally more sensitive to interest rate
changes than short-term bonds.
Fixed Income Security Risk. Fixed Income Securities expose the Portfolio to four
types of risk: (1) Interest rate risk is the potential for fluctuations in bond
prices due to changing interest rates; (2) Income risk is the potential for a
decline in a Portfolio's income due to falling market interest rates; (3) Credit
risk is the possibility that a bond issuer will fail to make timely payments of
either interest or principal to the Portfolio and (4) Prepayment risk or call
risk is the likelihood that, during period of falling interest rates, securities
with high sated interest rates will be prepaid (or " "called") prior to
maturity, requiring the Portfolio to invest the proceeds at generally lower
interest rates.
Medium- and Small-Capitalization Stocks. The Small Cap Index Portfolio may
invest in medium- and small- capitalization stocks. Historically, medium- and
small-capitalization stocks have been more volatile in price than the larger-
capitalization stocks included in the "S&P 500 Index". Among the reasons for the
greater price volatility of these securities are the less certain growth
prospects of smaller firms, the lower degree of liquidity in the markets for
such stocks, and the greater sensitively of medium- and small-size companies to
changing economic conditions. In addition to exhibiting greater volatility,
medium- and small-size company stocks may fluctuate independently of larger
company stocks. Medium- and small-size company stocks may decline in price as
larger company stocks rise, or rise in price as large company stocks decline.
Convertible Securities. A convertible security is a bond or preferred stock
which may be converted at a stated price within a specific period of time into a
specified number of shares of common stock of the same or different issuer.
Convertible securities are senior to common stock in a corporation's capital
structure, but usually are subordinated to non-convertible debt securities.
While providing a fixed income streamgenerally higher in yield than in the
income derived from a common stock but lower than that afforded by a non-
convertible debt securitya convertible security also affords an investor the
opportunity, through its conversion feature, to participate in the capital
appreciation of common stock into which it is convertible.
The terms of any convertible security determine its ranking in a company's
capital structure. In the case of subordinated convertible debentures, the
holders' claims on assets and earnings are subordinated to the claims of other
creditors, and are senior to the claims of preferred and common shareholders. In
the case of convertible preferred stock, the holders' claims on assets
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and earnings are subordinated to the claims of all creditors and are senior to
the claims of common shareholders.
In general, the market value of a convertible security is the higher of its
investment value (its value as a fixed income security) or its conversion value
(the value of the underlying shares of common stock if the security is
converted). As a fixed income security, the market value of a convertible
security generally increases when interest rates decline and generally decreases
when interest rates rise; however, the price of a convertible security generally
increases as the market value of the underlying stock increases, and generally
decreases as the market value of the underlying stock declines. Investments in
convertible securities generally entail less risk than investments in the common
stock of the same issuer.
U.S. Government Obligations. Each Portfolio may invest in obligations issued or
guaranteed by U.S. government agencies or instrumentalities. These obligations
may or may not be backed by the "full faith and credit" of the United States. In
the case of securities not backed by the full faith and credit of the United
States, each Portfolio must look principally to the federal agency issuing or
guaranteeing the obligation for ultimate repayment, and may not be able to
assert a claim against the United States itself in the event the agency or
instrumentality does not meet its commitments. Securities in which each
Portfolio may invest that are not backed by the full faith and credit of the
United States include, but are not limited to, obligations of the Tennessee
Valley Authority, the Federal Home Loan Mortgage Corporation and the U.S. Postal
Service, each of which has the right to borrow from the U.S. Treasury to meet
its obligations, and obligations of the Farm Credit Banks and the Federal Home
Loan Banks, both of whose obligations may be satisfied only by the individual
credits of each issuing agency. Securities which are backed by the full faith
and credit of the United States include obligations of the Government National
Mortgage Association, the Farmers Home Administration, and the Export-Import
Bank.
Short-Term Instruments. When a Portfolio experiences large cash inflows through
the sale of securities and desirable equity securities, that are consistent with
the Portfolio's investment objective, which are unavailable in sufficient
quantities or at attractive prices, the Portfolio may hold short-term
investments (or shares of money market mutual funds) for a limited time pending
availability of such equity securities. Short-term instruments consist of
foreign and domestic: (i) short-term obligations of sovereign governments, their
agencies, instrumentalities, authorities or political subdivisions; (ii) other
short-term debt securities rated AA or higher by Standard & Poor's Ratings
Services ("S&P") or Aa or higher by Moody's Investors Service, Inc. ("Moody's")
or, if unrated, of comparable quality in the opinion of Bankers Trust; (iii)
commercial paper; (iv) bank obligations, including negotiable certificates of
deposit, time deposits and banker's acceptances; and (v) repurchase agreements.
At the time the Portfolio invests in commercial paper, bank obligations or
repurchase agreements, the issuer of the issuer's parent must have outstanding
debt rated AA or higher by S&P or Aa or higher by Moody's or outstanding
commercial paper or bank obligations rated A-1 by S&P or Prime-1 by Moody's; or,
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if no such ratings are available, the instrument must be of comparable quality
in the opinion of Bankers Trust. These instruments may be denominated in U.S.
dollars or in foreign currencies.
Certificates of Deposit and Bankers' Acceptances. Certificates of deposit are
receipts issued by a depository institution in exchange for the deposit of
funds. The issuer agrees to pay the amount deposited plus interest to the bearer
of the receipt on the date specified on the certificate. The certificate usually
can be traded in the secondary market prior to maturity. Bankers' acceptances
typically arise from short-term credit arrangements designed to enable
businesses to obtain funds to finance commercial transactions. Generally, an
acceptance is a time draft drawn on a bank by an exporter or an importer to
obtain a stated amount of funds to pay for specific merchandise. The draft is
then "accepted" by a bank that, in effect, unconditionally guarantees to pay the
face value of the instrument on its maturity date. The acceptance may then be
held by the accepting bank as an earning asset or it may be sold in the
secondary market at the going rate of discount for a specific maturity. Although
maturities for acceptances can be as long as 270 days, most acceptances have
maturities of six months or less.
Commercial Paper. Commercial paper consists of short-term (usually from 1 to 270
days) unsecured promissory notes issued by corporations in order to finance
their current operations. A variable amount master demand note (which is a type
of commercial paper) represents a direct borrowing arrangement involving
periodically fluctuating rates of interest under a letter agreement between a
commercial paper issuer and an institutional lender pursuant to which the lender
may determine to invest varying amounts.
For a description of commercial paper ratings, see Appendix A to this SAI.
Derivatives. Each Portfolio may invest in various instruments that are commonly
known as "derivatives." Generally, a derivative is a financial arrangement, the
value of which is based on, or "derived" from, a traditional security, asset, or
market index. Some derivatives such as mortgage-related and other asset-backed
securities are in many respects like any other investment, although they may be
more volatile or less liquid than more traditional debt securities. There are,
in fact, many different types of derivatives and many different ways to use
them. There are a range of risks associated with those uses. Futures and options
are commonly used for traditional hedging purposes to attempt to protect a fund
from exposure to changing interest rates, securities prices, or currency
exchange rates and as a low cost method of gaining exposure to a particular
securities market without investing directly in those securities. However, some
derivatives are used for leverage, which tends to magnify the effects of an
instrument's price changes as market conditions change. Leverage involves the
use of a small amount of money to control a large amount of financial assets,
and can in some circumstances, lead to significant losses. The Adviser will use
derivatives only in circumstances where they offer the most efficient means of
improving the risk/reward profile of the Portfolio and when consistent with the
Portfolio's investment objective and policies. The use of derivatives for non-
hedging purposes may be considered speculative.
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Illiquid Securities. Historically, illiquid securities have included securities
subject to contractual or legal restrictions on resale because they have not
been registered under the Securities Act of 1933, as amended (the "1933 Act"),
securities which are otherwise not readily marketable and repurchase agreements
having a maturity of longer than seven days. Securities which have not been
registered under the 1933 Act are referred to as private placements or
restricted securities and are purchased directly from the issuer or in the
secondary market. Mutual funds do not typically hold a significant amount of
these restricted or other illiquid securities because of the potential for
delays on resale and uncertainty in valuation. Limitations on resale may have an
adverse effect on the marketability of portfolio securities and a mutual fund
might be unable to dispose of restricted or other illiquid securities promptly
or at reasonable prices and might thereby experience difficulty satisfying
redemptions within seven days. A mutual fund might also have to register such
restricted securities in order to dispose of them resulting in additional
expense and delay. Adverse market conditions could impede such a public offering
of securities.
A large institutional market has developed for certain securities that are not
registered under the 1933 Act, including repurchase agreements, commercial
paper, foreign securities, municipal securities and corporate bonds and notes.
Institutional investors depend on an efficient institutional market in which the
unregistered security can be readily resold or on an issuer's ability to honor a
demand for repayment. The fact that there are contractual or legal restrictions
on resale of such investments to the general public or to certain institutions
may not be indicative of their liquidity.
The Securities and Exchange Commission (the "SEC") has adopted Rule 144A, which
allows a broader institutional trading market for securities otherwise subject
to restriction on their resale to the general public. Rule 144A establishes a
"safe harbor" from the registration requirements of the 1933 Act of resales of
certain securities to qualified institutional buyers. The Adviser anticipates
that the market for certain restricted securities such as institutional
commercial paper will expand further as a result of this regulation and the
development of automated systems for the trading, clearance and settlement of
unregistered securities of domestic and foreign issuers, such as the PORTAL
System sponsored by the National Association of Securities Dealers, Inc.
Rule 144A Securities are securities in the United States that are not registered
for sale under federal securities laws but which can be resold to institutions
under SEC Rule 144A. Provided that a dealer or institutional trading market in
such securities exists, these restricted securities are treated as exempt from
the 15% limit on illiquid securities. Under the supervision of the Board of
Trustees of the Portfolios, the Adviser determines the liquidity of restricted
securities and, through reports from the Adviser, the Board will monitor trading
activity in restricted securities. If institutional trading in restricted
securities were to decline, the liquidity of the Portfolios could be adversely
affected.
In reaching liquidity decisions, the Adviser will consider, among other things,
the following factors: (i) the frequency of trades and quotes for the security;
(ii) the number of dealers and other potential purchasers wishing to purchase or
sell the security; (iii) dealer undertakings to
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make a market in the security and (iv) the nature of the security and of the
marketplace trades (e.g., the time needed to dispose of the security, the method
of soliciting offers and the mechanics of the transfer).
When-Issued and Delayed Delivery Securities-. Each Portfolio may purchase
securities on a when-issued or delayed delivery basis. Delivery of and payment
for these securities can take place a month or more after the date of the
purchase commitment. The purchase price and the interest rate payable, if any,
on the securities are fixed on the purchase commitment date or at the time the
settlement date is fixed. The value of such securities is subject to market
fluctuation and no interest accrues to a Portfolio until settlement takes place.
At the time a Portfolio makes the commitment to purchase securities on a when-
issued or delayed delivery basis, it will record the transaction, reflect the
value each day of such securities in determining its net asset value and, if
applicable, calculate the maturity for the purposes of average maturity from
that date. At the time of settlement a when-issued security may be valued at
less than the purchase price. To facilitate such acquisitions, each Portfolio
segregates cash or liquid securities, in an amount at least equal to such
commitments. On delivery dates for such transactions, each Portfolio will meet
its obligations from maturities or sales of the segregated securities and/or
from cash flow. If a Portfolio chooses to dispose of the right to acquire a
when-issued security prior to its acquisition, it could, as with the disposition
of any other portfolio obligation, incur a gain or loss due to market
fluctuation. It is the current policy of each Portfolio not to enter into when-
issued commitments exceeding in the aggregate 15% of the market value of the
Portfolio's total assets, less liabilities other than the obligations created by
when-issued commitments.
Lending of Portfolio Securities. Each Portfolio has the authority to lend up to
30% of the total value of its portfolio securities to brokers, dealers and other
financial organizations. By lending its securities, a Portfolio may increase its
income by continuing to receive payments in respect of dividends and interest on
the loaned securities as well as by either investing the cash collateral in
short-term securities or obtaining yield in the form of a fee paid by the
borrower when irrevocable letters of credit and U.S. Government Obligations are
used as collateral. Each Portfolio will adhere to the following conditions
whenever its securities are loaned: (i) the Portfolio must receive at least 100%
collateral from the borrower; (ii) the borrower must increase this collateral
whenever the market value of the securities including accrued interest rises
above the level of the collateral; (iii) the Portfolio must be able to terminate
the loan at any time; (iv) the Portfolio must substitute payments in respect of
all dividends, interest or other distributions on the loaned securities; and (v)
voting rights on the loaned securities may pass to the borrower; provided,
however, that if a material event adversely affecting the investment occurs, the
Board of Trustees must retain the right to terminate the loan and recall and
vote the securities. Cash collateral may be invested in a money market fund
managed by Bankers Trust (or its affiliates) and Bankers Trust may serve as a
Portfolio's lending agent and may share in revenue received from securities
lending transactions as compensation for this service.
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Repurchase Agreements. In a repurchase agreement, a Portfolio buys a security at
one price and simultaneously agrees to sell it back at a higher price at a
future date. In the event of the bankruptcy of the other party to a repurchase
agreement, the Portfolio could experience delays in recovering either its cash
or selling securities subject to the repurchase agreement. To the extent that,
in the meantime, the value of the securities repurchased had decreased or the
value of the securities had increased, the Portfolio could experience a loss. In
all cases, the Adviser must find the creditworthiness of the other party to the
transaction satisfactory.
Reverse Repurchase Agreements. The Portfolios may borrow funds for temporary or
emergency purposes, such as meeting larger than anticipated redemption requests,
and not for leverage, by among other things, agreeing to sell portfolio
securities to financial institutions such as banks and broker-dealers and to
repurchase them at a mutually agreed date and price (a "reverse repurchase
agreement"). At the time a Portfolio enters into a reverse repurchase agreement
it segregates cash, U.S. Government Obligations or high-grade debt obligations
having a value equal to the repurchase price, including accrued interest.
Reverse repurchase agreements involve the risk that the market value of the
securities sold by a Portfolio may decline below the repurchase price of those
securities. Reverse repurchase agreements are considered to be borrowings by a
Portfolio.
Warrants. Each Portfolio (except the Equity 500 Index Portfolio) may invest in
warrants with respect to 5% of its assets (2% with respect to warrants not
listed on the New York Stock Exchange or American Stock Exchange). Warrants
entitle the holder to buy common stock from the issuer at a specific price (the
strike price) for a specific period of time. The strike price of warrants
sometimes is much lower than the current market price of the underlying
securities, yet warrants are subject to similar price fluctuations. As a result,
warrants may be more volatile investments than the underlying securities.
Warrants do not entitle the holder to dividends or voting rights with respect to
the underlying securities and do not represent any rights in the assets of the
issuing company. Also, the value of the warrant does not necessarily change with
the value of the underlying securities and a warrant ceases to have value if it
is not exercised prior to the expiration date.
Swap Agreements. Each Portfolio (except the Equity 500 Index Portfolio) may
enter into swap agreements to the extent that obligations under such agreements
represent not more than 10% of the Portfolio's total assets. Swap agreements are
contracts entered into by two parties, primarily institutional investors, for
periods ranging from a few weeks to more than one year. In a standard swap
transaction, two parties agree to exchange the returns (or differentials in
rates of return) earned or realized on particular predetermined investments or
instruments. The gross returns to be exchanged or swapped between the parties
are calculated with respect to a notional amount, i.e., the return on or
increase in value of a particular dollar amount invested at a particular
interest rate, in a particular foreign currency, or in a basket of securities
representing a particular index. The notional amount of the swap agreement is
only a fictive basis on which to calculate the obligations which the parties to
a swap agreement have agreed to exchange. A Portfolio's
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obligations (or rights) under a swap agreement will generally be equal only to
the net amount to be paid or received under the agreement based on the relative
values of the positions held by each party to the agreement (the "net amount").
A Portfolio's obligations under a swap agreement will be accrued daily (offset
against any amounts owing to the Portfolio) and any accrued but unpaid net
amounts owed to a swap counterparty will be covered by the maintenance of
segregated assets consisting of cash, U.S. Government securities, or high grade
debt obligations, to avoid any potential leveraging of the Portfolio's
portfolio.
Whether the use of swap agreements will be successful in furthering its
investment objective will depend on the Adviser's ability to correctly predict
whether certain types of investments are likely to produce greater returns than
other investments. Swap agreements may be considered to be illiquid because they
are two party contracts and because they may have terms of greater than seven
days. Moreover, a Portfolio bears the risk of loss of the amount expected to be
received under a swap agreement in the event of the default or bankruptcy of a
swap agreement counterparty. A Portfolio will minimize this risk by entering
into agreements that mark to market no less frequently than quarterly. In
addition, a Portfolio will enter into swap agreements only with counterparties
that would be eligible for consideration as repurchase agreement counterparties
under the Portfolio's repurchase agreement guidelines. Certain restrictions
imposed on the Portfolios by the Internal Revenue Code of 1986, as amended (the
"Code") may limit the Portfolios' ability to use swap agreements. The swaps
market is a relatively new market and is largely unregulated. It is possible
that developments in the swaps market, including potential government
regulation, could adversely affect a Portfolio's ability to terminate existing
swap agreements or to realize amounts to be received under such agreements. Swap
agreements also bear the risk that a Portfolio will not be able to meet its
obligation to the counterparty. This risk will be mitigated by investing the
Portfolio in the specific asset for which it is obligated to pay a return.
Certain swap agreements are exempt from most provisions of the Commodity
Exchange Act (the "CEA") and, therefore, are not regulated as futures or
commodity option transactions under the CEA, pursuant to regulations approved by
the Commodity Futures Trading Commission (the "CFTC") effective February 22,
1993. To qualify for this exemption, a swap agreement must be entered into by
eligible participants, which includes the following, provided the participant's
total assets exceed established levels: a bank or trust company, savings
association or credit union, insurance company, investment company subject to
regulation under the Investment Company Act of 1940, as amended (the "1940
Act"), commodity pool, corporation, partnership, proprietorship, organization,
trust or other entity, employee benefit plan, governmental entity, broker-
dealer, futures commission merchant, natural person, or regulated foreign
person. To be eligible, natural persons and most other entities must have total
assets exceeding $10 million; commodity pools and employee benefit plans must
have asset exceeding $5 million. In addition, an eligible swap transaction must
meet three conditions. First, the swap agreement may not be part of a fungible
class of agreements that are standardized as to their material economic terms.
Second, the creditworthiness of parties with actual or potential obligations
under the swap
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agreement must be a material consideration in entering into or determining the
terms of the swap agreement, including pricing, cost or credit enhancement
terms. Third, swap agreements may not be entered into and traded on or through a
multilateral transaction execution facility.
This exemption is not exclusive, and participants may continue to rely on
existing exclusions for swaps, such as the Policy Statement issued in July 1989
which recognized a "safe harbor" for swap transactions from regulation as
futures or commodity option transactions under the CEA or its regulations. The
Policy Statement applies to swap transactions settled in cash that: (i) have
individually tailored terms; (ii) lack exchange style offset and the use of a
clearing organization or margin system; (iii) are undertaken in conjunction with
a line of business; and (iv) are not marketed to the public.
Ginnie Mae Certificates. The Government National Mortgage Association ("Ginnie
Mae") is a wholly-owned corporate instrumentality of the United States within
the Department of Housing and Urban Development. The National Housing Act of
1934, as amended (the "Housing Act"), authorizes Ginnie Mae to guarantee the
timely payment of the principal of and interest on certificates that are based
on and backed by a pool of mortgage loans insured by the Federal Housing
Administration under the Housing Act, or Title V of the Housing Act of 1949
("FHA Loans"), or guaranteed by the Department of Veterans Affairs under the
Servicemen's Readjustment Act of 1944, as amended ("VA Loans"), or by pools of
other eligible mortgage loans. The Housing Act provides that the full faith and
credit of the U.S. government is pledged to the payment of all amounts that may
be required to be paid under any Ginnie Mae guaranty. In order to meet its
obligations under such guaranty, Ginnie Mae is authorized to borrow from the
U.S. Treasury with no limitations as to amount.
The Ginnie Mae Certificates in which the U.S. Bond Index Portfolio will invest
will represent a pro rata interest in one or more pools of the following types
of mortgage loans: (i) fixed-rate level payment mortgage loans; (ii) fixed-rate
graduated payment mortgage loans; (iii) fixed-rate growing equity mortgage
loans; (iv) fixed-rate mortgage loans secured by manufactured (mobile) homes;
(v) mortgage loans on multifamily residential properties under construction;
(vi) mortgage loans on completed multifamily projects; (vii) fixed-rate mortgage
loans as to which escrowed funds are used to reduce the borrower's monthly
payments during the early years of the mortgage loans ("buydown" mortgage
loans); (viii) mortgage loans that provide for adjustments in payments based on
periodic changes in interest rates or in other payment terms of the mortgage
loans; and (ix) mortgage-backed serial notes. All of these mortgage loans will
be FHA Loans or VA Loans and, except as otherwise specified above, will be
fully-amortizing loans secured by first liens on one- to four-family housing
units.
Fannie Mae Certificates. The Federal National Mortgage Association ("Fannie
Mae") is a federally chartered and privately owned corporation organized and
existing under the Federal National Mortgage Association Charter Act of 1938.
The obligations of Fannie Mae are not backed by the full faith and credit of the
U.S. government.
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Each Fannie Mae Certificate will represent a pro rata interest in one or more
pools of FHA Loans, VA Loans or conventional mortgage loans (i.e., mortgage
----
loans that are not insured or guaranteed by any governmental agency) of the
following types: (i) fixed-rate level payment mortgage loans; (ii) fixed-rate
growing equity mortgage loans; (iii) fixed-rate graduated payment mortgage
loans; (iv) variable rate mortgage loans; (v) other adjustable rate mortgage
loans; and (vi) fixed-rate and adjustable mortgage loans secured by multifamily
projects.
Freddie Mac Certificates. The Federal Home Loan Mortgage Corporation ("Freddie
Mac") is a corporate instrumentality of the United States created pursuant to
the Emergency Home Finance Act of 1970, as amended (the "FHLMC Act"). The
obligations of Freddie Mac are obligations solely of Freddie Mac and are not
backed by the full faith and credit of the U.S. government.
Freddie Mac Certificates represent a pro rata interest in a group of mortgage
loans (a "Freddie Mac Certificate group") purchased by Freddie Mac. The mortgage
loans underlying the Freddie Mac Certificates will consist of fixed-rate or
adjustable rate mortgage loans with original terms to maturity of between ten
and thirty years, substantially all of which are secured by first liens on one-
to four-family residential properties or multifamily projects. Each mortgage
loan must meet the applicable standards set forth in the FHLMC Act. A Freddie
Mac Certificate group may include whole loans, participating interests in whole
loans and undivided interests in whole loans and participations comprising
another Freddie Mac Certificate group.
Adjustable Rate Mortgages - Interest Rate Indices-. Adjustable rate mortgages in
which the U.S. Bond Index Portfolio invests may be adjusted on the basis of one
of several indices. The One Year Treasury Index is the figure derived from the
average weekly quoted yield on U.S. Treasury Securities adjusted to a constant
maturity of one year. The Cost of Funds Index reflects the monthly weighted
average cost of funds of savings and loan associations and savings banks whose
home offices are located in Arizona, California and Nevada (the "FHLB Eleventh
District") that are member institutions of the Federal Home Loan Bank of San
Francisco (the "FHLB of San Francisco"), as computed from statistics tabulated
and published by the FHLB of San Francisco. The FHLB of San Francisco normally
announces the Cost of Funds Index on the last working day of the month following
the month in which the cost of funds was incurred.
A number of factors affect the performance of the Cost of Funds Index and may
cause the Cost of Funds Index to move in a manner different from indices based
upon specific interest rates, such as the One Year Treasury Index. Because of
the various origination dates and maturities of the liabilities of members of
the FHLB Eleventh District upon which the Cost of Funds Index is based, among
other things, at any time the Cost of Funds Index may not reflect the average
prevailing market interest rates on new liabilities of similar maturities. There
can be no assurance that the Cost of Funds Index will necessarily move in the
same direction or at the same rate as prevailing interest rates since as longer
term deposits or borrowings mature and are renewed at market interest rates, the
Cost of Funds Index will rise or fall depending upon the differential between
the prior and the new rates on such deposits and borrowings. In addition,
dislocations in the thrift industry in recent years have caused and may continue
to cause the cost of funds of
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thrift institutions to change for reasons unrelated to changes in general
interest rate levels. Furthermore, any movement in the Cost of Funds Index as
compared to other indices based upon specific interest rates may be affected by
changes instituted by the FHLB of San Francisco in the method used to calculate
the Cost of Funds Index. To the extent that the Cost of Funds Index may reflect
interest changes on a more delayed basis than other indices, in a period of
rising interest rates, any increase may produce a higher yield later than would
be produced by such other indices, and in a period of declining interest rates,
the Cost of Funds Index may remain higher than other market interest rates which
may result in a higher level of principal prepayments on mortgage loans which
adjust in accordance with the Cost of Funds Index than mortgage loans which
adjust in accordance with other indices.
LIBOR, the London interbank offered rate, is the interest rate that the most
creditworthy international banks dealing in U.S. dollar-denominated deposits and
loans charge each other for large dollar-denominated loans. LIBOR is also
usually the base rate for large dollar-denominated loans in the international
market. LIBOR is generally quoted for loans having rate adjustments at one,
three, six or twelve month intervals.
Asset-Backed Securities. The asset-backed securities in which the U.S. Bond
Index Portfolio may invest are limited to those which are readily marketable,
dollar-denominated and rated BBB or higher by S&P or Baa or higher by Moody's.
Asset-backed securities present certain risks that are not presented by
mortgage-backed securities. Primarily, these securities do not have the benefit
of the same type of security interest in the related collateral. Credit card
receivables are generally unsecured and the debtors are entitled to the
protection of a number of state and federal consumer credit laws, many of which
give such debtors the right to avoid payment of certain amounts owed on the
credit cards, thereby reducing the balance due. Most issuers of automobile
receivables permit the servicer to retain possession of the underlying
obligations. If the servicer were to sell these obligations to another party,
there is a risk that the purchaser would acquire an interest superior to that of
the holders of the related automobile receivables. In addition, because of the
large number of vehicles involved in a typical issuance and technical
requirements under state laws, the trustee for the holders of the automobile
receivables may not have a proper security interest in all of the obligations
backing such receivables. Therefore, there is the possibility that recoveries on
repossessed collateral may not, in some cases, be available to support payments
on these securities.
Mortgage-Backed Securities and Asset-Backed Securities--Types of Credit Support.
The mortgage-backed securities in which the U.S. Bond Index Portfolio may invest
are limited to those relating to residential mortgages. Mortgage-backed
securities and asset-backed securities are often backed by a pool of assets
representing the obligations of a number of different parties. To lessen the
effect of failure by obligors on underlying assets to make payments, such
securities may contain elements of credit support. Such credit support falls
into two categories: (i) liquidity protection and (ii) protection against losses
resulting from ultimate default by an obligor on the underlying assets.
Liquidity protection refers to the provision of advances, generally by the
entity
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administering the pool of assets, to ensure that the pass-through of payments
due on the underlying pool occurs in a timely fashion. Protection against losses
resulting from ultimate default enhances the likelihood of ultimate payment of
the obligations on at least a portion of the assets in the pool. Such protection
may be provided through guarantees, insurance policies or letters of credit
obtained by the issuer or sponsor from third parties, through various means of
structuring the transaction or through a combination of such approaches. The
U.S. Bond Index Portfolio will not pay any additional fees for such credit
support, although the existence of credit support may increase the price of a
security.
The ratings of mortgage-backed securities and asset-backed securities for which
third-party credit enhancement provides liquidity protection or protection
against losses from default are generally dependent upon the continued
creditworthiness of the provider of the credit enhancement. The ratings of such
securities could be subject to reduction in the event of deterioration in the
creditworthiness of the credit enhancement provider even in cases where the
delinquency and loss experience on the underlying pool of assets is better than
expected.
Examples of credit support arising out of the structure of the transaction
include "senior-subordinated securities" (multiple class securities with one or
more classes subordinate to other classes as to the payment of principal thereof
and interest thereon, with the result that defaults on the underlying assets are
borne first by the holders of the subordinated class), creation of "reserve
funds" (where cash or investments, sometimes funded from a portion of the
payments on the underlying assets, are held in reserve against future losses)
and "over-collateralization" (where the scheduled payments on, or the principal
amount of, the underlying assets exceed those required to make payment of the
securities and pay any servicing or other fees). The degree of credit support
provided for each issue is generally based on historical information with
respect to the level of credit risk associated with the underlying assets.
Delinquency or loss in excess of that which is anticipated could adversely
affect the return on an investment in such a security.
Stripped Mortgage-Backed Securities. The cash flows and yields on IO and PO
classes are extremely sensitive to the rate of principal payments (including
prepayments) on the related underlying mortgage assets. For example, a rapid or
slow rate of principal payments may have a material adverse effect on the yield
to maturity of IOs or POs, respectively. If the underlying mortgage assets
experience greater than anticipated prepayments of principal, an investor may
fail to recoup fully its initial investment in an IO class of a stripped
mortgage-backed security, even if the IO class is rated AAA or Aaa. Conversely,
if the underlying mortgage assets experience slower than anticipated prepayments
of principal, the yield on a PO class will be affected more severely than would
be the case with a traditional mortgage-backed security.
Options on Securities. Each Portfolio may write (sell) covered call and put
options to a limited extent on its portfolio securities ("covered options") in
an attempt to increase income. However, the Portfolio may forgo the benefits of
appreciation on securities sold or may pay more than the market price on
securities acquired pursuant to call and put options written by the Portfolio.
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When a Portfolio writes a covered call option, it gives the purchaser of the
option the right to buy the underlying security at the price specified in the
option (the "exercise price") by exercising the option at any time during the
option period. If the option expires unexercised, the Portfolio will realize
income in an amount equal to the premium received for writing the option. If the
option is exercised, a decision over which the Portfolio has no control, the
Portfolio must sell the underlying security to the option holder at the exercise
price. By writing a covered call option, the Portfolio forgoes, in exchange for
the premium less the commission ("net premium"), the opportunity to profit
during the option period from an increase in the market value of the underlying
security above the exercise price.
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When a Portfolio writes a covered put option, it gives the purchaser of the
option the right to sell the underlying security to the Portfolio at the
specified exercise price at any time during the option period. If the option
expires unexercised, the Portfolio will realize income in the amount of the
premium received for writing the option. If the put option is exercised, a
decision over which the Portfolio has no control, the Portfolio must purchase
the underlying security from the option holder at the exercise price. By writing
a covered put option, the Portfolio, in exchange for the net premium received,
accepts the risk of a decline in the market value of the underlying security
below the exercise price. The Portfolio will only write put options involving
securities for which a determination is made at the time the option is written
that the Portfolio wishes to acquire the securities at the exercise price.
A Portfolio may terminate its obligation as the writer of a call or put option
by purchasing an option with the same exercise price and expiration date as the
option previously written. This transaction is called a "closing purchase
transaction." The Portfolio will realize a profit or loss for a closing purchase
transaction if the amount paid to purchase an option is less or more, as the
case may be, than the amount received from the sale thereof. To close out a
position as a purchaser of an option, the Portfolio, may make a "closing sale
transaction" which involves liquidating the Portfolio's position by selling the
option previously purchased. Where the Portfolio cannot effect a closing
purchase transaction, it may be forced to incur brokerage commissions or dealer
spreads in selling securities it receives or it may be forced to hold underlying
securities until an option is exercised or expires.
When a Portfolio writes an option, an amount equal to the net premium received
by the Portfolio is included in the liability section of the Portfolio's
Statement of Assets and Liabilities as a deferred credit. The amount of the
deferred credit will be subsequently marked to market to reflect the current
market value of the option written. The current market value of a traded option
is the last sale price or, in the absence of a sale, the mean between the
closing bid and asked price. If an option expires on its stipulated expiration
date or if the Portfolio enters into a closing purchase transaction, the
Portfolio will realize a gain (or loss if the cost of a closing purchase
transaction exceeds the premium received when the option was sold), and the
deferred credit related to such option will be eliminated. If a call option is
exercised, the Portfolio will realize a gain or loss from the sale of the
underlying security and the proceeds of the sale will be increased by the
premium originally received. The writing of covered call options may be deemed
to involve the pledge of the securities against which the option is being
written. Securities against which call options are written will be segregated on
the books of the custodian for the Portfolio.
A Portfolio may purchase call and put options on any securities in which it may
invest. The Portfolio would normally purchase a call option in anticipation of
an increase in the market value of such securities. The purchase of a call
option would entitle the Portfolio, in exchange for the premium paid, to
purchase a security at a specified price during the option period. The Portfolio
would ordinarily have a gain if the value of the securities increased above the
exercise price
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sufficiently to cover the premium and would have a loss if the value of the
securities remained at or below the exercise price during the option period.
A Portfolio would normally purchase put options in anticipation of a decline in
the market value of securities in its portfolio ("protective puts") or
securities of the type in which it is permitted to invest. The purchase of a put
option would entitle the Portfolio, in exchange for the premium paid, to sell a
security, which may or may not be held in the Portfolio's portfolio, at a
specified price during the option period. The purchase of protective puts is
designed merely to offset or hedge against a decline in the market value of the
Portfolio's portfolio securities. Put options also may be purchased by the
Portfolio for the purpose of affirmatively benefiting from a decline in the
price of securities which the Portfolio does not own. The Portfolio would
ordinarily recognize a gain if the value of the securities decreased below the
exercise price sufficiently to cover the premium and would recognize a loss if
the value of the securities remained at or above the exercise price. Gains and
losses on the purchase of protective put options would tend to be offset by
countervailing changes in the value of underlying portfolio securities.
The hours of trading for options on securities may not conform to the hours
during which the underlying securities are traded. To the extent that the option
markets close before the markets for the underlying securities, significant
price and rate movements can take place in the underlying securities markets
that cannot be reflected in the option markets. It is impossible to predict the
volume of trading that may exist in such options, and there can be no assurance
that viable exchange markets will develop or continue.
A Portfolio may engage in over-the-counter options transactions with broker-
dealers who make markets in these options. The ability to terminate over-the-
counter option positions is more limited than with exchange-traded option
positions because the predominant market is the issuing broker rather than an
exchange, and may involve the risk that broker-dealers participating in such
transactions will not fulfill their obligations. To reduce this risk, the
Portfolio will purchase such options only from broker-dealers who are primary
government securities dealers recognized by the Federal Reserve Bank of New York
and who agree to (and are expected to be capable of) entering into closing
transactions, although there can be no guarantee that any such option will be
liquidated at a favorable price prior to expiration. The Adviser will monitor
the creditworthiness of dealers with whom the Portfolio enters into such options
transactions under the general supervision of the Portfolios' Trustees. Unless
the Trustees conclude otherwise, each Portfolio intends to treat OTC options as
not readily marketable and therefore subject to each Portfolio's 15% limit on
investments in illiquid securities.
Options on Securities Indices. In addition to options on securities, each
Portfolio may also purchase and write (sell) call and put options on securities
indices. Such options give the holder the right to receive a cash settlement
during the term of the option based upon the difference between the exercise
price and the value of the index. Such options will be used for the purposes
described above under "Options on Securities."
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EAFE(R) Equity Index Portfolio may, to the extent allowed by Federal and state
securities laws, invest in securities indices instead of investing directly in
individual foreign securities.
Options on securities indices entail risks in addition to the risks of options
on securities. The absence of a liquid secondary market to close out options
positions on securities indices is more likely to occur, although the Portfolio
generally will only purchase or write such an option if the Adviser believes the
option can be closed out.
Use of options on securities indices also entails the risk that trading in such
options may be interrupted if trading in certain securities included in the
index is interrupted. The Portfolio will not purchase such options unless the
Adviser believes the market is sufficiently developed such that the risk of
trading in such options is no greater than the risk of trading in options on
securities.
Price movements in a Portfolio's portfolio may not correlate precisely with
movements in the level of an index and, therefore, the use of options on indices
cannot serve as a complete hedge. Because options on securities indices require
settlement in cash, the Adviser may be forced to liquidate portfolio securities
to meet settlement obligations.
Currency Exchange Transactions. Because each Portfolio may buy and sell
securities denominated in currencies other than the U.S. dollar and receives
interest, dividends and sale proceeds in currencies other than the U.S. dollar,
each Portfolio from time to time may enter into currency exchange transactions
to convert to and from different currencies and to convert currencies to and
from the U.S. dollar. A Portfolio either enters into these transactions on a
spot (i.e., cash) basis at the spot rate prevailing in the currency exchange
market or uses forward contracts to purchase or sell currencies.
Forward Currency Exchange Contracts. A forward currency exchange contract is an
obligation by a Portfolio to purchase or sell a specific currency at a future
date, which may be any fixed number of days from the date of the contract.
Forward currency exchange contracts establish an exchange rate at a future date.
These contracts are transferable in the interbank market conducted directly
between currency traders (usually large commercial banks and brokerages) and
their customers. A forward currency exchange contract may not have a deposit
requirement and may be traded at a net price without commission. Each Portfolio
maintains with its custodian a segregated account of high grade liquid assets in
an amount at least equal to its obligations under each forward currency exchange
contract. Neither spot transactions nor forward currency exchange contracts
eliminate fluctuations in the prices of the Portfolio's securities or in
exchange rates, or prevent loss if the prices of these securities should
decline.
Each Portfolio may enter into currency hedging transactions in an attempt to
protect against changes in currency exchange rates between the trade and
settlement dates of specific securities transactions or changes in currency
exchange rates that would adversely affect a portfolio position or an
anticipated investment position. Since consideration of the prospect for
currency parities will be incorporated into Bankers Trust's long-term investment
decisions, a Portfolio will
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not routinely enter into currency hedging transactions with respect to security
transactions; however, the Adviser believes that it is important to have the
flexibility to enter into currency hedging transactions when it determines that
the transactions would be in the Portfolio's best interest. Although these
transactions tend to minimize the risk of loss due to a decline in the value of
the hedged currency, at the same time they tend to limit any potential gain that
might be realized should the value of the hedged currency increase. The precise
matching of the forward contract amounts and the value of the securities
involved will not generally be possible because the future value of such
securities in foreign currencies will change as a consequence of market
movements in the value of such securities between the date the forward contract
is entered into and the date it matures. The projection of currency market
movements is extremely difficult, and the successful execution of a hedging
strategy is highly uncertain.
While these contracts are not presently regulated by the CFTC, the CFTC may in
the future assert authority to regulate forward contracts. In such event the
Portfolio's ability to utilize forward contracts may be restricted. Forward
contracts may reduce the potential gain from a positive change in the
relationship between the U.S. dollar and foreign currencies. Unanticipated
changes in currency prices may result in poorer overall performance for the
Portfolio than if it had not entered into such contracts. The use of currency
forward contracts may not eliminate fluctuations in the underlying U.S. dollar
equivalent value of the prices of or rates of return on a Portfolio's foreign
currency denominated portfolio securities and the use of such techniques will
subject a Portfolio to certain risks.
The matching of the increase in value of a forward contract and the decline in
the U.S. dollar equivalent value of the foreign currency denominated asset that
is the subject of the hedge generally will not be precise. In addition, a
Portfolio may not always be able to enter into currency forward contracts at
attractive prices and this will limit the Portfolio's ability to use such
contract to hedge or cross-hedge its assets. Also, with regard to a Portfolio's
use of cross-hedges, there can be no assurance that historical correlations
between the movement of certain foreign currencies relative to the U.S. dollar
will continue. Thus, at any time poor correlation may exist between movements in
the exchange rates of the foreign currencies underlying a Portfolio's cross-
hedges and the movements in the exchange rates of the foreign currencies in
which the Portfolio's assets that are the subject of such cross-hedges are
denominated.
Options on Foreign Currencies. The EAFE(R) Equity Index Portfolio may purchase
and write options on foreign currencies for hedging purposes in a manner similar
to that in which futures contracts on foreign currencies, or forward contracts,
will be utilized. For example, a decline in the dollar value of a foreign
currency in which portfolio securities are denominated will reduce the dollar
value of such securities, even if their value in the foreign currency remains
constant. In order to protect against such diminutions in the value of portfolio
securities, the Portfolio may purchase put options on the foreign currency. If
the value of the currency does decline, the Portfolio will have the right to
sell such currency for a fixed amount in dollars and will thereby
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offset, in whole or in part, the adverse effect on its portfolio which otherwise
would have resulted.
Conversely, where a rise in the dollar value of a currency in which securities
to be acquired are denominated is projected, thereby increasing the cost of such
securities, the EAFE(R) Equity Index Portfolio may purchase call options
thereon. The purchase of such options could offset, at least partially, the
effects of the adverse movements in exchange rates. As in the case of other
types of options, however, the benefit to the Portfolio deriving from purchases
of foreign currency options will be reduced by the amount of the premium and
related transaction costs. In addition, where currency exchange rates do not
move in the direction or to the extent anticipated, the Portfolio could sustain
losses on transactions in foreign currency options which would require it to
forego a portion or all of the benefits of advantageous changes in such rates.
The EAFE(R) Equity Index Portfolio may write options on foreign currencies for
the same types of hedging purposes. For example, where the Portfolio anticipates
a decline in the dollar value of foreign currency denominated securities due to
adverse fluctuations in exchange rates it could, instead of purchasing a put
option, write a call option on the relevant currency. If the expected decline
occurs, the options will most likely not be exercised, and the diminution in
value of portfolio securities will be offset by the amount of the premium
received.
Similarly, instead of purchasing a call option to hedge against an anticipated
increase in the dollar cost of securities to be acquired, the EAFE(R) Equity
Index Portfolio could write a put option on the relevant currency which, if
rates move in the manner projected, will expire unexercised and allow the
Portfolio to hedge such increased cost up to the amount of the premium. As in
the case of other types of options, however, the writing of a foreign currency
option will constitute only a partial hedge up to the amount of the premium, and
only if rates move in the expected direction. If this does not occur, the option
may be exercised and the Portfolio would be required to purchase or sell the
underlying currency at a loss which may not be offset by the amount of the
premium. Through the writing of options on foreign currencies, the Portfolio
also may be required to forego all or a portion of the benefits which might
otherwise have been obtained from favorable movements in exchange rates.
The EAFE(R) Equity Index Portfolio may write covered call options on foreign
currencies. A call option written on a foreign currency by the Portfolio is
"covered" if the Portfolio owns the underlying foreign currency covered by the
call or has an absolute and immediate right to acquire that foreign currency
without additional cash consideration (or for additional cash consideration held
in a segregated account by its Custodian) upon conversion or exchange of other
foreign currency held in its portfolio. A call option is also covered if the
Portfolio has a call on the same foreign currency and in the same principal
amount as the call written where the exercise price of the call held (a) is
equal to or less than the exercise price of the call written or (b) is greater
than the exercise price of the call written if the difference is maintained by
the Portfolio in cash or liquid securities in a segregated account with its
custodian.
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The EAFE(R) Equity Index Portfolio also may write call options on foreign
currencies that are not covered for cross-hedging purposes. A call option on a
foreign currency is for cross-hedging purposes if it is not covered, but is
designed to provide a hedge against a decline in the U.S. dollar value of a
security which the Portfolio owns or has the right to acquire and which is
denominated in the currency underlying the option due to an adverse change in
the exchange rate. In such circumstances, the Portfolio collateralizes the
option by maintaining in a segregated account with its custodian, cash or liquid
securities in an amount not less than the value of the underlying foreign
currency in U.S. dollars marked to market daily.
Futures Contracts and Options on Futures Contracts
General. The successful use of futures contracts and options thereon draws upon
the Adviser's skill and experience with respect to such instruments and usually
depends on the Adviser's ability to forecast interest rate and currency exchange
rate movements correctly. Should interest or exchange rates move in an
unexpected manner, a Portfolio may not achieve the anticipated benefits of
futures contracts or options on futures contracts or may realize losses and thus
will be in a worse position than if such strategies had not been used. In
addition, the correlation between movements in the price of futures contracts or
options on futures contracts and movements in the price of the securities and
currencies hedged or used for cover will not be perfect and could produce
unanticipated losses.
Successful use of the futures contract and related options are subject to
special risk considerations. A liquid secondary market for any futures or
options contract may not be available when a futures or options position is
sought to be closed. In addition, there may be an imperfect correlation between
movements in the securities or currency in the Portfolio. Successful use of
futures or options contracts is further dependent on Bankers Trust's ability to
correctly predict movements in the securities or foreign currency markets and no
assurance can be given that its judgment will be correct. Successful use of
options on securities or stock indices are subject to similar risk
considerations. In addition, by writing covered call options, the Portfolio
gives up the opportunity, while the option is in effect, to profit from any
price increase in the underlying securities above the options exercise price.
Futures Contracts. Futures contracts are contracts to purchase or sell a fixed
amount of an underlying instrument, commodity or index at a fixed time and place
in the future. U.S. futures contracts have been designed by exchanges which have
been designated "contracts markets" by the CFTC, and must be executed through a
futures commission merchant, or brokerage firm, which is a member of the
relevant contract market. Futures contracts trade on a number of exchanges and
clear through their clearing corporations. Each Portfolio may enter into
contracts for the purchase or sale for future delivery of fixed-income
securities, foreign currencies, or financial indices including any index of U.S.
Government securities, foreign government securities or corporate debt
securities. Each Portfolio may enter into futures contracts which are based on
debt securities that are backed by the full faith and credit of the U.S.
government, such as long-term U.S. Treasury Bonds, Treasury Notes, Ginnie Mae
modified pass-through
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mortgage-backed securities and three-month U.S. Treasury Bills. A Portfolio may
also enter into futures contracts which are based on bonds issued by governments
other than the U.S. government. Futures contracts on foreign currencies may be
used to hedge against securities that are denominated in foreign currencies.
At the same time a futures contract is entered into, a Portfolio must allocate
cash or securities as a deposit payment ("initial margin"). Daily thereafter,
the futures contract is valued and the payment of "variation margin" may be
required, since each day the Portfolio would provide or receive cash that
reflects any decline or increase in the contract's value.
At the time of delivery of securities pursuant to such a contract, adjustments
are made to recognize differences in value arising from the delivery of
securities with a different interest rate from that specified in the contract.
In some (but not many) cases, securities called for by a futures contract may
not have been issued when the contract was written.
Although futures contracts (other than those that settle in cash such as index
futures) by their terms call for the actual delivery or acquisition of the
instrument underlying the contract, in most cases the contractual obligation is
fulfilled by offset before the date of the contract without having to make or
take delivery of the instrument underlying the contract. The offsetting of a
contractual obligation is accomplished by entering into an opposite position in
the identical futures contract on the commodities exchange on which the futures
contract was entered into (or a linked exchange). Such a transaction, which is
effected through a member of an exchange, cancels the obligation to make or take
delivery of the instrument underlying the contract. Since all transactions in
the futures market are made, offset or fulfilled through a clearinghouse
associated with the exchange on which the contracts are traded, the Portfolio
will incur brokerage fees when it enters into futures contracts.
The purpose of the acquisition or sale of a futures contract, in the case of a
Portfolio which holds or intends to acquire fixed-income securities, is to
attempt to protect the Portfolio from fluctuations in interest or foreign
exchange rates without actually buying or selling fixed-income securities or
foreign currencies. For example, if interest rates were expected to increase,
the Portfolio might enter into futures contracts for the sale of debt
securities. Such a sale would have much the same effect as selling an equivalent
value of the debt securities owned by the Portfolio. If interest rates did
increase, the value of the debt security in the Portfolio would decline, but the
value of the futures contracts to the Portfolio would increase at approximately
the same rate, thereby keeping the net asset value of the Portfolio from
declining as much as it otherwise would have. The Portfolio could accomplish
similar results by selling debt securities and investing in bonds with short
maturities when interest rates are expected to increase. However, since the
futures market is more liquid than the cash market, the use of futures contracts
as an investment technique allows the Portfolio to maintain a defensive position
without having to sell its portfolio securities.
Similarly, when it is expected that interest rates may decline, futures
contracts may be purchased to attempt to hedge against anticipated purchases of
debt securities at higher prices. Since the
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fluctuations in the value of futures contracts should be similar to those of
debt securities, a Portfolio could take advantage of the anticipated rise in the
value of debt securities without actually buying them until the market had
stabilized. At that time, the futures contracts could be liquidated and the
Portfolio could then buy debt securities on the cash market. The segregated
assets maintained to cover the Portfolio's obligations with respect to such
futures contracts will consist of cash or securities acceptable to the broker
from its portfolio in an amount equal to the difference between the fluctuating
market value of such futures contracts and the aggregate value of the initial
and variation margin payments made by the Portfolio with respect to such futures
contracts.
The ordinary spreads between prices in the cash and futures market, due to
differences in the nature of those markets, are subject to distortions. First,
all participants in the futures market are subject to initial deposit and
variation margin requirements. Rather than meeting additional variation margin
requirements, investors may close futures contracts through offsetting
transactions which could distort the normal relationship between the cash and
futures markets. Second, the liquidity of the futures market depends on most
participants entering into offsetting transactions rather than making or taking
delivery. To the extent that many participants decide to make or take delivery,
liquidity in the futures market could be reduced, thus producing distortion.
Third, from the point of view of speculators, the margin deposit requirements in
the futures market are less onerous than margin requirements in the securities
market. Therefore, increased participation by speculators in the futures market
may cause temporary price distortions. Due to the possibility of distortion, a
correct forecast of general interest rate or currency exchange rate trends by
the Adviser may still not result in a successful transaction.
In addition, futures contracts entail risks. Although the Adviser believes that
use of such contracts will benefit the Portfolios, if the Adviser's investment
judgment about the general direction of interest rates is incorrect, a
Portfolio's overall performance would be poorer than if it had not entered into
any such contract. For example, if a Portfolio has hedged against the
possibility of an increase in interest rates which would adversely affect the
price of debt securities held in its portfolio and interest rates decrease
instead, the Portfolio will lose part or all of the benefit of the increased
value of its debt securities which it has hedged because it will have offsetting
losses in its futures positions. In addition, in such situations, if a Portfolio
has insufficient cash, it may have to sell debt securities from its portfolio to
meet daily variation margin requirements. Such sales of bonds may be, but will
not necessarily be, at increased prices which reflect the rising market. A
Portfolio may have to sell securities at a time when it may be disadvantageous
to do so.
Options on Futures Contracts. Each Portfolio may purchase and write options on
futures contracts for hedging purposes. The purchase of a call option on a
futures contract is similar in some respects to the purchase of a call option on
an individual security. For example, when a Portfolio is not fully invested it
may purchase a call option on an interest rate sensitive futures contract to
hedge against a potential price increase on debt securities due to declining
interest
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rates. The purchase of a put option on a futures contract is similar in some
respects to the purchase of protective put options on portfolio securities. For
example, a Portfolio may purchase a put option on an interest rate sensitive
futures contract to hedge its portfolio against the risk of a decline in the
price of debt securities due to rising interest rates.
The writing of a call option on a futures contract may constitute a partial
hedge against declining prices of portfolio securities which are the same as or
correlate with the security or foreign currency which is deliverable upon
exercise of the futures contract. If the futures price at expiration of the
option is below the exercise price, a Portfolio will retain the full amount of
the option premium which provides a partial hedge against any decline that may
have occurred in the Portfolio's portfolio holdings. The writing of a put option
on a futures contract may constitute a partial hedge against increasing prices
of intended portfolio securities which are the same as or correlate with the
security or foreign currency which is deliverable upon exercise of the futures
contract. If the futures price at expiration of the option is higher than the
exercise price, the Portfolio will retain the full amount of the option premium
which provides a partial hedge against any increase in the price of securities
which the Portfolio intends to purchase. If a put or call option a Portfolio has
written is exercised, the Portfolio will incur a loss which will be reduced by
the amount of the premium it receives. Depending on the degree of correlation
between changes in the value of its portfolio securities and changes in the
value of its futures positions, the Portfolio's losses from existing options on
futures may to some extent be reduced or increased by changes in the value of
portfolio securities.
The amount of risk a Portfolio assumes when it purchases an option on a futures
contract is the premium paid for the option plus related transaction costs. In
addition to the correlation risks discussed above, the purchase of an option
also entails the risk that changes in the value of the underlying futures
contract will not be fully reflected in the value of the option purchased.
Asset Coverage. To assure that a Portfolio's use of futures and related options,
as well as when-issued and delayed-delivery securities and foreign currency
exchange transactions, are not used to achieve investment leverage, a Portfolio
will cover such transactions, as required under applicable interpretations of
the SEC, either by owning the underlying securities or by segregating with the
Portfolio's Custodian or futures commission merchant liquid securities in an
amount at all times equal to or exceeding the Portfolio's commitment with
respect to these instruments or contracts.
The Board of Trustees of each Portfolio has adopted the requirement that futures
contracts and options on futures contracts be used as a hedge and may also use
stock index futures on continual basis to equitize cash so that the Portfolio
may maintain 100% equity exposure. In compliance with current CFTC regulations,
a Portfolio will not enter into any futures contracts or options on futures
contracts if immediately thereafter the amount of margin deposits on all the
futures contracts of the Portfolio and premiums paid on outstanding options on
futures contracts owned by the Portfolio (other than those entered into for bona
fide hedging purposes) would exceed 5%
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of the Portfolio's net asset value, after taking into account unrealized profits
and unrealized losses on any such contracts.
Additional Risk Factors
In addition to the risks discussed above, the Portfolios' investments may be
subject to the following risk factors:
Foreign Securities: Special Considerations Concerning the Pacific Basin. Many
Asian countries may be subject to a greater degree of social, political and
economic instability than is the case in the United States and European
countries. Such instability may result from (i) authoritarian governments or
military involvement in political and economic decision-making; (ii) popular
unrest associated with demands for improved political, economic and social
conditions; (iii) internal insurgencies; (iv) hostile relations with neighboring
countries; and (v) ethnic, religious and racial disaffection.
The economies of most of the Asian countries are heavily dependent upon
international trade and are accordingly affected by protective trade barriers
and the economic conditions of their trading partners, principally, the United
States, Japan, China and the European Community. The enactment by the United
States or other principal trading partners of protectionist trade legislation,
reduction of foreign investment in the local economies and general declines in
the international securities markets could have a significant adverse effect
upon the securities markets of the Asian countries.
The securities markets in Asia are substantially smaller, less liquid and more
volatile than the major securities markets in the United States. A high
proportion of the shares of many issuers may be held by a limited number of
persons and financial institutions, which may limit the number of shares
available for investment by the Portfolio. Similarly, volume and liquidity in
the bond markets in Asia are less than in the United States and, at times, price
volatility can be greater than in the United States. A limited number of issuers
in Asian securities markets may represent a disproportionately large percentage
of market capitalization and trading value. The limited liquidity of securities
markets in Asia may also affect the Portfolio's ability to acquire or dispose of
securities at the price and time it wishes to do so. The EAFE Equity Index
Portfolio's inability to dispose fully and promptly of positions in declining
markets will cause the Portfolio's net asset value to decline as the value of
the unsold positions is marked to lower prices. In addition, the Asian
securities markets are susceptible to being influenced by large investors
trading significant blocks of securities.
Many stock markets are undergoing a period of growth and change which may result
in trading volatility and difficulties in the settlement and recording of
transactions, and in interpreting and applying the relevant law and regulations.
The EAFE Equity Index Portfolio invests in securities denominated in currencies
of Asian countries. Accordingly, changes in the value of these currencies
against the U.S. dollar will
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result in corresponding changes in the U.S. dollar value of the Portfolio's
assets denominated in those currencies.
Options on Futures Contracts, Forward Contracts and Options on Foreign
Currencies. Unlike transactions entered into by a Portfolio in futures
contracts, options on foreign currencies and forward contracts are not traded on
contract markets regulated by the CFTC or (with the exception of certain foreign
currency options) by the SEC. To the contrary, such instruments are traded
through financial institutions acting as principals, although foreign currency
options are also traded on certain national securities exchanges such as the
Philadelphia Stock Exchange and the Chicago Board Options Exchange, subject to
SEC regulation. In an over-the-counter trading environment, many of the
protections afforded to exchange participants will not be available. For
example, there are no daily price fluctuation limits, and adverse market
movements could therefore continue to an unlimited extent over a period of time.
Although the purchaser of an option cannot lose more than the amount of the
premium plus related transaction costs, this entire amount could be lost.
Moreover, the option writer and a trader of forward contracts could lose amounts
substantially in excess of their initial investments.
Forward contracts and options on foreign currencies traded over-the-counter
involve liquidity and credit risks which may not be present in the case of
exchange-traded currency options. A Portfolio's ability to terminate over-the-
counter options will be more limited than with exchange-traded options. It is
also possible that broker- dealers participating in over-the-counter options
transactions will not fulfill their obligations. Until such time as the staff of
the SEC changes its position, each Portfolio will treat purchased over-the-
counter options and assets used to cover written over-the-counter options as
illiquid securities.
Options on foreign currencies traded on national securities exchanges are within
the jurisdiction of the SEC, as are other securities traded on such exchanges.
As a result, many of the protections provided to traders on organized exchanges
will be available with respect to such transactions. In particular, all foreign
currency option positions entered into on a national securities exchange are
cleared and guaranteed by the Options Clearing Corporation (the "OCC"), thereby
reducing the risk of counterparty default. Further, a liquid secondary market in
options traded on a national securities exchange may be more readily available
than in the over-the-counter market, potentially permitting a Portfolio to
liquidate open positions at a profit prior to exercise or expiration, or to
limit losses in the event of adverse market movements.
The purchase and sale of exchange-traded foreign currency options, however, is
subject to the risks of the availability of a liquid secondary market described
above, as well as the risks regarding adverse market movements, margining of
options written, the nature of the foreign currency market, possible
intervention by governmental authorities and the effects of other political and
economic events. In addition, exchange-traded options on foreign currencies
involve certain risks not presented by the over-the-counter market. For example,
exercise and settlement of such options must be made exclusively through the
OCC, which has established banking relationships in applicable foreign countries
for this purpose. As a result, the OCC may,
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if it determines that foreign governmental restrictions or taxes would prevent
the orderly settlement of foreign currency option exercises, or would result in
undue burdens on the OCC or its clearing member, impose special procedures on
exercise and settlement, such as technical changes in the mechanics of delivery
of currency, the fixing of dollar settlement prices or prohibitions on exercise.
In addition, futures contracts, options on futures contracts, forward contracts
and options on foreign currencies may be traded on foreign exchanges. Such
transactions are subject to the risk of governmental actions affecting trading
in or the prices of foreign currencies or securities. The value of such
positions also could be adversely affected by: (i) other complex foreign
political and economic factors; (ii) lesser availability than in the United
States of data on which to make trading decisions; (iii) delays in the
Portfolio's ability to act upon economic events occurring in foreign markets
during nonbusiness hours in the United States; (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
United States; and (v) lesser trading volume.
Special Information Concerning Master-Feeder Fund Structure. Unlike other open-
end management investment companies (mutual funds) which directly acquire and
manage their own portfolio securities, each Fund seeks to achieve its investment
objective by investing all of its assets in the corresponding Portfolio, a
separate registered investment company with the same investment objective as the
corresponding Fund. Therefore, an investor's interest in the corresponding
Portfolio's securities is indirect. In addition to selling a beneficial interest
to the corresponding Fund, each Portfolio may sell beneficial interests to other
mutual funds, investment vehicles or institutional investors. Such investors
will invest in a Portfolio on the same terms and conditions and will pay a
proportionate share of a Portfolio's expenses. However, the other investors
investing in a Portfolio are not required to sell their shares at the same
public offering price as the Fund due to variations in sales commissions and
other operating expenses. Therefore, investors in a Fund should be aware that
these differences may result in differences in returns experienced by investors
in the different funds that invest in each Portfolio. Such differences in
returns are also present in other mutual fund structures. Information concerning
other holders of interests in each Portfolio is available from Bankers Trust at
1-800-368-4031.
Smaller funds investing in a Portfolio may be materially affected by the actions
of larger funds investing in the Portfolio. For example, if a large fund
withdraws from a Portfolio, the remaining funds may experience higher pro rata
operating expenses, thereby producing lower returns (however, this possibility
exists as well for traditionally structured funds which have large institutional
investors). Additionally, a Portfolio may become less diverse, resulting in
increased portfolio risk. Also, funds with a greater pro rata ownership in a
Portfolio could have effective voting control of the operations of the
Portfolio. Except as permitted by the SEC, whenever the Trust is requested to
vote on matters pertaining to a Portfolio, the Trust will hold a meeting of
shareholders of the Fund and will cast all of its votes in the same proportion
as the votes of the
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Fund's shareholders. Fund shareholders who do not vote will not affect the
Trust's votes at the Portfolio meeting. The percentage of the Trust's votes
representing the Fund's shareholders not voting will be voted by the Trustees or
officers of the Trust in the same proportion as the Fund shareholders who do, in
fact, vote.
Certain changes in a Portfolio's investment objectives, policies or restrictions
may require the Fund to withdraw its interest in the Portfolio. Any such
withdrawal could result in a distribution "in kind" of portfolio securities (as
opposed to a cash distribution from the Portfolio). If securities are
distributed, the Fund could incur brokerage, tax or other charges in converting
the securities to cash. In addition, the distribution in kind may result in a
less diversified portfolio of investments or adversely affect the liquidity of
the Fund. Notwithstanding the above, there are other means for meeting
redemption requests, such as borrowing.
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A Fund may withdraw its investment from a Portfolio at any time, if the Board of
Trustees of the Trust determines that it is in the best interests of the
shareholders of the Fund to do so. Upon any such withdrawal, the Board of
Trustees of the Trust would consider what action might be taken, including the
investment of all the assets of the Fund in another pooled investment entity
having the same investment objective as the Fund or the retaining of an
investment adviser to manage the Fund's assets in accordance with the investment
policies described herein with respect to the corresponding Portfolio.
Each Fund's investment objective is not a fundamental policy and may be changed
upon notice to, but without the approval of, the Fund's shareholders. If there
is a change in a Fund's investment objective, the Fund's shareholders should
consider whether the Fund remains an appropriate investment in light of their
then-current needs. The investment objective of each Portfolio is also not a
fundamental policy. Shareholders of the Funds will receive 30 days prior written
notice with respect to any change in the investment objective of a Fund or the
corresponding Portfolio.
Rating Services. The ratings of Moody's and S&P represent their opinions as to
the quality of the securities that they undertake to rate. It should be
emphasized, however, that ratings are relative and subjective and are not
absolute standards of quality. Although these ratings are an initial criterion
for selection of portfolio investments, the Adviser also makes its own
evaluation of these securities, subject to review by the Board of Trustees.
After purchase by a Portfolio, an obligation may cease to be rated or its rating
may be reduced below the minimum required for purchase by the Portfolio. Neither
event would require a Portfolio to eliminate the obligation from its portfolio,
but the Adviser will consider such an event in its determination of whether a
Portfolio should continue to hold the obligation. A description of the ratings
categories of Moody's and S&P is set forth in the Appendix to this SAI.
Investment Restrictions
Fundamental Policies. The following investment restrictions are "fundamental
policies" of each Fund and each Portfolio and may not be changed with respect to
the Fund or the Portfolio without the approval of a "majority of the outstanding
voting securities" of the Fund or the Portfolio, as the case may be. "Majority
of the outstanding voting securities" under the 1940 Act, and as used in this
SAI and the Prospectus, 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 a Portfolio, the Trust will hold a
meeting of the corresponding Fund's shareholders and will cast its vote as
instructed by that Fund's shareholders. Fund shareholders who do not vote will
not affect the Trust's votes at the Portfolio meeting. The percentage of the
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Trust's votes representing Fund shareholders not voting will be voted by the
Trustees of the Trust in the same proportion as the Fund shareholders who do, in
fact, vote.
As a matter of fundamental policy, no Portfolio (or Fund) may (except that no
investment restriction of a Fund shall prevent a Fund from investing all of its
assets in an open-end investment company with substantially the same investment
objectives):
(1) borrow money or mortgage or hypothecate assets of the Portfolio (Fund),
except that in an amount not to exceed 1/3 of the current value of the
Portfolio's (Fund's) net assets, it may borrow money as a temporary
measure for extraordinary or emergency purposes and enter into reverse
repurchase agreements or dollar roll transactions, and except that it may
pledge, mortgage or hypothecate not more than 1/3 of such assets to
secure such borrowings (it is intended that money would be borrowed only
from banks and only either to accommodate requests for the withdrawal of
beneficial interests (redemption of shares) while effecting an orderly
liquidation of portfolio securities or to maintain liquidity in the event
of an unanticipated failure to complete a portfolio security transaction
or other similar situations) or reverse repurchase agreements, provided
that collateral arrangements with respect to options and futures,
including deposits of initial deposit and variation margin, are not
considered a pledge of assets for purposes of this restriction and except
that assets may be pledged to secure letters of credit solely for the
purpose of participating in a captive insurance company sponsored by the
Investment Company Institute; for additional related restrictions, see
clause (i) under the caption "Additional Restrictions" below (as an
operating policy, the Portfolios may not engage in dollar roll
transactions);
(2) underwrite securities issued by other persons except insofar as the
Portfolios (Trust or the Funds) may technically be deemed an underwriter
under the 1933 Act in selling a portfolio security;
(3) make loans to other persons except: (a) through the lending of the
Portfolio's (Fund's) portfolio securities and provided that any such
loans not exceed 30% of the Portfolio's (Fund's) total assets (taken at
market value); (b) through the use of repurchase agreements or the
purchase of short-term obligations; or (c) by purchasing a portion of an
issue of debt securities of types distributed publicly or privately;
(4) purchase or sell real estate (including limited partnership interests but
excluding securities secured by real estate or interests therein),
interests in oil, gas or mineral leases, commodities or commodity
contracts (except futures and option contracts) in the ordinary course of
business (except that the Portfolio (Trust) may hold and sell, for the
Portfolio's (Fund's) portfolio, real estate acquired as a result of the
Portfolio's (Fund's) ownership of securities);
(5) concentrate its investments in any particular industry (excluding U.S.
Government securities), but if it is deemed appropriate for the
achievement of a Portfolio's (Fund's)
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investment objective(s), up to 25% of its total assets may be invested in
any one industry; and
(6) issue any senior security (as that term is defined in the 1940 Act) if
such issuance is specifically prohibited by the 1940 Act or the rules and
regulations promulgated thereunder, provided that collateral arrangements
with respect to options and futures, including deposits of initial
deposit and variation margin, are not considered to be the issuance of a
senior security for purposes of this restriction.
(7) with respect to 75% of the Fund's (Portfolio's) total assets, invest more
than 5% of its total assets in the securities of any one issuer
(excluding cash and cash-equivalents, U.S. government securities and the
securities of other investment companies) or own more than 10% of the
voting securities of any issuer.
Additional Restrictions. In order to comply with certain statutes and policies
each Portfolio (or the Trust, on behalf of each Fund) will not as a matter of
operating policy (except that no operating policy shall prevent a Fund from
investing all of its assets in an open-end investment company with substantially
the same investment objectives):
(i) borrow money (including through reverse repurchase or forward roll
transactions) for any purpose in excess of 5% of the Portfolio's (Fund's)
total assets (taken at market), except that the Portfolio (Fund) may
borrow for temporary or emergency purposes up to 1/3 of its net assets;
(ii) pledge, mortgage or hypothecate for any purpose in excess of 10% of the
Portfolio's (Fund's) total assets (taken at market value), provided that
collateral arrangements with respect to options and futures, including
deposits of initial deposit and variation margin, and reverse repurchase
agreements are not considered a pledge of assets for purposes of this
restriction;
(iii) purchase any security or evidence of interest therein on margin, except
that such short-term credit as may be necessary for the clearance of
purchases and sales of securities may be obtained and except that
deposits of initial deposit and variation margin may be made in
connection with the purchase, ownership, holding or sale of futures;
(iv) sell securities it does not own such that the dollar amount of such short
sales at any one time exceeds 25% of the net equity of the Portfolio
(Fund), and the value of securities of any one issuer in which the
Portfolio (Fund) is short exceeds the lesser of 2.0% of the value of the
Portfolio's (Fund's) net assets or 2.0% of the securities of any class of
any U.S. issuer and, provided that short sales may be made only in those
securities which are fully listed on a national securities exchange or a
foreign exchange (This provision does not include the sale of securities
of the Portfolio (Fund) contemporaneously owns or has the right to obtain
securities equivalent in kind and amount to those sold, i.e., short sales
against the box.) (the Portfolios (Funds) have no current intention to
engage in short selling);
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(v) invest for the purpose of exercising control or management;
(vi) purchase securities issued by any investment company except by purchase
in the open market where no commission or profit to a sponsor or dealer
results from such purchase other than the customary broker's commission,
or except when such purchase, though not made in the open market, is part
of a plan of merger or consolidation; provided, however, that securities
of any investment company will not be purchased for the Portfolio (Fund)
if such purchase at the time thereof would cause: (a) more than 10% of
the Portfolio's (Fund's) total assets (taken at the greater of cost or
market value) to be invested in the securities of such issuers; (b) more
than 5% of the Portfolio's (Fund's) total assets (taken at the greater of
cost or market value) to be invested in any one investment company; or
(c) more than 3% of the outstanding voting securities of any such issuer
to be held for the Portfolio (Fund), unless permitted to exceed these
imitations by an exemptive order of the SEC; provided further that,
except in the case of a merger or consolidation, the Portfolio (Fund)
shall not purchase any securities of any open-end investment company
unless the Portfolio (Fund) (1) waives the investment advisory fee with
respect to assets invested in other open-end investment companies and (2)
incurs no sales charge in connection with the investment (as an operating
policy, each Portfolio will not invest in another open-end registered
investment company);
(vii) invest more than 15% of the Portfolio's (Fund's) net assets (taken at the
greater of cost or market value) in securities that are illiquid or not
readily marketable not including (a) Rule 144A securities that have been
determined to be liquid by the Board of Trustees; and (b) commercial
paper that is sold under section 4(2) of the 1933 Act which: (i) is not
traded flat or in default as to interest or principal; and (ii) is rated
in one of the two highest categories by at least two nationally
recognized statistical rating organizations and the Portfolio's (Fund's)
Board of Trustees have determined the commercial paper to be liquid; or
(iii) is rated in one of the two highest categories by one nationally
recognized statistical rating agency and the Portfolio's (Fund's) Board
of Trustees have determined that the commercial paper is equivalent
quality and is liquid;
(viii) write puts and calls on securities unless each of the following
conditions are met: (a) the security underlying the put or call is within
the Investment Practices of the Portfolio (Fund) and the option is issued
by the Options Clearing Corporation, except for put and call options
issued by non-U.S. entities or listed on non-U.S. securities or
commodities exchanges; (b) the aggregate value of the obligations
underlying the puts determined as of the date the options are sold shall
not exceed 5% of the Portfolio's (Fund's) net assets; (c) the securities
subject to the exercise of the call written by the Portfolio (Fund) must
be owned by the Portfolio (Fund) at the time the call is sold and must
continue to be owned by the Portfolio (Fund) until the call has been
exercised, has lapsed, or the Portfolio (Fund) has purchased a closing
call, and such purchase has been confirmed, thereby extinguishing the
Portfolio's (Fund's) obligation to deliver securities pursuant to the
call it
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has sold; and (d) at the time a put is written, the Portfolio (Fund)
establishes a segregated account with its custodian consisting of cash or
short-term U.S. government securities equal in value to the amount the
Portfolio (Fund) will be obligated to pay upon exercise of the put (this
account must be maintained until the put is exercised, has expired, or
the Portfolio (Fund) has purchased a closing put, which is a put of the
same series as the one previously written); and
(ix) buy and sell puts and calls on securities, stock index futures or options
on stock index futures, or financial futures or options on financial
futures unless such options are written by other persons and: (a) the
options or futures are offered through the facilities of a national
securities association or are listed on a national securities or
commodities exchange, except for put and call options issued by non-U.S.
entities or listed on non-U.S. securities or commodities exchanges; (b)
the aggregate premiums paid on all such options which are held at any
time do not exceed 20% of the Portfolio's (Fund's) total net assets; and
(c) the aggregate margin deposits required on all such futures or options
thereon held at any time do not exceed 5% of the Portfolio's (Fund's)
total assets.
There will be no violation of any investment restrictions or policies (except
with respect to fundamental investment restriction (1) above) if that
restriction is complied with at the time the relevant action is taken,
notwithstanding a later change in the market value of an investment, in net or
total assets, or in the change of securities rating of the investment, or any
other later change.
Portfolio Transactions and Brokerage Commissions
The Adviser is responsible for decisions to buy and sell securities, futures
contracts and options on such securities and futures for each Portfolio, the
selection of brokers, dealers and futures commission merchants to effect
transactions and the negotiation of brokerage commissions, if any. Broker-
dealers may receive brokerage commissions on portfolio transactions, including
options, futures and options on futures transactions and the purchase and sale
of underlying securities upon the exercise of options. Orders may be directed to
any broker-dealer or futures commission merchant, including to the extent and in
the manner permitted by applicable law, Bankers Trust or its subsidiaries or
affiliates. Purchases and sales of certain portfolio securities on behalf of a
Portfolio are frequently placed by the Adviser with the issuer or a primary or
secondary market-maker for these securities on a net basis, without any
brokerage commission being paid by the Portfolio. Trading does, however, involve
transaction costs. Transactions with dealers serving as market-makers reflect
the spread between the bid and asked prices. Transaction costs may also include
fees paid to third parties for information as to potential purchasers or sellers
of securities. Purchases of underwritten issues may be made which will include
an underwriting fee paid to the underwriter.
The Adviser seeks to evaluate the overall reasonableness of the brokerage
commissions paid (to the extent applicable) in placing orders for the purchase
and sale of securities for a Portfolio taking into account such factors as
price, commission (negotiable in the case of national
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securities exchange transactions), if any, size of order, difficulty of
execution and skill required of the executing broker-dealer through familiarity
with commissions charged on comparable transactions, as well as by comparing
commissions paid by the Portfolio to reported commissions paid by others. The
Adviser reviews on a routine basis commission rates, execution and settlement
services performed, making internal and external comparisons.
The Adviser is authorized, consistent with Section 28(e) of the Securities
Exchange Act of 1934, as amended, when placing portfolio transactions for a
Portfolio with a broker to pay a brokerage commission (to the extent applicable)
in excess of that which another broker might have charged for effecting the same
transaction on account of the receipt of research, market or statistical
information. The term "research, market or statistical information" includes
advice as to the value of securities; the advisability of investing in,
purchasing or selling securities; the availability of securities or purchasers
or sellers of securities; and furnishing analyses and reports concerning
issuers, industries, securities, economic factors and trends, portfolio strategy
and the performance of accounts.
Consistent with the policy stated above, the Conduct Rules of the National
Association of Securities Dealers and such other policies as the Trustees of the
Portfolio may determine, the Adviser may consider sales of shares of the Fund as
a factor in the selection of broker-dealers to execute portfolio transactions.
Bankers Trust will make such allocations if commissions are comparable to those
charged by nonaffiliated, qualified broker-dealers for similar services.
Higher commissions may be paid to firms that provide research services to the
extent permitted by law. Bankers Trust may use this research information in
managing each Portfolio's assets, as well as the assets of other clients.
Except for implementing the policies stated above, there is no intention to
place portfolio transactions with particular brokers or dealers or groups
thereof. In effecting transactions in over-the-counter securities, orders are
placed with the principal market-makers for the security being traded unless,
after exercising care, it appears that more favorable results are available
otherwise.
Although certain research, market and statistical information from brokers and
dealers can be useful to a Portfolio and to the Adviser, it is the opinion of
the management of the Portfolios that such information is only supplementary to
the Adviser's own research effort, since the information must still be analyzed,
weighed and reviewed by the Adviser's staff. Such information may be useful to
the Adviser in providing services to clients other than the Portfolios, and not
all such information is used by the Adviser in connection with the Portfolios.
Conversely, such information provided to the Adviser by brokers and dealers
through whom other clients of the Adviser effect securities transactions may be
useful to the Adviser in providing services to the Portfolios.
In certain instances there may be securities which are suitable for a Portfolio
as well as for one or more of the Adviser's other clients. Investment decisions
for a Portfolio and for the Adviser's other clients are made with a view to
achieving their respective investment objectives. It may
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develop that a particular security is bought or sold for only one client even
though it might be held by, or bought or sold for, other clients. Likewise, a
particular security may be bought for one or more clients when one or more
clients are selling that same security. Some simultaneous transactions are
inevitable when several clients receive investment advice from the same
investment adviser, particularly when the same security is suitable for the
investment objectives of more than one client. When two or more clients are
simultaneously engaged in the purchase or sale of the same security, the
securities are allocated among clients in a manner believed to be equitable to
each. It is recognized that in some cases this system could have a detrimental
effect on the price or volume of the security as far as a Portfolio is
concerned. However, it is believed that the ability of a Portfolio to
participate in volume transactions will produce better executions for the
Portfolio.
For the fiscal years ended December 31, 1999, 1998 and 1997, Equity 500 Index
Portfolio paid brokerage commissions in the amount of $678,820, $534,801 and
$341,058, respectively. For the year ended December 31, 1998, the Portfolio paid
$333 in brokerage commissions to Bankers Trust, an affiliate of the Fund and
Portfolio. This represents 0.06% of the Portfolio's aggregate brokerage
commissions and 0% of the Portfolio's aggregate dollar amount of transactions
involving the payment of commissions during the fiscal year. For the years ended
December 31, 1999 and 1997, the Equity 500 Index Portfolio did not pay brokerage
commissions to an affiliate.
For the fiscal years ended December 31, 1999, 1998, and 1997, the Small Cap
Index Portfolio, paid brokerage commissions in the amount of $272,256, $170,681
and $64,041, respectively. For the years ended December 31, 1999, 1998 and 1997,
the Small Cap Index Portfolio did not pay brokerage commissions to an affiliate.
For the fiscal years ended December 31, 1999, 1998, and 1997, the EAFE Equity
Index Portfolio, paid brokerage commissions in the amount of $45,361, $18,446
and $33,474, respectively. For the years ended December 31, 1999, 1998 and 1997,
the EAFE Equity Index Portfolio did not pay brokerage commissions to an
affiliate.
For the fiscal years ended December 31, 1999, 1998 and for the period from June
30, 1997 (commencement of operations) to December 31, 1997, U.S. Bond Index
Portfolio did not pay any brokerage commissions. For the fiscal years ended
December 31, 1999, 1998 and for the period from June 30, 1997 (commencement of
operations) to December 31, 1997, the U.S. Bond Index Portfolio did not pay
brokerage commissions to an affiliate.
PERFORMANCE INFORMATION
Standard Performance Information
From time to time, quotations of a Fund's performance may be included in
advertisements, sales literature or shareholder reports. Mutual fund performance
is commonly measured as total return
33
<PAGE>
and/or yield. Each Fund's performance is affected by its expenses. These
performance figures are calculated in the following manner:
Yield: Yield refers to the income generated by an investment in a Fund over a
given period of time, expressed as an annual percentage rate. Yields for a Fund
used in advertising are computed by dividing the Fund's interest and dividend
income for a given 30-day or one-month period, net of expenses, by the average
number of shares entitled to receive distributions during the period, dividing
this figure by the Fund's net asset value per share at the end of the period,
and annualizing the result (assuming compounding of income) in order to arrive
at an annual percentage rate. Income is calculated for purpose of yield
quotations in accordance with standardized methods applicable to all stock and
bond mutual funds. Dividends from equity investments are treated as if they were
accrued on a daily basis, solely for the purpose of yield calculations. In
general, interest income is reduced with respect to bonds trading at a premium
over their par value by subtracting a portion of the premium from income on a
daily basis, and is increased with respect to bonds trading at a discount by
adding a portion of the discount to daily income. Capital gains and losses
generally are excluded from the calculation.
Income calculated for the purposes of calculating a Fund's yield differs from
income as determined for other accounting purposes. Because of the different
accounting methods used, and because of the compounding assumed in yield
calculations, the yield quoted for a Fund may differ from the rate of
distributions of the Fund paid over the same period or the rate of income
reported in the Fund's financial statements. This difference may be significant
for a Fund investing in a Portfolio whose investments are denominated in foreign
currencies.
Total return: Total return is the change in value of an investment in a Fund
over a given period, assuming reinvestment of any dividends and capital gains. A
cumulative total return reflects actual performance over a stated period of
time. An average annual total return is a hypothetical rate of return that, if
achieved annually, would have produced the same cumulative total return if
performance had been constant over the entire period. Average annual total
return calculations smooth out variations in performance; they are not the same
as actual year-by-year results. Average annual total returns covering periods of
less than one year assume that performance will remain constant for the rest of
the year. A Fund's average annual total return is calculated for certain periods
by determining the average annual compounded rates of return over those periods
that would cause an investment of $1,000 (made at the maximum public offering
price with all distributions reinvested) to reach the value of that investment
at the end of the periods. A Fund may also calculate total return figures which
represent aggregate performance over a period or year-by-year performance.
Unlike some bank deposits or other investments which pay a fixed yield for a
stated period of time, the total return of a Fund will vary depending upon
interest rates, the current market value of the securities held by the
corresponding Portfolio and changes in the expenses of the Fund or Portfolio. In
addition, during certain periods for which total return may be provided, Bankers
Trust may have voluntarily agreed to waive portions of its fees, or reimburse
certain operating
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<PAGE>
expenses of a Fund or Portfolio, on a month-to-month basis. Such waivers will
have the effect of increasing such Fund's net income (and therefore its yield
and total return) during the period such waivers are in effect.
Performance Results: Total returns and yields are based on past results and are
not an indication of future performance. Any total return quotation provided for
a Fund should not be considered as representative of the performance of the Fund
in the future since the net asset value and public offering price of shares of
the Fund will vary based not only on the type, quality and maturities of the
securities held in the corresponding Portfolio, but also on changes in the
current value of such securities and on changes in the expenses of the Fund and
the corresponding Portfolio. These factors and possible differences in the
methods used to calculate total return should be considered when comparing the
total return of a Fund to total returns published for other investment companies
or other investment vehicles. Total return reflects the performance of both
principal and income.
Comparison of Fund Performance
Comparison of the quoted nonstandardized performance of various investments is
valid only if performance is calculated in the same manner. Since there are
different methods of calculating performance, investors should consider the
effect of the methods used to calculate performance when comparing performance
of a Fund with performance quoted with respect to other investment companies or
types of investments.
In connection with communicating its performance to current or prospective
shareholders, a Fund also may compare these figures to the performance of other
mutual funds tracked by mutual fund rating services or to unmanaged indices
which may assume reinvestment of dividends but generally do not reflect
deductions for administrative and management costs.
Evaluations of a Fund's performance made by independent sources may also be used
in advertisements concerning the Fund. Sources for a Fund's performance
information could include the following:
Asian Wall Street Journal, a weekly Asian newspaper that often reviews U.S.
- -------------------------
mutual funds investing internationally.
Barron's, a Dow Jones and Company, Inc. business and financial weekly that
- --------
periodically reviews mutual fund performance data.
Business Week, a national business weekly that periodically reports the
- -------------
performance rankings and ratings of a variety of mutual funds investing abroad.
Changing Times, The Kiplinger Magazine, a monthly investment advisory
- --------------------------------------
publication that periodically features the performance of a variety of
securities.
Consumer Digest, a monthly business/financial magazine that includes a "Money
- ---------------
Watch" section featuring financial news.
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<PAGE>
Financial Times, Europe's business newspaper, which features from time to time
- ---------------
articles on international or country-specific funds.
Financial World, a general business/financial magazine that includes a "Market
- ---------------
Watch" department reporting on activities in the mutual fund industry.
Forbes, a national business publication that from time to time reports the
- ------
performance of specific investment companies in the mutual fund industry.
Fortune, a national business publication that periodically rates the performance
- -------
of a variety of mutual funds.
Global Investor, a European publication that periodically reviews the
- ---------------
performance of U.S. mutual funds investing internationally.
Investor's Daily, a daily newspaper that features financial, economic and
- ----------------
business news.
Lipper Analytical Services, Inc.'s Mutual Fund Performance Analysis, a weekly
- -------------------------------------------------------------------
publication of industry-wide mutual fund averages by type of fund.
Money, a monthly magazine that from time to time features both specific funds
- -----
and the mutual fund industry as a whole.
Morningstar Inc., a publisher of financial information and mutual fund research.
- ----------------
New York Times, a nationally distributed newspaper which regularly covers
- --------------
financial news.
Personal Investing News, a monthly news publication that often reports on
- -----------------------
investment opportunities and market conditions.
Personal Investor, a monthly investment advisory publication that includes a
- -----------------
"Mutual Funds Outlook" section reporting on mutual fund performance measures,
yields, indices and portfolio holdings.
Success, a monthly magazine targeted to the world of entrepreneurs and growing
- -------
business, often featuring mutual fund performance data.
U.S. News and World Report, a national business weekly that periodically reports
- --------------------------
mutual fund performance data.
Value Line, a biweekly publication that reports on the largest 15,000 mutual
- ----------
funds.
Wall Street Journal, a Dow Jones and Company, Inc. newspaper which regularly
- -------------------
covers financial news.
Weisenberger Investment Companies Services, an annual compendium of information
- ------------------------------------------
about mutual funds and other investment companies, including comparative data on
funds' backgrounds, management policies, salient features, management results,
income and dividend records, and price ranges.
36
<PAGE>
Working Women, a monthly publication that features a "Financial Workshop"
- -------------
section reporting on the mutual fund/financial industry.
Economic and Market Information
Advertising and sales literature of a Fund may include discussions of economic,
financial and political developments and their effect on the securities market.
Such discussions may take the form of commentary on these developments by Fund
portfolio managers and their views and analysis on how such developments could
affect the Funds. In addition, advertising and sales literature may quote
statistics and give general information about the mutual fund industry,
including the growth of the industry, from sources such as the Investment
Company Institute ("ICI"). For example, according to the ICI, thirty-seven
percent of American households are pursuing their financial goals through mutual
funds. These investors, as well as businesses and institutions, have entrusted
over $4.4 trillion to the more than 6,700 funds available.
VALUATION OF SECURITIES; REDEMPTIONS AND PURCHASES IN KIND
Valuation of Securities
Each Fund is open for business each day the New York Stock Exchange, Inc.
("NYSE") is open (a "Valuation Day"). Each Fund's net asset value ("NAV") per
share is calculated at 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 each Fund's assets (i.e., the value of its
investment in the corresponding Portfolio and other assets), less all
liabilities attributable to the shares, by the total number of shares
outstanding. EAFE(R) Equity Index will not process orders on any day when the
NYSE is closed. Orders received on such days will be priced on the next day the
Fund computes its NAV. As such, investors may experience a delay in purchasing
or redeeming shares of the Fund.
Equity and debt securities (other than short-term debt obligations maturing in
60 days or less), including listed securities and securities for which price
quotations are available, will normally be valued on the basis of market
valuations furnished by a pricing service. Short-term debt obligations and money
market securities maturing in 60 days or less are valued at amortized cost,
which approximates market.
Securities for which market quotations are not available are valued by Bankers
Trust pursuant to procedures adopted by each Portfolio's Board of Trustees. It
is generally agreed that securities for which market quotations are not readily
available should not be valued at the same value as that carried by an
equivalent security which is readily marketable.
The problems inherent in making a good faith determination of value are
recognized in the codification effected by SEC Financial Reporting Release No. 1
("FRR 1" (formerly Accounting Series Release No. 113)) which concludes that
there is "no automatic formula" for calculating the value of restricted
securities. It recommends that the best method simply is to consider all
37
<PAGE>
relevant factors before making any calculation. According to FRR 1 such factors
would include consideration of the:
type of security involved, financial statements, cost at date of
purchase, size of holding, discount from market value of unrestricted
securities of the same class at the time of purchase, special reports
prepared by analysts, information as to any transactions or offers with
respect to the security, existence of merger proposals or tender offers
affecting the security, price and extent of public trading in similar
securities of the issuer or comparable companies, and other relevant
matters.
To the extent that a Portfolio purchases securities which are restricted as to
resale or for which current market quotations are not available, the Adviser of
the Portfolio will value such securities based upon all relevant factors as
outlined in FRR 1.
Purchase of Shares
Each Trust accepts purchase orders for shares of the Funds at the NAV per share
next determined after the order is received on each Valuation Day. Shares may be
available through Investment Professionals, such as broker/dealers and
investment advisers (including Service Agents).
Purchase orders for shares (including those purchased through a Service Agent)
that are transmitted to the Trusts' Transfer Agent (the "Transfer Agent"), prior
to the Valuation Time on any Valuation Day will be effective at that day's
Valuation Time. The Trusts 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 the Custodian purchase payments by the following business day (trade
date + 1) after an order for shares is placed. A shareholder must settle with
the Service Agent for his or her entitlement to an effective purchase or
redemption order as of a particular time. Because Bankers Trust is the Custodian
and Transfer Agent of the Trust, funds may be transferred directly from or to a
customer's account held with Bankers Trust to settle transactions with the Fund
without incurring the additional costs or delays associated with the wiring of
federal funds.
The Trusts and Bankers Trust have authorized one or more brokers to accept on
the Trusts' behalf purchase and redemption orders. Such brokers are authorized
to designate other intermediaries to accept purchase and redemption orders on
the Trusts' behalf. The Transfer Agent will be deemed to have received a
purchase or redemption order when an authorized broker or, if applicable, a
broker's authorized designee, accepts the order. Customer orders will be priced
at a Fund's NAV next computed after they are accepted by an authorized broker or
the broker's authorized designee.
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<PAGE>
Redemption of Shares
You can arrange to take money out of your fund account at any time by selling
(redeeming) some or all of your shares. Your shares shall be sold at the next
NAV calculated after an order is received by the Transfer Agent. Redemption
requests should be transmitted by customers in accordance with procedures
established by the Transfer Agent and the shareholder's Service Agent.
Redemption requests for shares received by the Service Agent and transmitted to
the Transfer Agent prior to the Valuation Time on each Valuation Day will be
effective at that day's Valuation Time and the redemption proceeds normally will
be delivered to the shareholder's account the next day, but in any event within
seven calendar days following receipt of the request.
Service Agents may allow redemptions or exchanges by telephone and may disclaim
liability for following instructions communicated by telephone that the Service
Agent reasonably believes to be genuine. The Service Agent must provide the
investor with an opportunity to choose whether or not to utilize the telephone
redemption or exchange privilege. The Transfer Agent and the Service Agent must
employ reasonable procedures to confirm that instructions communicated by
telephone are genuine. If the Service Agent does not do so, it may be liable for
any losses due to unauthorized or fraudulent instructions. Such procedures may
include, among others, requiring some form of personal identification prior to
acting upon instructions received by telephone, providing written confirmation
of such transactions and/or tape recording of telephone instructions.
Certain requests must include a signature guarantee to protect you and Bankers
Trust from fraud. Redemption requests in writing must include a signature
guarantee if any of the following situations apply:
. Your account registration has changed within the last 30 days,
. The check is being mailed to a different address than the one on your account
(record address),
. The check is being made payable to someone other than the account owner,
. The redemption proceeds are being transferred to a Deutsche Asset Management
account with a different registration, or
. You wish to have redemption proceeds wired to a non-predesignated bank
account.
A signature guarantee is also required if you change the pre-designated bank
information for receiving redemption proceeds on your account.
You should be able to obtain a signature guarantee from a bank, broker, dealer,
credit union (if authorized under state law), securities exchange or
association, clearing agency, or savings association. A notary public cannot
provide a signature guarantee.
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<PAGE>
The Trust may suspend the right of redemption or postpone the date of payment
for shares of the Fund during any period when: (a) trading on the NYSE is
restricted by applicable rules and regulations of the SEC; (b) the NYSE is
closed for other than customary weekend and holiday closings; (c) the SEC has by
order permitted such suspension; or (d) an emergency exists as determined by the
SEC.
Tax-Saving Retirement Plans
Retirement plans offer significant tax savings and are available to individuals,
partnerships, small businesses, corporations, nonprofit organizations and other
institutions. Contact your Service Agent or Bankers Trust for further
information. Bankers Trust can set up your new account in the Fund under a
number of several tax-savings or tax-deferred plans. Minimums may differ from
those listed elsewhere in this SAI.
Redemptions and Purchases in Kind
The Trusts, on behalf of each Fund, and each Portfolio reserve the right, if
conditions exist which make cash payments undesirable, to honor any request for
redemption or repurchase order by making payment in whole or in part in readily
marketable securities chosen by the Trust, or the Portfolio, as the case may be,
and valued as they are for purposes of computing the Fund's or the Portfolio's
net asset value, as the case may be (a redemption in kind). If payment is made
to a Fund shareholder in securities, an investor, including the Fund, the
shareholder may incur transaction expenses in converting these securities into
cash. The Trusts, on behalf of each Fund, and each Portfolio have elected,
however, to be governed by Rule 18f-1 under the 1940 Act as a result of which
each Fund and each 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.
Each Portfolio has agreed to make a redemption in kind to the corresponding 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 corresponding 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 a Portfolio, including the corresponding Fund, may add to or
reduce its investment in the Portfolio on each day the Portfolio determines its
net asset value. At the close of each such business day, the value of each
investor's beneficial interest in the Portfolio will be determined by
multiplying the net asset value of the Portfolio by the percentage, effective
for that day, which represents that investor's share of the aggregate beneficial
interests in the Portfolio. Any additions or withdrawals which are to be
effected as of the close of business on that day will then be effected. The
investor's percentage of the aggregate beneficial interests in the Portfolio
will then be recomputed as the percentage equal to the fraction (i) the
numerator of which is the
40
<PAGE>
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.
Each 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 Bankers Trust, 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 corresponding 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. When securities are used as payment
for shares or as a redemption in kind from the fund, the transaction fee will
not be assessed. However, the shareholder will be charged the costs associated
with receiving or delivering the securities. These costs include security
movement costs and taxes and registration costs. Each Fund reserves the right to
accept or reject at its own option any and all securities offered in payment for
its shares.
The Funds and the Portfolios each reserve the right to redeem all of their
shares, if the Board of Trustees vote to liquidate the Fund and/or Portfolio.
Trading in Foreign Securities
With respect to the EAFE Equity Index--Premier Class, trading in foreign cities
may be completed at times which vary from the closing of the NYSE. In computing
the net asset values, the Funds value foreign securities at the latest closing
price on the 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.
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<PAGE>
MANAGEMENT OF THE TRUSTS AND THE PORTFOLIOS
The Trusts and the Portfolios are governed by their respective Boards of
Trustees which are responsible for protecting the interests of investors. By
virtue of the responsibilities assumed by Bankers Trust, the administrator of
the Trusts and the Portfolios, neither the Trusts nor the Portfolios require
employees other than their executive officers. None of the executive officers of
the Trusts or the Portfolios devotes full time to the affairs of the Trusts or
the Portfolios.
A majority of the Trustees who are not "interested persons" (as defined in the
1940 Act) of each Trust or Portfolio, as the case may be, have adopted written
procedures reasonably appropriate to deal with potential conflicts of interest
arising from the fact that the same individuals are Trustees of such Trust and
Portfolio, up to and including creating separate boards of trustees.
Each Board of Trustees is composed of persons experienced in financial matters
who meet throughout the year to oversee the activities of the Funds or
Portfolios they represent. In addition, the Trustees review contractual
arrangements with companies that provide services to the Funds/Portfolios and
review the Funds' performance.
The Trustees and officers of the Trusts and Portfolios their birthdates, their
principal occupations during the past five years, and addresses are set forth
below. Their titles may have varied during that period.
Trustees of the Trusts and Portfolios
CHARLES P. BIGGAR (birth date: October 13, 1930) -- Trustee of the Trusts and
Portfolio; Trustee of each of the other investment companies in the Fund
Complex; Retired; former Vice President, International Business Machines
("IBM") and President, National Services and the Field Engineering Divisions of
IBM. His address is 12 Hitching Post Lane, Chappaqua, New York 10514.
S. LELAND DILL (birth date: March 28, 1930) -- Trustee of the Trusts and
Portfolio; Trustee of each of the other investment companies in the Fund
Complex; Retired; Director, Coutts
- --------------------
1 The "Fund Complex" consists of BT Investment Funds, BT Institutional Funds, BT
Pyramid Mutual Funds, BT Advisor Funds, Cash Management Portfolio, Intermediate
Tax Free Portfolio, Tax Free Money Portfolio, NY Tax Free Money Portfolio,
Treasury Money Portfolio, International Equity Portfolio, Equity 500 Index
Portfolio, Capital Appreciation Portfolio, Asset Management Portfolio and BT
Investment Portfolios.
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<PAGE>
(U.S.A.) International; Trustee, Phoenix-Zweig Trust and Phoenix-Euclid Market
Neutral Fund2; former Partner, KPMG Peat Marwick; Director, Vintners
International Company Inc.; Director, Coutts Trust Holdings Ltd., Director,
Coutts Group; General Partner, Pemco2. His address is 5070 North Ocean Drive,
Singer Island, Florida 33404.
MARTIN J. GRUBER (birth date: July 15, 1937) -- Trustee of the Trusts and
Portfolio; Trustee of each of the other investment companies in the Fund
Complex; Nomura Professor of Finance, Leonard N. Stern School of Business, New
York University (since 1964); Trustee, TIAA2; Trustee, SG Cowen Mutual Funds2;
Trustee, Japan Equity Fund2; Trustee, Taiwan Equity Fund2. His address is 229
South Irving Street, Ridgewood, New Jersey 07450.
RICHARD HALE* (birth date: July 17, 1945) -- Trustee of the Trusts and
Portfolio; Trustee of each of the other investment companies in the Fund
Complex; Managing Director, Deutsche Asset Management; Director, Flag Investors
Funds2; Managing Director, Deutsche Banc Alex. Brown Incorporated; Director
and President, Investment Company Capital Corp. His address is 205 Woodbrook
Lane, Baltimore, Maryland 21212.
RICHARD J. HERRING (birth date: February 18, 1946) -- Trustee of the Trusts and
Portfolio; Trustee of each of the other investment companies in the Fund
Complex; Jacob Safra Professor of International Banking, Professor of Finance
and Vice Dean, The Wharton School, University of Pennsylvania (since 1972). His
address is 325 South Roberts Road, Bryn Mawr, Pennsylvania 19010.
BRUCE E. LANGTON (birth date: May 10, 1931) -- Trustee of the Trusts and
Portfolio; Trustee of each of the other investment companies in the Fund
Complex; Retired; Trustee, Allmerica Financial Mutual Funds (1992-present);
Member, Pension and Thrift Plans and Investment Committee, Unilever U.S.
Corporation (1989 to present); Director, TWA Pilots Directed Account Plan and
401(k) Plan (1988 to present)2. His address is 99 Jordan Lane, Stamford,
Connecticut 06903.
- --------------------
2 An investment company registered under the Investment Company Act of 1940, as
amended (the "Act").
3 A publicly held company with securities registered pursuant to Section 12 of
the Securities Exchange Act of 1934, as amended.
43
<PAGE>
PHILIP SAUNDERS, JR. (birth date: October 11, 1935) -- Trustee of the Trusts and
Portfolio; Trustee of each of the other investment companies in the Fund
Complex; Principal, Philip Saunders Associates (Economic and Financial
Consulting); former Director, Financial Industry Consulting, Wolf & Company;
President, John Hancock Home Mortgage Corporation; Senior Vice President of
Treasury and Financial Services, John Hancock Mutual Life Insurance Company,
Inc. His address is 445 Glen Road, Weston, Massachusetts 02193.
HARRY VAN BENSCHOTEN (birth date: February 18, 1928) -- Trustee of the Trusts
and Portfolio; Trustee of each of the other investment companies in the Fund
Complex; Retired; Director, Canada Life Insurance Corporation of New York. His
address is 6581 Ridgewood Drive, Naples, Florida 34108.
* "Interested Person" within the meaning of Section 2(a)(19) of the Act. Mr.
Hale is a Managing Director of Deutsche Asset Management, the U.S. asset
management unit of Deutsche Bank and its affiliates.
The Board has an Audit Committee that meets with the Trusts' and Portfolio's
independent accountants to review the financial statements of the Trust, the
adequacy of internal controls and the accounting procedures and policies of the
Trust. Each member of the Board except Mr. Hale also is a member of the Audit
Committee.
Officers of the Trusts and Portfolios
Unless otherwise specified, each officer listed below holds the same position
with each Trust and each Portfolio.
DANIEL O. HIRSCH (birth date: March 27, 1954) -- Director, Deutsche Asset
Management since 1999; Director, Deutsche Banc Alex.Brown LLC since July 1998;
Secretary of the Trusts and Portfolio since 1998; Associate General Counsel,
Office of the General Counsel, United States Securities and Exchange Commission,
1993 to 1998. His address is One South Street, Baltimore, Maryland 21202.
JOHN A. KEFFER (birth date: July 14, 1942) -- President and Chief Executive
Officer of the Trusts and Portfolio; President, Forum Financial Group L.L.C. and
its affiliates; President, ICC
44
<PAGE>
Distributors, Inc./4/ His address is ICC Distributors, Inc., Two Portland
Square, Portland, Maine 04101.
CHARLES A. RIZZO (birth date: August 5, 1958) Treasurer of the Trusts and
Portfolio; Vice President and Department Head, Deutsche Asset Management since
1998; Senior Manager, PricewaterhouseCoopers LLP from 1993 to 1998. His address
is One South Street, Baltimore, MD 21202.
Messrs. Hirsch, Keffer and Rizzo also hold similar positions for other
investment companies for which ICC Distributors, or an affiliate serves as the
principal underwriter.
No person who is an officer or director of Bankers Trust is an officer or
Trustee of the Trust. No director, officer or employee of ICC Distributors, Inc.
or any of its affiliates will receive any compensation from the Trust for
serving as an officer or Trustee of the Trust.
As of March 31, 1999, the Trustees and officers of the Trusts and the Portfolios
owned in the aggregate less than 1% of the shares of any Fund or Trust (all
series taken together).
Trustee Compensation Table
<TABLE>
<CAPTION>
Total
Aggregate Aggregate Compensation
Compensation from Compensation from Aggregate from
Advisor Institutional Compensation Fund
Trustee Funds* Funds** from Portfolios+ Complex***
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Charles P. Biggar $ 678 $11,474 $ 4,285 $43,750
- -----------------------------------------------------------------------------------------------------------
S. Leland Dill $ 914 $ 1,698 $16,629 $43,750
- -----------------------------------------------------------------------------------------------------------
Martin J. Gruber $9,642 $ 1,698 $ 3,184 $45,000
- -----------------------------------------------------------------------------------------------------------
Richard J. Herring $8,763 $27,062 $ 5563 $43,750
- -----------------------------------------------------------------------------------------------------------
Kevin Lancaster N/A N/A $12,617 $18,750
- -----------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------
4 Underwriter/distributor for the Trust. Mr. Keffer owns 100% of the shares of
ICC Distributors, Inc
45
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Bruce E. Langton $ 8545 $26,289 $ 5,820 $43,750
- -----------------------------------------------------------------------------------------------------------
Philip Saunders, Jr. $ 636 $ 1,698 $17,136 $45,000
- -----------------------------------------------------------------------------------------------------------
Harry Van Benschoten $ 9642 $ 1,698 $ 3,183 $45,000
- -----------------------------------------------------------------------------------------------------------
</TABLE>
* The information provided is for the BT Advisor Funds, which comprises three
funds, for the year ended December 31, 1999.
** The information provided is for the BT Institutional Funds, which comprises
nine funds, for the year ended December 31, 1999.
+ The information provided is for the Equity 500 Index Portfolio and BT
Investment Portfolios for the year ended December 31, 1999.
*** Aggregated information is furnished for the Fund Complex which consists of
the following: BT Investment Funds, BT Institutional Funds, BT Pyramid
Mutual Funds, BT Advisor Funds, BT Investment Portfolios, Cash Management
Portfolio, Treasury Money Portfolio, Tax Free Money Portfolio, NY Tax Free
Money Portfolio, International Equity Portfolio, Short Intermediate US
Government Securities Portfolio, Intermediate Tax Free Portfolio, Asset
Management Portfolio, Equity 500 Index Portfolio, and Capital Appreciation
Portfolio. The compensation provided is for the calendar year ended
December 31, 1999.
As of March 31, 2000, the following shareholders of record owned 5% or more of
the outstanding shares of Equity 500 Index Premier: Bankers Trust Co. TTEE The
William Penn Foundation C/O Mr. Eric R. Aird, Two Logan Square-11th Floor, 100
North 18th Street, Philadelphia, PA 19103-2707 (12.847%); Northern Telecom
Omnibus Account, C/O Bankers Trust Company, Attn: John Sawicki Mailstop 3064, 34
Exchange Place 6th Floor, Jersey City, NJ 07302-3885 (12.620%); The Whitaker
Foundation, 1700 N. Moore Street, STE 2200, Arlington, VA 22209-1923 (8.339%).
As of March 31, 2000, the following shareholders of record owned 5% or more of
the outstanding shares of EAFE Equity Index--Premier Class: Daimler Chrysler,
North America Holding Corporation, Attn: Mike Radin, 1000 Chrysler Dr. Clms 485-
02-20, Auburn Hills, MI 48326 (23.286%); Bankers Trust as Trustee Pacificorp
Bargaining VEBA, Attn: Diane Severino, 300 S. Grand Ave. 40th, Los Angeles, CA
90071-3109 (17.818%); Daimler Chrysler Serp, Chrysler Corp Serp, 100 Plaza One
MIS 3048, Jersey City, NJ 07311 (12.871%); Glenfalco Partnership, P O Box 2161,
Glen Falls, NY 12801-2161 (8.469%); Swiss Bank Corporation, Attn. Kenneth
Anderson, 10 East 50th Street SBT-32-b, New York, NY 10022-6831 (7.122%); Branch
Banking & Trust CO Cust FBO API Trust Growth Fund, C/O Trust Securities
Operations 223 West Nash Street, P. O. Box 2887, Wilson, NC 27894-2887 (5.131%);
Hoechst Colanese Corp, Executive Pension Plan, Attn. Ernest M. Horvoth, Jr.
Bankers Trust Co. 100 Plaza One, Mail Stop 3048, Jersey City, NJ 07311 (5.053%)
46
<PAGE>
As of March 31, 2000, the following shareholders of record owned 5% or more of
the outstanding shares of Small Cap Index--Premier Class: Syracuse University,
621 Skytop Road, Suite 120, Syracuse, NY 13244-0001 (29.009%); Adventist Health
System, Core Cash, 111 N. Orlando Drive, Winter Park, FL 32789-3675 (14.785%);
Balentine US Small Cap Equity Fund LP, 3455 Peachtree Road, NE Suite 2000,
Atlanta, GA 30338 (14.442%); Trustmark National Bank FBO Various Trust Accounts-
RR, 248 E. Capitol Street, Jackson, MS 39201-2503 (12.942%); FTC & Co. Attn:
Datalynx-House Account, P.O. Box 173736, Denver, Co. 80217-3736 (6.682%).
As of March 31, 2000, the following shareholders of record owned 5% or more of
the outstanding shares of U.S. Bond Index--Premier Class: Bankers Trust Co. TTEE
U/A DTD 01/01/1986 (19.364%); Hoechst Colanese Corp. Executive Pension Plan,
Attn. Ernest M. Horvoth, Jr. Bankers Trust Co. 100 Plaza One, Mail stop 3048,
Jersey City, NJ 07311 (18.848%); IUOE & Pipe Line Employers, H & W Fund, 1125
17th Street NW, Washington DC 20036-4707 (16.358%); FTC & Co. Datalynx House
Acct, P. O. Box 173736, Denver, Co. 80217-3736 (7.762%); Baptist Health Systems
Inc. P. O. Box 830605, Birmingham, AL 35283-0605 (5.789%).
Code of Ethics
The Board of Trustees of each Fund has adopted a Code of Ethics pursuant to Rule
17j-1 under the 1940 Act. The Funds' Code of Ethics permits Fund personnel to
invest in securities for their own accounts, but requires compliance with the
Code's pre-clearance requirements (with certain exceptions). In addition, the
Funds' Code of Ethics provides for trading "blackout periods" that prohibit
trading by personnel within periods of trading by the Fund in the same security.
The Funds' Code of Ethics also prohibits short term trading profits and personal
investment in initial public offerings. The Code requires prior approval with
respect to purchases of securities in private placements.
Each Fund's adviser, Bankers Trust, has also adopted a Code of Ethics. The Code
of Ethics allows personnel to invest in securities for their own accounts, but
requires compliance with the Code's pre-clearance requirements and other
restrictions including "blackout periods" and minimum holding periods, subject
to limited exceptions. The Code prohibits purchases of securities in initial
public offerings (the prohibition is limited to U.S. public offerings) and
requires prior approval for purchases of securities in private placements.
Each Fund's principal underwriter, ICC Distributors, Inc. ("ICC"), has adopted a
Code of Ethics applicable to ICC Distributor's distribution services to
registered investment companies such as the Fund. The distributor's Code of
Ethics prohibits access persons and investment personnel from executing personal
47
<PAGE>
trades on a day during which the individual knows or should have known that a
Fund has a pending "buy" or "sell" order in the same security, subject to
certain exceptions. In addition, investment personnel are prohibited from
executing personal trades during a "blackout period" surrounding trades by funds
for which such investment personnel make investment recommendations, subject to
certain exceptions. The ICC Distributors Code of Ethics also requires investment
personnel to obtain pre-clearance for purchases of securities in an initial
public offering or private placement.
Investment Adviser
The Trusts have not retained the services of an investment adviser since each
Trust seeks to achieve the investment objective of each of its Funds by
investing all the assets of each Fund in the corresponding Portfolio. The
Portfolios have retained the services of Bankers Trust as investment adviser.
Bankers Trust is a wholly owned subsidiary of Deutsche Bank A.G. ("Deutsche
Bank"). Deutsche Bank is a banking company with limited liability organized
under the laws of the Federal Republic of Germany. Deutsche Bank is the parent
company of a group consisting of banks, capital markets companies, fund
management companies, mortgage banks, a property finance company, installments
financing and leasing companies, insurance companies, research and consultancy
companies and other domestic and foreign companies.
Bankers Trust Company, may have deposit, loan and other commercial banking
relationships with the issuers of obligations which may be purchased on behalf
of the Portfolio, including outstanding loans to such issuers which could be
repaid in whole or in part with the proceeds of securities so purchased. Such
affiliates deal, trade and invest for their own accounts in such obligations and
are among the leading dealers of various types of such obligations. Bankers
Trust has informed the Portfolio that, in making its investment decisions, it
does not obtain or use material inside information in its possession or in the
possession of any of its affiliates, In making investment recommendations for
the Portfolio, Bankers Trust will not inquire or take into consideration whether
an issuer of securities proposed for purchase of sale by the Portfolio is a
customer of Bankers Trust, its parent or its subsidiaries or affiliates, Also,
in dealing with its customers, Bankers Trust, its parent , subsidiaries, and
affiliates will not inquire or take into consideration whether securities of
such customers are held by any fund managed by Bankers Trust or any such
affiliate.
Bankers Trust, subject to the supervision and direction of the Board of Trustees
of the Portfolio, manages the Portfolio in accordance with the Portfolio's
investment objective and stated investment policies, makes investment decisions
for the Portfolio, places orders to purchase and sell securities and other
financial instruments on behalf of the Portfolio and employs professional
investment managers and securities analysts who provide research services to the
Portfolio. Bankers Trust may utilize the expertise of any of its worldwide
subsidiaries and affiliates to assist it in its role as investment adviser. All
orders for investment transactions on behalf of the Portfolio are placed by
Bankers Trust with brokers, dealers and other financial intermediaries
48
<PAGE>
that it selects, including those affiliated with Bankers Trust. A Bankers Trust
affiliate will be used in connection with a purchase or sale of an investment
for the Portfolio only if Bankers Trust believes that the affiliate's charge for
transaction does not exceed usual and customary levels. The Portfolio will not
invest in obligations for which Bankers Trust or any of its affiliates is the
ultimate obligor or accepting bank. The Portfolio may, however, invest in the
obligations of correspondents or customers of Bankers Trust.
The Investment Advisory Agreements provide for each Portfolio to pay Bankers
Trust a fee, accrued daily and paid monthly, equal on an annual basis to 0.15%
of the average daily net assets of the U.S. Bond Index Portfolio and the Small
Cap Index Portfolio, 0.075% of the average daily net assets of the Equity 500
Index Portfolio and 0.25% of the average daily net assets of the EAFE(R) Equity
Index Portfolio.
For the fiscal years ended December 31, 1999, 1998 and 1997, Bankers Trust
earned $5,134,906 $3,186,503 and $2,430,147, respectively, as compensation for
investment advisory services provided to the Equity 500 Index Portfolio. During
the same periods, Bankers Trust reimbursed $0, $799,296 and $1,739,490,
respectively, to the Portfolio to cover expenses.
For the fiscal years ended December 31, 1999, 1998 and 1997, Bankers Trust
earned $241,326, $151,232 and $123,632, respectively, for investment advisory
services provided to the Small Cap Index Portfolio. During the same periods,
Bankers Trust reimbursed $198,045, $152,329, and $107,835, respectively, to the
Portfolio to cover expenses.
For the fiscal years ended December 31, 1999, 1998 and 1997 Bankers Trust earned
$165,995, $6,594 and $113,810, respectively, for investment advisory services
provided to the EAFE Equity Index Portfolio. During the same periods, Bankers
Trust reimbursed $41,277, $22,682 and $28,070, respectively, to the Portfolio to
cover expenses.
For the fiscal year ended December 31, 1999, 1998 and for the period from June
30, 1997 (commencement of operations) to December 31, 1997, Bankers Trust earned
$120,330, $67,925 and $33,131, respectively, for investment advisory services
provided to the U.S. Bond Index Portfolio. During the same periods, Bankers
Trust reimbursed $104,491, $81,749 and $39,527 to the Portfolio to cover
expenses.
The prospectus contains disclosure as to the amount of Bankers Trust's
investment advisory and administration and services fees, including waivers
thereof. Bankers Trust may not recoup any of its waived investment advisory or
administration and services fees.
Administrator
Under its Administration and Services Agreements with the Trusts, the Adviser
calculates the net asset value of the Fund and generally assists the Board of
Trustees of the Trusts in all aspects of the administration and operation of the
Trusts. The Administration and Services Agreements provides for each Trust to
pay the Adviser a fee, computed daily and paid monthly, equal on an annual
basis to 0.20% of the average daily net assets of U.S. Bond Index--Premier Class
and
49
<PAGE>
Small Cap Index--Premier Class, 0.05% of the average daily net assets of the
Equity 500 Index Premier and 0.15% of the average daily net assets of the
EAFE(R) Equity Index--Premier Class.
Under Administration and Services Agreements with each Portfolio, the Adviser
calculates the value of the assets of the Portfolio and generally assists the
Board of Trustees of the Portfolio in all aspects of the administration and
operation of the Portfolio. The Administration and Services Agreements provide
for each Portfolio to pay the Adviser a fee, computed daily and paid monthly,
equal on an annual basis to 0.05% of the average daily net assets of the U.S.
Bond Index Portfolio and the Small Cap Index Portfolio, and 0.10% of the average
daily net assets of the EAFE(R) Equity Index Portfolio. The Administration and
Services Agreement for the Equity 500 Index Portfolio provides for the Portfolio
to pay the Adviser a fee, accrued daily and paid monthly, computed as a
percentage of the average daily net assets of the Portfolio which on an annual
basis is equal to the lesser of (1) 0.005%, or (2) the amount that brings the
total annual operating expenses as a percentage of the Portfolio's average daily
net assets up to 0.08%. For the period January 1, 1998 to May 6, 1998, the
Administration and Services fee was 0.05% on an annual basis. Under the
Administration and Services Agreements, the Adviser may delegate one or more of
its responsibilities to others at the Adviser's expense.
Under the Administration and Services Agreements, Bankers Trust is obligated on
a continuous basis to provide such administrative services as the Board of
Trustees of the Trusts and the Portfolios reasonably deem necessary for the
proper administration of the Trusts or the Portfolios. Bankers Trust will:
generally assist in all aspects of each class of shares of each Funds' and
Portfolios' operations; supply and maintain office facilities (which may be in
Bankers Trust's own offices), statistical and research data, data processing
services, clerical, accounting, bookkeeping and recordkeeping services
(including without limitation the maintenance of such books and records as are
required under the 1940 Act and the rules thereunder, except as maintained by
other agents), internal auditing, executive and administrative services, and
stationery and office supplies; prepare reports to shareholders or investors;
prepare and file tax returns; supply financial information and supporting data
for reports to and filings with the SEC and various state Blue Sky authorities;
supply supporting documentation for meetings of the Board of Trustees; provide
monitoring reports and assistance regarding compliance with Declarations of
Trust, by-laws, investment objectives and policies and with Federal and state
securities laws; arrange for appropriate insurance coverage; calculate net asset
values, net income and realized capital gains or losses; and negotiate
arrangements with, and supervise and coordinate the activities of, agents and
others to supply services.
For the fiscal years ended December 31, 1999, 1998 and 1997 Bankers Trust
earned $276,004, $142,203 and $113,569, respectively as compensation for
administrative and other services provided to Small Cap Index--Premier Class.
During the same periods, Bankers Trust reimbursed $150,417, $123,352 and
$106,928, respectively to Small Cap Index Fund--Premier Class to cover
expenses.
50
<PAGE>
For the fiscal years ended December 31, 1999, 1998, and 1997 Bankers Trust
earned $105,151 $55,785 and $65,464, respectively, as compensation for
administrative and other services provided to EAFE Equity Index--Premier Class.
During the same periods, Bankers Trust reimbursed $180,142, $138,798 and
$118,022, respectively, to EAFE Equity Index--Premier Class to cover
expenses.
For the fiscal years ended December 31, 1999, 1998 and 1997, Bankers Trust
earned $1,296,608, $925,959 and $724,120, respectively, for administrative and
other services provided to Equity 500 Index Premier. During the same periods,
Bankers Trust reimbursed $917,524, $738,034 and $525,736, respectively to Equity
500 Index Premier to cover expenses.
For the fiscal year ended December 31, 1999, 1998 and for the period from June
30, 1997 (commencement of operations) to December 31, 1997, Bankers Trust earned
$124,261, $37,679 and $19,528, respectively, for administrative and other
services provided to U.S. Bond Index--Premier Class. During the same periods,
Bankers Trust reimbursed $182,731, $106,630 and $52,269, respectively, to U.S.
Bond Index--Premier Class to cover expenses.
For the fiscal years ended December 31, 1999, 1998 and 1997, Bankers Trust
earned $82,294, $50,411 and $41,211, respectively, as compensation for
administrative and other services provided to the Small Cap Index
Portfolio.
For the fiscal years ended December 31, 1999, 1998, and 1997, Bankers Trust
earned $70,051, $2,637 and $45,524, respectively, as compensation for
administrative and other services provided by the EAFE Equity Index
Portfolio.
For the fiscal years ended December 31, 1999, 1998 and 1997, Bankers Trust
earned $344,960, $676,625 and $1,215,073, respectively, as compensation for
administrative and other services provided to the Equity 500 Index
Portfolio.
For the fiscal year ended December 31, 1999, 1998 and for the period from June
30, 1997 (commencement of operations) to December 31, 1997, Bankers Trust earned
$43,596, $22,642 and $11,044, respectively, as compensation for administrative
and other services provided to the U.S. Bond Index Portfolio.
Distributor
ICC Distributors is the principal distributor for shares of each Fund. ICC
Distributors is a registered broker/dealer and is unaffiliated with Bankers
Trust. The principal business address of ICC Distributors is Two Portland
Square, Portland, Maine 04101.
Service Agent
The Adviser acts as a Service Agent pursuant to its Administration and
Services Agreements with the Trusts and receives no additional compensation from
the Funds for such shareholder services. The service fees of any other Service
Agents, including broker-dealers, will be paid by the Adviser from its fees.
The services provided by a Service Agent may include
51
<PAGE>
establishing and maintaining shareholder accounts, processing purchase and
redemption transactions, arranging for bank wires, performing shareholder sub-
accounting, answering client inquiries regarding the Trusts, assisting clients
in changing dividend options, account designations and addresses, providing
periodic statements showing the client's account balance, transmitting proxy
statements, periodic reports, updated prospectuses and other communications to
shareholders and, with respect to meetings of shareholders, collecting,
tabulating and forwarding to the Trusts executed proxies and obtaining such
other information and performing such other services as the Administrator or the
Service Agent's clients may reasonably request and agree upon with the Service
Agent. Service Agents may separately charge their clients additional fees only
to cover provision of additional or more comprehensive services not already
provided under the Administration and Services Agreements with the Adviser, or
of the type or scope not generally offered by a mutual fund, such as cash
management services or enhanced retirement or trust reporting. In addition,
investors may be charged a transaction fee if they effect transactions in Fund
shares through a broker or agent. Each Service Agent has agreed to transmit to
shareholders, who are its customers, appropriate disclosures of any fees that it
may charge them directly.
Custodian and Transfer Agent
Bankers Trust, 130 Liberty Street (One Bankers Trust Plaza), New York, New York
10006, serves as Custodian for the Trusts and for the Portfolios pursuant to the
administration and services agreements. As Custodian, it holds the Funds' and
each Portfolio's assets. Bankers Trust also serves as transfer agent of the
Trusts and of each Portfolio pursuant to the respective administration and
services agreements. Under its transfer agency agreement with the Trusts,
Bankers Trust maintains the shareholder account records for each Class of shares
of each Fund, handles certain communications between shareholders and the Trusts
and causes to be distributed any dividends and distributions payable by the
Trusts. Bankers Trust may be reimbursed by the Funds or the Portfolios for its
out-of-pocket expenses. Bankers Trust will comply with the self-custodian
provisions of Rule 17f-2 under the 1940 Act.
Expenses
Each Fund bears its own expenses. Operating expenses for each Fund generally
consist of all costs not specifically borne by the Adviser or ICC Distributors,
including administration and services fees, fees for necessary professional
services, amortization of organizational expenses and costs associated with
regulatory compliance and maintaining legal existence and shareholder relations.
Each Portfolio bears its own expenses. Operating expenses for each Portfolio
generally consist of all costs not specifically borne by the Adviser or ICC
Distributors, including investment advisory and administration and service fees,
fees for necessary professional services, amortization of organizational
expenses, the costs associated with regulatory compliance and maintaining legal
existence and investor relations.
52
<PAGE>
Use of Name
The Trusts and Bankers Trust have agreed that each Trust may use "BT" as part of
its name for so long as Bankers Trust serves as investment adviser to the
Portfolios. The Trusts have acknowledged that the term "BT" is used by and is a
property right of certain subsidiaries of Bankers Trust and that those
subsidiaries and/or Bankers Trust may at any time permit others to use that
term.
Each 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 each Trust, but there
would be no other material effect on the Trusts, their shareholders or
activities.
Banking Regulatory Matters
Bankers Trust has been advised by its counsel that in its opinion Bankers Trust
may perform the services for the Portfolios contemplated by the Advisory
Agreements and other activities for the Funds and the Portfolios described in
the Prospectuses and this SAI without violation of the Glass-Steagall Act or
other applicable banking laws or regulations. However, counsel has pointed out
that future changes in either Federal or state statutes and regulations
concerning the permissible activities of banks or trust companies, as well as
future judicial or administrative decisions or interpretations of present and
future statutes and regulations, might prevent Bankers Trust from continuing to
perform those services for the Trusts and the Portfolios. State laws on this
issue may differ from the interpretations of relevant Federal law and banks and
financial institutions may be required to register as dealers pursuant to state
securities law. If the circumstances described above should change, the Boards
of Trustees would review the relationships with Bankers Trust and consider
taking all actions necessary in the circumstances.
Counsel and Independent Accountants
Willkie Farr & Gallagher, 787 Seventh Avenue, New York, New York 10019-6099,
serves as Counsel to the Trusts and each Portfolio. PricewaterhouseCoopers LLP,
250 W. Pratt Street, Baltimore, Maryland 21201 acts as Independent Accountants
of the Trusts and each Portfolio.
ORGANIZATION OF THE TRUSTS
The Trust was organized on July 24, 1995 and the Institutional Trust was
organized on March 26, 1990 under the laws of the Commonwealth of Massachusetts.
Each Fund is a mutual fund: an investment that pools shareholders' money and
invests it toward a specified goal. Each Fund is a separate series of the Trust
except for Equity 500 Index Premier which is a separate series of the
Institutional Trust. The Trusts offer shares of beneficial interest of separate
series, par value $0.001 per share. The shares of the other series of the Trusts
are offered through separate prospectuses and statements of additional
information. No series of shares has any preference over any other series. The
Trusts also reserve the right to issue more than one class of shares of each
Fund.
53
<PAGE>
The Trusts are entities commonly known as "Massachusetts business trusts."
Massachusetts law provides that shareholders could under certain circumstances
be held personally liable for the obligations of the Trusts. However, each
Declaration of Trust disclaims shareholder liability for acts or obligations of
such Trust and requires that notice of this disclaimer be given in each
agreement, obligation or instrument entered into or executed by the Trust or a
Trustee. Each Declaration of Trust provides for indemnification from such
Trust's property for all losses and expenses of any shareholder held personally
liable for the obligations of the Trust. Thus, the risk of shareholders
incurring financial loss on account of shareholder liability is limited to
circumstances in which both inadequate insurance existed and each Trust itself
was unable to meet its obligations, a possibility that the Trusts believe is
remote. Upon payment of any liability incurred by the Trusts, the shareholder
paying the liability will be entitled to reimbursement from the general assets
of the Trusts. The Trustees intend to conduct the operations of each Trust in a
manner so as to avoid, as far as possible, ultimate liability of the
shareholders for liabilities of the Trusts.
Each of the U.S. Bond Index Portfolio, Small Cap Index Portfolio and EAFE(R)
Equity Index Portfolio is a separate series of BT Investment Portfolios, a New
York master trust fund. The Equity 500 Index Portfolio is a New York trust.
The Trusts, BT Investment Portfolios and the Equity 500 Index Portfolio each
reserve the right to add additional series in the future.
The Declarations of Trust of the BT Investment Portfolios and the Equity 500
Index Portfolio provide that each Fund and other entities investing in the
corresponding Portfolio (e.g., other investment companies, insurance company
separate accounts and common and commingled trust funds) will each be liable for
all obligations of the Portfolio. However, the risk of a Fund incurring
financial loss on account of such liability is limited to circumstances in which
both inadequate insurance existed and the Portfolio itself was unable to meet
its obligations. Accordingly, the Trustees of the Trusts believe that neither
the Fund nor its shareholders will be adversely affected by reason of a Fund's
investing in the corresponding Portfolio.
The Trusts or Portfolios may hold special meetings and mail proxy materials.
These meetings may be called to elect or remove trustees, change fundamental
policies, approve a Portfolio's investment advisory agreement, or for other
purposes. Shareholders not attending these meetings are encouraged to vote by
proxy. The Trusts' Transfer Agent will mail proxy materials in advance,
including a voting card and information about the proposals to be voted on.
When matters are submitted for shareholder vote, shareholders of each Fund will
have one vote for each full share held and proportionate, fractional votes for
fractional shares held. A separate vote of each Fund is required on any matter
affecting the Fund on which shareholders are entitled to vote. Shareholders of
each Fund are not entitled to vote on trust matters that do not affect the Fund.
All series of a Trust will vote together on certain matters, such as electing
trustees. 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
54
<PAGE>
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 Trust will also assist shareholders in
communicating with one another as provided for in the 1940 Act.
Each series in a Trust will not be involved in any vote involving a Portfolio in
which it does not invest its assets. Shareholders of all of the series of a
Trust will, however, vote together to elect Trustees of the Trust and for
certain other matters. Under certain circumstances, the shareholders of one or
more series could control the outcome of these votes.
Shares of the Trusts do not have cumulative voting rights, which means that
holders of more than 50% of the shares voting for the election of Trustees can
elect all Trustees. Shares are transferable but have no preemptive, conversion
or subscription rights. Shareholders generally vote by Fund, except with respect
to the election of Trustees and the ratification of the selection of independent
accountants.
As of March 31, 2000, no shareholders of record owned 25% or more of the voting
securities of Equity 500 Index Premier, and, therefore, are not deemed to
control the Fund and be able to affect the outcome of certain matters presented
for a vote of its shareholders.
As of March 31, 2000, no shareholders of record owned 25% or more of the voting
securities of U.S. Bond Index--Premier Class, and, therefore, are not deemed to
control the Fund and be able to affect the outcome of certain matters presented
for a vote of its shareholders.
As of March 31, 2000, the following shareholders of record owned 25% or more of
the voting securities of Small Cap Index--Premier Class, and, therefore, may,
for certain purposes, be deemed to control the Fund and be able to affect the
outcome of certain matters presented for a vote of its shareholders: Syracuse
University, 621 Skytop Road, Suite 120, Syracuse, NY 13244-0001 (29.009%).
As of March 31, 2000, no shareholders of record owned 25% or more of the voting
securities of EAFE Equity Index--Premier Class, and, therefore, are not deemed
to control the Fund and be able to affect the outcome of certain matters
presented for a vote of its shareholders.
TAXATION
Taxation of the Funds
Each Fund intends to continue to qualify annually as a regulated investment
company under the Code. As a regulated investment company, each 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. Each Fund
intends to distribute to its shareholders, at least annually, substantially all
of its investment
55
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company taxable income and net capital gains, and therefore does not anticipate
incurring a Federal income tax liability. The Funds also do not anticipate
paying any excise taxes. The Funds' dividends and distributions will not qualify
for the dividends-received deduction for corporations.
If for any taxable year a Fund does not qualify for the special federal income
tax treatment afforded regulated investment companies, all of its taxable income
will be subject to federal income tax at regular corporate rates (without any
deduction for distributions to its shareholders). In such event, dividend
distributions would be taxable to shareholders to the extent of current
accumulated earnings and profits, and would be eligible for the dividends
received deduction for corporations in the case of corporate shareholders.
A Fund's investment in Section 1256 contracts, such as regulated futures
contracts, most forward currency forward contracts traded in the interbank
market and options on most stock indices, are subject to special tax rules. All
section 1256 contracts held by a Fund at the end of its taxable year are
required to be marked to their market value, and any unrealized gain or loss on
those positions will be included in the Fund's income as if each position had
been sold for its fair market value at the end of the taxable year. The
resulting gain or loss will be combined with any gain or loss realized by the
Fund from positions in section 1256 contracts closed during the taxable year.
Provided such positions were held as capital assets and were not part of a
"hedging transaction" nor part of a "straddle," 60% of the resulting net gain or
loss will be treated as long-term capital gain or loss, and 40% of such net gain
or loss will be treated as short-term capital gain or loss, regardless of the
period of time the positions were actually held by the Fund.
Taxation of the Portfolios
The Portfolios are not subject to the Federal income taxation. Instead, the Fund
and other investors investing in a Portfolio must take into account, in
computing their Federal income tax liability, their share of the Portfolio's
income, gains, losses, deductions, credits and tax preference items, without
regard to whether they have received any cash distributions from the
Portfolio.
Distributions
Each Fund distributes substantially all of its net income and capital gains to
shareholders each year. Each Fund (except U.S. Bond Index--Premier Class)
distributes income dividends annually. U.S. Bond Index--Premier Class declares
income dividends daily and distributes such dividends monthly. In addition,
each Fund will distribute net capital gains, if any, at least annually and
potentially semi-annually, if required, to remain in compliance with the
applicable tax regulations. Unless a shareholder instructs the Trusts to pay
such dividends and distributions in cash, they will be automatically reinvested
in additional shares of the Fund that paid the dividend or distribution.
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
56
<PAGE>
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. Shareholders receiving distributions in the form
of additional shares, rather than cash, generally will have a taxable amount,
and a cost basis in each such share, equal to the net asset value of a share of
the Fund on the reinvestment date. Distributions declared to shareholders of
record in October, November or December and paid in January are taxable as if
paid on December 31. The Fund will send each shareholder a tax statement by
January 31 showing the tax status of the distributions received in the part
year. Mutual fund dividends from U.S. government securities are generally free
from state and local income taxes. However, particular states may limit this
benefit, and some types of securities, such as repurchase agreements and some
agency-backed securities, may not qualify for the benefit. In addition, some
states may impose intangible property taxes. Shareholders should consult their
own tax adviser concerning the application of federal, state and local taxes to
the distributions they receive from the Fund.
You may realize a capital gain or loss when you redeem (sell) or exchange
shares. Because the tax treatment also depends on your purchase price and your
personal tax position, you should keep your regular account statements to use in
determining your tax.
Backup Withholding
A 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 a Fund may be
different from those described herein. Foreign shareholders are advised to
consult their own tax advisers with respect to the particular tax consequences
to them of an investment in a Fund.
Other Taxation
The Trust is organized as a Massachusetts business trust and, under current law,
neither the Trust nor any 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.
Each Portfolio is organized as a New York trust. Each Portfolio is not subject
to any income or franchise tax in the State of New York or the Commonwealth of
Massachusetts.
57
<PAGE>
Foreign Withholding Taxes
Income received by a Portfolio from investments in foreign securities may be
subject to withholding and other taxes imposed by foreign countries.
FINANCIAL STATEMENTS
The financial statements for the Funds and the Portfolios for the period ended
December 31,1999, are incorporated herein by reference to the Funds' Annual
Reports dated December 31, 1999. A copy of a Fund's Annual Report may be
obtained without charge by contacting the Service Center at 1-800-730-1313.
58
<PAGE>
APPENDIX
Description of Moody's Corporate Bond Ratings:
Aaa - Bonds rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt edge."
Interest payments are protected by a large or by an exceptionally stable margin
and principal is secure. While the various protective elements are likely to
change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa - Bonds rated Aa are judged to be of high quality by all standards. Together
with the Aaa group they comprise what are generally known as high-grade bonds.
They are rated lower than the best bonds because margins of protection may not
be as large as in Aaa securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make the long-
term risks appear somewhat larger than in Aaa securities.
A - Bonds rated 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 which
suggest a susceptibility to impairment sometime in the future.
Baa - Bonds rated Baa are considered as medium-grade obligations, i.e. they are
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 - Bonds rated Ba are 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 - Bonds rated B generally lack characteristics of a desirable investment.
Assurance of interest and principal payments or of maintenance of other terms of
the contract over any long period of time may be small.
Caa - Bonds rated Caa are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or interest.
Ca - Bonds rated Ca represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.
C - Bonds rated C are the lowest-rated class of bonds and issued so rated can be
regarded as having extremely poor prospects of ever attaining any real
investment standing.
Moody's applies numerical modifiers, 1, 2, and 3, in each generic rating
classification from Aa through B in its corporate bond system. The modifier 1
indicates that the security ranks in the
59
<PAGE>
higher end of its generic rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates that the issue ranks in the lower end of
its generic rating category.
Description of S&P's Corporate Bond Ratings:
AAA - Debt rated AAA has the highest rating assigned by S&P to a debt
obligation. Capacity to pay interest and repay principal is extremely strong.
AA - Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher-rated issues only in small degree.
A - Debt rated A has 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.
BBB - Debt rated BBB is 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 weakened capacity to pay interest and repay principal for debt
in this category than in higher-rated categories.
BB - Debt rate BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments.
B - Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB- rating.
CCC - Debt rated CCC has a currently identifiable vulnerability to default, and
is dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal.
CC - Debt rated CC is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC debt rating.
C -The rating C is typically applied to debt subordinated to senior debt which
is assigned an actual or implied CCC- debt rating. The C rating may be used to
cover a situation where a bankruptcy petition has been filed but debt service
payments are continued.
CI - The rating CI is reserved for income bonds on which no interest is being
paid.
D - Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments 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
60
<PAGE>
rating will also be used upon the filing of a bankruptcy petition if debt
service payments are jeopardized.
61
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
APRIL 30, 2000
Investment Adviser and Administrator of each Portfolio
BANKERS TRUST COMPANY
130 Liberty Street
(One Bankers Trust Plaza)
New York, NY 10006
Distributor
ICC DISTRIBUTORS, INC.
Custodian and Transfer Agent
BANKERS TRUST COMPANY
130 Liberty Street
(One Bankers Trust Plaza)
New York, NY 10006
Independent Accountants
PRICEWATERHOUSECOOPERS LLP
250 West Pratt Street
Baltimore, MD 21201
Counsel
WILLKIE FARR & GALLAGHER
787 Seventh Avenue
New York, NY 10019
No person has been authorized to give any information or to make any
representations other than those contained in the Trust's Prospectuses, its
Statements of Additional Information or the Trust's official sales literature in
connection with the offering of the Trust's shares and, if given or made, such
other information or representations must not be relied on as having been
authorized by the Trust. Neither the Prospectuses nor this Statement of
Additional Information constitutes an offer in any state in which, or to any
person to whom, such offer may not lawfully be made.
Cusips: 055924500
05576L700
05576L882
05576L874
COMBINXSAI (0/00)
<PAGE>
PART C. OTHER INFORMATION
ITEM 23. Exhibits.
---------
(a) Declaration of Trust of the Trust; 1
(i) Eighth Amended and Restated Establishment and
Designation of Series and Classes of Shares; filed herewith
(b) By-Laws of the Trust; 1
(c) Specimen stock certificates for shares of beneficial interest of
the Trust; 2
(d) Not applicable;
(e) Distributor's Contract; 6
(f) Not applicable;
(g) Custodian Agreement between the Registrant and Bankers Trust Company; 3
(i) Amendment #1 to Exhibit A of the Custodian Agreement; 6
(ii) Cash Services Addendum to Custodian Agreement; 6
(h) Administration and Services Agreement; 2
(i) Exhibit D to the Administration and Services Agreement; 5
(ii) Transfer Agency Agreement; 3
(iii) Expense Limitation Agreement dated December 31, 1999 - filed
herewith;
(i) Legal Opinion - Not applicable;
(j) Consent of Independent Accountants - filed herewith;
(k) Omitted Financial Statements - Not applicable;
(l) Initial Capital Understanding; 3
(m) Rule 12b-1 Plans - Not applicable;
(n) Financial Data Schedules - Not applicable;
(o) Rule 18f-3 Plan; 4.
(p) Fund, Adviser and Underwriter Codes of Ethics; filed herewith
___________________________________
1. Incorporated by reference to the Registration Statement on Form N-1A
("Registration Statement") as filed with the Commission on August 24, 1995.
2. Incorporated by reference to Pre-Effective Amendment No. 2 to Registrant's
Registration Statement as filed with the Commission on January 3, 1996.
3. Incorporated by reference to Post-Effective Amendment No. 1 to Registrant's
Registration Statement as filed with the Commission on April 29, 1996.
4. Incorporated by reference to Post-Effective Amendment No. 3 to Registrant's
Registration Statement as filed with the Commission on August 1, 1996.
<PAGE>
5. Incorporated by reference to Post-Effective Amendment No. 7 to Registrant's
Registration Statement as filed with the Commission on April 30, 1998.
6. Incorporated by reference to Post-Effective Amendment No. 8 to Registrant's
Registration Statement as filed with the Commission on February 26, 1999.
ITEM 24. Persons Controlled by or Under Common Control with Registrant.
--------------------------------------------------------------
Not applicable.
ITEM 25. Indemnification.
----------------
Incorporated by reference to Post-Effective Amendment No. 3 to Registrant's
Registration Statement as filed with the Commission on August 1, 1996.
ITEM 26. Business and Other Connections of Investment Adviser.
-----------------------------------------------------
Bankers Trust Company ("Bankers Trust") serves as investment adviser to the
Portfolios. Bankers Trust, a New York banking corporation, is a wholly owned
subsidiary of Deutsche Bank A.G. Bankers Trust conducts a variety of commercial
banking and trust activities and is a major wholesale supplier of financial
services to the international institutional market.
To the knowledge of the Trust, none of the directors or officers of Bankers
Trust, except those set forth below, is engaged in any other business,
profession, vocation or employment of a substantial nature, except that certain
directors and officers also hold various positions with and engage in business
for Deutsche Bank A.G. and its affiliates or subsidiaries. Set forth below are
the names and principal businesses of the directors and officers of Bankers
Trust who, to our knowledge as of April 25, 2000, are engaged in any other
business, profession, vocation or employment of a substantial nature.
Josef Ackermann
Member, Board of Managing Directors, Deutsche Bank AG; Chairman of the Board and
Chief Executive Officer, Bankers Trust Corporation; 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.
<PAGE>
Hans Angermueller
"Of Counsel", Shearman & Sterling; Director, Bankers Trust Corporation;
Director, Bankers Trust Company. Address: Shearman & Sterling, 599 Lexington
Avenue, Suite 1414, New York, New York 10022-6069.
George B. Beitzel
Private Investor; Director, Bankers Trust Corporation; Director, Bankers Trust
Company; Directorships in: Bitstream, Inc.; Computer Task Group, Inc.; and
Staff Leasing Inc. Address: 29 King Street, Chappaqua, New York 10514-3432.
Yves de Balman
Co-Chairman and Co-Chief Executive Officer, DB Alex. Brown LLC; Vice Chairman,
Bankers Trust Corporation; Director, Bankers Trust International, plc; Director,
Aerospatiale Matra; Co-Chairman and Co-Chief Executive Officer, Deutsche Bank
Securities Inc. Address: 130 Liberty Street, New York, New York 10006.
William R. Howell
Chairman Emeritus, J.C. Penney Company, Inc.; Director, Bankers Trust
Corporation; Director, Bankers Trust Company; Director, Exxon Mobil Corporation;
Warner-Lambert Company; Halliburton Company; Williams, Inc.; Central and South
West Corporation. Adddress: 6501 Legacy Drive, Plano, Texas 75054-3698.
Hermann-Josef Lamberti
Executive Vice President, Deutsche Bank AG; Director and Vice Chairman, Bankers
Trust Corporation; Director, Bankers Trust Company; Board memberships:
Euroclear plc (London); Euroclear sc. (Brussels); and The Clearinghouse
Interbank Payments Co. L.L.C. Supervisory Board Memberships in: GZS
(Frankfurt) and the European Transaction Bank (e.t.b.). Director, Deutsche Bank
Americas Holding Corp. Address: Deutsche Bank AG, Taunusanlage 12, 60325
Frankfurt am Main, Germany.
Troland S. Link
General Counsel of Deutsche Bank North America; General Counsel, Bankers Trust
Corporation; Managing Director and General Counsel, Bankers Trust Company.
Address: 1301 Sixth Avenue - Fl.8, New York, NY 10019.
<PAGE>
Rodney A. McLauchlan
Executive Vice President, Bankers Trust Company; Executive Vice President,
Bankers Trust Corporation. Address: 31 West 52nd Street, Fl.28, New York, NY
10019.
John A. Ross
Chief Executive Officer of the Americas, Deutsche Bank AG; President and
Director, Bankers Trust Corporation; President and Director, Bankers Trust
Company; President, Director and Chief Executive Officer, Taunus Corporation and
DB U.S. Financial Markets Holding Corporation; President and Chief Executive
Officer, Deutsche Bank Americas Holding Corp.; Director, Deutsche Bank
Securities Inc.and DB Alex. Brown LLC. Address: Deutsche Bank, 31 West 52nd
Street, FL. 28, New York, New York 10019.
Ronaldo H. Schmitz
Member of the Group Board, Deutsche Bank AG, Director, Bankers Trust
Corporation; Director, Bankers Trust Company; Non-executive Director,
Bertelsmann AG, Glaxo Wellcome plc, Rohm & Haas Co. and INSEAD - Paris, France;
Director, Deutsche Bank Americas Holding Corp. Address: Deutsche Bank AG,
Taunusanlage 12, 60325 Frankfurt am Main, Germany.
Mayo A. Shattuck III
Co-Chairman and Co-Chief Executive Officer, DB Alex. Brown LLC; Vice Chairman,
Bankers Trust Corporation; Director, Bankers Trust International, plc, Alex.
Brown & Sons Holdings Limited, Alex. Brown & Sons Limited, Alex. Brown Asset
Management, Inc., Alex. Brown Capital Advisory, Incorporated and Investment
Company Capital Corporation; Co-Chairman and Co-Chief Executive Officer,
Deutsche Bank Securities Inc.; Director and President - AB Administrative
Partner, Inc., ABFS I Incorporated, ABS Leasing Services Company, ABS MB Ltd.,
Alex. Brown Financial Corporation, Alex. Brown Financial Services Incorporated,
Alex. Brown Investments Incorporated, Alex. Brown Management Services Inc. and
Alex. Brown Mortgage Capital Corporation; and Director and Vice President, Alex.
Brown & Sons Holdings Limited; Director, Constellation Holdings; President,
South Street Aviation; Co-Chairman and Co-Chief Executive Officer, Deutsche Bank
Securities Inc. Address: One South Street, Fl.30 Baltimore, MD 21202.
ITEM 27. Principal Underwriters.
-----------------------
(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,
<PAGE>
BT Institutional Funds, BT Investment 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 Portfolio, BT Alex. Brown Cash Reserve Fund, Flag Investors
Communications Fund, Inc., Flag Investors International Fund, Inc., Flag
Investors emerging Growth Fund, Inc., Total Return U.S. Treasury Fund,
Inc., Managed Municipal Fund, Inc., Flag Investors Short-Intermediate
Income Fund, Inc., Flag Investors Value Builder Fund, Inc., Flag Investors
Real Estate Securities Fund, Inc., Flag Investors Equity Partners Fund,
Inc., Flag Investors Funds, Inc. (formerly known as Deutsche Portfolios,
Inc.), Morgan Grenfell Investment Trust, DP Trust, The Glenmede Funds, Inc.
and The Glenmede Portfolios.
(b) Unless otherwise stated, the principal business address for the following
persons is Two Portland Square, Portland, Maine 04101.
<TABLE>
<CAPTION>
Name and Positions and Positions and
Principal Business Offices with Offices with
Address Distributor Registrant
- ------------------ ------------- -------------
<S> <C> <C>
John Y. Keffer President None
Ronald H. Hirsch Treasurer None
David I. Goldstein Secretary None
Benjamin L. Niles Vice President None
Marc D. Keffer Assistant Secretary None
Nanette K. Chern Chief Compliance Officer None
Frederick Skillin Assistant Treasurer None
</TABLE>
(c) None
ITEM 28. Location of Accounts and Records.
---------------------------------
<TABLE>
<S> <C>
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)
Investors Fiduciary 127 West 10th Street,
Trust Company: Kansas City, MO 64105.
ICC Distributors, Inc.: Two Portland Square
(Distributor) Portland, ME 04101
</TABLE>
<PAGE>
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, the Registrant, BT ADVISOR
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 Amendment to the
Registrant's Registration Statement to be signed on its behalf by the
undersigned, thereto duly authorized, in the City of Baltimore and the State of
Maryland on the 28th day of April, 2000.
BT ADVISOR FUNDS
By: /s/ DANIEL O. HIRSCH
Daniel O. Hirsch, Secretary
April 28, 2000
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to its Registration Statement has been signed below by the following
person in the capacity and on the date indicated:
<TABLE>
<CAPTION>
NAME TITLE DATE
- ---- ----- ----
<S> <C> <C>
Daniel O. Hirsch (Attorney in Fact April 28, 2000
For the Persons
Listed Below)
/s/ JOHN Y. KEFFER* President and
John Y. Keffer Chief Executive Officer
/s/ CHARLES A. RIZZO* Treasurer (Principal
Charles A. Rizzo Financial and Accounting Officer)
/s/ CHARLES P. BIGGAR* Trustee
Charles P. Biggar
/s/ S. LELAND DILL* Trustee
S. Leland Dill
/s/ MARTIN J. GRUBER* Trustee
Martin J. Gruber
/s/ RICHARD T. HALE* Trustee
Richard T. Hale
/s/ RICHARD R. HERRING* Trustee
Richard R. Herring
/s/ BRUCE E. LANGTON* Trustee
Bruce E. Langton
/s/ PHILIP SAUNDERS, JR.* Trustee
Kelvin J. Lancaster
/s/ HARRY VAN BENSCHOTEN* Trustee
Harry Van Benschoten
</TABLE>
* By Power of Attorney - filed herewith.
<PAGE>
SIGNATURES
BT INVESTMENT PORTFOLIOS has duly caused this Post Effective Amendment No.
10 to the Registration Statement on Form N-1A of BT Advisor Funds to be signed
on its behalf by the undersigned, duly authorized, in the City of Baltimore and
the State of Maryland on the 28th day of April, 2000.
BT INVESTMENT PORTFOLIOS
By: /s/ DANIEL O. HIRSCH
Daniel O. Hirsch, Secretary
April 28, 2000
This Post Effective Amendment No. 10 to the Registration Statement of
BT Advisor Funds has been signed below by the following persons in the
capacities indicated with respect to Small Cap Index Portfolio, EAFE Equity
Index Portfolio and U.S. Bond Index Portfolio, each a series of BT INVESTMENT
PORTFOLIOS.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ---- ----- ----
<S> <C> <C>
/s/ DANIEL O. HIRSCH Secretary April 28, 2000
Daniel O. Hirsch (Attorney in Fact
for the Persons
Listed Below)
/s/ JOHN Y. KEFFER* President and
John Y. Keffer Chief Executive Officer
/s/ CHARLES A. RIZZO* Treasurer (Principal
Charles A. Rizzo Financial and Accounting Officer)
/s/ CHARLES P. BIGGAR* Trustee
Charles P. Biggar
/s/ S. LELAND DILL* Trustee
S. Leland Dill
/s/ MARTIN J. GRUBER* Trustee
Martin J. Gruber
/s/ RICHARD T. HALE* Trustee
Richard T. Hale
/s/ RICHARD R. HERRING* Trustee
Richard R. Herring
/s/ BRUCE E. LANGTON* Trustee
Bruce E. Langton
/s/ PHILIP SAUNDERS, JR.* Trustee
Kelvin J. Lancaster
/s/ HARRY VAN BENSCHOTEN* Trustee
Harry Van Benschoten
</TABLE>
* By Power of Attorney - filed herewith.
<PAGE>
POWER OF ATTORNEY
This Power of Attorney will be contingent upon the election of the Trustee
nominees at the Special Shareholder Meetings to be held in September and October
1999.
The undersigned Trustees and officers, as indicated respectively below, of
BT Investment Funds, BT Institutional Funds, BT Pyramid Mutual Funds, and BT
Advisor Funds (each, a "Trust") and Cash Management Portfolio, Treasury Money
Portfolio, Tax Free Money Portfolio, NY Tax Free Money Portfolio, International
Equity Portfolio, Equity 500 Index Portfolio, Asset Management Portfolio,
Capital Appreciation Portfolio, Intermediate Tax Free Portfolio, and BT
Investment Portfolios (each, a "Portfolio Trust") each hereby constitutes and
appoints the Secretary, each Assistant Secretary and each authorized signatory
of each Trust and each Portfolio Trust, each of them with full powers of
substitution, as his true and lawful attorney-in-fact and agent to execute in
his name and on his behalf in any and all capacities the Registration Statements
on Form N-1A, and any and all amendments thereto, and all other documents, filed
by a Trust or a Portfolio Trust with the Securities and Exchange Commission (the
"SEC") under the Investment Company Act of 1940, as amended, and (as applicable)
the Securities Act of 1933, as amended, and any and all instruments which such
attorneys and agents, or any of them, deem necessary or advisable to enable the
Trust or Portfolio Trust to comply with such Acts, the rules, regulations and
requirements of the SEC, and the securities or Blue Sky laws of any state or
other jurisdiction and to file the same, with all exhibits thereto and other
documents in connection therewith, with the SEC and such other jurisdictions,
and the undersigned each hereby ratifies and confirms as his own act and deed
any and all acts that such attorneys and agents, or any of them, shall do or
cause to be done by virtue hereof. Any one of such attorneys and agents has, and
may exercise, all of the powers hereby conferred. The undersigned each hereby
revokes any Powers of Attorney previously granted with respect to any Trust or
Portfolio Trust concerning the filings and actions described herein.
IN WITNESS WHEREOF, each of the undersigned has hereunto set his hand as of
the 7th day of September, 1999.
<PAGE>
<TABLE>
<CAPTION>
NAME TITLE DATE
- ---- ----- ----
<S> <C> <C>
/s/ John Y. Keffer President and Chief Executive Officer of
John Y. Keffer each Trust and Portfolio Trust
/s/ Charles A. Rizzo Treasurer (Principal Financial and
Charles A. Rizzo Accounting Officer) each Trust and
Portfolio Trust
/s/ Charles P. Biggar Trustee of each Trust and Portfolio Trust
Charles P. Biggar
/s/ S. Leland Dill Trustee of each Trust and Portfolio Trust
S. Leland Dill
/s/ Richard T. Hale Trustee of each Trust and Portfolio Trust
Richard T. Hale
/s/ Richard J. Herring Trustee of each Trust and Portfolio Trust
Richard J. Herring
/s/ Bruce E. Langton Trustee of each Trust and Portfolio Trust
Bruce E. Langton
/s/ Martin J. Gruber Trustee of each Trust and Portfolio Trust
Martin J. Gruber
/s/ Philip Saunders, Jr. Trustee of each Trust and Portfolio
Philip Saunders, Jr. Trust
/s/ Harry Van Benschoten Trustee of each Trust and Portfolio
Harry Van Benschoten Trust
</TABLE>
<PAGE>
RESOLUTION RELATING TO
RATIFICATION OF REGISTRATION STATEMENTS
(To be approved by the Boards of each Investment Company
with a Fiscal Year End of December 31 (each, a "Trust" or a
"Portfolio Trust", as applicable)
RESOLVED, That the proper officers of the Trust be, and they hereby are,
authorized and directed to execute, in the name and on behalf of the
Trust, a Post-Effective Amendment under the Securities Act of 1933
(the "1933 Act") and an Amendment under the Investment Company Act of
1940, as amended, (the "1940 Act") to the Trust's Registration
Statement on Form N-1A, and all necessary exhibits and other
instruments relating thereto (collectively, the "Registration
Statement"), to procure all other necessary signatures thereon, and to
file the appropriate exhibits thereto, with the Securities and
Exchange Commission (the "Commission"), under the 1933 Act and the
1940 Act and to appear, together with legal counsel, on behalf of the
Trust before the Commission in connection with any matter relating to
the Registration Statement; and further
RESOLVED, That any officer of the Trust be, and he or she hereby is,
authorized and directed in the name and on behalf of the Trust to take
any and all action which the officer so acting may deem necessary or
advisable in order to obtain a permit to register or qualify shares of
common stock of the Trust for issuance and sale or to request an
exemption from registration of shares of common stock of the Trust
under the securities laws of such of the states of the United States
of America or other jurisdictions, including Canada, as such officer
may deem advisable, and in connection with such registration, permits,
licenses, qualifications and exemptions to execute, acknowledge,
verify, deliver, file and publish all such applications, reports,
issuer's covenants, resolutions, irrevocable consents to service of
process, powers of attorney and other papers and instruments as may be
required under such laws or may be deemed by such officer to be useful
or advisable to be filed thereunder, and
<PAGE>
that the form of any and all resolutions required by any such state
authority in connection with such registration, licensing, permitting,
qualification or exemption is hereby adopted if (1) in the opinion of
the officer of the Trust so acting the adoption of such resolutions is
necessary or advisable, and (2) the Secretary of the Trust evidences
such adoption by filing herewith copies of such resolutions which
shall thereupon be deemed to be adopted by the Board of Directors and
incorporated in the minutes as a part of this resolution and with the
same force and effect as if attached hereto and that the proper
officers of the Trust are hereby authorized to take any and all action
that they may deem necessary or advisable in order to maintain such
registration in effect for as long as they may deem to be in the best
interests of the Trust; and further
RESOLVED, That any and all actions heretofore or hereafter taken by such
officer or officers within the terms of the foregoing resolutions be,
and they hereby are, ratified and confirmed as the authorized act and
deed of the Trust; and further
RESOLVED, That the proper officers of the Portfolio Trust be, and they
hereby are, authorized and directed to execute, in the name and on
behalf of the Portfolio Trust, an Amendment under the 1940 Act to the
Portfolio Trust's Registration Statement, to procure all other
necessary signatures thereon, and to file the appropriate exhibits
thereto, with the Commission and to appear, together with legal
counsel, on behalf of the Portfolio Trust before the Commission in
connection with any matter relating to the Registration Statement; and
further
RESOLVED, That any officer of the Portfolio Trust be, and he or she hereby
is, authorized and directed in the name and on behalf of the Portfolio
Trust to take any and all action which the officer so acting may deem
necessary or advisable in order to obtain a permit to register or
qualify shares of common stock of the Portfolio Trust for issuance and
sale or to request an exemption from
<PAGE>
registration of shares of common stock of the Portfolio Trust under
the securities laws of such of the states of the United States of
America or other jurisdictions, including Canada, as such officer may
deem advisable, and in connection with such registration, permits,
licenses, qualifications and exemptions to execute, acknowledge,
verify, deliver, file and publish all such applications, reports,
issuer's covenants, resolutions, irrevocable consents to service of
process, powers of attorney and other papers and instruments as may be
required under such laws or may be deemed by such officer to be useful
or advisable to be filed thereunder, and that the form of any and all
resolutions required by any such state authority in connection with
such registration, licensing, permitting, qualification or exemption
is hereby adopted if (1) in the opinion of the officer of the
Portfolio Trust so acting the adoption of such resolutions is
necessary or advisable, and (2) the Secretary of the Portfolio Trust
evidences such adoption by filing herewith copies of such resolutions
which shall thereupon be deemed to be adopted by the Board of
Directors and incorporated in the minutes as a part of this resolution
and with the same force and effect as if attached hereto and that the
proper officers of the Portfolio Trust are hereby authorized to take
any and all action that they may deem necessary or advisable in order
to maintain such registration in effect for as long as they may deem
to be in the best interests of the Portfolio Trust; and further
RESOLVED, That any and all actions heretofore or hereafter taken by such
officer or officers within the terms of the foregoing resolutions be,
and they hereby are, ratified and confirmed as the authorized act and
deed of the Portfolio Trust.
<PAGE>
Exhibit 23(j)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference this Post-Effective
Amendment No. 10 to the registration statement on Form N-1A (the "Registration
Statement") of our reports dated February 11, 2000, relating to the financial
statements and financial highlights appearing in the December 31, 1999 Annual
Reports to Shareholders of EAFE Equity Index Fund, Small Cap Index Fund, U.S.
Bond Index Fund (constituting parts of the BT Advisor Funds) and EAFE Equity
Index Portfolio, Small Cap Index Portfolio, and U.S. Bond Index Portfolio, which
are incorporated by reference into the Registration Statement. We also consent
to the references to us under the headings "Financial Highlights" and
"Independent Accountants" in such Registration Statement.
PricewaterhouseCoopers LLP
Baltimore, Maryland
April 27, 2000
<PAGE>
Exhibit 99(a)
BT ADVISOR FUNDS
Eighth Amended and Restated Establishment and
Designation of Series and Classes of Shares of
Beneficial Interest (par value $0.00001 per share)
Dated as of December 8, 1999
The undersigned, being the Trustees of BT Advisor Funds, a Massachusetts
business trust (the "Trust"), acting pursuant to Article VI, Section 6.9 and
Article IX, Section 9.3(a) of the Declaration of Trust dated July 24, 1995, as
amended from time to time (the "Declaration"), do hereby amend and restate the
Establishment and Designation of Series and Classes of the Trust dated as of
June 10, 1998 in its entirety for the purpose of (1) abolishing the following
previously established and designated Series, in which there are no Shares
outstanding:
Equity 500 Equity Weighted Index Fund
and (2) redesignating certain Classes of Shares as further described herein; as
follows:
A. Establishment and Designation of Series
1. Pursuant to Section 6.9 of the Declaration, the Trust is divided into
three series of Shares of beneficial interest (each a "Fund" and collectively
the "Funds") designated as follows:
U.S. Bond Index - Institutional Class
EAFE Equity Index - Institutional Class
Small Cap Index - Institutional Class
and each Fund shall have the following special and relative rights:
2. Each Fund shall be authorized to hold cash, invest in securities,
instruments and other properties and use investment techniques as from time to
time described in the Trust's then currently effective registration statement
under the Securities Act of 1933, as amended, to the extent pertaining to the
offering of Shares of such Fund. Each Share of a Fund shall be redeemable,
shall be entitled to one vote (or fraction thereof in respect of a fractional
share) on matters which Shares of the Fund shall be entitled to vote, shall
represent a pro rata share of the net assets of the Fund upon liquidation of the
--- ----
Fund, all as provided in Section 6.9 of the Declaration. The proceeds of sales
of Shares of a Fund, together with any income and gain thereon, less any
diminution or expenses thereof, shall irrevocably belong to that Fund unless
otherwise required by law.
1
<PAGE>
3. Shareholders of each Fund shall vote separately as a class on any
matter to the extent required by, and any matter shall be deemed to have been
effectively acted upon with respect to the Fund as provided in, Rule 18f-2, as
from time to time in effect, under the Investment Company Act of 1940, as
amended, or any successor rule, and by the Declaration.
4. The assets and liabilities of the Trust shall be allocated among the
Funds as set forth in Section 6.9 of the Declaration.
5. Subject to the provisions of Section 6.9 and Article IX of the
Declaration, the Trustees (including any successor Trustees) shall have the
right at any time and from time to time to reallocate assets and expenses, to
change the designation of any Fund or any other series hereafter created, or
otherwise to change the special and relative rights of any Fund or any other
such series.
IN WITNESS WHEREOF, the undersigned have signed this instrument as of
December 8, 1999. This instrument may be executed by the Trustees on separate
counterparts but shall be effective only when signed by a majority of the
Trustees.
/s/ Charles P. Biggar
Charles P. Biggar
As Trustee, and not individually
/s/ S. Leland Dill
S. Leland Dill
As Trustee, and not individually
/s/ Martin J. Gruber
Martin J. Gruber
As Trustee, and not individually
/s/ Richard T. Hale
Richard T. Hale
As Trustee, and not individually
/s/ Richard J. Herring
Richard J. Herring
As Trustee, and not individually
/s/ Bruce E. Langton
Bruce E. Langton
As Trustee, and not individually
/s/ Philip Saunders, Jr.
Philip Saunders, Jr.
As Trustee, and not individually
/s/ Harry Van Benschoten
Harry Van Benschoten
As Trustee, and not individually
2
<PAGE>
Exhibit 99(h)
EXPENSE LIMITATION AGREEMENT
THIS EXPENSE LIMITATION AGREEMENT is made as of the 31st day of June, 2000
by and between BT ADVISOR FUNDS, a Massachusetts Business trust (the "Trust"),
BT INVESTMENT PORTFOLIOS, a New York trust (a "Portfolio Trust"), and BANKERS
TRUST COMPANY, a New York corporation (the "Adviser"), with respect to the
following:
WHEREAS, the Adviser serves as BT Advisor Funds' Investment Adviser
pursuant to an Investment Advisory Agreement dated June 4, 1999, the Adviser
serves as BT Investment Portfolios' Investment Adviser pursuant to an Investment
Advisory Agreement dated June 4, 1999; and the Adviser serves as the Trust's
Administrator pursuant to an Administration and Services Agreement dated
September 15, 1995, as amended, (collectively, the "Agreements"); and
NOW, in consideration of the mutual covenants herein contained and other
good and valuable consideration, the receipt whereof is hereby acknowledged, the
parties hereto agree as follows:
1. The Adviser agrees to waive its fees and reimburse expenses for a period
from December 31, 1999 to April 30, 2001 to the extent necessary so that
each Fund's total annual operating expenses do not exceed the percentage of
average daily net assets set forth on Exhibit A.
2. Upon the termination of the Investment Advisory Agreement or the
Administration Agreement, this Agreement shall automatically terminate.
3. Any question of interpretation of any term or provision of this Agreement
having a counterpart in or otherwise derived from a term or provision of the
Investment Company Act of 1940 (the "1940 Act") shall be resolved by
reference to such term or provision of the 1940 Act and to interpretations
thereof, if any, by the United States Courts or in the absence of any
controlling decision of any such court, by rules, regulations or orders of
the Securities and Exchange Commission ("SEC") issued pursuant to said Act.
In addition, where the effect of a requirement of the 1940 Act reflected in
any provision of this Agreement is revised by rule, regulation or order of
the SEC, such provision shall be deemed to incorporate the effect of such
rule, regulation or order. Otherwise the provisions of this Agreement shall
be interpreted in accordance with the laws of Massachusetts.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in duplicate by their respective officers as of the day and year first
above written.
ON BEHALF OF THE TRUST AND
PORTFOLIO TRUST LISTED BELOW:
BT ADVISOR FUNDS
BT INVESTMENT PORTFOLIOS
Attest: /s/ Amy M. Olmert By: /s/ Daniel O. Hirsch
Name: Amy M. Olmert Name: Daniel O. Hirsch
Title: Secretary
BANKERS TRUST COMPANY
Attest: /s/ Amy M. Olmert By: /s/ Ross Youngman
Name: Amy M. Olmert Name: Ross Youngman
Title: Managing Director
<PAGE>
Exhibit A
<TABLE>
<CAPTION>
Total Fund Operating Expenses
Fund (as a percentage of average daily net assets)
- ---- ---------------------------------------------
<S> <C>
BT Advisor U.S. Bond Index Fund - Institutional Class 0.15%
BT Advisor EAFE Equity Index Fund - Institutional Class 0.40%
BT Advisor Small Cap Index Fund - Institutional Class 0.25%
</TABLE>
<PAGE>
Code of Ethics and Procedures
Pursuant to Rule 17j-1 under the
Investment Company Act of 1940
This Code of Ethics (the "Code") has been adopted by each Investment Company
listed on Exhibit A, attached hereto (each, a "Trust") to specify and prohibit
certain types of personal securities transactions deemed to create a conflict of
interest and to establish reporting requirements and preventive procedures
pursuant to the provisions of Rule 17j-1(b)(1) under the Investment Company Act
of 1940 (the "1940 Act").
I. DEFINITIONS
A. An "Access Person" means (i) any Trustee, Director, officer, or Advisory
Person (as defined below) of the Investment Company or any investment
advisor thereof, or (ii) any director or officer of a principal underwriter
of the Investment Company, who, in the ordinary course of his or her
business, makes, participates in or obtains information regarding the
purchase or sale of securities for the Investment Company for which the
principal underwriter so acts or whose functions or duties as part of the
ordinary course of his or her business relate to the making of any
recommendation to the Investment company regarding the purchase or sale of
securities or (iii) notwithstanding the provisions of clause (i) above,
where the investment adviser is primarily engaged in a business or
businesses other than advising registered investment companies or other
advisory clients, any trustee, director, officer or Advisory Person of the
investment adviser who, with respect to the Investment Company, makes any
recommendation or participates in the determination of which
recommendations shall be made, or whose principal function of duties relate
to the determination of which recommendations shall be made to the
Investment Company or who in connection with his or her duties, obtains any
information concerning securities recommendations being made by such
investment adviser to the Investment Company.
B. An "Advisory Person" means any employee of the Investment Company or any
investment advisor thereof (or of any company in a control relationship to
the Investment Company or such investment adviser), who, in connection with
his or her regular functions or duties, makes, participates in or obtains
information regarding the purchase or sale of securities by the Investment
Company or whose functions relate to any recommendations with respect to
such purchases or sales and any natural person in a control relationship
with the Investment Company or adviser who obtains information regarding
the purchase or sale of securities.
C. A "Portfolio Manager" means any person or persons with the direct
responsibility and authority to make investment decisions affecting the
Investment Company.
D. "Access Persons", "Advisory Persons" and "Portfolio Managers" shall not,
unless otherwise provided in the code of ethics of the Investment Company's
investment adviser any subadviser, administrator or principal underwriter,
include any individual who is required to file quarterly reports with the
Investment Company's investment adviser, any subadviser, administrator or
principal underwriter pursuant to a code of ethics substantially in
conformity with Rule 17j-1 of the 1940 Act or Rule 204-2 of the Investment
Advisers Act of 1940 which has been approved by the Investment Company's
Board of Trustees.
E. "Beneficial Ownership" shall be interpreted subject to the provisions of
Rule 16a-1(a) (exclusive of Section (a)(1) of such Rule) of the Securities
Exchange Act of 1934.
F. "Control" shall have the same meaning as set forth in Section 2(a)(9) of
the 1940 Act.
1
<PAGE>
G. "Disinterested Trustee" means a Trustee who is not an "interested person"
of the Investment Company within the meaning of Section 2(a)(19) of the
1940 Act. An "interested person" includes any person who is a trustee,
director, officer or employee of any investment adviser of the Investment
Company, or owner of 5% or more of the outstanding stock of any investment
adviser of the Investment Company. Affiliates of brokers or dealers are
also "interested persons", except as provided in Rule 2(a)(19)(1) under the
1940 Act.
H. "Review Officer" is the person designated by the Investment Company's Board
of Trustees to monitor the overall compliance with this Code. In the
absence of any such designation, the Review Officer shall be the Treasurer
or any Assistant Treasurer of the Investment Company.
I. "Preclearance Officer" is the person designated by the Investment Company's
Board of Trustees to provide preclearance of any personal security
transaction as required by this Code.
J. "Purchase or sale of a security" includes, among other things, the writing
of an option to purchase or sell a security or the purchase or sale of a
future or index on a security or option thereon.
K. "Security" shall have the meaning set forth in Section 2(a)(36) of the 1940
Act (in effect, all securities) except that is shall not include securities
issued by the U.S. Government (or any other "government security" as that
term is defined in the 1940 Act), bankers' acceptances, bank certificates
of deposit, commercial paper and such other money market instruments as may
be designated by the Trustees of the Investment Company, and shares of
registered open-end investment companies.
L. A security is "being considered for purchase or sale" when a recommendation
to purchase or sell the security has been made and communicated and, with
respect to the person making the recommendation, when such person seriously
considers making such a recommendation.
II. STATEMENT OF GENERAL PRINCIPLES
The following general fiduciary principles shall govern the personal investment
activities of all Access Persons.
Each Access Person shall:
A. At all times, place the interests of the Investment Company before his or
her personal interests;
B. Conduct all personal securities transactions in a manner consistent with
this Code, so as to avoid any actual or potential conflicts of interest, or
an abuse of position of trust and responsibility; and
C. Not take an inappropriate advantage of his or her position with or on
behalf of the Investment Company.
III. UNLAWFUL ACTIONS
It is unlawful for any affiliated person of or principal underwriter for a Fund,
or any affiliated person of an investment adviser of or principal underwriter
for a Fund, in connection with the purchase or sale, directly or indirectly, by
the person of a security held or to be acquired by the Fund:
A. To employ any device, scheme or artifice to defraud the Fund;
B. To make any untrue statement of a material fact to the Fund or to omit to
state a material fact necessary in order to make statements made to the
Fund, in light of the circumstances in which they are made, not misleading;
2
<PAGE>
C. To engage in any act, practice or course of business that operates or would
operate as a fraud or deceit on the Fund; or
D. To engage in any manipulative practice with respect to the Fund.
IV. RESTRICTIONS OF PERSONAL INVESTING ACTIVITIES
A. Blackout Periods
1. No Access Person (other than a Disinterested Trustee) shall purchase or
sell, directly or indirectly, any security in which he or she has, or by
reason of such transaction acquires, any direct or indirect beneficial
ownership on a day during which he or she knows or should have known the
Investment Company has a pending "buy" and "sell" order in that same
security until that order is executed or withdrawn.
2. No Advisory Person or Portfolio Manager shall purchase or sell, directly or
indirectly, any security in which he or she has, or by reason of such
transaction acquires, any direct or indirect beneficial ownership within at
least seven calendar days before and after the Investment Company trades
(or has traded) in that security.
B. Initial Public Offerings
No Advisory Person shall acquire any security in an initial public offering
for his or her personal account.
C. Private Placements
With regard to private placements, each Advisory Person shall:
1. Obtain express prior written approval from the Preclearance Officer for any
acquisition of securities in a private placement (the Preclearance Officer,
in making such determination, shall consider, among other factors, whether
the investment opportunity should be reserved for the Investment Company,
and whether such opportunity is being offered to such Advisory Person by
virtue of his or her position with the Investment Company); and
2. After authorization to acquire securities in a private placement has been
obtained, disclose such personal investment with respect to any subsequent
consideration by the Investment Company (or any other investment company
for which he or she acts in a capacity as an Advisory Person) for
investment in that issuer.
If the Investment Company decides to purchase securities of an issuer the
shares of which have been previously obtained for personal investment by an
Advisory Person, that decision shall be subject to an independent review by
Advisory Persons with no personal interest in the issuer.
D. Short-Term Trading Profits
No Advisory Person shall profit from the purchase and sale, or sale and
purchase, of the same (or equivalent) securities of which such Advisory
Person has beneficial ownership within 60 calendar days. any profit so
realized shall, unless the Investment Company'' Board of Trustees approves
otherwise, be disgorged as directed by the Investment Company's Board of
Trustees.
E. Gifts
No Advisory Person shall receive any gift or other things of more than de
minimis value from any person or entity that does business with or on
behalf of the Investment Company.
3
<PAGE>
F. Service as a Director or Trustee
1. No Advisory Person shall serve on the board of directors or trustees of a
publicly traded company without prior authorization from the Board of
Trustees of the Investment Company, based upon a determination that such
board service would be consistent with the interests of the Investment
Company and its investors.
2. If board service by an Advisory Person is authorized by the Board of
Trustees of the Investment Company such Advisory Person shall be isolated
from the investment making decisions of the Investment Company with respect
to the companies of which he or she is a director or trustee.
G. Exempted Transactions
The prohibitions of Section IV shall not apply to:
1. Purchases or sales effected in any account over which the Access Person has
no direct or indirect influence or control;
2. Purchases or sales that are non-volitional on the part of the Access Person
or the Investment Company, including mergers, recapitalizations or similar
transactions;
3. Purchases which are part of an automatic dividend reinvestment plan;
4. Purchases effected upon the exercise of rights issued by an issuer pro rata
to all holders of a class of securities, to the extent such rights were
acquired from such issuer, and sales of such rights so acquired; and
5. Purchases or sales that receive prior approval in writing by the
Preclearance Officer as (a) only remotely potentially harmful to the
Investment Company because they would be very unlikely to affect a highly
institutional market, (b) clearly not economically related to the
securities to be purchased or sold or held by the Investment company or
client, and (c) not representing any danger of the abuses proscribed by
Rule 17j-1, but only if in each case the prospective purchaser has
identified to the Review Officer all factors of which he or she is aware
which are potentially relevant to a conflict of interest analysis,
including the existence of any substantial economic relationship between
his or her transaction and securities held or to be held by the Investment
Company.
V. COMPLIANCE PROCEDURES
A. Preclearance
1. An Access Person (other than a Disinterested Trustee) may not, directly or
indirectly, acquire or dispose of beneficial ownership of a security except
as provided below unless:
a. Such purchase or sale has been approved by the Preclearance Officer;
b. The approved transaction is completed on the same day approval is
received; and
c. The Preclearance Officer has not rescinded such approval prior to
execution of the transaction.
2. Each Access person may effect total purchase and sales of up to $25,000 of
securities listed on a national securities exchange or on NASDAQ within any
six month period without preclearance from the Board of Trustees or the
Preclearance Officer provided that:
a. The six month period is a "rolling" period, i.e., the limit is
applicable between any two dates which are six months apart;
b. Transactions in options and futures, other than options or futures on
commodities, will be included for purposes of calculating whether the
$25,000 limit has been exceeded. such transactions will be measured by
the value of the securities underlying options and futures; and
4
<PAGE>
c. although preclearance is not required for personal transactions in
securities which fall into this "de minimis" exception, these trades
must still be reported on a quarterly basis pursuant to Section V.B.2.
hereunder, if such transactions are reportable.
B. Reporting
1. Coverage: Each Access Person (other than Disinterested Trustees) shall
file with the Review Officer confidential quarterly reports containing the
information required in Section V.B.2 hereunder with respect to all
transactions during the preceding quarter in any securities in which such
person has, or by reason of such transaction acquires, any direct or
indirect beneficial ownership, provided that no Access Person shall be
required to report transactions effected for any account over which such
Access Person has no direct or indirect influence or control (except that
such an Access Person must file a written certification stating that he or
she has no direct or indirect influence or control over the account in
question).
2. Filings: Every report shall be made no later than ten days after the end
of the calendar quarter in which the transaction to which the report
relates was effected, and shall contain the following information:
a. The date of the transaction, the title and the number of shares and the
principal amount of each security involved;
b. The nature of the transaction (i.e. purchase, sale, or any other type
of acquisition or disposition);
c. The price at which the transaction was effected; and
d. The name of the broker, dealer or bank with or through whom the
transaction was effected.
3. Any report may contain a statement that it shall not be construed as an
admission by the person making the report that he or she has any direct or
indirect beneficial ownership in the security to which the report relates.
4. Confirmations: All Access Persons (other than Disinterested Trustees)
shall direct their brokers to supply the Investment Company's Review
Officer on a timely basis, duplicate copies of all personal securities
transactions.
C. Review
In reviewing transactions and holding reports, the Review Officer shall
take into account the exemptions allowed under Section IV.G. hereunder.
Before making a determination that a violation has been committed by an
Access Person, the Review Officer shall give such person an opportunity to
supply additional information regarding the transaction in question. Each
Fund, investment adviser or principal underwriter shall maintain a list of
names of appropriate management and compliance personnel responsible for
reviewing securities transactions and holdings reports.
D. Disclosure of Personal Holdings
All Advisory Persons shall disclose personal securities holdings upon
commencement of employment and thereafter on an annual basis.
E. Certification of Compliance
Each Access Person is required to certify annually that he or she has read
and understood this Code and recognizes that he or she is subject to the
Code. Further, each Access Person is required to certify annually that he
or she has complied with all the requirements of this Code and that he or
she has disclosed or reported all personal securities transactions pursuant
to the requirements of the Code.
5
<PAGE>
VI. REQUIREMENTS FOR DISINTERESTED TRUSTEES
A. No report is required if such person is a Disinterested Trustee, and such
person would be required to make such report solely by reason of being a
Trustee, except where such Trustee knew, or in the ordinary course of
fulfilling his official duties as a Trustee of the Funds, should have known
that during the fifteen day period immediately preceding or after the date
of the transaction in a security by the Trustee, such security is or was
purchased or sold, or considered for purchase or sale by the Funds.
B. Notwithstanding the preceding section, any Disinterested Trustee may, at
his or her option, report the information described in Section V.B.2. above
with respect to any one or more transactions and may include a statement
that the report shall not be construed as an admission that the person knew
or should have known of portfolio transactions by the Investment Company in
such securities.
VII. REVIEW BY THE BOARD OF TRUSTEES
The Board of Trustees, including a majority of Trustees who are not interested
persons, must approve the Code of Ethics of the Fund, the Code of Ethics of each
investment adviser and principal underwriter of the Fund, and any material
changes to these Codes. The board must base its approval of a Code and any
material changes to the Code based on a determination that the Code contains
provisions reasonably necessary to to prevent Access Persons from engaging in
any conduct prohibited by paragraph III. of these policies and procedures.
Before approving a Code of a Fund, investment adviser or principal underwriter
or any amendment to the Code, the Board of Trustees must receive a certification
from the Fund, investment adviser or principal underwriter that it has adopted
procedures reasonably necessary to prevent Access Persons from violating the
investment adviser's or principal underwriter's Code of Ethics. The Fund's
board must approve the Code of an investment adviser or principal underwriter
before initially retaining the services of the investment adviser or principal
underwriter. The Fund's board must approve a material change to a Code no later
than six months after adoption of the material change.
At least annually, the Review Officer shall provide to the Board of Trustees:
A. A review of all existing procedures concerning Access Persons' personal
trading activities and any procedural changes made during the past year;
B. Any recommended changes to the Investment Company's Code or procedures; and
C. A written report describing any issues or violations that occurred during
the past year, including, but not limited to, information about material
Code or procedural violations and sanctions imposed in response to those
violations.
D. Certification that the Fund, investment adviser or principal underwriter
has adopted procedures reasonably necessary to prevent its access persons
from violating its Code of Ethics.
VIII. SANCTIONS
A. Sanctions for Violations By Access Persons (Except Disinterested Trustees)
If the Review Officer determines that a violation of this Code has
occurred, he or she shall so advise the Board of Trustees and the Board may
impose such sanctions as it deems appropriate, including inter alia,
disgorgement of profits, censure, suspension or termination of the
employment of the violator. All material violations of the code and any
sanctions imposed as a result thereto shall be reported periodically to the
Board of Trustees.
6
<PAGE>
B. Sanctions for Violations by Disinterested Trustees
If the Review Officer determines that any Disinterested Trustee has
violated this code, he or she shall so advise the President of the
Investment Company and also a committee consisting of the Disinterested
Trustees (other than the person whose transaction is at issue) and shall
provide the committee with a report, including the record of pertinent
actual or contemplated portfolio transactions of the Investment Company and
any additional information supplied by the person whose transaction is at
issue. The committee, at its option, shall either impose such sanctions as
it deems appropriate or refer the matter to the full Board of Trustees of
each Trust, which shall impose such sanctions as it deems appropriate.
IX. MISCELLANEOUS
A. Access Persons
The Review Officer of the Investment Company will identify all Access
Persons who are under a duty to make reports to the Investment Company and
will inform such person so of such duty. Any failure by the Review Officer
to notify any person of his or her duties shall not relieve such person of
his or her obligations hereunder.
B. Records
The Investment Company's administrator shall maintain records in the manner
and to the extent set froth below, which records may be maintained on
microfilm under the conditions described in Rule 31a-2(f) under the 1940
Act, and shall be available for examination by representatives of the
Securities and Exchange Commission ("SEC"):
1. A copy of this Code and any other code which is, or at any time within
the past five years has been, in effect shall be preserved in an easily
accessible place;
2. A record of any violation of this Code and of any action taken as a
result of such violation shall be preserved in an easily accessible
place for a period of not less than five years following the end of the
fiscal year in which the violation occurs;
3. A copy of each report made pursuant to this Code shall be preserved
for a period of not less than five years from the end of the fiscal
year in which it is made, the first two years in an easily accessible
place; and
4. A list of all persons who are required, or within the past five years
have been required, to make reports pursuant to this Code shall be
maintained in an easily accessible place.
C. Confidentiality
All reports of securities transactions and any other information filed
pursuant to this Code shall be treated as confidential, except to the
extent required by Law.
D. Interpretation of Provisions
The Board of Trustees of the Investment Company may from time to time adopt
such interpretations of this Code as it deems appropriate.
7
<PAGE>
<TABLE>
<S> <C>
BT INVESTMENT FUNDS PRESERVATIONPLUS FUND
BT INSTITUTIONAL FUNDS PRESERVATIONPLUS INCOME FUND
THE LEADERSHIP TRUST U.S. BOND INDEX PORTFOLIO
EAFE INDEX PORTFOLIO
SMALL CAP PORTFOLIO EQUITY 500 INDEX PORTFOLIO
CASH MANAGEMENT PORTFOLIO ASSET MANAGEMENT I,II & III PORTFOLIO
TREASURY MONEY PORTFOLIO CAPITAL APPRECIATION PORTFOLIO
DAILY ASSETS FUND EQUITY APPRECIATION PORTFOLIO
INSTITUTIONAL TREASURY ASSETS FUND SMALL CAP INDEX PORTFOLIO
LIQUID ASSETS FUND QUANTITATIVE EQUITY FUND
TAX FREE MONEY PORTFOLIO INTERMEDIATE TAX FREE PORTFOLIO
NY TAX FREE MONEY PORTFOLIO BT INVESTMENT PORTFOLIOS
INTERNATIONAL EQUITY PORTFOLIO BT INSURANCE FUNDS TRUST
LATIN AMERICAN EQUITY PORTFOLIO (each, an "Investment Company")
PACIFIC BASIN EQUITY PORTFOLIO
GLOBAL EMERGING MARKETS EQUITY PORTFOLIO
</TABLE>
TRANSACTION REPORT
------------------
To: ____________________________, Review Officer
From: ______________________________________
(Your name)
This Transaction Report (the "Report") is submitted pursuant to Section V of
the Code of Ethics, as of [ , 1999] (the Code), of
the above referenced Trust and supplies (below) information with respect to
transactions in any security in which I may be deemed to have, or by reason of
such transaction acquire, any direct or indirect beneficial ownership interest
(whether or not such security is a security held or to be acquired by the
Investment Company) for the calendar quarter ended ____________.
Unless the context otherwise requires, all terms used in this Report shall
have the same meaning as set forth in the Code.
For purposes of this Report, beneficial ownership shall be interpreted subject
to the provisions of the Code and Rule 16a-1(a) (exclusive of Section (a)(1) of
such Rule) of the Securities Exchange Act of 1934.
<TABLE>
<CAPTION>
Nature of
Transaction, Name of the
Whether Purchase, Principal Amount Price at Broker, Dealer,
Date of Sale or Other of Securities Which the or Bank with
Title Disposition of type of Acquired Transaction Transaction Whom the Ownership Nature of
of Securities Transaction Or Acquisition Disposed Of was Effected Was Effected Securities*
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* If appropriate, you may disclaim beneficial ownership of any security listed
in this Report.
8
<PAGE>
I HEREBY CERTIFY THAT I (1) HAVE READ AND UNDERSTAND THE CODE OF THE
INVESTMENT COMPANY (2) RECOGNIZE THAT I AM SUBJECT TOT HE CODE, (3) HAVE
COMPLIED WITH THE REQUIREMENTS OF THE CODE OVER THE PAST YEAR*, (4) HAVE
DISCLOSED ALL PERSONAL SECURITIES TRANSACTIONS OVER THE PAST YEAR* REQUIRED TO
BE DISCLOSED BY THE CODE, (5) HAVE SOUGHT AND OBTAINED PRECLEARANCE WHENEVER
REQUIRED BY THE CODE AND (6) CERTIFY THAT TO THE BEST OF MY KNOWLEDGE THE
INFORMATION FURNISHED IN THIS REPORT IS TRUE AND CORRECT.
NAME (Print): _________________________________________________________
SIGNATURE: ___________________________________________________________
DATE: _____________________________________________________________
(*) OR PORTION THEREOF DURING WHICH THE CODE HAS BEEN IN EFFECT.
9
<PAGE>
<TABLE>
<S> <C>
BT INVESTMENT FUNDS INTERNATIONAL EQUITY PORTFOLIO
BT INSTITUTIONAL FUNDS LATIN AMERICAN EQUITY PORTFOLIO
BT PYRAMID MUTUAL FUNDS PACIFIC BASIN EQUITY PORTFOLIO
THE LEADERSHIP TRUST GLOBAL EMERGING MARKETS EQUITY PORTFOLIO
BT INVESTMENT PORTFOLIO QUANTITATIVE EQUITY FUND
BT INSURANCE FUNDS TRUST SMALL CAP PORTFOLIO
CASH MANAGEMENT PORTFOLIO EQUITY 500 INDEX PORTFOLIO
TREASURY MONEY PORTFOLIO EAFE INDEX PORTFOLIO
INSTITUTIONAL TREASURY ASSETS FUND U.S. BOND INDEX PORTFOLIO
DAILY ASSETS FUND SMALL CAP INDEX PORTFOLIO
LIQUID ASSETS FUND ASSET MANAGEMENT I, II & III PORTFOLIOS
TAX FREE MONEY PORTFOLIO CAPITAL APPRECIATION PORTFOLIO
NY TAX FREE MONEY PORTFOLIO EQUITY APPRECIATION PORTFOLIO
PRESERVATIONPLUS FUND INTERMEDIATE TAX FREE PORTFOLIO
PRESERVATIONPLUS INCOME FUND
</TABLE>
PERSONAL TRADING REQUEST AND AUTHORIZATION
------------------------------------------
This Personal Trading Request and Authorization is submitted pursuant to the
Code of Ethics as of [ , 1999] (the "Code") of the above
referenced. Unless the context otherwise requires, all terms used herein shall
have the same meaning as set forth in the Code.
Personal Trading Request (to be completed by Access Person prior to any personal
trade):
Name of Access Person: ___________________________________________________
Date of proposed transaction: ________________________________________________
Name of the issuer and dollar amount or number of securities of the issuer to be
purchased or sold:
_____________________________________________________________________________
Nature of the transaction (i.e. purchase, sale)/1/:
________________________________________________________________________________
Are you or is a member of your immediate family an officer, trustee, or director
of the issuer of the securities or any affiliate/2/ of the issuer? [_] Yes
[_] No
If yes, please describe:
________________________________________________________________________________
________________________________________________________________________________
____________
/1/ If other than market order, please describe any proposed limits.
/2/ For purposes of this question, "affiliate" includes (I) any entity that
directly or indirectly owns, controls or holds with power to vote 5% or more of
the outstanding voting securities of the issuer and (II) any entity under common
control with the issuer.
10
<PAGE>
Describe the nature of any direct or indirect professional or business
relationship that you may have with the issuer of the securities./3/
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
Do you have an material nonpublic information concerning the issuer?
[_] Yes [_] No
Do you beneficially own more than 1/2 of 1% of the outstanding equity
securities of the issuer?
[_] Yes [_] No
If yes, please report the name of the issuer and the total number of shares
"beneficially owned":
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
Are you aware of any facts regarding the proposed transaction, including the
existence of any substantial economic relationship between the proposed
transaction and any securities held or to be acquired by the Investment Company,
that may be relevant to a determination as to the existence of a potential
conflict of interest?/4/ [_] Yes [_] No
If yes, please describe:
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- ------------
/3/ A "professional relationship" includes, for example, the provision of legal
counsel or accounting services. a "business relationship" includes, for
example, the provision of consulting services or insurance coverage.
/4/ Facts that would be responsive to this question would include, for example
the receipt of "special favors" from a stock promoter, including participation
in a private placement or initial public offering as an inducement to purchase
other securities for the Investment Company. Another example would be investment
in securities of a limited partnership that in turn owned warrants of a company
formed for the purpose of effecting a leveraged buy-out in circumstances where
the Investment Company might invest in securities related to a leveraged buy-
out. The foregoing are only examples of pertinent facts and in no way limit the
types of facts that may be responsive to this question.
11
<PAGE>
To the best of my knowledge and belief, the answers I have provided above are
true and correct.
Dated: ______________________ ___________________________________________
Signature of Access Person
Approval or Disapproval of Personal Trading Request (to be completed by
Preclearance Officer) prior to personal trade:
___ I confirm that the above-described proposed transaction appears to be
consistent with the policies described in the Code and that the
conditions necessary/5/ for approval of the proposed transaction have
been satisfied.
___ I do not believe that the above-described proposed transaction appears to
be consistent with the policies described in the Code or that the
conditions necessary for the approval of the proposed transaction have
been satisfied.
Dated: ______________________ ___________________________________________
Signature of Preclearance Officer
- -------------
/5/ In the case of a personal securities transaction by an Access Person of the
Investment Company (other than Disinterested Trustees), the Code requires that
the Preclearance Officer determine that the proposed personal securities
transaction (I) is not potentially harmful to the Investment Company (II) would
be unlikely to affect the market in which the Investment Company's portfolio
securities are traded, and (III) is not related economically to securities to be
purchased, sold, or held by the Investment Company. In addition, the Code
requires that the Preclearance Officer determine that the decision to purchase
or sell the security at issue is not he result of information obtained in the
course of the Access Person's relationship with the Investment Company.
12
<PAGE>
EXHIBIT A
BT INVESTMENT FUNDS
BT INSTITUTIONAL FUNDS
BT PYRAMID MUTUAL FUNDS
THE LEADERSHIP TRUST
BT INVESTMENT PORTFOLIO
BT INSURANCE FUNDS TRUST
CASH MANAGEMENT PORTFOLIO
TREASURY MONEY PORTFOLIO
INSTITUTIONAL TREASURY ASSETS FUND
DAILY ASSETS FUND
LIQUID ASSETS FUND
TAX FREE MONEY PORTFOLIO
NY TAX FREE MONEY PORTFOLIO
PRESERVATIONPLUS FUND
PRESERVATIONPLUS INCOME FUND
INTERNATIONAL EQUITY PORTFOLIO
LATIN AMERICAN EQUITY PORTFOLIO
PACIFIC BASIN EQUITY PORTFOLIO
GLOBAL EMERGING MARKETS EQUITY PORTFOLIO
QUANTITATIVE EQUITY FUND
SMALL CAP PORTFOLIO
EQUITY 500 INDEX PORTFOLIO
EAFE INDEX PORTFOLIO
U.S. BOND INDEX PORTFOLIO
SMALL CAP INDEX PORTFOLIO
ASSET MANAGEMENT I, II & III PORTFOLIOS
CAPITAL APPRECIATION PORTFOLIO
EQUITY APPRECIATION PORTFOLIO
INTERMEDIATE TAX FREE PORTFOLIO
13
<PAGE>
Confidential Information, Insider Trading
and Related Matters
Issue Date: September 1998
------------------------------------------------------------------------
Contents
Letter to All Employees
-----------------------
Introduction
------------
Protecting Confidential Information
-----------------------------------
The Basic Policy
----------------
Nature of Confidential Information
----------------------------------
Safeguarding Documents and Files
--------------------------------
Securing Communications
-----------------------
Temporary Staff and Outside Services
------------------------------------
Client Confidentiality Agreements
---------------------------------
Inquiries from Outside Parties
------------------------------
Customer Inquiries Regarding Investment Advice
----------------------------------------------
Public Statements and Shareholder Communications
------------------------------------------------
Insider Trading and Conflict of Interest
----------------------------------------
The Basic Policy
----------------
Nature of Material Nonpublic Information
----------------------------------------
Insider Trading
---------------
"Frontrunning"
--------------
Dealing with Rumors
-------------------
Unintentional Receipt of Confidential Information
-------------------------------------------------
Personal Securities Trading by Employees
----------------------------------------
Sharing Information Within Bankers Trust -- The "Chinese Wall"
--------------------------------------------------------------
The Basic Policy
------------------
The "Chinese Wall"
------------------
Crossing the Chinese Wall
-------------------------
Avoid Unintended "Backflow" of Information
------------------------------------------
Additional Walls
----------------
The Restricted List and the Gray List
-------------------------------------
What Are the Restricted and Gray Lists?
---------------------------------------
Updates and Distribution of the Lists
-------------------------------------
Trading Restrictions -- The Restricted List
-------------------------------------------
Waivers and Exceptions to Trading Restrictions
----------------------------------------------
Other Matters
-------------
The Compliance Department
-------------------------
Waivers and Exceptions
----------------------
Confirming Your Compliance with Policies
----------------------------------------
If You Have Questions
---------------------
Personal Securities Transactions by Employees (Separate Booklet)
----------------------------------------------------------------
/copyright sign/ 1998 Bankers Trust Corporation
<PAGE>
Bankers Trust
September 1998
To All Employees:
This is your personal copy of Bankers Trust's Employee Compliance Guide,
Confidential Information, Insider Trading and Related Matters. These policies
and procedures are designed to protect the Firm against inadvertent leaks of
sensitive data and possible violations of various securities laws, as well as
to protect the reputation of the Firm and its employees. They are extremely
important.
The policies and procedures described in this booklet are comprehensive and
are supported by three basic guiding principles:
1. Information that you receive as a Bankers Trust employee is confidential
and intended to be used solely for the business purposes of the Firm or
its clients. You must safeguard confidential information at all times.
2. If you possess material nonpublic information about or affecting
securities or their issuer, you may not buy or sell such securities
regardless of the source of the information.
3. Whenever potential conflicts of interest arise, you should place our
fiduciary duty to clients ahead of Bankers Trust's immediate interests,
and you should place the interests of Bankers Trust ahead of your
personal financial interests.
Thank you for your attention to both the letter and spirit of these standards
of professional conduct. Should you ever have a question on how to apply
these policies to some event or circumstance, I encourage you to seek the
guidance of the Compliance Department.
Sincerely,
Frank Newman
Chairman and
Chief Executive Officer
Introduction
----------------------------------------------------------------------------
This policy statement, Confidential Information, Insider Trading and Related
Matters, applies worldwide to all employees of Bankers Trust Corporation and
its subsidiaries (referred to herein as "Bankers Trust" or the "Firm"). For
legal and business reasons, it is essential that our clients, prospective
customers and others are confident that they can rely on our integrity and
discretion to protect and properly use the confidential information they
entrust to us.
Adhering to the policies and standards of conduct described in this booklet
is a condition of your employment with Bankers Trust. Failure to comply with
them may subject you to disciplinary action, including possible dismissal and
civil or criminal penalties. Also, if you become aware of an apparent
violation of these policies and procedures by another employee, you must
report the relevant facts to the Compliance Department.
No written policy can anticipate every situation. Use common sense and good
judgment when responding to situations that may not be specifically covered
by these standards, and recognize when to seek advice regarding their
application.
<PAGE>
Protecting Confidential Information
------------------------------------------------------------------------
1. The Basic Policy
Improper disclosure or misuse of confidential information is prohibited. You
are required to treat confidential information in a responsible and proper
manner, and in accordance with the policies and procedures of Bankers Trust.
2. Nature of Confidential Information
Confidential information refers to business matters not generally known or
made available to the public. You should generally presume that all business
information acquired in connection with your responsibilities at Bankers
Trust regarding the Firm, its clients and business transactions is
confidential unless the contrary is clearly evident. This includes
proprietary information, products and transactions developed or used by
Bankers Trust as explained further in the Firm's Rules for Business Conduct.
Examples of Confidential Information
. a client's planned acquisition target or
restructuring plan;
. forthcoming investment research recommendations;
. information about a client's accounts or
borrowings;
. proprietary or fiduciary trading positions and
strategies;
. customer, supplier, creditor and investor lists;
and
. unannounced information about Bankers Trust's
earnings or transactions.
3. Safeguarding Documents and Files
When handling confidential information contained in written documents,
computer files or other modes of communication and storage, you have a
personal responsibility to protect it. Also, each department should develop
appropriate policies and procedures to properly protect confidential
information within its control.
Recommended Practices to Safeguard
Confidential Documents and Files
. mark confidential documents as CONFIDENTIAL;
. prevent unrestricted copying of confidential
documents and keep track of copies made;
. shred confidential documents that are no longer
needed;
. protect documents and files by using locked
cabinets and limiting computer access;
. use caution when carrying confidential documents
and files in public areas;
. keep desks and conference rooms clear;
. when appropriate, use code names to protect the
identities of participants in a transaction; and
. restrict access by visitors (including Bankers
Trust personnel from other departments) in areas
where they can observe or overhear confidential
information.
<PAGE>
4. Securing Communications
Avoid discussing confidential information in public areas such as elevators,
hallways, taxicabs, airplanes or restaurants where others may be listening.
Be careful when using speakerphones, cellular phones, e-mail, the Internet
and similar methods of communication because conversations and messages can
be overheard or intercepted. Also, don't share information over the telephone
until you have identified the caller. When asked informally by friends or at
social gatherings about confidential matters concerning Bankers Trust, its
clients or others, as a general rule you should decline to comment.
Those "in the know" can protect the Firm, family and friends - and
themselves - by keeping workplace information at the workplace.
5. Temporary Staff and Outside Services
If consultants or temporary staff are utilized in your department, exercise
care to ensure they do not gain unauthorized access to or mishandle
confidential information. Also recognize that certain functions or areas
within Bankers Trust may be too sensitive to entrust to temporary workers or
outside service organizations. When deemed appropriate by business line
management or when required by local regulations, outside personnel should
sign a confidentiality agreement (as approved by the Legal Department) to
confirm their awareness and understanding of the requirement to protect
confidential information and not misuse it.
6. Client Confidentiality Agreements
A confidentiality agreement with a client or a prospective customer may
impose additional obligations on the Firm with respect to protecting
confidential information. Business line management should establish
appropriate internal procedures and provide instructions to employees to
ensure compliance with its terms.
When initially drafted, some confidentiality agreements can be overly broad
in scope and could impair our ability to pursue other business opportunities
during or after the term of the agreement. Therefore, the Legal Department
should review confidentiality agreements prior to being signed by a duly
authorized department manager or their designee.
7. Inquiries from Outside Parties
Unless specifically consented to by the customer, we generally do not
disclose any confidential information about our customer's dealings with us
to any outside party. An exception to this general rule occurs when
regulators and other proper legal authorities or process require that we
disclose specific information. Before releasing information or taking any
action, you should immediately report the matter to your supervisor and seek
the advice of either the Compliance Department or the Legal Department.
Other financial institutions may ask that we respond to credit inquiries
concerning our dealings with existing or former customers. To avoid potential
liability, such responses should be limited to a very narrow statement of
objective factual matters known to us directly and should never express an
opinion as to the client's creditworthiness or integrity. Also, no response
to a credit inquiry should be made without first obtaining the approval of a
departmental credit officer or an officer in the Credit Policy Department.
8. Customer Inquiries Regarding Investment Advice
When appropriate in responding to a customer inquiry regarding investment
advice, departments engaged in investment research, investment management or
investment advisory functions should make sure that their customers
understand that we maintain a Chinese Wall and that Bankers Trust personnel
who make investment decisions or recommendations cannot gain access to, nor
benefit from, any confidential information obtained by the Private Functions
of the Firm (see page 11).
9. Public Statements and Shareholder Communications
When Bankers Trust information is released to the public, it must be accurate
and disclosed in a proper way. Since a public statement made by a Bankers
Trust employee - even a statement that does not release any confidential
information -could embarrass the Firm or subject it to liability, all
contacts with shareholders and security analysts should be cleared in advance
with Corporate Affairs in New York.
All requests for speeches, interviews or comments for use in broadcasts,
newspapers, magazines or other media should be referred to, or cleared by,
Corporate Affairs (in the U.S. and Australia), the designated Communications
Officer (in London), Marketing Services (in Asia) or the head of your Bankers
Trust office (for all other international locations). When practical, these
departments should be furnished with, and given an opportunity to comment on,
the text or outline of the statement or speech and responses to any likely
questions.
<PAGE>
Insider Trading and Conflict of Interest
------------------------------------------------------------------------
1. The Basic Policy
Trading securities or other financial instruments for the accounts of Bankers
Trust, its clients or for personal interests while you are in possession of
material nonpublic information about or affecting them (regardless of how it
was obtained) is prohibited. You are also prohibited from disclosing material
nonpublic information to third parties except in accordance with the policies
and procedures described in this booklet or where disclosure is required by
law. Avoid situations that may appear to be a conflict of interest, let alone
any actual conflict, in both business and personal securities transactions.
Under various securities laws, violations might occur if you trade securities
(or their derivatives such as options) while in possession of material
nonpublic information about them, or disclose such information to third
parties who, in turn, trade those securities or derivatives. The securities
laws of various jurisdictions provide a broad range of remedies to protect
and maintain the integrity of the securities markets. Violation of applicable
insider trading laws and regulations could subject you to substantial civil
or criminal penalties.
2. Nature of Material Nonpublic Information
Material nonpublic information (also known as price sensitive information in
some jurisdictions) refers to confidential information about or affecting a
particular issuer or its securities that is not generally known to the
investing public and a reasonable investor would likely consider important
when making an investment decision. While no single rule can define whether a
particular item is in fact material, information that, if known to the
public, would likely affect the price of a publicly traded security (or would
likely influence decisions to buy, sell or hold a security) has a high
probability of being material.
Examples of Nonpublic Information
About Issuers Likely to be Material
. knowledge of unannounced tender offers;
. plans to issue or redeem securities;
. new products or major contracts;
. liquidity problems or covenant defaults;
. significant management developments;
. estimates about revenues and earnings; and
. significant mergers, acquisitions or
divestitures.
3. Insider Trading
"Insiders" are persons who owe a fiduciary duty to a company's stockholders
and typically include a company's officers, directors and employees. Insiders
also may include a company's outside advisors, bankers, lawyers, underwriters
and printers when they receive material nonpublic information about the
company for a specific purpose.
As a Bankers Trust employee, you should generally assume that any nonpublic
information coming into your possession is material and you may not trade in
or recommend any related securities while in possession of that information.
Also, you may not disclose such information to others (a practice generally
referred to as "tipping") since such conduct may be unethical and illegal. In
fact, indirect receipt of nonpublic information may subject you to these
rules if you knew, or should have known, that the information originated from
the company or from someone who had a duty not to disclose it.
The securities laws governing insider trading are complex and evolving. You
should consult the Compliance Department if uncertain whether the information
you possess is material or nonpublic before making a purchase, sale or
recommendation to which it relates.
<PAGE>
4. "Frontrunning"
You are prohibited from buying or selling securities for the account of
Bankers Trust, as well as for your own account, on the basis of your
knowledge about our clients' trading positions, plans or strategies, or our
own forthcoming research recommendations.
5. Dealing With Rumors
Various securities laws prohibit the circulation of rumors where the
underlying intent is to manipulate the price of publicly traded securities.
As a general rule, you should refrain from conveying rumors to others. If you
have reason to believe that a particular rumor is being circulated to
influence the market, you should report the matter to the Compliance
Department.
Securities trading on the basis of unsubstantiated rumors may subject you or
the Firm to regulatory scrutiny and possible civil or other penalties. Keep
in mind that recommendations and other statements to clients must have a
reasonable basis in fact. Contact your supervisor if uncertain how to handle
a particular rumor.
6. Unintentional Receipt of Confidential Information
Sometimes, confidential information is inadvertently or improperly
communicated to a person who should not have access to that information. To
help avoid this situation, you should clearly describe your position at the
Firm when calling on clients, prospects and in general discussions with
others.
Contact the Compliance Department immediately if you inadvertently or
improperly receive nonpublic information that may be material to determine
what action, if any, is appropriate in the circumstances.
7. Personal Securities Trading by Employees
You must always avoid any actual or potential conflicts of interest between
your Bankers Trust duties and responsibilities, and your personal investment
activities. Restrictions that pertain to personal securities transactions by
employees, including opening and maintaining Employee Related Accounts (as
defined) and the requirement to pre-clear personal securities transactions,
are described in a separate booklet that supplements this policy statement
entitled Personal Securities Transactions by Employees.
Sharing Information Within Bankers Trust -- The "Chinese Wall"
------------------------------------------------------------------------
1. The Basic Policy
Absent appropriate consent, confidential and material nonpublic information,
whether relating to Bankers Trust, its clients or others, should not be
disclosed to anyone other than relevant Bankers Trust personnel, the Firm's
outside lawyers, advisors and accountants, and where appropriate concerning a
transaction, the participants in the transaction. You are permitted to share
confidential information within Bankers Trust only when the communication
----
observes our Chinese Wall policies and procedures, it complies with our duty
of confidentiality owed to clients and the recipient of the information:
---
. has a legitimate need to know the information in connection with his or
her Bankers Trust duties;
. has no responsibilities, whether to Bankers Trust, its clients or
others, that are likely to give rise to conflict of interest or a misuse
of the information; and
. understands that the information is confidential, as well as the
limitations on further distribution of the information.
This policy is extremely important. You must exercise caution before sharing
------
confidential information and, when appropriate, verify the identity of the
recipient and ascertain that he or she has a legitimate need for the
information and has no conflicting duties.
2. The "Chinese Wall"
Because Bankers Trust is a multi-faceted financial institution, some areas of
the Firm may have material nonpublic information about a particular company
while other areas of the Firm may wish to buy, sell or recommend that
company's securities. The controls provided by our "Chinese Wall" policies
and procedures allow us to engage in these diverse activities without
violating the law or breaching our fiduciary responsibilities.
<PAGE>
The Chinese Wall separates the "Private" areas of the Firm ("Potential
Insider Functions") that are likely to come into possession of material
nonpublic information in the ordinary course of business from the "Public"
areas of the Firm ("Trading and Advising Functions") that trade securities or
other instruments for our own account or for the accounts of others, or that
render investment advice. Generally, material nonpublic information obtained
by anyone who works in the Potential Insider Functions should not be
communicated to anyone outside those functions, and particularly must not be
communicated to anyone in the Firm's Trading or Advising Functions.
Private Functions Public Functions
Examples include: Examples include:
. mergers, acquisitions . trading, sales and
and corporate funding;
advisory; . brokerage;
. commercial lending and . investment
credit; management; and
. corporate finance; and . investment
. corporate trust. research.
Employees assigned to certain infrastructure and control groups, such as
Operations and Product Controllers, may obtain confidential information while
conducting their normal activities. In addition, members of senior management
and the Compliance, Legal, Audit and Credit departments are generally
considered "above the Chinese Wall" and therefore have ready access to
confidential information. If you are a member of one of these groups or a
similar function within the Firm, be careful to avoid any improper disclosure
of confidential information, particularly with respect to personnel on the
"Public" side of the Chinese Wall.
3. Crossing the Chinese Wall
In limited situations, communicating material nonpublic information to a
person involved in a Trading or Advising Function may be necessary to achieve
a legitimate business purpose. For example, an investment research analyst's
expertise in a particular industry may be necessary concerning a proposed
corporate finance transaction.
Unless the Compliance Department has expressly approved a particular
department's procedures for conducting Chinese Wall crossings, any
communication of material nonpublic information from the "Private" side of
the Chinese Wall to an employee on the "Public" side of the Chinese Wall must
be handled through the Compliance Department. Further, for departments that
do not have approved procedures, the Compliance Department must be notified
regarding the proposed communication prior to initiating any contact with the
employee.
You should contact the Compliance Department if uncertain whether a proposed
communication of material nonpublic information is permissible. Also, the
Compliance Department should be notified immediately if you believe such
information may have been improperly communicated either within Bankers Trust
or elsewhere.
4. Avoid Unintended "Backflow" of Information
In principle, the Chinese Wall need not inhibit the flow of information from
the "Public" side to the "Private" side of the Wall. Communication of this
type, however, may cause an unintended "backflow" of confidential
information. For example, a request for public information on a particular
company by a mergers and acquisitions specialist (Private Function) to an
investment research analyst (Public Function) may provide the research
analyst a hint as to a possible material development.
All unnecessary business communications (in either direction) between the
Private Functions and Public Functions should be avoided and care must be
exercised whenever an employee engaged in a Private Function deems it
necessary to obtain information from an employee in a Public Function.
Questions in this regard should be directed to the Compliance Department.
<PAGE>
5. Additional Walls
Beyond the Chinese Wall described above, we often establish other walls -
some temporary and some permanent - to insulate confidential information held
within certain business lines from other personnel who should not have access
to that information.
Examples of Additional Walls
. While our research functions that publish
investment recommendations for distribution to
the public are generally considered to be on the
"Public" side of the Chinese Wall, information
such as an analyst's plan to significantly
change an existing recommendation regarding
particular securities is confidential and should
generally not be disclosed to personnel in the
Firm's trading and sales functions (unless prior
approval has been obtained from the Compliance
Department) until such research is released to
customers.
. Investment management personnel who become aware
of a significant client investment plan that
will likely affect market prices should not
reveal the plan to personnel who handle Bankers
Trust's proprietary trading and investing.
. In the lending areas of the Firm, information
relating to a proposed loan to one company
should be insulated from personnel working on a
proposed loan to another company if the two
companies are competing to acquire the same
target company.
The Restricted List and the Gray List
------------------------------------------------------------------------
1. What Are the Restricted and Gray Lists?
For legal, regulatory and business reasons, the Compliance Department
maintains a Restricted List and a Gray List of securities. Securities may be
placed on these lists when certain conditions are met, such as when a
business area within Bankers Trust:
. possesses material nonpublic information about or affecting the
securities or their issuer;
. is involved in a securities offering or significant transaction
affecting the securities or their issuer; or
. may be issuing to the public a significant change in the Firm's
investment recommendation regarding certain securities or issuers.
The Restricted List is comprised of securities in which the normal trading or
recommending activity of the Firm and its employees is prohibited or subject
to specified restrictions as described in the List. While the Restricted List
is distributed quite extensively within Bankers Trust, its composition is
generally considered confidential and should not be shared with others
outside of the Firm. In response to any inquiry, you should reply simply that
we are not able to take a position or make a recommendation regarding the
particular security at this time.
The Gray List is a highly confidential list maintained by the Compliance
Department to check the integrity of the Chinese Wall, and to prevent or
address potential conflicts of interest concerning trading decisions and
investment recommendations. Securities may be placed on the Gray List when
the Firm is involved in an unannounced material transaction, or for other
confidential monitoring purposes.
<PAGE>
2. Updates and Distribution of the Lists
The Compliance Department determines when securities should be added to or
removed from both the Restricted List and Gray List and distributes the
Restricted List to appropriate personnel within the Firm. Business line
management of the various Private Functions is responsible for informing and
updating the Compliance Department concerning details of the Firm's
involvement in certain confidential transactions.
Certain business units that are routinely involved in the Firm's investment
banking and advisory businesses follow specific procedures for providing deal
information to the Compliance Department. If you are assigned to a department
that does not have such procedures and you become aware of material nonpublic
information about or affecting a publicly traded company or its securities,
you should immediately notify the Compliance Department.
3. Trading Restrictions -- The Restricted List
Personnel in the Firm's Public Functions, such as trading and sales,
investment management and investment research, must refer to the Restricted
List regularly and comply with its trading restrictions. Generally, the
trading restrictions may limit or prohibit:
. transactions involving securities on the Restricted List in the accounts
of Bankers Trust, its employees and its customers; and
. solicitation and investment advising activities, such as commenting
about, recommending or soliciting orders involving securities on the
Restricted List, or issuing research regarding such securities.
Trading restrictions may apply to customer accounts where Bankers Trust
exercises investment discretion, but do not generally apply to unsolicited
customer trades executed on an "agency" basis (i.e., where the Firm is not
acting as principal). Special rules apply to customer and proprietary
accounts connected with certain defined index, passive or basket trading
strategies where a transaction involving securities on the Restricted List is
dictated by contract or predetermined formula. Additional information about
these special rules can be obtained from the Compliance Department.
The Restricted List describes the various types of trading restrictions
imposed on Bankers Trust and its employees in light of certain legal,
regulatory and business requirements.
Trading Restrictions -- The Restricted List
Full Restriction
When securities are subject to "Full Restriction,"
the following activities with respect to such
securities are generally prohibited:
. trading for the Firm's proprietary account;
. trading for Employee Related Accounts;
. trading for customer accounts over which Bankers
Trust exercises investment discretion;
. basket trading for an account, such as an index
fund, where the transaction is dictated by a
contract or predetermined formula;
. market making activities;
. solicitation of customer orders;
. issuance or distribution of written research or
rendering oral recommendations; and
. execution of unsolicited customer orders, unless
such orders are executed on an "agency" basis
only.
Note: For securities not subject to "Full
---
Restriction," the Restricted List identifies which of
the above specific activities are prohibited.
<PAGE>
4. Waivers and Exceptions to Trading Restrictions
Waivers and exceptions to any trading restrictions identified on the
Restricted List require the specific prior approval of the Compliance
Department. Violation of the trading restrictions could subject the Firm and
the employee involved to civil or criminal penalties, as well as other
disciplinary actions.
Other Matters
------------------------------------------------------------------------
1. The Compliance Department
As used in this policy statement, the "Compliance Department" refers to the
Bankers Trust Compliance Department and the BTAL Compliance Department.
The Bankers Trust Compliance Department is organized generally by U.S.
business lines and regionally for Asia, Europe/Middle East/Africa and Latin
America, and is comprised of the following groups:
. Broker-Dealer Compliance (including Latin America);
. Fiduciary Compliance;
. Corporate Compliance; and
. Europe & Asia Regional Compliance.
The BTAL Compliance Department is organized generally by business lines in
Australia and New Zealand.
2. Waivers and Exceptions
Bankers Trust policies regarding confidential information, insider trading
and related matters as described in this booklet are necessarily a general
summary. In practice, some situations may arise that warrant making
exceptions to some general rules set forth herein, and you must obtain
approval from the Compliance Department before taking action regarding such
an exception.
3. Confirming Your Compliance With Policies
Annually, you are required to sign a statement as a Bankers Trust employee
acknowledging that you have received this policy statement Confidential
Information, Insider Trading and Related Matters and confirm your adherence
to Bankers Trust's standards of conduct.
4. If You Have Questions
You should refer to the Compliance Department all questions concerning the
interpretation or application of these policies, the propriety of any
particular conduct, or other compliance-related matters.
NOTE -- Refer to Personal Securities Transactions by Employees, a separate
booklet that supplements this policy statement, for additional information
regarding opening and maintaining Employee Related Accounts (as defined),
pre-clearance of trades and other rules and restrictions regarding personal
securities transactions by employees.
<PAGE>
Personal Securities Transactions by Employees
Issue Date: September 1998
------------------------------------------------------------------------
Contents
Introduction
------------
Summary
-------
Opening and Maintaining Employee Related Accounts
-------------------------------------------------
The Basic Policy
----------------
Employee Related Accounts Defined
---------------------------------
"Designated Broker" Rule
------------------------
Waivers to the Designated Broker Rule
-------------------------------------
Monitoring Employee Related Accounts
------------------------------------
Pre-Clearing Transactions in Employee Related Accounts
------------------------------------------------------
The Basic Policy
----------------
Pre-Clearance Procedures
------------------------
Additional Supervisory Pre-Clearance
------------------------------------
Private Securities Transactions
-------------------------------
Restrictions Regarding Personal Securities Transactions
-------------------------------------------------------
The Basic Policy
----------------
Material Nonpublic Information
-------------------------------
Corporate and Departmental Restricted Lists
-------------------------------------------
"Frontrunning"
--------------
Employee Transactions in Bankers Trust Securities
-------------------------------------------------
Avoiding Conflicts with Your Bankers Trust Job Responsibilities
---------------------------------------------------------------
Initial Public Offerings and New Issues
---------------------------------------
Other Matters
-------------
Waivers and Exceptions
----------------------
Confirming Your Compliance with Policies
----------------------------------------
If You Have Questions
---------------------
Note: The policies contained in this booklet should be read in
conjunction with the policy statement Confidential Information, Insider
Trading and Related Matters.
/copyright sign/ 1998 Bankers Trust Corporation
Introduction
------------------------------------------------------------------------
This policy statement, Personal Securities Transactions by Employees, applies
worldwide to all employees of Bankers Trust Corporation and its subsidiaries
(referred to herein as "Bankers Trust" or the "Firm"). Along with the
standards provided in this booklet, you should be familiar with the contents
of the Firm's related policy statement Confidential Information, Insider
Trading and Related Matters.
As used in this Guide, "securities" transactions include those involving
equity or debt securities, derivatives of securities (such as options,
warrants and indexes), futures, commodities and similar instruments.
<PAGE>
You should always conduct your personal trading activities lawfully, properly
and responsibly, and are encouraged to adopt long-term investment strategies
that are consistent with your financial resources and objectives. The Firm
generally discourages short-term trading strategies, and you are cautioned
that such strategies may inherently carry a higher risk of regulatory and
other scrutiny. In any event, excessive or inappropriate trading that
interferes with your job performance, or compromises the duty that Bankers
Trust owes to its clients and shareholders, will not be tolerated.
Summary
------------------------------------------------------------------------
This booklet is organized to help you comply with Bankers Trust's policies
and procedures, and to protect you and the Firm from potential liability. In
summary, the section entitled:
. Opening and Maintaining Employee Related Accounts describes the types of
accounts you must disclose to the Compliance Department upon joining the
Firm and your requirement to obtain explicit permission from the
Compliance Department prior to opening and maintaining Employee Related
Accounts (as defined);
. Pre-Clearing Transactions in Employee Related Accounts describes the
procedures you must follow to pre-clear your personal securities
transactions with the Compliance Department before you place any order
with your broker; and
. Restrictions Regarding Personal Securities Transactions describes
certain trading prohibitions and procedures you must observe to avoid
violating the Firm's policies and various securities laws and
regulations.
Questions about this policy and the matters discussed herein should be
directed to your Compliance Officer or to the Compliance Department at
(212) 250-5812.
Opening and Maintaining Employee Related Accounts
------------------------------------------------------------------------
1. The Basic Policy
All employees must obtain the explicit permission of the Compliance
Department prior to opening a new Employee Related Account. Upon joining
Bankers Trust, new employees are required to disclose all of their Employee
Related Accounts (as defined below) to the Compliance Department and must
carry out the instructions provided to conform such accounts, if necessary,
to the Firm's policies.
Under no circumstance are you permitted to open or maintain any Employee
Related Account that is undisclosed to the Compliance Department. Also, the
policies, procedures and rules described throughout this Guide apply to all
of your Employee Related Accounts.
2. Employee Related Accounts Defined
"Employee Related Accounts" include all accounts in which you have an
ownership or beneficial interest (or can exercise investment discretion or
control) and have the capability of holding securities, or in which
securities transactions may be executed, even if the accounts are inactive.
Employee Related Accounts include:
. your own accounts;
. your spouse's accounts and the accounts of your minor children and other
relatives (whether by marriage or otherwise) living in your home;
. accounts in which you, your spouse, your minor children or other
relatives living in your home have a beneficial interest; and
. accounts over which you or your spouse exercise investment discretion or
control.
<PAGE>
Although they are securities in the technical sense, money market funds and
open-ended mutual funds held directly with the fund or its transfer agent are
--------
not considered Employee Related Accounts for the purposes of applying the
above definition.
3. "Designated Broker" Rule
Depending on your Bankers Trust location, you may be required to open and
maintain your Employee Related Accounts with a "Designated Broker," which
refers to brokerage firms specifically identified by the Compliance
Department for employee use. Employee Related Accounts with the Designated
Brokers must be opened in accordance with local Compliance Department
procedures.
Employees who wish to open and maintain an Employee Related Account in the
U.S. must do so with one of the following Designated Brokers:
. BT Alex. Brown Incorporated
. Quick & Reilly (Wall Street Office)
. Salomon Smith Barney (the Rasweiler Group, New York)
Information about opening such an account can be obtained from the Compliance
Department at (212) 250-5812.
Employees assigned to Bankers Trust offices outside the U.S. are provided
local guidelines regarding Designated Brokers (and instructions about opening
and maintaining Employee Related Accounts) by Regional Compliance Groups for
Asia, Australia/New Zealand, Europe/Middle East/Africa and Latin America. You
should contact your Regional Compliance Officer if you have questions.
4. Waivers to the Designated Broker Rule
In very limited situations, the Compliance Department may grant you
permission to open or maintain an Employee Related Account at a brokerage
firm other than a Designated Broker. Generally, such permission is limited to
the following types of situations:
. your spouse or close relative, by reason of employment, is required by
his or her employer to maintain their brokerage accounts with a firm
other than a Designated Broker; or
. your Employee Related Account is maintained on a "discretionary" basis.
This means that full investment discretion has been granted to an
outside bank, investment manager or trustee, and neither you nor a close
relative participates in the investment decisions or is informed in
advance regarding transactions in the account.
An employee's request to the Compliance Department for an exemption to the
Designated Broker policy must be submitted in writing. If permission is
----------
granted, duplicates of account statements and transaction confirmations must
be provided to the Compliance Department. Your continued eligibility for an
exception to the Designated Broker policy is periodically reviewed and
evaluated and can be revoked at any time.
NOTE -- Do not open an account with another brokerage firm until you receive
authorization to do so from the Compliance Department.
5. Monitoring Employee Related Accounts
To ensure adherence to Bankers Trust's policies, the Compliance Department
monitors transactions in Employee Related Accounts, whether they are
maintained with a Designated Broker or otherwise. If you violate the Firm's
policies and procedures as described herein, you may be required to cancel,
reverse or freeze any transaction or position in your Employee Related
Account at your expense, regardless of where the account is held. Such action
may be required without advance notice.
Pre-Clearing Transactions In Employee Related Accounts
------------------------------------------------------------------------
1. The Basic Policy
You must contact the Compliance Department to pre-clear all transactions
involving securities or their derivatives in your Employee Related Accounts
(other than transactions involving only U.S. Treasury
<PAGE>
securities or open-ended mutual funds) prior to placing an order with your
-----
broker. You are personally responsible for ensuring that your proposed
transaction does not violate the Firm's policies or applicable securities
laws and regulations by virtue of your Bankers Trust responsibilities or
information you may possess about the securities or their issuer.
2. Pre-Clearance Procedures
Proposed transactions in your Employee Related Accounts must be personally
pre-cleared with the Compliance Department. After providing the requested
information about the transaction, you will be informed whether you have been
granted permission to place the order with your broker which is valid for the
day given and the next business day. If permission is denied to proceed with
the proposed transaction, such denial is confidential and should not be
disclosed to others.
For employees assigned to Bankers Trust offices in the U.S. and Canada,
securities transactions can be pre-cleared by contacting the Compliance
Department at (212) 250-5812.
Employees assigned to Bankers Trust offices outside of the U.S. and Canada
are provided local guidelines and contacts for pre-clearing securities
transactions by Regional Compliance Groups for Asia, Australia/New Zealand,
Europe/Middle East/Africa and Latin America. You should contact your Regional
Compliance Officer if you have questions.
3. Additional Supervisory Pre-Clearance
Depending on your area of assignment, you may be subject to additional
departmental policies that require you to first pre-clear your proposed
securities transaction with your supervisor prior to requesting pre-clearance
from the Compliance Department. If you are assigned to one of the Bankers
Trust departments in which employees are subject to this requirement, you
will be informed of this fact when you contact the Compliance Department for
pre-clearance.
4. Private Securities Transactions
Investment transactions in private securities, such as limited partnerships
or the securities of private companies, are likely to be made directly with
the sponsor and not executed in your Employee Related Account. Prior to
engaging in a private securities transaction, you must first obtain the
approval of your supervisor and then pre-clear the transaction with the
Compliance Department. Private securities transactions that give rise to
actual or apparent conflicts of interest are prohibited.
Restrictions Regarding Personal Securities Transactions
------------------------------------------------------------------------
1. The Basic Policy
You have a personal obligation to conduct your investing activities and
related securities transactions lawfully and in a manner that avoids actual
or potential conflicts between your own interests and the interests of
Bankers Trust and its customers. You must carefully consider the nature of
your Bankers Trust responsibilities - and the type of information you might
be deemed to possess in light of any particular securities transaction -
before you engage in that transaction.
------
2. Material Nonpublic Information
If you possess material nonpublic information about or affecting securities,
or their issuer, you are prohibited from buying or selling such securities,
or advising any other person to buy or sell such securities.
3. Corporate and Departmental Restricted Lists
You are not permitted to buy or sell any securities that are included on the
Corporate Restricted List and/or other applicable departmental restricted
lists.
4. "Frontrunning"
You are prohibited from engaging in "frontrunning," which means that you may
not buy or sell securities or other instruments for your Employee Related
Accounts so as to benefit from your knowledge of the Firm's or a client's
trading positions, plans or strategies, or forthcoming research
recommendations.
5. Employee Transactions in Bankers Trust Securities
Bankers Trust recognizes the special interest many employees have in
investing in the securities of Bankers Trust Corporation. Observe, however,
that your employment relationship with the Firm gives rise to special rules
concerning such transactions to avoid potential conflicts of interest.
<PAGE>
a. Transactions Subject to Special Rules
Personal trading activity in Bankers Trust Corporation securities that are
subject to special rules are generally transactions that change your
beneficial ownership interest, such as:
. purchases, sales or other transactions in Employee Related Accounts;
. employee investment elections in Bankers Trust benefit plans, such as
investment elections affecting the Bankers Trust Common Stock Fund in
the PartnerShare Plan;
. exercise of Bankers Trust stock options granted as part of an employee's
compensation;
. optional cash purchases of common stock through Bankers Trust's Dividend
Reinvestment and Common Stock Purchase Plan; and
. gifts or donations of Bankers Trust Corporation stock to charitable
organizations, relatives or others.
b. Special Rules
The following special rules apply to all transactions that change your
beneficial ownership interest in the securities of Bankers Trust Corporation:
. all employees must pre-clear transactions involving Bankers Trust
---
Corporation securities with Corporate Compliance in New York (212)
250-5812, even if assigned to an office outside the U.S. or Canada;
. Bankers Trust Corporation securities may not be pledged or used as
collateral for any loan except for a margin loan associated with an
Employee Related Account;
. any short sale of Bankers Trust Corporation securities is prohibited;
. any transaction that involves options or warrants referenced to Bankers
Trust Corporation securities, other than exercising stock options
granted under a Bankers Trust incentive compensation plan, is
prohibited; and
. over-the-counter derivative transactions that are referenced to the
value of Bankers Trust Corporation securities are prohibited.
c. "Blackout" Periods
During certain times of the year, you are prohibited from conducting
transactions in Bankers Trust Corporation securities which affect your
beneficial interest in the Firm. These "blackout" periods surround the end of
each fiscal quarter or year and begin on the first day of each calendar
quarter and end 48 hours after public release of the financial reports for
the quarter or year.
Additional restricted periods may be required for certain individuals and
events, and you will be informed of whether such a restricted period is in
effect when you request pre-clearance of your proposed transaction involving
Bankers Trust Corporation securities. Any questions concerning whether you
are subject to additional restrictions should be directed to the Compliance
Department.
6. Avoiding Conflicts with Your Bankers Trust Job Responsibilities
You are prohibited from buying, selling or holding positions in securities
and other instruments for your Employee Related Accounts that give rise to a
conflict of interest, or the appearance of conflict, between your personal
financial interests and your Bankers Trust job responsibilities.
<PAGE>
Following is a summary of the Firm's basic rules and procedures that are
designed to prevent actual or apparent conflicts of interest. If you believe
a proposed personal securities transaction may give rise to a potential
conflict of interest, or may not comply with the following rules and
procedures, you should resolve the matter with your Compliance Officer before
placing the order.
a. Securities in Companies With Which You Have Significant Dealings
You are prohibited from buying or selling, for your Employee Related
Accounts, securities of companies with which you have significant dealings on
behalf of Bankers Trust, or for which you have ongoing relationship
management responsibilities on behalf of the Firm. This rule applies to all
employees who have significant dealings with the Firm's customers,
counterparties, suppliers or vendors. Also, you are generally prohibited from
acquiring an interest in any private equity investment vehicle sponsored by
such companies.
b. Securities In Which You Have Trading or Trading-Related Responsibilities
To prevent actual or apparent conflicts of interest, employees with "trading
or trading-related responsibilities" with respect to particular types of
securities or instruments may be limited or prohibited from buying or selling
the same types of securities or instruments for their Employee Related
Accounts. Employees have trading or trading-related responsibilities with
respect to particular types of securities or instruments if their duties:
. involve the Firm's proprietary dealing or investing activities (e.g.,
where committing the Firm's capital may be involved); and
. are associated with the origination, structuring, trading, market
making, positioning, bookrunning, distribution, sales, research or
analysis of particular types of securities or instruments.
If you have trading or trading-related responsibilities for equity
securities, investment grade debt securities or U.S. Government, Government
Agency or municipal securities (including derivatives thereof), you are
permitted to buy or sell such securities for your Employee Related Accounts
subject to compliance with certain departmental guidelines that may require
supervisory approval and minimum holding periods.
If you have trading or trading-related responsibilities for non-investment
grade debt securities, commodities, futures, FX or other instruments
(including derivatives thereof), you are prohibited from buying or selling
the same type of securities or instruments for your Employee Related
Accounts.
c. Portfolio Managers, Investment Advisory Professionals and "Access Persons"
If you are a portfolio manager, investment advisory professional or "access
person" associated with the Firm's asset or funds management businesses, you
may be subject to certain rules designed to prevent conflicts of interest.
You can obtain more information about these rules from your supervisor or the
Compliance Department.
d. Transactions Subject to Minimum Holding Periods
Securities bought or sold for your Employee Related Accounts may be subject
to a minimum holding period to address potential conflicts of interest.
Examples of the type of job functions and transactions that typically require
a minimum holding period include:
. equity securities bought or sold by an employee with proprietary equity
trading or trading-related responsibilities (60-day holding period);
. certain debt securities bought or sold by an employee with proprietary
trading or trading-related responsibilities for U.S. Government,
Government Agency, municipal or investment-grade corporate debt
securities (60-day holding period);
. securities bought or sold by an equity research analyst, falling within
the research analyst's assigned industry group (up to a six-month
holding period); and
. securities bought or sold by employees assigned to most Bankers Trust
offices outside the U.S. (holding period varies by region).
<PAGE>
e. Additional International Procedures
Regional Compliance Groups for Asia, Australia/New Zealand, Europe/Middle
East/Africa and Latin America may modify the procedures described in this
section to reflect local market practices and regulatory requirements. You
should contact your Regional Compliance Officer to obtain information about
local modifications, if any, to these requirements.
7. Initial Public Offerings and New Issues
For regulatory reasons, you are prohibited from purchasing or subscribing for
securities connected with an initial public offering or a new issue where a
U.S.-registered broker-dealer is involved in the distribution, or where any
part of the distribution is offered in the U.S. This prohibition applies even
if Bankers Trust has no role or involvement in the distribution.
For initial public offerings and new issues of securities of non-U.S.
companies distributed entirely outside of the U.S., employees assigned to
international offices of Bankers Trust may be permitted to purchase or
subscribe for such securities, provided that the appropriate Regional
Compliance Group of the Compliance Department approves such proposed
transaction in advance. You should contact your Regional Compliance Officer
for local guidelines that apply.
Other Matters
------------------------------------------------------------------------
1. Waivers and Exceptions
Bankers Trust policies regarding personal securities transactions by
employees as described in this booklet is necessarily a general summary. In
practice, some situations may arise to warrant making exceptions to some
general rules set forth herein, and you must obtain approval from the
Compliance Department before taking action regarding such an exception.
2. Confirming Your Compliance with Policies
Annually, you are required to sign a statement as a Bankers Trust employee
acknowledging that you have received this supplement to the policy statement
Confidential Information, Insider Trading and Related Matters and confirm
your adherence to Bankers Trust's standards of conduct.
3. If You Have Questions
You should refer all questions concerning the interpretation or application
of these policies, the propriety of any particular conduct, or other
compliance-related matters to the Compliance Department.
NOTE -- Adhering to the policies and standards of conduct discussed in this
Guide is one of the conditions of employment with Bankers Trust. Failure to
comply with them may subject you to disciplinary action, including possible
dismissal. In addition, violation of the rules described in this Guide may
also subject you to possible civil or criminal penalties in accordance with
the securities laws or regulatory rules applicable in various jurisdictions.
<PAGE>
Rules for Business Conduct
Issue Date: September 1998
------------------------------------------------------------------------
Contents
Letter to All Employees
-----------------------
Introduction
------------
Corporate Conduct
-----------------
Bankers Trust's Reputation
--------------------------
Ethical Conduct
---------------
Lawful Conduct
--------------
Bankers Trust Policies and Standards
------------------------------------
Internal Reporting Obligation
-----------------------------
Questions
---------
Rules for Dealing with Potential Conflicts of Interest
------------------------------------------------------
The Basic Rule
--------------
Personal Benefit
----------------
Improper Payments or Gifts
--------------------------
Permissible Business Gifts
--------------------------
Bankers Trust Gifts to Persons Other than Government Officials
--------------------------------------------------------------
Bankers Trust Gifts to Government Officials
-------------------------------------------
Business Affiliations
---------------------
Borrowing Arrangements
----------------------
Outside Employment
------------------
Personal Fiduciary Arrangements with Customers
----------------------------------------------
Personal Investments
--------------------
Rules for Dealing with Governmental Officials and Political Candidates
-----------------------------------------------------------------------
Corporate Payments or Political Contributions
---------------------------------------------
Personal Political Contributions
--------------------------------
Entertainment of Government Officials
-------------------------------------
Rules for Dealing with Information
----------------------------------
Insider Trading
---------------
Confidential Information
------------------------
Proprietary Information
-----------------------
Proprietary Products and Transactions
-------------------------------------
Information Technology
----------------------
Privacy of Electronic and Other Information
-------------------------------------------
Financial and Accounting Information
------------------------------------
Regulatory and Other Reporting
------------------------------
Information and Accounting Controls
-----------------------------------
Governmental or Regulatory Inquiries
------------------------------------
Responding to Media Inquiries and Requests for Speeches
-------------------------------------------------------
Rules for Dealing with Customers, Suppliers and the Public
----------------------------------------------------------
The Basic Rule
--------------
New Business Initiatives
------------------------
New Client Approval
-------------------
"Know Your Customer"
--------------------
Communication with Customers and the Public
-------------------------------------------
Pricing and Terms
-----------------
Customer Complaints
-------------------
<PAGE>
Improper Customer Conduct
-------------------------
Special Regulatory Matters Involving Customers
----------------------------------------------
Anti-Competitive Conduct
------------------------
Tying Arrangements
-------------------
Purchases and Commitments
-------------------------
Rules for Dealing with Other Employees
--------------------------------------
The Basic Rule
--------------
Cooperation
-----------
Awareness
---------
Supervision
-----------
Due Care in Delegation
----------------------
Instruction and Training
------------------------
Review and Monitoring
---------------------
Correction and Follow-Up
------------------------
Preferential Treatment
----------------------
Unlawful Conduct
----------------
Human Resources Policies
------------------------
Off-Premises Requirement for Employees In Sensitive Positions
-------------------------------------------------------------
Rules for Dealing with Certain Legal, Judicial or Regulatory Matters;
---------------------------------------------------------------------
Reports of Violations
---------------------
General Matters
---------------
Violations of Bankers Trust Policies
------------------------------------
Fraudulent Activity
-------------------
Arrests, Indictments and Convictions
------------------------------------
Employee Involvement in Regulatory and Other Formal Proceedings
---------------------------------------------------------------
Lobbying, Public Testimony and Related Matters
----------------------------------------------
Managing Officer Reporting
--------------------------
Other Matters
-------------
Ongoing Compliance
------------------
Resignation and Termination
---------------------------
Modifications to or Waivers of the Rules
----------------------------------------
Confirming Your Compliance with the Rules
-----------------------------------------
If You Have Questions
---------------------
/copyright sign/ 1998 Bankers Trust Corporation
Bankers Trust
September 1998
To All Employees:
This is your personal copy of the Rules for Business Conduct, which sets
forth the Firm's code of business ethics. Please read this document carefully
and advise any staff members you may supervise to do so as well.
The Rules describe our commitment to conduct all business of Bankers Trust in
the spirit of fair dealings, consideration for the rights of others, and
strict principles of good corporate citizenship and practices. As employees,
we have an important responsibility to ensure that our own conduct meets the
highest standards of personal and corporate integrity. Only through the
continuing efforts of each of us to adhere to these principles can Bankers
Trust's reputation for high ethical and professional standards be maintained.
These Rules apply to all employees of Bankers Trust and its subsidiaries,
regardless of location. The policies and standards contained in the booklet
protect and guide each of us in making our business decisions, and in our
dealings on behalf of Bankers Trust. Your commitment to comply with the
letter and the spirit of these Rules, and your common sense and good judgment
in recognizing when you may need to seek guidance as to how they should be
applied to situations you encounter, are essential.
<PAGE>
Should you ever have any question as to how to interpret or apply the Rules
to any event or circumstance, I encourage you to seek guidance from the
Compliance Department.
Sincerely,
Frank Newman
Chairman and
Chief Executive Officer
Introduction
------------------------------------------------------------------------
The Rules for Business Conduct (the Rules) apply worldwide to all employees
of Bankers Trust Corporation and its subsidiaries (referred to herein as
"Bankers Trust" or the "Firm"). These Rules set forth the Firm's global
commitment to conduct all business of Bankers Trust lawfully and in
accordance with high standards of personal and corporate integrity.
Adhering to the Rules for Business Conduct is one of the conditions of
employment with Bankers Trust. Failure to comply may subject you to
disciplinary action, including possible dismissal.
No written rules can anticipate every situation. Common sense and good
judgment in responding to situations that may not seem to be specifically
covered by these Rules, and in recognizing when to seek advice regarding the
application of the Rules, are a must for each employee.
The Rules for Business Conduct incorporate certain requirements of U.S.
Federal and New York state laws and regulations. Where there is a conflict
between the provisions of the Rules for Business Conduct and the requirements
of local laws and regulations of other jurisdictions in which Bankers Trust
does business, those local laws will prevail.
Corporate Conduct
------------------------------------------------------------------------
1. Bankers Trust's Reputation
The Firm's reputation for integrity is its most valuable asset, and the
conduct of its employees must protect this asset at all times. Accordingly,
Bankers Trust and its employees obligate themselves to conduct their business
on behalf of Bankers Trust in accordance with high ethical standards, and to
avoid personal conduct which may compromise the Firm's reputation.
2. Ethical Conduct
The Rules for Business Conduct are based on fundamental principles of
fairness, honesty and ethical behavior. All business of Bankers Trust should
be conducted in the spirit of fair dealings, consideration for the rights of
others, and strict principles of good corporate citizenship and practices.
3. Lawful Conduct
Bankers Trust requires compliance with the law in the conduct of its
business. Employees should consult with the Legal Department if they have any
questions regarding the laws of any country or jurisdiction where Bankers
Trust does business.
4. Bankers Trust Policies and Standards
All employees are required to maintain ongoing compliance with all statements
of policies, procedures and standards of Bankers Trust, and with lawful and
ethical business practices, whether or not they are specifically mentioned in
the Rules for Business Conduct.
5. Internal Reporting Obligation
You are required to report any known or suspected violations of the Rules to
your Managing Officer and to the Compliance Department. If for any reason you
believe that the matter cannot be raised through that
<PAGE>
channel, you should report it directly to the head of Corporate Compliance in
New York.
For purposes of these Rules, your "Managing Officer" is defined to be an
officer of at least the Managing Director level to whom you directly or
indirectly report, who is in charge of the unit or office to which you are
assigned. Your Managing Officer is senior to you and would generally be a
Department Head, Division Head, Function Head, Group Head, General Manager or
Company President.
For purposes of these Rules, the "Compliance Department" refers to the
Bankers Trust Compliance Department and the BTAL Compliance Department. The
Bankers Trust Compliance Department is organized generally by U.S. business
lines and regionally for Asia, Europe/Middle East/Africa and Latin America,
and is comprised of the following groups:
. Broker-Dealer Compliance (including Latin America)
. Fiduciary Compliance
. Corporate Compliance
. Europe & Asia Regional Compliance
The BTAL Compliance Department is organized generally by business lines in
Australia and New Zealand.
6. Questions
If you are in doubt as to the specific application of these Rules or about
the propriety of any particular conduct, you must bring the matter to the
attention of your Managing Officer and the Compliance Department prior to
taking action.
Rules for Dealing with Potential Conflicts of Interest
------------------------------------------------------------------------
1. The Basic Rule
There must be no conflict, or appearance of conflict, between the self-
interest of any employee and the responsibility of that employee to Bankers
Trust, its shareholders or its customers.
2. Personal Benefit
You must never improperly use your position with Bankers Trust for personal
or private gain to you, your family or any other person.
3. Improper Payments or Gifts
You are prohibited from soliciting or accepting any personal payment or gift
to influence, support or reward any service, transaction or business
involving Bankers Trust, or that appears to be made or offered to you in
anticipation of any future service, transaction or business opportunity. A
payment or gift includes any fee, compensation, remuneration or thing of
value.
Under the Bank Bribery Act and other applicable laws and regulations, severe
penalties may be imposed on anyone who offers or accepts such improper
payments or gifts. If you receive or are offered an improper payment or gift,
or if you have any questions as to the application or interpretation of
Bankers Trust's rules regarding the acceptance of gifts, you must bring the
matter to the attention of the Compliance Department.
4. Permissible Business Gifts
Subject to the prerequisites of honesty, absolute fulfillment of fiduciary
duty to Bankers Trust, relevant laws and regulations, and reasonable conduct
on the part of the employee, the acceptance of some types of reasonable
business gifts received by employees may be permissible, and the rules are as
follows:
. Cash gifts of any amount are prohibited. This includes cash equivalents
such as gift certificates, bonds, securities or other items that may be
readily converted to cash.
. Acceptance of non-cash gifts, souvenirs, tickets for sporting or
entertainment events, and other items with a value less than U.S. $200
or its equivalent is generally permitted, when it is clear that they are
unsolicited, unrelated to a transaction and the donor is not attempting
to influence the employee. In accordance with regulations and practices
in various jurisdictions, as well as the rules of the New York
<PAGE>
Stock Exchange (the "NYSE") and the National Association of Securities
Dealers (the "NASD"), employees of certain business lines may be subject
to more stringent gift giving and receiving guidelines. For example,
employees of BT Alex. Brown Incorporated (the U.S. Broker-Dealer) are
generally not permitted to offer or accept gifts with a value greater
than U.S. $100.
. Acceptance of gifts, other than cash, given in connection with special
occasions (e.g., promotions, retirements, weddings, holidays), that are
of reasonable value in the circumstances are permissible.
. Employees may accept reasonable and conventional business courtesies,
such as joining a customer or vendor in attending sporting events, golf
outings or concerts, provided that such activities involve no more than
the customary amenities.
. The cost of working session meals or reasonable related expenses
involving the discussion or review of business matters related to
Bankers Trust may be paid by the customer, vendor or others, provided
that such costs would have otherwise been reimbursable to the employee
by Bankers Trust in accordance with the Firm's travel and entertainment
and expense reimbursement policies.
5. Bankers Trust Gifts to Persons Other than Government Officials
In appropriate circumstances, it may be acceptable and customary for Bankers
Trust to extend gifts to customers or others who do business with the Firm.
You should be certain that the gift will not give rise to a conflict of
interest, or appearance of conflict, and that there is no reason to believe
that the gift will violate applicable codes of conduct of the recipient.
Employees with appropriate authority to do so may make business gifts at the
Firm's expense, provided that the following requirements are met:
. Gifts in the form of cash or cash equivalents may not be given
regardless of amount.
. The gift must be of reasonable value in the circumstances, and should
not exceed a value of U.S. $200 (or U.S. $100 if the gift falls under
NYSE, NASD or similar applicable rules) unless the specific prior
approval of the appropriate Managing Officer is obtained.
. The gift must be lawful and in accordance with generally accepted
business practices of the governing jurisdictions.
. The gift must not be given with the intent to influence or reward any
person regarding any business or transaction involving Bankers Trust.
6. Bankers Trust Gifts to Government Officials
You must contact the Compliance Department prior to making any gift to a
governmental employee or official. You should be aware that various
government agencies, legislative bodies and jurisdictions may have rules and
regulations regarding the receipt of gifts by their employees or officials.
In some cases, government employees or officials may be prohibited from
accepting any gifts. (Refer to page 12 for additional rules regarding
-----------------------------------------------
political contributions.)
-----------------------
7. Business Affiliations
As a general rule, a conflict of interest, or the appearance of a conflict,
might arise if your Bankers Trust duties involve any actual or potential
business with a person, entity or organization in which you or your Family
Members have a substantial personal or financial interest. Accordingly, the
following rules apply:
a. You may not act on behalf of Bankers Trust in connection with any
business or potential business involving any person, entity or
organization in which you or your Family Members have direct or indirect
(i) managerial influence, such as serving as an executive officer,
director, general partner or similar position or (ii) substantial
ownership or beneficial interest.
b. You must promptly notify your Managing Officer and the Compliance
Department of any business affiliation that you or your Family Members
have that might give rise to a conflict of interest, or the appearance
of a conflict, by virtue of your Bankers Trust duties and position, the
nature of the activities of your business unit and the nature of your
outside business affiliation. If, in the judgment of Bankers Trust, the
situation presents a concern, steps will be taken to resolve it.
<PAGE>
c. You must obtain the permission of a member of the Bankers Trust
Management Committee prior to accepting any appointment to serve as an
executive officer, director, general partner or similar position of any
person, entity or organization which is an existing or prospective
customer, supplier or competitor of Bankers Trust.
d. If you are an officer of any Bankers Trust entity, you are required to
report certain information about your business affiliations annually to
the Office of the Secretary. In addition, you must report to the Office
of the Secretary, within 10 days of each occurrence, any situation
involving an existing or prospective customer, supplier or competitor of
Bankers Trust in which either you or your Family Members:
. serve or accept an appointment to serve as an executive officer,
director, general partner or similar position; or
. hold or acquire any substantial ownership or beneficial interest, or
have a 10% or greater ownership or controlling interest.
You must determine whether any of the following definitions apply to your
business affiliation or the situation of the person, entity or organization
with which you are affiliated, and you should raise any questions about their
application to your Managing Officer and the Compliance Department. The
following definitions help you determine how this rule applies to your
particular circumstances:
"Family Members" For purposes of the Rules for Business Conduct, your Family
Members include your spouse, minor children, and any other person who resides
in your household or depends on you or your spouse for financial support.
"Substantial Interest" Whether a particular ownership or beneficial interest
is "substantial" depends on the circumstances, such as the size and nature of
the entity's business and the nature of its relationship to Bankers Trust;
your Bankers Trust duties in relation to that entity; and the size and nature
of the interest in that entity in relation to your compensation and net
worth.
"Existing or Prospective Customer, Supplier or Competitor" An existing or
prospective customer or supplier of Bankers Trust includes any person, entity
or organization that (i) has done business with Bankers Trust within the past
year, or (ii) has been in contact with Bankers Trust during the past year
regarding potential business, regardless of whether or not you work in the
particular unit that deals with that customer or supplier. A competitor of
Bankers Trust includes any person, entity or organization that does business
in competition with any unit of Bankers Trust.
8. Borrowing Arrangements
In general, you should borrow only from banks, thrifts, consumer finance
companies, brokerage firms, and other institutions that regularly lend money
and extend credit in the ordinary course of their business (herein called
"Financial or Consumer Lenders"). The following additional rules apply:
. You are not permitted to solicit or accept treatment from any lender
which the lender would not in the ordinary course of business extend to
any unrelated third party.
. You are not permitted to borrow from an existing or prospective
customer, supplier or competitor of Bankers Trust unless it is a
Financial or Consumer Lender, and the credit is extended in the ordinary
course of its business and involves only the usual and customary terms.
. You are required to obtain the written permission of your Managing
Officer prior to borrowing from other than a Consumer and Financial
Lender.
. In general, you are permitted to borrow personally from your parents,
grandparents or other close relatives. However, you must still ensure
that such borrowing will not give rise to a conflict of interest
regarding Bankers Trust or your Bankers Trust duties.
<PAGE>
If you are a Bankers Trust officer, borrowing arrangements from other than a
Financial or Consumer Lender must be reported to the Office of the Secretary
within 10 days of being incurred.
9. Outside Employment
You may not engage in any employment or activity outside of Bankers Trust
that could reasonably be expected to conflict with the interests of Bankers
Trust or interfere with your Bankers Trust responsibilities. You must obtain
the written permission of your Managing Officer prior to accepting any
outside employment, consultancy or position for which you will receive
compensation.
You are permitted to engage on a voluntary basis in lawful charitable, civic,
religious or political organizations, and to receive reimbursement of
reasonable and normal expenses from such an organization. No Managing Officer
approval is required if your volunteer activities do not interfere with your
ability to perform your Bankers Trust duties, and there is no conflict of
interest, or appearance of a conflict, resulting from any relationship
between the organization and Bankers Trust.
10. Personal Fiduciary Arrangements with Customers
You may not directly or indirectly accept any bequest or legacy from a
customer, or accept personal appointment to serve as a customer's executor,
administrator, trustee or guardian, unless that customer is your Family
Member (as previously defined), or is closely related to you (such as your
parents or grandparents). Additionally, you may not personally accept power
of attorney or sole signing authority on behalf of any customer account. Any
exception to the foregoing requires the written approval of a member of the
Bankers Trust Management Committee.
11. Personal Investments
You must always act to avoid any actual or potential conflict of interest
between your Bankers Trust duties and responsibilities, and your personal
investment activities. To avoid potential conflicts, you should not
personally invest in securities issued by companies with which you have
significant dealings on behalf of Bankers Trust, or in investment vehicles
sponsored by them. Additional rules that apply to securities transactions by
employees, including the requirement for employees to pre-clear personal
securities transactions and rules regarding how Employee Related Accounts
must be maintained, are described in the booklet entitled Personal Securities
Transactions by Employees, a supplement to the Firm's policy statement
Confidential Information, Insider Trading and Related Matters. Copies of
these policies can be obtained from the Compliance Department.
Rules for Dealing with Governmental Officials and Political Candidates
------------------------------------------------------------------------
1. Corporate Payments or Political Contributions
No corporate payments or gifts of value may be made to any outside party,
including any government official or political candidate or official, for the
purpose of securing or retaining business for the Firm, or influencing any
decision on its behalf.
. Bankers Trust maintains a Political Action Committee, supported by
voluntary contributions from its officers, through which contributions
are made to political parties or candidates. The Political Action
Committee is the only means by which Bankers Trust may lawfully
participate in U.S. Federal elections.
. Corporate contributions to political parties or candidates in
jurisdictions not involving U.S. Federal elections are permitted only
when such contributions are made in accordance with applicable local
laws and regulations, and the prior approval of a member of the Bankers
Trust Management Committee has been obtained.
Under the Foreign Corrupt Practices Act, Bank Bribery Law, Elections Law and
other applicable regulations, severe penalties may be imposed on Bankers
Trust and on individuals who violate these laws and regulations. Similar laws
and regulations may also apply in various countries and legal jurisdictions
where Bankers Trust does business.
<PAGE>
2. Personal Political Contributions
No personal payments or gifts of value may be made to any outside party,
including any government official or political candidate or official, for the
purpose of securing business for Bankers Trust or influencing any decision on
its behalf. You should always exercise care and good judgment to avoid making
any political contribution that may give rise to a conflict of interest, or
the appearance of conflict. For example, if your business unit engages in
business with a particular governmental entity or official, you should avoid
making personal political contributions to officials or candidates who may
appear to be in a position to influence the award of business to Bankers
Trust.
Certain employees, such as those who are engaged in Bankers Trust's municipal
finance and municipal securities activities, are subject to the requirements
set forth in Bankers Trust's policy "Complying with MSRB G-37." In addition,
employees assigned to certain areas of BT Alex. Brown Incorporated are
required to obtain approval of the Compliance Department prior to making or
soliciting political contributions. Contact your supervisor or the Compliance
Department to obtain a copy of this policy or if you have any questions
regarding political contributions.
3. Entertainment of Government Officials
Entertainment and other acts of hospitality toward government or political
officials should never compromise or appear to compromise the integrity or
reputation of the official or Bankers Trust. When hospitality is extended, it
should be with the expectation that it will become a matter of public
knowledge.
Rules for Dealing with Information
------------------------------------------------------------------------
1. Insider Trading
Purchasing or selling securities, futures, loans or other financial
instruments while in possession of material nonpublic information about or
affecting them, or improperly disclosing such nonpublic information directly
or indirectly to others, is prohibited. This prohibition applies to personal
transactions as well as transactions effected in the course of your
employment, and to all material nonpublic information, regardless of whether
you obtained it as a result of your employment with Bankers Trust. If you are
uncertain whether information in your possession is material or nonpublic,
you must consult the Compliance Department before making a purchase or sale
to which it is relevant. Violation of applicable insider trading laws and
regulations could subject you to substantial personal civil or criminal
penalties.
2. Confidential Information
Improper disclosure or misuse of confidential information, such as
information related to specific transactions, Bankers Trust, its customers or
others, is prohibited. You are required to treat confidential information in
a responsible and proper manner, and in accordance with the policies and
procedures of Bankers Trust.
You must read and comply with Bankers Trust's policies and procedures
regarding the protection and use of confidential information, as set forth in
the policy statement "Confidential Information, Insider Trading and Related
Matters." You should contact the Compliance Department if you need a copy of
this policy.
3. Proprietary Information
Bankers Trust's trade secrets and know-how, financial information concerning
Bankers Trust, its customers, and its employees, and specifications,
programs, materials and documentation relating to all financial models and
products, computer and telecommunications systems, software, hardware and
applications developed or used by Bankers Trust are confidential and
proprietary to Bankers Trust. You are prohibited from using or divulging such
information except as permitted or required in connection with your work on
behalf of Bankers Trust, and you may not use it for your personal or private
benefit, or for the benefit of any other person or entity, during or after
your employment with Bankers Trust.
4. Proprietary Products and Transactions
Transactions and business opportunities developed by other employees or by
you in connection with your work activities on behalf of Bankers Trust belong
to Bankers Trust, and may not be used for your personal or private benefit,
or for the benefit of any other person or entity, during or after your
employment with Bankers Trust.
<PAGE>
5. Information Technology
The unauthorized duplication of software developed internally or obtained
from outside suppliers is prohibited, regardless of whether such unauthorized
duplication is for business or personal use. Additionally, you must adhere to
the Firm's standards and policies regarding the use of its technology and
computer equipment. Copies of Bankers Trust's "End-User Technology Policy"
can be obtained from the Technology Strategic Planning Department or from
your local or regional Human Resources Officer.
6. Privacy of Electronic and Other Information
If you use Bankers Trust equipment, systems or electronic mail to prepare,
store or transmit information of a personal or private nature, you waive your
right to privacy regarding such information. Under certain circumstances,
Bankers Trust audit, compliance, security and other investigatory personnel
may be permitted to access all information on such equipment.
7. Financial and Accounting Information
Accounting and other records must accurately, completely and properly
describe the transactions they record. All transactions, contracts, assets,
liabilities, revenues and expenses of Bankers Trust must be recorded in its
regular books of account and records, and all commitments, assets held in
custody for clients and other "off-balance sheet" items must be completely,
accurately and properly reported. No secret or unrecorded transaction,
contract, fund or asset may be created or maintained for any purpose. False,
fictitious or misleading entries regarding any transaction or account are
prohibited.
8. Regulatory and Other Reporting
Bankers Trust will disclose, on a timely basis, information required to
evaluate the fairness of its financial presentation, soundness of its
financial condition and the propriety of its operations. All such reports,
whether they are required in connection with specific regulations or
otherwise, must be fair, complete and accurate. Concealment, alteration or
withholding of information from authorized auditors or regulatory agencies is
prohibited.
9. Information and Accounting Controls
Employees having control or input regarding Bankers Trust assets or
transactions are required to handle them with the strictest integrity, and
ensure that such transactions and the acquisition or disposal of assets are
in accordance with management's general or specific authorization. Adherence
to prescribed accounting and control policies and procedures is required at
all times.
10. Governmental or Regulatory Inquiries
Governmental agencies and regulatory organizations may from time to time
conduct surveys or make inquiries that request information about Bankers
Trust, its customers or others that would generally be considered to be
confidential or proprietary. If you receive such a request that is outside
the normal course of your business unit's activities, you should notify your
Managing Officer and the Compliance Department before you respond.
11. Responding to Media Inquiries and Requests for Speeches
All requests for speeches, interviews or comments for use in broadcasts,
newspapers, magazines or other media should be referred to, or cleared by,
Corporate Affairs (in the U.S. and Australia), the designated Communications
Officer (in London), Marketing Services (in Asia) or the head of your Bankers
Trust office (for all other international locations). When practical, these
departments should be furnished with, given an opportunity to comment on, the
text or outline of the statement or speech and responses to any likely
questions.
Rules for Dealing with Customers, Suppliers and the Public
----------------------------------------------------------
1. The Basic Rule
Bankers Trust will compete for business only on the basis of quality, price
of product and service to its customers. All dealings with existing and
prospective customers of Bankers Trust, and with others, must be handled with
honesty, integrity and high ethical standards, and must adhere to the letter
and the spirit of applicable laws and regulations.
2. New Business Activities
The types of products and services offered and sold to customers must be
permissible under applicable regulations, and must meet the Firm's standards
regarding product disclosure, approval and other matters. New products and
business initiatives require special approval before they can initially be
sold to customers as described in Bankers Trust's New Business Activity
Policy, copies of which can be obtain from the Compliance Department.
<PAGE>
3. New Client Approval
Certain information must be reviewed and approved by management prior to
establishing a business relationship with a new customer. Bankers Trust's
policy, New Client Approval, can be obtained from the Compliance Department.
4. "Know Your Customer"
If you have responsibilities for managing customer relationships, you should
ensure that appropriate "know your customer" procedures are properly applied
throughout the duration of Bankers Trust's relationship with the customer.
Such procedures should be sufficient to provide reasonable assurance that the
customer is not using Bankers Trust for the furtherance of illegal or
improper activities as described further in the Firm's policy statement
Prevention and Detection of Money Laundering and Reporting of Criminal and
Suspicious Activity.
5. Communication with Customers and the Public
Communication with customers and others must be fair, balanced and honest.
Misleading, exaggerated or false claims about Bankers Trust's products,
services or their characteristics should never be made to customers or
others.
6. Pricing and Terms
Product pricing and related terms and conditions of products and services
must comply with applicable laws and regulations, and must be consistent with
Bankers Trust standards of fairness and integrity.
7. Customer Complaints
Customer complaints, disputes or dissatisfaction with the products or
services of Bankers Trust must be addressed fairly and promptly. Customer
complaints of a severe or unusual nature that may affect the overall
reputation of Bankers Trust should be immediately brought to the attention of
your Managing Officer and the Compliance Department.
8. Improper Customer Conduct
Knowingly aiding or assisting any customer or other person in the violation
of laws and regulations that apply to such customer or other person is
prohibited.
9. Special Regulatory Matters Involving Customers
Bankers Trust may, from time to time, receive notification that a customer is
under investigation by regulatory or law enforcement authorities, describing
certain information, account blockages or other actions that may be required.
You should not inform the customer of such regulatory action, or of any
response submitted by Bankers Trust, without the prior specific permission of
the Legal Department or the Compliance Department.
10. Anti-Competitive Conduct
All business of Bankers Trust must be conducted in fair and open competition.
Under no circumstances should an employee discuss or commit the Firm to any
arrangement with competitors affecting pricing or marketing policies.
Violation of anti-trust laws and regulations (referred to in some
jurisdictions as competition laws) could subject you and the Firm to
substantial civil and criminal penalties.
11. Tying Arrangements
Anti-trust and competition laws and regulations of many jurisdictions may
prohibit or restrict anti-competitive conduct, including certain forms of
tying arrangements. Bankers Trust is also subject to additional anti-tying
restrictions as set forth in the Bank Holding Company Act and Regulation Y,
as interpreted by the Federal Reserve Board (the "Federal Reserve tying
rules"). Recently, the Federal Reserve modified these rules to eliminate
certain types of tying restrictions while continuing to prohibit others.
Since the laws and regulations that apply to tying arrangements are complex,
you should seek guidance from the Compliance Department or Legal Department
if you are unsure as to whether a proposed tying arrangement is permissible.
Bank tying arrangements are generally those in which the extension of credit,
the provision of a service or the related pricing is varied or conditioned
upon the customer obtaining additional products or services from Bankers
Trust. Tying could involve linking products and services to be provided by
the same or another Bankers Trust entity.
<PAGE>
As a general matter, the Federal Reserve tying rules are more restrictive
when Bankers Trust Company ("BTCo") or another affiliated bank is involved in
the proposed tying arrangement. The Federal Reserve tying rules no longer
apply if BTCo or another affiliated bank is not involved in the tying
arrangement.
Restricting Availability or Varying the Pricing of Bank Products
A bank is prohibited under the Federal Reserve tying rules from conditioning
the availability of a loan or other product or service, or vary the pricing
thereof, on the condition that a customer obtains an additional product or
service offered by the bank or another affiliate unless the additional
product or service is a "traditional" bank product, such as a loan, deposit
or trust service.
For example, it would be permissible under the Federal Reserve tying rules
for the bank to condition its loan on the requirement that the customer must
maintain a deposit account with the bank or another affiliate. However, it
would not be permissible for the bank to condition the availability or vary
the pricing of its loan on the requirement that the customer chooses an
affiliate as an underwriter of the customer's securities.
Safe Harbors
If BTCo or another affiliated bank is not involved in providing or varying
the pricing of the product or services, or in restricting the customer's
ability to use a competitor's product or service, then the Federal Reserve
tying rules do not apply.
For example, it would be permissible under the Federal Reserve tying rules
for a nonbank affiliate to tie a merger and acquisition advisory service to
the customer's appointment of that affiliate (or another nonbank affiliate)
as the underwriter of the customer's securities.
Subject to compliance with applicable local laws and regulations, a safe
harbor under the Federal Reserve tying rules also exists for "foreign"
transactions, that is, where the customer is an entity organized and having
its principal place of business outside of the U.S. or, if the customer is a
natural person, he or she is a citizen of a foreign country other than the
U.S. In such instances, the Federal Reserve tying rules would not apply even
if the tying arrangement involves BTCo or another affiliated bank.
As stated earlier, the requirements of the Federal Reserve tying rules and
applicable local laws and regulations can be complex. If a tying arrangement
is contemplated, you should contact the Compliance Department or Legal
Department if you have questions.
12. Purchases and Commitments
Purchases and commitments on behalf of Bankers Trust must be made, and
contracts awarded and orders given, solely on a sound commercial basis in
consideration of quality, price and service, and may only be made by Bankers
Trust personnel who have been given express authority to do so.
Rules for Dealing with Other Employees
------------------------------------------------------------------------------
1. The Basic Rule
All dealings with other employees should be consistent with the Firm's
commitment to honesty, integrity and ethical behavior.
2. Cooperation
Every employee should cooperate fully with Bankers Trust internal and
independent auditors, attorneys, compliance and security personnel, and other
authorized parties acting on behalf of the Firm, and you should never
withhold information from them.
3. Awareness
Employees should obtain sufficient knowledge about the laws, regulations and
policies that apply to their particular Bankers Trust duties to enable them
to avoid possible violations, or recognize when they need to seek guidance
from their supervisor or others to avoid possible violations.
4. Supervision
The Firm's business activities must be subject to appropriate supervision by
Bankers Trust supervisory personnel.
<PAGE>
You are a supervisor if your Bankers Trust duties involve managing or
directing the work of others. As a supervisor, you have a responsibility to
ensure that the Bankers Trust activities of the employees you supervise are
properly directed toward achieving the general and specific objectives of
Bankers Trust, in accordance with applicable policies and procedures. The
supervisor is accountable for the Bankers Trust activities performed under
his or her direction.
5. Due Care in Delegation
The supervisor should delegate responsibilities to other employees only if
satisfied that such other employees possess the necessary skills and
experience to properly fulfill the responsibilities assigned.
6. Instruction and Training
The supervisor should provide adequate training and instruction regarding the
objectives of the responsibilities delegated, and the manner in which they
are to be carried out in accordance with Bankers Trust policies.
7. Review and Monitoring
The supervisor should understand how the employees are performing the
responsibilities delegated to them. This monitoring should be sufficient in
the particular circumstances to reasonably ensure that the supervisor will
promptly identify errors or improper work-related activities.
8. Correction and Follow-Up
The supervisor should take prompt corrective action if errors or improper
conduct are identified. Depending on the severity and nature of the errors or
improper conduct, the supervisor is responsible for reporting such matters to
his or her Managing Officer and the Compliance Department.
9. Preferential Treatment
No employee should give or receive any preferred conditions of employment
because of family or personal relationships. Personnel decisions must be
based on sound management practices and not on personal concerns.
10. Unlawful Conduct
The Firm's policy prohibits employees from engaging in unlawful conduct that
may represent a threat to Bankers Trust or to the safety of any other
employee or agent of Bankers Trust. Any employee convicted of a serious
crime, including but not limited to the sale, possession or use of illegal
drugs or substances, will be subject to disciplinary action, including
possible dismissal.
11. Human Resources Policies
Additional policies setting forth the Firm's standards regarding personnel
matters, such as equal opportunity and affirmative action, performance
evaluation and counseling, compensation and benefit programs, and other
matters related to employment with Bankers Trust, are issued by the Human
Resources Department. These Human Resources policies meet legal and
regulatory requirements of various jurisdictions in which Bankers Trust does
business, and you are required to comply with the letter and the spirit of
these policies. Copies of applicable policies can be obtained from the Human
Resources Department or your local or regional Human Resources Officer.
12. Off-Premise Requirement for Employees in Sensitive Positions
Employees in "sensitive positions" (as determined and notified by the
employee's manager) are required to be off-premises for a period of at least
two consecutive weeks each year. The off-premises period may be satisfied by
using available vacation, or through a combination of vacation, holiday,
medical leave, jury duty or other authorized absences.
Sensitive positions generally include those in which the employee has
authority and access to make entries to the books and records of the Firm,
effect wire transfers or move funds, or enter into specific transactions such
as extending credit or trading securities on behalf of the Firm.
During the required off-premises period, such employees are prohibited from
directing activity, entering transactions or changing the Firm's records in
any manner, whether through an off-site computer link, written instruction of
any kind, or by telephone or other sort of communication. Only communications
of a general business nature are permitted during the off-premises period.
<PAGE>
Regional management and individual business units may also require employees
in non-sensitive positions to be off-premises for a period of at least two
consecutive weeks each year. Additional information about Bankers Trust's
"Vacation & Off-Premises Policy" can be obtained from the Compliance
Department.
Rules for Dealing with Certain Legal, Judicial or Regulatory Matters;
Reports of Violations
------------------------------------------------------------------------
1. General Matters
You must promptly inform your Managing Officer of matters about which you
become aware which might adversely affect the reputation of Bankers Trust or
be a threat to its assets.
2. Violations of Bankers Trust Policies
You must promptly report to your Managing Officer and the Compliance
Department every known or suspected violation of Bankers Trust's policies,
including the Rules for Business Conduct, regardless of whether such
violation involves you or another employee.
3. Fraudulent Activity
You must promptly report to the Compliance Department or Investigative
Services every known or suspected work-related event of questionable,
fraudulent or dishonest nature of which you become aware, whether such
activity involves employees or outsiders.
4. Arrests, Indictments and Convictions
You must promptly notify your Managing Officer and the Compliance Department
if you are arrested, indicted or convicted of any crime or violation of
applicable law, other than those involving minor traffic infractions.
5. Employee Involvement in Regulatory and Other Formal Proceedings
You are required to promptly report, to your Managing Officer and the
Compliance Department, your involvement in certain governmental proceedings
(such as judicial, legislative or administrative proceedings) or regulatory
hearings. Your involvement is reportable regardless of whether it involves
your testimony as a witness, an actual or prospective party or target, or
otherwise, and such involvement:
. calls into question in any way your character, integrity or honesty; or
. concerns Bankers Trust or another Bankers Trust employee, customer or
supplier; or
. concerns you, and has received or is likely to receive publicity.
6. Lobbying, Public Testimony and Related Matters
Regarding matters which may affect the business, reputation or standing of
Bankers Trust, you may not appear as a witness, give testimony or sign a
statement advocating a position at the request of outside parties, except as
required by law, and you may not lobby before any government, legislative,
judicial or administrative body without the specific prior approval of your
Managing Officer and the Government Relations Department.
7. Managing Officer Reporting
Each Managing Officer who receives a report or becomes aware of conduct,
behavior or other circumstance that is questionable or prohibited by the
Rules for Business Conduct must ensure that such matter is brought to the
attention of the Compliance Department.
Other Matters
------------------------------------------------------------------------
1. Ongoing Compliance
Your adherence to the Rules for Business Conduct, and to all lawful policies
and procedures of Bankers Trust, is required of you. Failure to comply with
them may subject you to disciplinary action, including possible dismissal.
<PAGE>
2. Resignation and Termination
None of the policies contained or referred to in these Rules constitutes or
grants a legal right of any nature to any employee of Bankers Trust, nor do
any of them confer any right or privilege upon any employee or on any
particular group of employees. The Rules do not constitute an employment
contract. Subject to relevant local law and the terms of any applicable
individual written employment contract, employment with Bankers Trust is "at
will" and you have the right to resign at any time. Conversely, Bankers Trust
has the right to terminate the employment of any employee at any time in its
sole discretion, for any lawful reason.
3. Modifications to or Waivers of the Rules
Modifications to or waivers of the Rules may be made only by a member of the
Bankers Trust Management Committee.
4. Confirming Your Compliance with the Rules
Annually, employees of Bankers Trust are required to sign a statement
acknowledging that they have received the Rules for Business Conduct and
confirming their adherence to Bankers Trust's policies.
5. If You Have Questions
All questions regarding the Rules, the propriety of an action not covered by
the Rules, or other compliance-related matters should be referred to the
Compliance Department.
NOTE: An Employee's failure to report matters required to be reported under
the Rules for Business conduct is itself a violation of these Rules and
represents an independent ground for disciplinary action, up to and including
discharge.
<PAGE>
FORUM INVESTMENT ADVISORS, LLC
FORUM FUND SERVICES, LLC
Code of Ethics
as amended January 17, 2000
INTRODUCTION
This Code of Ethics (the "Code") has been adopted by Forum Fund Services,
LLC ("FFS") and Forum Investment Advisors, LLC ("FIA" and collectively with FFS,
"Forum"). This Code pertains to Forum's investment advisory and distribution
services to registered management investment companies or series thereof (each a
"Fund"). In addition, this Code applies to employees of Forum's commonly
controlled companies who serve as officers of a Fund. This Code establishes
standards and procedures for the detection and prevention of activities by which
persons having knowledge of the investments and investment intentions of a Fund
may abuse their fiduciary duties to the Fund and addresses other types of
conflict of interest situations. Definitions of underlined terms are included
----------
in Appendix A.
1. POLICY STATEMENT
Forum forbids any Access Person, Investment Personnel or Fund Officer from
-------------- -------------------- ------------
engaging in any conduct which is contrary to this Code. In addition, due to
their positions, Forum also forbids any Access Person or Investment Personnel
------------- --------------------
from engaging in any conduct which is contrary to Forum's Insider Trading Policy
and Related Procedures. In addition, many persons subject to the Code are also
subject to the other restrictions or requirements which affect their ability to
open securities accounts, effect securities transactions, report securities
transactions, maintain information and documents in a confidential manner and
other matters relating to the proper discharge of your obligations to Forum.
These include contractual arrangements with Forum, policies adopted by Forum
concerning confidential information and documents and FFS' Compliance and
Supervisory Procedures Manual.
Forum has always held itself and its employees to the highest ethical
standards. While this Code is only one manifestation of those standards,
compliance with its provisions is essential. Failure to comply with this Code
is a very serious matter and may result in disciplinary action being taken.
Such action can include among other things, monetary fines, disgorgement of
profits, suspension or even termination of employment.
2. WHO IS COVERED BY THIS CODE
(a) All Access Persons and Investment Personnel, in each case only with respect
-------------- --------------------
to those Funds as listed on Appendix B.
(b) Fund Officers, but only with respect to those Funds for which they serve as
-------------
Fund Officers as listed in Appendix B.
-------------
<PAGE>
3. PROHIBITED TRANSACTIONS
(a) Prohibition Against Fraudulent Conduct. It is unlawful for Access
------
Persons, Investment Personnel and Fund Officers to use any information
- ------- -------------------- -------------
concerning a security held or to be acquired by a Fund, or their ability to
-------------------------------
influence any investment decisions, for personal gain or in a manner detrimental
to the interests of a Fund. In addition, they shall not, directly or
indirectly:
(i) employ any device, scheme or artifice to defraud a Fund or engage in
any manipulative practice with respect to a Fund;
(ii) make to a Fund, any untrue statement of a material fact or omit to
state to a Fund a material fact necessary in order to make the
statements made, in light of the circumstances under which they are
made, not misleading; or
(iii) engage in any act, practice, or course of business which operates or
would operate as a fraud or deceit upon a Fund.
(b) Blackout Period. Access Persons and Investment Personnel shall not
-------------- --------------------
purchase or sell a Covered Security in an account over which they have direct or
------- --------
indirect influence or control on a day during which they know or should have
known a Fund has a pending "buy" or "sell" order in that same security until
that order is executed or withdrawn.
(c) Additional Investment Personnel Blackout Period. No Investment
----------
Personnel shall purchase or sell a Covered Security within five calendar days
- --------- ----------------
before or two calendar days after a Fund for which the Investment Personnel
--------------------
makes or participates in making a recommendation trades in that security. Any
profits realized on trades within this proscribed period shall be disgorged.
This blackout period does not apply to money market mutual funds which are
advised by FIA.
(d) Fund Officer Prohibition. No Fund Officer shall directly or indirectly
------------
seek to obtain information (other than that necessary to accomplish the
functions of the office) from any Fund portfolio manager regarding (i) the
status of any pending securities transaction for a Fund or (ii) the merits of
any securities transaction contemplated by the Fund Officer.
------------
(e) Blackout Period Exclusions and Definitions. The following
transactions shall not be prohibited by this Code and are not subject to the
limitations of Sections 3(b) and (c):
(i) purchases or sales over which you have no direct or indirect
influence or control (for this purpose, you are deemed to have
direct or indirect influence or control over the accounts of a
spouse, minor children and relatives residing in your home);
(ii) purchases which are part of an automatic dividend reinvestment plan;
(iii) purchases or sales which are non-volitional on your part; and
(iv) purchases effected upon the exercise of rights issued by an issuer
pro rata to all holders of a class of its securities, to the extent
such rights were acquired from such issuer.
<PAGE>
Your trading shall be exempt from the limitations of Sections 3(b) and (c)
provided that (i) the market capitalization of a particular security exceeds
$1 billion and (ii) pending orders of FIA do not exceed two percent of the daily
average trading volume of the security for the prior 15 days.
For purposes of Sections 3(b) and (c), and subject to Section 3(g) below,
the (i) common stock and any fixed income security of an issuer shall not be
deemed to be the same security and (ii) non-convertible preferred stock of an
issuer shall be deemed to be the same security as the fixed income securities of
that issuer; and (iii) convertible preferred stock shall be deemed to be the
same security as both the common stock and fixed income securities of that
issuer.
(f) Requirement for Preclearance. Investment Personnel must obtain prior
--------------------
written approval from the designated Review Officer before:
(i) directly or indirectly acquiring securities in an initial public
offering for which no public market in the same or similar securities
of the issue has previously existed; and
(ii) directly or indirectly acquiring securities in a private placement.
In determining whether to preclear the transaction, the Review Officer
designated under Section 5 shall consider, among other factors,
whether the investment opportunity should be reserved for a Fund, and
whether such opportunity is being offered to the Investment Personnel
--------------------
by virtue of their position with the Fund.
Any Investment Personnel of a Fund who has taken a personal position
--------------------
through a private placement will be under an affirmative obligation to disclose
that position in writing to the Review Officer if they play a material role in
the Fund's subsequent investment decision regarding the same issuer; this
separate disclosure must be made even though the Investment Personnel has
---------- ---------
previously disclosed the ownership of the privately placed security in
compliance with the preclearance requirements of this section. Once disclosure
is given, an independent review of the Fund's investment decision will be made.
(g) Other Prohibited Transactions. Access Persons, Investment Personnel
-------------- --------------------
and Fund Officers shall not:
-------------
(i) induce or cause a Fund to take action or to fail to take action, for
personal benefit rather than for the benefit of the Fund;
(ii) accept anything other than of de minimis value or any other
preferential treatment from any broker-dealer or other entity with
which a Fund does business;
(iii) establish or maintain an account at a broker-dealer, bank or other
entity through which securities transactions may be effected without
written notice to the designated Review Officer prior to
establishing such an account;
(iv) use knowledge of portfolio transactions of a Fund for your personal
benefit or the personal benefit of others;
(v) violate the anti-fraud provisions of the federal or state securities
laws;
<PAGE>
(vi) serve on the boards of directors of publicly traded companies,
absent prior authorization based upon a determination by the Review
Officer that the board service would be consistent with the
interests of the Fund and its shareholders.
(h) Undue Influence. Access Persons, Investment Personnel and Fund
-------------- -------------------- ----
Officers shall not cause or attempt to cause any Fund to purchase, sell or hold
- --------
any security in a manner calculated to create any personal benefit to you. You
shall not recommend any securities transactions for a Fund without having
disclosed (through reports in accordance with Section 4, preclearance in
accordance with Section 3(f), or otherwise) your interest, if any, in such
securities or the issuer thereof, including, without limitation, (i) your
beneficial ownership of any securities of such issuer, (ii) any position with
- --------------------
such issuer or its affiliates and (iii) any present or proposed business
relationship between you (or any party in which you have a significant interest)
and such issuer or its affiliates.
(i) Corporate Opportunities. Access Persons, Investment Personnel and
-------------- --------------------
Fund Officers shall not take personal advantage of any opportunity properly
- -------------
belonging to a Fund.
(j) Confidentiality. Except as required in the normal course of carrying
out their business responsibilities, Access Persons, Investment Personnel and
-------------- --------------------
Fund Officers shall not reveal information relating to the investment intentions
- -------------
or activities of any Fund, or securities that are being considered for purchase
or sale on behalf of any Fund.
4. REPORTING REQUIREMENTS
(a) Reporting. Access Persons, Investment Personnel and Fund Officers must
-------------- -------------------- -------------
report the information described in this Section with respect to transactions in
any Covered Security in which they have, or by reason of such transaction
acquire, any direct or indirect beneficial ownership. They must report to the
designated Review Officer unless they are otherwise required by a Fund, pursuant
to a Code of Ethics adopted by the Fund, to report to the Fund or another
person.
(b) Exclusions from Reporting. Purchases or sales in Covered Securities in
------------------
an account in which you have no direct or indirect influence or control are not
-------
subject to the reporting requirements of this Section.
(c) Initial Holding Reports. No later than ten (10) days after you become
subject to this Code as set forth in Section 2, you must report the following
information:
(i) the title, number of shares and principal amount of each Covered
Security (whether or not publicly traded) in which you have any direct
or indirect beneficial ownership as of the date you became subject to
--------------------
this Code;
(ii) the name of any broker, dealer or bank with whom you maintained an
account in which any securities were held for your direct or indirect
benefit as of the date you became subject to this Code; and
(iii) the date that the report is submitted.
<PAGE>
(d) Quarterly Transaction Reports. No later than ten (10) days after the
end of a calendar quarter, you must report the following information:
(i) with respect to any transaction during the quarter in a Covered
Security (whether or not publicly traded) in which you have, or by
reason of such transaction acquired, any direct or indirect beneficial
ownership:
(1) the date of the transaction, the title, the interest rate and
maturity date (if applicable), the number of shares and the
principal amount of each Covered Security involved;
(2) the nature of the transaction (i.e., purchase, sale or any
other type of acquisition or disposition);
(3) the price of the Covered Security at which the transaction was
effected;
(4) the name of the broker, dealer or bank with or through which the
transaction was effected; and
(5) the date that the report is submitted.
(ii) with respect to any account established by you in which any Covered
Securities (whether or not publicly traded) were held during the
quarter for your direct or indirect benefit:
(1) the name of the broker, dealer or bank with whom you established
the account;
(2) the date the account was established; and
(3) the date that the report is submitted.
(e) Annual Holdings Reports. Annually, you must report the following
information (which information must be current as of a date no more than thirty
(30) days before the report is submitted):
(i) the title, number of shares and principal amount of each Covered
Security (whether or not publicly traded) in which you had any direct
or indirect beneficial ownership;
(ii) the name of any broker, dealer or bank with whom you maintain an
account in which any securities are held for your direct or indirect
benefit; and
(iii) the date that the report is submitted.
(f) Certification of Compliance. You are required to certify annually (in
the form of Attachment A) that you have read and understood the Code and
recognize that you are subject to the Code. Further, you are required to
certify annually that you have complied with all the requirements of the Code
and you have disclosed or reported all personal securities transactions pursuant
to the requirements of the Code.
(g) Alternative Reporting. The submission to the Review Officer of
duplicate broker trade confirmations and statements on all securities
transactions shall satisfy the reporting requirements of Section 4. The annual
holdings report may be satisfied by confirming annually,
<PAGE>
in writing, the accuracy of the records maintained by the Review Officer and
recording the date of the confirmation.
(h) Report Qualification. Any report may contain a statement that the
report shall not be construed as an admission by the person making the report
that he or she has any direct or indirect beneficial ownership in the Covered
Securities to which the report relates.
(i) Account Opening Procedures. You shall provide written notice to the
Review Officer prior to opening any account with any entity through which a
Covered Securities transaction may be effected. In addition, you will promptly:
(i) provide full access to a Fund, its agents and attorneys to any and all
records and documents which a Fund considers relevant to any
securities transactions or other matters subject to the Code;
(ii) cooperate with a Fund, or its agents and attorneys, in investigating
any securities transactions or other matter subject to the Code;
(iii) provide a Fund, its agents and attorneys with an explanation (in
writing if requested) of the facts and circumstances surrounding any
securities transaction or other matter subject to the Code; and
(iv) promptly notify the Review Officer or such other individual as a Fund
may direct, in writing, from time to time, of any incident of
noncompliance with the Code by anyone subject to this Code.
5. REVIEW OFFICER
(a) Duties of Review Officer. The Chief Compliance Officer of Forum has
been appointed by the Director of FIA and FFS as the Review Officer to:
(i) review all securities transaction and holdings reports and shall
maintain the names of persons responsible for reviewing these reports;
(ii) identify all persons subject to this Code who are required to make
these reports and promptly inform each person of the requirements of
this Code;
(iii) compare, on a quarterly basis, all Covered Securities transactions
with each Fund's completed portfolio transactions to determine whether
a Code violation may have occurred;
(iv) maintain a signed acknowledgment by each person who is then subject to
this Code, in the form of Attachment A; and
(v) identify persons who are Investment Personnel of the Fund and
--------------------
inform those persons of their requirements to obtain prior written approval
from the Review Officer prior to directly or indirectly acquiring ownership
of a security in any private placement or initial public offering.
(vi) exempt any Fund Officer from provisions of this Code if the person is
------------
subject to similar requirements of a Fund's Code of Ethics.
(b) Potential Trade Conflict. When there appears to be a transaction that
conflicts with the Code, the Review Officer shall request a written explanation
of the person's transaction.
<PAGE>
If after post-trade review, it is determined that there has been a violation of
the Code, a report will be made by the designated Review Officer with a
recommendation of appropriate action to the Director of FIA and FFS and a Fund's
Board of Trustees (or Directors).
(c) Required Records. The Review Officer shall maintain and cause to be
maintained:
(i) a copy of any code of ethics adopted by Forum which has been in effect
during the previous five (5) years in an easily accessible place;
(ii) a record of any violation of any code of ethics, and of any action
taken as a result of such violation, in an easily accessible place for
at least five (5) years after the end of the fiscal year in which the
violation occurs;
(iii) a copy of each report made by anyone subject to this Code as
required by Section 4 for at least five (5) years after the end of the
fiscal year in which the report is made, the first two (2) years in an
easily accessible place;
(iv) a list of all persons who are, or within the past five years have
been, required to make reports or who were responsible for reviewing
these reports pursuant to any code of ethics adopted by Forum, in an
easily accessible place;
(v) a copy of each written report and certification required pursuant to
Section 5(e) of this Code for at least five (5) years after the end of
the fiscal year in which it is made, the first two (2) years in an
easily accessible place; and
(vi) a record of any decision, and the reasons supporting the decision,
approving the acquisition by Investment Personnel of securities under
--------------------
Section 3(f) of this Code, for at least five (5) years after the end
of the fiscal year in which the approval is granted.
(d) Post-Trade Review Process. Following receipt of trade confirms and
statements, transactions will be screened for the following:
(i) same day trades: transactions by Access Persons and Investment Personnel
-------------- --------------------
occurring on the same day as the purchase or sale of the same security by a
Fund for which they are an Access Person or Investment Personnel.
------------- --------------------
(ii) portfolio manager trades: transactions by Investment Personnel within
--------------------
five calendar days before and two calendar days after a Fund, for
which the Investment Personnel makes or participates in making a
--------------------
recommendation, trades in that security.
(iii) fraudulent conduct: transaction by Access Persons, Investment
-------------- ----------
Personnel and Fund Officers which, within the most recent 15 days, is
--------- -------------
or has been held by a Fund or is being or has been considered by a
Fund or FIA for purchase by a Fund.
(iv) other activities: transactions which may give the appearance that an
Access Person, Investment Personnel or Fund Officer has executed
------------- -------------------- ------------
transactions not in accordance with this Code.
(e) Submission to Fund Board. The Review Officer shall annually prepare a
written report to the Board of Trustees (or Directors) of a Fund listed in
Appendix B that
<PAGE>
(i) describes any issues under this Code or its procedures since the last
report to the Trustees, including, but not limited to, information
about material violations of the code or procedures and sanctions
imposed in response to the material violations; and
(ii) certifies that the Fund has adopted procedures reasonably necessary to
prevent Access Persons, Investment Personnel and Fund Officers from
-------------- -------------------- -------------
violating this code.
<PAGE>
FORUM CODE OF ETHICS
APPENDIX A
DEFINITIONS
(a) Access Person:
-------------
(i)(1) of FIA means each director or officer of FIA, any employee or agent
of FIA, or any company in a control relationship to FIA who, in
connection with the person's regular functions or duties, makes,
participates in or obtains information regarding the purchase or sale
of Covered Securities by a Fund advised by FIA, or whose functions
------------------
relate to the making of any recommendations with respect to such
purchases or sales; and
(i)(2) any natural person in a control relationship to FIA who obtains
information concerning recommendations made to a Fund by FIA with
regard to the purchase or sale of Covered Securities by the Fund;
------------------
(ii) of FFS means each director or officer of FFS who in the ordinary
course of business makes, participates in or obtains information
regarding the purchase or sale of Covered Securities for a Fund or
------------------
whose functions or duties as part of the ordinary course of business
relate to the making of any recommendation to a Fund regarding the
purchase or sale of Covered Securities.
------------------
(b) Act means the Investment Company Act of 1940, as amended.
---
(c) Beneficial Owner shall have the meaning as that set forth in Rule 16a-
----------------
1(a)(2) under the Securities Exchange Act of 1934, as amended, except that
the determination of direct or indirect beneficial ownership shall apply to
all Covered Securities which an Access Person owns or acquires. A
beneficial owner of a security is any person who, directly or indirectly,
through any contract, arrangement, understanding, relationship or otherwise, has
or shares a direct or indirect pecuniary interest (the opportunity, directly or
-------------------------------------
indirectly, to profit or share in any profit derived from a transaction in the
subject securities) in a security.
Indirect pecuniary interest in a security includes securities held by a
---------------------------
person's immediate family sharing the same household. Immediate family means
----------------
any child, stepchild, grandchild, parent, stepparent, grandparent, spouse,
sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-
law, or sister-in-law (including adoptive relationships).
(d) Control means the power to exercise a controlling influence over the
-------
management or policies of a company, unless this power is solely the result
of an official position with the company. Ownership of 25% or more of a
company's outstanding voting securities is presumed to give the holder
thereof control over the company. This presumption may be rebutted by the
Review Officer based upon the facts and circumstances of a given situation.
<PAGE>
(e) Covered Security means any security except:
----------------
(i) direct obligations of the Government of the United States;
(ii) bankers' acceptances and bank certificates of deposits;
(iii) commercial paper and debt instruments with a maturity at issuance of
less than 366 days and that are rated in one of the two highest
rating categories by a nationally recognized statistical rating
organization;
(iv) repurchase agreements covering any of the foregoing; and
(v) shares of registered open-end investment companies.
(f) Fund Officer means any employee of Forum or of a company commonly
------------
controlled with Forum who is an officer or director/trustee of a Fund.
(h) Investment Personnel means
- --- --------------------
(i) any employee of FIA who, in connection with his or her regular
functions or duties, makes or participates in making recommendations
regarding the purchase or sale of securities by a Fund managed by FIA;
and
(ii) any individual who controls FIA or a Fund for which FIA is an
--------
investment adviser and who obtains information concerning
recommendations made to the Fund regarding the purchase or sale of
securities by the Fund.
(i) Purchase or sale includes, among other things, the writing of an option to
----------------
purchase or sell.
(j) Security held or to be acquired by the Fund means
----------------------------------
(i) any Covered Security which, within the most recent 15 days (x) is or
has been held by the applicable Fund or (y) is being or has been
considered by the applicable Fund or its investment adviser for
purchase by the applicable Fund; and
(ii) and any option to purchase or sell, and any security convertible into
or exchangeable for, a Covered Security.
