As filed with the Securities and Exchange Commission on
September 19, 1996
Securities Act File No. 333-00479
Investment Company Act File No. 811-07507
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. 1 X
Post-Effective Amendment No.
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 2
BT Insurance Funds Trust
(Exact Name of Registrant as Specified in Charter)
One Exchange Place
Boston, Massachusetts 02109
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (617)
573-1556
Name and Address of Agent for Service: Copies to:
Julie A. Tedesco, Esq. Burton M. Leibert, Esq.
First Data Investor Services Group, Inc. Willkie Farr &
Gallagher
One Exchange Place One Citicorp Center
Boston, Massachusetts 02109 New York, NY 10022-4669
Approximate Date of Proposed Public Offering:
As soon as practicable after the effective date of the
Registration Statement.
It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph
(b), or
X on September 20, 1996 pursuant to paragraph (b)
60 days after filing pursuant to paragraph
(a)(i), or
on pursuant to paragraph (a)(i)
75 days after filing pursuant to paragraph
(a)(ii)
on __________ pursuant to paragraph (a)(ii) of
Rule 485
Pursuant to Rule 24f-2 under the Investment Company Act of
1940, the Registrant has registered an indefinite number of
shares of Beneficial Interest, $0.001 par value per share,
of all series and classes of the Registrant, then existing
or thereafter created, and will file a Rule 24f-2 Notice
within 60 days after the close of the Registrant's fiscal
year.
BT INSURANCE FUNDS TRUST
FORM N-1A
CROSS REFERENCE SHEET
Part A.
Item No. Prospectus Caption
Item 1. Cover Page Cover Page
Item 2. Synopsis Not Applicable
Item 3. Condensed Financial Information Not
Applicable
Item 4. General Description of Registrant
Investment Objective, Policies and Risks; Risk
Factors; Matching the Fund to Your Investment Needs;
Additional Information
Item 5. Management of the Fund Management of
the Fund; Purchase of Shares; Additional Information
Item 5A. Management's Discussion of
Fund Performance Not Applicable
Item 6. Capital Stock and Other Securities
Dividends, Distributions and Taxes; Additional
Information
Item 7. Purchase of Securities Being Offered Net
Asset Value; Purchase and Redemption of Shares
Item 8. Redemption or Repurchase Purchase and
Redemption of Shares
Item 9. Pending Legal Proceedings Not Applicable
N-1A Statement of Additional
Item No. Information Caption
Item 10. Cover Page Cover Page
Item 11. Table of Contents Table of Contents
Item 12. General Information and History Not
Applicable
Item 13. Investment Objectives and Policies
Investment Objectives, Policies and Restrictions
Item 14. Management of the Fund Management of
the Funds
Item 15. Control Persons and Principal
Holders of Securities Management of the
Funds
Item 16. Investment Advisory and
Other Services Management of the Funds
Item 17. Brokerage Allocation and
Other Practices Investment Objectives,
Policies and Restrictions; Valuation of Securities;
Redemption in Kind
Item 18. Capital Stock and Other Securities
Investment Objectives, Policies and Restrictions
Item 19. Purchase, Redemption and
Pricing of Securities Being Offered Valuation
of Securities; Redemption in Kind
Item 20. Tax Status Taxation
Item 21. Underwriters Valuation of
Securities; Redemption in Kind
Item 22. Calculation of Performance Data
Performance Information
Item 23. Financial Statements Not Applicable
Part C
Information required to be included in Part C is set
forth under the appropriate Item, so number, in Part C of
this Registration Statement
BT Insurance Funds Trust
Registration on Form N-1A
PART A
Prospectus for Managed Assets Fund is incorporated by
reference to Registrant's submission pursuant to Section
8(b) under the Investment Company Act of 1940, as
amended, as filed with the Securities and Exchange
Commission (the "SEC") on September 18, 1996.
PART B
Statement of Additional Information for Managed Assets
Fund is incorporated by reference to Registrant's
submission pursuant to Section 8(b) under the Investment
Company Act of 1940, as amended, as filed with the SEC on
September 18, 1996.
BT INSURANCE FUNDS TRUST
PROSPECTUS: ____________, 1996
Small Cap Fund
Seeks long-term capital growth through investment in
smaller sized growth companies.
This Prospectus offers shares of the Small Cap Fund (the
"Fund"), a series of BT Insurance Funds Trust (the
"Trust"), which is an open-end management investment
company having multiple series. Shares of the
Fund are available to the public only through the
purchase of certain variable annuity and variable life
insurance contracts ("Contract(s)") issued by various
insurance companies (the "Companies").
Please read this Prospectus carefully before investing
and retain it for future reference. It contains important
information about the Fund that you should know and can
refer to in deciding whether the Fund's goals match your
own.
A Statement of Additional Information ("SAI") with the
same date has been filed with the Securities and Exchange
Commission, and is incorporated herein by reference. You
may request a free copy of the SAI by calling the
Trust at the Customer Service Center at the telephone
number shown in the accompanying prospectus.
Shares of the Fund are not deposits or obligations of, or
guaranteed or endorsed by, Bankers Trust Company and the
shares are not Federally insured by the Federal Deposit
Insurance Corporation, the Federal Reserve Board or any
other agency.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
BANKERS TRUST GLOBAL INVESTMENT MANAGEMENT, a unit of
BANKERS TRUST COMPANY
Investment Manager of the Fund
440 FINANCIAL DISTRIBUTORS, INC.
Distributor
4400 Computer Drive
Westborough, MA 01581
TABLE OF CONTENTS
Investment Objective, Policies and Risks 2
Risk Factors; Matching the Fund to Your Investment Needs
4
Net Asset Value 6
Purchase and Redemption of Shares 6
Dividends, Distributions and Taxes 7
Performance Information and Reports 8
Management of the Fund 8
Additional Information 12
INVESTMENT OBJECTIVE, POLICIES AND RISKS
The Fund's investment objective is long-term capital growth;
the production of any current income is secondary to this
objective. There can be no assurance that the investment
objective of the Fund will be achieved. 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.
The Fund seeks to provide long term capital growth by
investing primarily in equity securities of smaller
companies. The Fund's policy is to invest in equity
securities of smaller companies that Bankers Trust Global
Investment Management, a unit of Bankers Trust Company, as
the Fund's investment manager (the "Manager" or "Bankers
Trust"), believes are in an early stage or transitional
point in their development and have demonstrated or have the
potential for above average capital growth. The Manager will
select companies which have the potential to gain market
share in their industry, achieve and maintain high and
consistent profitability or produce increases in earnings.
The Manager also seeks companies with strong company
management and superior fundamental strength.
The Manager employs a flexible investment program in
pursuit of the Fund's investment objective. The Manager
takes advantage of its market access and the research
available to it to select investments in promising growth
companies that are involved in new technologies, new
products, foreign markets and special developments, such as
research discoveries, acquisitions, recapitalizations,
liquidations or management changes, and companies whose
stock may be undervalued by the market. These situations are
only illustrative of the types of investment the Fund may
make. The Fund is free to invest in any common stock which
in the Manager's judgment provides above average potential
for long-term growth of capital and income.
Under normal market conditions, the Fund will invest at
least 65% of its assets in smaller companies (with market
capitalizations less than $750 million at time of purchase
that offer strong potential for capital growth). Small
capitalization companies have the potential to show earnings
growth over time that is well above the growth rate of the
overall economy. The Fund may also invest in larger, more
established companies that the Manager believes may offer
the potential for strong capital growth due to their
relative market position, anticipated earnings growth,
changes in management or other similar opportunities. The
Fund will follow a disciplined selling process to lessen
market risks.
For temporary defensive purposes, when in the opinion of
the Manager market conditions so warrant, the Fund may
invest all or a portion of its assets in common stocks of
larger, more established companies or in fixed-income
securities or short-term money market securities. To the
extent the Fund is engaged in temporary defensive
investments, the Fund will not be pursuing its investment
objective.
The Fund may also invest up to 25% of its assets in
similar securities of foreign issuers. For further
information on foreign investments and related hedging
techniques, see "Risk Factors; Matching the Fund to Your
Investment Needs" and "Additional Information" herein and
the Statement of Additional Information.
Equity Investments. The Fund invests primarily in common
stock and other securities with equity characteristics, such
as trust or limited partnership interests, rights and
warrants. These investments may or may not pay dividends and
may or may not carry voting rights. The Fund may also invest
in convertible securities when, due to market conditions, it
is more advantageous to obtain a position in an attractive
company by purchase of its convertible securities than by
purchase of its common stock. The convertible securities in
which the Fund invests may include any debt securities or
preferred stock which may be converted into common stock or
which carries the right to purchase common stock.
Convertible securities entitle the holder to exchange the
securities for a specified number of shares of common stock,
usually of the same company, at specified prices within a
certain period of time and to receive interest or dividends
until the holder elects to exercise the conversion
privilege. Since the Fund invests in both common stock and
convertible securities, the risks of the general equity
markets may be tempered to a degree by the Fund's
investments in convertible securities which are often not as
volatile as equity securities.
Short-Term Instruments. The Fund intends to stay
invested in the securities described above to the extent
practical in light of its objective and long-term investment
perspective. However, the Fund's assets may be invested in
short-term instruments with remaining maturities of 397 days
or less to meet anticipated redemptions and expenses or for
day-to-day operating purposes and when, in Bankers Trust's
opinion, it is advisable to adopt a temporary defensive
position because of unusual and adverse conditions affecting
the equity markets. In addition, when the Fund experiences
large cash inflows through the sale of securities and
desirable equity securities that are consistent with the
Fund's investment objective are unavailable in sufficient
quantities or at attractive prices, the Fund may hold short-
term investments for a limited time pending availability of
such equity securities. Short-term instruments consist of
foreign and domestic: (i) short-term obligations of
sovereign governments, their agencies, instrumentalities,
authorities or political subdivisions; (ii) other short-term
debt securities rated Aa or higher by Moody's Investors
Service, Inc. ("Moody's") or AA or higher by Standard &
Poor's Ratings Group ("S&P") or, if unrated, of comparable
quality in the opinion of Bankers Trust; (iii) commercial
paper; (iv) bank obligations, including negotiable
certificates of deposit, time deposits and bankers'
acceptances; and (v) repurchase agreements. At the time the
Fund invests in commercial paper, bank obligations or
repurchase agreements, the issuer or the issuer's parent
must have outstanding debt rated Aa or higher by Moody's or
AA or higher by S&P or outstanding commercial paper or bank
obligations rated Prime-1 by Moody's or A-1 by S&P; or, if
no such ratings are available, the instrument must be of
comparable quality in the opinion of Bankers Trust. These
instruments may be denominated in U.S. dollars or in foreign
currencies.
Additional Investment Techniques
The Fund may also utilize the following investments and
investment techniques and practices: foreign investments,
options on stocks, options on stock indices, futures
contracts on stock indices, options on futures contracts,
foreign currency exchange transactions, options on foreign
currencies, Rule 144A securities, when-issued and delayed
delivery securities, securities lending, and repurchase
agreements. See "Additional Information" for further
information.
Additional Investment Limitations
As a diversified fund, no more than 5% of the assets of the
Fund may be invested in the securities of one issuer (other
than U.S. Government securities), except that up to 25% of
the Fund's assets may be invested without regard to this
limitation. The Fund will not invest more than 25% of its
assets in the securities of issuers in any one industry.
These are fundamental investment policies of the Fund which
may not be changed without investor approval.
As a non-fundamental investment policy, no more than 15%
of the Fund's net assets may be invested in illiquid or not
readily marketable securities (including repurchase
agreements and time deposits maturing in more than seven
days). Another of the Fund's non-fundamental investment
policies is that the Fund will not purchase securities
issued by any open-end investment company and will purchase
securities issued by closed-end investment companies only in
the open market or where such purchase is part of a merger
or consolidation plan. Additional limitations on purchases
of investment company securities are imposed by statute and
set forth in the Statement of Additional Information.
Additional investment policies of the Fund are contained in
the Statement of Additional Information.
RISK FACTORS; MATCHING THE FUND TO YOUR INVESTMENT
NEEDS
By itself, the Fund does not constitute a balanced
investment plan; the Fund seeks to provide long-term capital
growth, with the production of any current income being
incidental to this objective, by investments primarily in
growth-oriented common stocks of domestic corporations and,
to a limited extent, foreign corporations. The Fund is
designed for those investors primarily interested in capital
growth from investments in smaller-sized growth companies.
In view of the long-term capital growth objective of the
Fund and the smaller size of the companies, the risks of
investment in the Fund may be greater than the general
equity markets, and changes in domestic and foreign interest
rates may also affect the value of the Fund's investments,
and rising interest rates can be expected to reduce the
Fund's share value. A description of a number of investments
and investment techniques available to the Fund, including
foreign investments and the use of options and futures, and
certain risks associated with these investments and
techniques is included under "Additional Information." The
Fund's share price, yield and total return fluctuate and
your investment may be worth more or less than your original
cost when you redeem your shares.
Risks of Investing in Foreign Securities
In seeking to achieve its investment objective, the Fund may
invest in securities of foreign issuers. Foreign securities
may involve a higher degree of risk and may be less liquid
or more volatile than domestic investments. Foreign
securities usually are denominated in foreign currencies,
which means their value will be affected by changes in the
strength of foreign currencies relative to the U.S. dollar
as well as the other factors that affect security prices.
Foreign companies may not be subject to accounting standards
or governmental supervision comparable to U.S. companies,
and there often is less publicly available information about
their operations. Generally, there is less governmental
regulation of foreign securities markets, and security
trading practices abroad may offer less protection to
investors such as the Fund. The value of such investments
may be adversely affected by changes in political or social
conditions, diplomatic relations, confiscatory taxation,
expropriation, nationalization, limitation on the removal of
funds or assets, or imposition of (or change in) exchange
control or tax regulations in those foreign countries.
Additional risks of foreign securities include settlement
delays and costs, difficulties in obtaining and enforcing
judgments, and taxation of dividends at the source of
payment. The Fund will not invest more than 5% of the value
of its total assets in the securities of issuers based in
developing countries, including Eastern Europe.
The Fund intends to manage its holdings actively to pursue
its investment objective. Since the Fund has a long-term
investment perspective, it does not intend to respond to
short-term market fluctuations or to acquire securities for
the purpose of short-term trading; however, it may take
advantage of short-term trading opportunities that are
consistent with its objective.
Derivatives
The Fund 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 for cash management purposes
as a low cost method of gaining exposure to a particular
securities market without investing directly in those
securities. However, some derivatives are used for leverage,
which tends to magnify the effects of an instrument's price
changes as market conditions change. Leverage involves the
use of a small amount of money to control a large amount of
financial assets, and can in some circumstances, lead to
significant losses. The Fund may use derivatives to enhance
return (that is, for leveraging purposes) when Bankers Trust
believes the investment will assist the Fund in achieving
its investment objective, and for hedging purposes. A
description of the derivatives that the Fund may use and
some of their associated risks is found under "Additional
Information."
Although a change in the Fund's investment objective
does not require shareholder approval, shareholders of the
Fund will receive 30 days prior written notice with respect
to any such change. If there is a change in the Fund's
investment objective, the Fund's shareholders should
consider whether the Fund remains an appropriate investment
in light of their then-current needs. See "Investment
Objective, Policies and Risks" for a description of the
fundamental policies of the Fund that cannot be changed
without approval by the holders of "a majority of the
outstanding voting securities" (as defined in the Investment
Company Act of 1940, as amended (the "1940 Act")) of the
Fund.
For descriptions of the management of the Fund, see
"Management of the Fund" herein and "Management of the
Funds" in the Statement of Additional Information. For
descriptions of the expenses of the Fund, see "Management of
the Fund" herein.
NET ASSET VALUE
The net asset value per share of the Fund is calculated on
each day on which the New York Stock Exchange Inc. (the
"NYSE") is open (each such day being a "Valuation Day"). The
NYSE is currently open on each day, Monday through Friday,
except: (a) January 1st, Presidents' Day (the third Monday
in February), Good Friday, Memorial Day (the last Monday in
May), July 4th, Labor Day (the first Monday in September),
Thanksgiving Day (the last Thursday in November) and
December 25th; and (b) the preceding Friday or the
subsequent Monday when one of the calendar-determined
holidays falls on a Saturday or Sunday, respectively.
The net asset value per share of the Fund is calculated
once on each Valuation Day as of the close of regular
trading on the NYSE, which under normal circumstances is
4:00 p.m., New York time. The net asset value per share of
the Fund is computed by dividing the value of the Fund's
assets, less all liabilities, by the total number of its
shares outstanding. 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.
Under procedures adopted by the Board, a net asset value
for a Fund later determined to have been inaccurate for any
reason will be recalculated. Purchases and redemptions made
at a net asset value determined to have been inaccurate will
be adjusted if the difference between the original net asset
value and the recalculated net asset value divided by the
recalculated net asset value is 0.005 (1/2 of 1%) or greater
and the difference between the net asset value is equal to
or greater than $0.01, unless the impact of the error to a
shareholder account was $10 or less.
PURCHASE AND REDEMPTION OF SHARES
Fund shares are continuously offered to each Company's
separate accounts at the net asset value per share next
determined after a completed and signed purchase request has
been received by the Company. The Company then offers to
owners of the Contracts which provide for investment in the
Fund ("Contractowner(s)") units in its separate accounts
which directly correspond to shares in the Fund. Each Company
will process a purchase order from a prospective Contractowner within
two business
days of its receipt or its completion. If an initial purchase request
remains incomplete after five business days, the prospective
Contractowner will be informed by the Company as to the
reasons for delay and the initial purchase payment will be
returned, unless the prospective Contractowner consents to
the Company's retaining the purchase payment until the
purchase request is completed.
Each Company submits purchase and redemption orders to
the Fund based on allocation instructions for premium
payments, transfer instructions and surrender or partial
withdrawal requests which are furnished to the Company by
such Contractowners. Contractowners can send such
instructions and requests to the Companies by first class
mail, overnight mail or express mail sent to the address set
forth in the relevant Company's offering memorandum included
with this prospectus. The Fund and 440 Financial
Distributors, Inc., the Fund's distributor ("440
Distributors" or the "Distributor"), reserve the right to
reject any purchase order.
Payment for redeemed shares will ordinarily be made
within three (3) business days after the Fund receives a
redemption order from the relevant Company. The redemption
price will be the net asset value per share next determined
after the Company receives the Contractowner's completed and
signed redemption order.
The Fund may suspend the right of redemption or postpone
the date of payment during any period when trading on the
NYSE is restricted, or the NYSE is closed for other than
weekends and holidays; when an emergency makes it not
reasonably practicable for the Fund to dispose of assets or
calculate its net asset value; or as permitted by the
Securities and Exchange Commission (the "SEC").
The accompanying offering memorandum for a Company's
variable annuity or variable life insurance policy describes
the allocation, transfer and withdrawal provisions of such
annuity or policy.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Fund distributes substantially all of its net
investment income and capital gains each year. All
dividends and capital gains distributions paid by the Fund
will be automatically reinvested, at net asset value, by the
Companies' separate accounts in additional shares of the
Fund, unless an election is made by a Contractowner to
receive distributions in cash. Contractowners who own units
in a separate account which correspond to shares in the Fund
will be notified when distributions are made.
The Fund will be treated as a separate entity for
Federal income tax purposes. The Fund intends to qualify as
a "regulated investment company" under the Internal Revenue
Code of 1986, as amended (the "Code"), in order to be
relieved of Federal income tax on that part of its net
investment income and realized capital gains which it
distributes to the Companies' separate accounts.
The Code and Treasury Department regulations promulgated
thereunder require that mutual funds that are offered
through insurance company separate accounts must meet
certain diversification requirements to preserve the tax-
deferral benefits provided by the variable contracts which
are offered in connection with such separate accounts. The
Manager intends to diversify the Fund's investments in
accordance with those requirements. The enclosed offering
memorandum for a Company's variable annuity or variable life
insurance policies describes the Federal income tax
treatment of distributions from such contracts to
Contractowners.
The foregoing is only a brief summary of important tax
law provisions that affect the Fund. Other Federal, state
or local tax law provisions may also affect the Fund and its
operations. Anyone who is considering allocating,
transferring or withdrawing monies held under a variable
contract to or from the Fund should consult a qualified tax
adviser.
PERFORMANCE INFORMATION AND REPORTS
The Fund's performance may be used from time to time in
advertisements, shareholder reports or other communications
to existing or prospective owners of the Companies' variable
contracts. When performance information is provided in
advertisements, it will include the effect of all charges
deducted under the terms of the specified contract, as well
as all recurring and non-recurring charges incurred by the
Fund. Performance information may include the Fund's
investment results and/or comparisons of its investment
results to various unmanaged indices such as the Russell
2000 Index or Lipper Small Company Growth Funds Average or
results of other mutual funds or investment or savings
vehicles. The Fund's investment results as used in such
communications will be calculated on a total rate of return
basis in the manner set forth below. From time to time, fund
rankings may be quoted from various sources, such as Lipper
Analytical Services, Inc., Value Line and Morningstar Inc.
The Trust may provide period and average annualized "total
return" quotations for the Fund. The Fund's "total return"
refers to the change in the value of an investment in the
Fund over a stated period based on any change in net asset
value per share and including the value of any shares
purchasable with any dividends or capital gains distributed
during such period. Period total return may be annualized.
An annualized total return is a compounded total return
which assumes that the period total return is generated over
a one-year period, and that all dividends and capital gain
distributions are reinvested. An annualized total return
will be higher than a period total return if the period is
shorter than one year, because of the compounding effect.
Unlike some bank deposits or other investments which pay a
fixed yield for a stated period of time, the total return of
the Fund will vary depending upon interest rates, the
current market value of the securities held by the Fund and
changes in the Fund's expenses. In addition, during certain
periods for which total return quotations may be provided,
Bankers Trust may have voluntarily agreed to waive portions
of their fees on a month-to-month basis. Such waivers will
have the effect of increasing the Fund's net income (and
therefore its total return) during the period such waivers
are in effect.
Shareholders will receive financial reports semiannually
that include the Fund's financial statements, including
listings of investment securities held by the Fund at those
dates. Annual reports are audited by independent
accountants.
MANAGEMENT OF THE FUND
Board of Trustees
The affairs of the Fund are managed under the
supervision of the Board of Trustees of the Trust, of which
the Fund is a series. By virtue of the responsibilities
assumed by Bankers Trust, neither the Trust nor the Fund
requires employees other than the Trust's officers. None of
the Trust's officers devotes full time to the affairs of the
Trust or the Fund.
For more information with respect to the Trustees of the
Trust, see "Management of the Funds" in the Statement of
Additional Information.
Investment Manager
The Fund has retained the services of Bankers Trust Global
Investment Management, a unit of Bankers Trust, as
investment manager. Bankers Trust, a New York banking
corporation with executive offices at 280 Park Avenue, New
York, New York 10017, is a wholly owned subsidiary of
Bankers Trust New York Corporation. Bankers Trust conducts a
variety of general banking and trust activities and is a
major wholesaler supplier of financial services to the
international and domestic institutional markets.
As of December 31, 1995, Bankers Trust New York
Corporation was the ninth largest bank holding company in
the United States with total assets of approximately $104
billion. Bankers Trust is a worldwide merchant bank
dedicated to servicing the needs of corporations,
governments, financial institutions and private clients
through a global network of over 120 offices in more than 40
countries. Investment management is a core business of
Bankers Trust, built on a tradition of excellence from its
roots as a trust bank founded in 1903. The scope of Bankers
Trust's investment management capability is unique due to
its leadership positions in both active and passive
quantitative management and its presence in major equity and
fixed income markets around the world. Bankers Trust is one
of the nation's largest and most experienced investment
managers with approximately $210 billion in assets under
management as of March 31, 1996.
Bankers Trust has more than 50 years of experience managing
retirement assets for the nation's largest corporations and
institutions. Now, the Trust brings Bankers Trust's
extensive investment management expertise -- once available
to only the largest institutions in the U.S. -- to
individual investors. Bankers Trust's officers have had
extensive experience in managing investment portfolios
having objectives similar to those of the Fund.
Bankers Trust, subject to the supervision and direction
of the Board of Trustees, manages the Fund in accordance
with the Fund's investment objective and stated investment
policies, makes investment decisions for the Fund, places
orders to purchase and sell securities and other financial
instruments on behalf of the Fund, employs professional
investment managers and securities analysts who provide
research services to the Fund, oversees the administration
of all aspects of the Trust's business and supervises the
performance of professional services provided by other
vendors. Bankers Trust may utilize the expertise of any of
its world wide subsidiaries and affiliates to assist it in
its role as investment manager. All orders for investment
transactions on behalf of the Fund are placed by Bankers
Trust with broker-dealers and other financial intermediaries
that it selects, including those affiliated with Bankers
Trust. A Bankers Trust affiliate will be used in connection
with a purchase or sale of an investment for the Fund only
if Bankers Trust believes that the affiliate's charge for
the transaction does not exceed usual and customary levels.
The Fund will not invest in obligations for which Bankers
Trust or any of its affiliates is the ultimate obligor or
accepting bank. The Fund may, however, invest in the
obligations of correspondents and customers of Bankers
Trust.
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 Fund described in this
Prospectus and the Statement of Additional Information
without violation of the Glass-Steagall Act or other
applicable banking laws or regulations. 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.
Mr. Bluford Putnam (PhD), Managing Director of Bankers
Trust and Chief Investment Officer of Equity and Balanced
Funds, is responsible for the management oversight of the
Small Cap Fund team which includes seven investment
professionals. Mr. Putnam has been employed by Bankers
Trust since 1994. His previous experience includes
economist at the Federal Reserve Bank of New York, principal
at Morgan Stanley and Chief Economist at Kleinwort Benson,
Ltd. He was also a founding partner of Stern Stewart and
Co., in 1982, a leading corporate finance advisory firm and
is the author of "The Blackwell Guide to Wall Street," which
focused, in part, on equity valuation. Ms. Mary P. Dugan
(CFA), Vice President of Bankers Trust, and Mr. Timothy
Woods (CFA), Vice President of Bankers Trust, share senior
portfolio management responsibilities of the Small Cap Fund.
Ms. Dugan joined Bankers Trust in 1994. She has 13 years of
investment analysis experience. Previously, she worked at
Fred Alger Management, Dean Witter, Integrated Resources and
Equitable Investment Management Corporation. Mr. Woods
joined Bankers Trust in 1992. He has 12 years of investment
and financial experience. Previously, he worked at
Prudential Securities, Chase Manhattan Bank and Bank of
Boston.
As compensation for its services to the Fund, Bankers Trust
receives a fee from the Fund computed daily and paid monthly
at the annual rate of 0.75% of the average daily net assets
of the Fund.
Expenses
In addition to the fees of the Manager, the Fund is
responsible for the payment of all its other expenses
incurred in the operation of the Fund, which include, among
other things, expenses for legal and independent auditor's
services, charges of the Fund's custodian and transfer
agent, SEC fees, a pro rata portion of the fees of the
Trust's unaffiliated trustees, accounting costs for reports
sent to Contractowners, the Fund's pro rata portion of
membership fees in trade organizations, a pro rata portion
of the fidelity bond coverage for the Trust's officers,
interest, brokerage and other trading costs, taxes, all
expenses of computing the Fund's net asset value per share,
expenses involved in registering and maintaining the
registration of the Fund's shares with the SEC and
qualifying the Fund for sale in various jurisdictions and
maintaining such qualification, litigation and other
extraordinary or non-recurring expenses. However, other
typical Fund expenses such as Contractowner servicing,
distribution of reports to Contractowners and prospectus
printing and postage will be borne by the relevant Company.
Administrator and Transfer Agent
First Data Investor Services Group, Inc. ("First Data"), a
subsidiary of First Data Corporation, One Exchange Place,
Boston, Massachusetts 02109, serves as each Fund's
administrator pursuant to an Administration Agreement with
the Trust. Under the terms of the Administration Agreement,
First Data generally assists in all aspects of a Fund's
operations, other than providing investment advice, subject
to the overall authority of the Trust's Board of Trustees.
First Data also serves as the transfer agent for the
Fund.
Distributor
440 Financial Distributors, Inc. serves as distributor
of the Fund's shares to separate accounts of the Companies,
for which it receives no separate fee from the Fund. The
principal business address of the Distributor is 4400
Computer Drive, Westborough, Massachusetts 01581.
Custodian
Bankers Trust acts as custodian of the assets of the Fund.
Organization of the Trust
The Trust was organized on January 19, 1996, 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 its two series, par value $0.001 per
share. The shares of the other series of the Trust are
offered through a separate Prospectus. No series of shares
has any preference over any other series. All shares, when
issued, will be fully paid and nonassessable. The Trust's
Board of Trustees has the authority to create additional
series without obtaining shareholder approval.
The Trust is an entity of the type commonly known as a
"Massachusetts business trust." Under Massachusetts law,
shareholders of such a business trust may, under certain
circumstances, be held personally liable as partners for its
obligations. However, the risk of a shareholder incurring
financial loss on account of shareholder liability is
limited to circumstances in which both inadequate insurance
existed and the Trust itself was unable to meet its
obligations.
Through its separate accounts, the Companies are the Fund's
sole stockholders of record, so under the 1940 Act, the
Companies are deemed to be in control of the Fund.
Nevertheless, when a shareholders' meeting occurs, each
Company solicits and accepts voting instructions from its
Contractowners who have allocated or transferred monies for
an investment in the Fund as of the record date of the
meeting. Each Company then votes the Fund's shares that are
attributable to its Contractowners' interests in the Fund in
proportion to the voting instructions received. Each
Company will vote any share that it is entitled to vote
directly due to amounts it has contributed or accumulated in
its separate accounts in the manner described in the
prospectuses for its variable annuities and variable life
insurance policies.
Each share of the Fund is entitled to one vote, and
fractional shares are entitled to fractional votes. Fund
shares have non-cumulative voting rights, so the vote of
more than 50% of the shares can elect 100% of the Trustees.
The Trust is not required, and does not intend, to hold
regular annual shareholder meetings, but may hold special
meetings for consideration of proposals requiring
shareholder approval.
The Fund is only available to owners of variable annuities
or variable life insurance policies issued by the Companies
through their respective separate accounts. The Fund does
not currently foresee any disadvantages to Contractowners
arising from offering its shares to variable annuity and
variable life insurance policy separate accounts
simultaneously, and the Board of Trustees monitors events
for the existence of any material irreconcilable conflict
between or among Contractowners. If a material
irreconcilable conflict arises, one or more separate
accounts may withdraw their investments in the Fund. This
could possibly force the Fund to sell portfolio securities
at disadvantageous prices. Each Company will bear the
expenses of establishing separate portfolios for its
variable annuity and variable life insurance separate
accounts if such action becomes necessary; however, ongoing
expenses that are ultimately borne by Contractowners will
likely increase due to the loss of economies of scale
benefits that can be provided to mutual funds with
substantial assets.
ADDITIONAL INFORMATION
Rule 144A Securities. The Fund may purchase securities
in the United States that are not registered for sale under
Federal securities laws but which can be resold to
institutions under SEC Rule 144A. Provided that a dealer or
institutional trading market in such securities exists,
these restricted securities are treated as exempt from the
Fund's 15% limit on illiquid securities. Under the
supervision of the Board of Trustees of the Fund, the
Manager determines the liquidity of restricted securities
and, through reports from the Manager, the Board will
monitor trading activity in restricted securities. If
institutional trading in restricted securities were to
decline, the liquidity of the Fund could be adversely
affected.
When-Issued and Delayed Delivery Securities. The Fund may
purchase securities on a when-issued or delayed delivery
basis. Delivery of and payment for these securities may take
place as long as a month or more after the date of the
purchase commitment. The value of these securities is
subject to market fluctuation during this period and no
income accrues to the Fund until settlement takes place. The
Fund maintains with the custodian a segregated account
containing high grade liquid securities in an amount at
least equal to these commitments. When entering into a when-
issued or delayed delivery transaction, the Fund will rely
on the other party to consummate the transaction; if the
other party fails to do so, the Fund may be disadvantaged.
Securities Lending. The Fund is permitted to lend up to 30%
of the total value of its securities. These loans must be
secured continuously by cash or equivalent collateral or by
a letter of credit at least equal to the market value of the
securities loaned plus accrued income. By lending its
securities, the Fund can increase its income by continuing
to receive income on the loaned securities as well as by the
opportunity to receive interest on the collateral. Any gain
or loss in the market price of the borrowed securities which
occurs during the term of the loan inures to the Fund and
its investors.
Foreign Investments. The Fund may invest in securities
of foreign issuers directly or in the form of American
Depositary Receipts ("ADRs"), Global Depositary Receipts
("GDRs") and European Depositary Receipts ("EDRs") or other
similar securities representing securities of foreign
issuers. These securities may not necessarily be denominated
in the same currency as the securities they represent. ADRs
and GDRs are receipts typically issued by a U.S. bank or
trust company evidencing ownership of the underlying
securities. EDRs are receipts issued by a European financial
institution evidencing a similar arrangement. Generally,
ADRs and GDRs, in registered form, are designed for use in
the U.S. securities markets, and EDRs, in bearer form, are
designed for use in European securities markets.
With respect to certain countries in which capital markets
are either less developed or not easily accessed,
investments by the Fund may be made through investment in
other investment companies that in turn are authorized to
invest in the securities of such countries. Investment in
other investment companies is limited in amount by the 1940
Act, will involve the indirect payment of a portion of the
expenses, including advisory fees, of such other investment
companies and may result in a duplication of fees and
expenses.
Options on Stocks. The Fund may write and purchase put and
call options on stocks. A call option gives the purchaser of
the option the right to buy, and obligates the writer to
sell, the underlying stock at the exercise price at any time
during the option period. Similarly, a put option gives the
purchaser of the option the right to sell, and obligates the
writer to buy, the underlying stock at the exercise price at
any time during the option period. A covered call option,
which is a call option with respect to which the Fund owns
the underlying stock, sold by the Fund exposes the Fund
during the term of the option to possible loss of
opportunity to realize appreciation in the market price of
the underlying stock or to possible continued holding of a
stock which might otherwise have been sold to protect
against depreciation in the market price of the stock. A
covered put option sold by the Fund exposes the Fund during
the term of the option to a decline in price of the
underlying stock. A put option sold by the Fund is covered
when, among other things, cash or liquid securities are
placed in a segregated account to fulfill the obligations
undertaken.
To close out a position when writing covered options, the
Fund may make a "closing purchase transaction," which
involves purchasing an option on the same stock with the
same exercise price and expiration date as the option which
it has previously written on the stock. The Fund 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 Fund may make a "closing sale transaction,"
which involves liquidating the Fund's position by selling
the option previously purchased.
The Fund intends to treat over-the-counter options ("OTC
Options") purchased and the assets used to "cover" OTC
Options written as not readily marketable and therefore
subject to the limitations described in "Investment
Restrictions" in the Statement of Additional Information.
Options on Stock Indices. The Fund may purchase and
write put and call options on stock indices listed on stock
exchanges. A stock index fluctuates with changes in the
market values of the stocks included in the index.
Options on stock indices are generally similar to
options on stock except that the delivery requirements are
different. Instead of giving the right to take or make
delivery of stock at a specified price, an option on a stock
index gives the holder the right to receive a cash "exercise
settlement amount" equal to (a) the amount, if any, by which
the fixed exercise price of the option exceeds (in the case
of a put) or is less than (in the case of a call) the
closing value of the underlying index on the date of
exercise, multiplied by (b) a fixed "index multiplier."
Receipt of this cash amount will depend upon the closing
level of the stock index upon which the option is based
being greater than, in the case of a call, or less than, in
the case of a put, the exercise price of the option. The
amount of cash received will be equal to such difference
between the closing price of the index and the exercise
price of the option expressed in dollars times a specified
multiple. The writer of the option is obligated, in return
for the premium received, to make delivery of this amount.
The writer may offset its position in stock index options
prior to expiration by entering into a closing transaction
on an exchange or the option may expire unexercised.
Because the value of an index option depends upon
movements in the level of the index rather than the price of
a particular stock, whether the Fund will realize a gain or
loss from the purchase or writing of options on an index
depends upon movements in the level of stock prices in the
stock market generally or, in the case of certain indices,
in an industry or market segment, rather than movements in
the price of a particular stock. Accordingly, successful use
by the Fund of options on stock indices will be subject to
the Manager's ability to predict correctly movements in the
direction of the stock market generally or of a particular
industry. This requires different skills and techniques than
predicting changes in the price of individual stocks.
Futures Contracts on Stock Indices. The Fund may enter
into contracts providing for the making and acceptance of a
cash settlement based upon changes in the value of an index
of securities ("futures contracts"). This investment
technique is designed only to hedge against anticipated
future change in general market prices which otherwise might
either adversely affect the value of securities held by the
Fund or adversely affect the prices of securities which are
intended to be purchased at a later date for the Fund. A
futures contract may also be entered into to close out or
offset an existing futures position.
In general, each transaction in futures contracts
involves the establishment of a position which will move in
a direction opposite to that of the investment being hedged.
If these hedging transactions are successful, the futures
positions taken for the Fund will rise in value by an amount
which approximately offsets the decline in value of the
portion of the Fund's investments that are being hedged.
Should general market prices move in an unexpected manner,
the full anticipated benefits of futures contracts may not
be achieved or a loss may be realized.
Although futures contracts would be entered into for
hedging purposes only, such transactions do involve certain
risks. These risks could include a lack of correlation
between the futures contract and the equity market being
hedged, a potential lack of liquidity in the secondary
market and incorrect assessments of market trends which may
result in poorer overall performance than if a futures
contract had not been entered into.
Brokerage costs will be incurred and "margin" will be
required to be posted and maintained as a good-faith deposit
against performance of obligations under futures contracts
written for the Fund. The Fund may not purchase or sell a
futures contract if immediately thereafter its margin
deposits on its outstanding futures contracts would exceed
5% of the market value of the Fund's total assets.
Options on Futures Contracts. The Fund may invest in
options on such futures contracts for similar purposes.
Foreign Currency Exchange Transactions. Because the Fund
buys and sells securities denominated in currencies other
than the U.S. dollar and receives interest, dividends and
sale proceeds in currencies other than the U.S. dollar, the
Fund from time to time may enter into foreign currency
exchange transactions to convert to and from different
foreign currencies and to convert foreign currencies to and
from the U.S. dollar. The Fund either enters into these
transactions on a spot (i.e., cash) basis at the spot rate
prevailing in the foreign currency exchange market or uses
forward contracts to purchase or sell foreign currencies.
A forward foreign currency exchange contract is an
obligation by the Fund to purchase or sell a specific
currency at a future date, which may be any fixed number of
days from the date of the contract. Forward foreign currency
exchange contracts establish an exchange rate at a future
date. These contracts are transferable in the interbank
market conducted directly between currency traders (usually
large commercial banks) and their customers. A forward
foreign currency exchange contract generally has no deposit
requirement and is traded at a net price without commission.
The Fund maintains with its custodian a segregated account
of high grade liquid assets in an amount at least equal to
its obligations under each forward foreign currency exchange
contract. Neither spot transactions nor forward foreign
currency exchange contracts eliminate fluctuations in the
prices of the Fund's securities or in foreign exchange
rates, or prevent loss if the prices of these securities
should decline.
The Fund may enter into foreign currency hedging
transactions in an attempt to protect against changes in
foreign currency exchange rates between the trade and
settlement dates of specific securities transactions or
changes in foreign currency exchange rates that would
adversely affect a portfolio position or an anticipated
investment position. Since consideration of the prospect for
currency parities will be incorporated into the Manager's
long-term investment decisions, the Fund will not routinely
enter into foreign currency hedging transactions with
respect to security transactions; however, the Manager
believes that it is important to have the flexibility to
enter into foreign currency hedging transactions when it
determines that the transactions would be in the Fund's best
interest. Although these transactions tend to minimize the
risk of loss due to a decline in the value of the hedged
currency, at the same time they tend to limit any potential
gain that might be realized should the value of the hedged
currency increase. The precise matching of the forward
contract amounts and the value of the securities involved
will not generally be possible because the future value of
such securities in foreign currencies will change as a
consequence of market movements in the value of such
securities between the date the forward contract is entered
into and the date it matures. The projection of currency
market movements is extremely difficult, and the successful
execution of a hedging strategy is highly uncertain.
Options on Foreign Currencies. The Fund may write
covered put and call options and purchase put and call
options on foreign currencies for the purpose of protecting
against declines in the dollar value of portfolio securities
and against increases in the dollar cost of securities to be
acquired. The Fund may use options on currency to cross-
hedge, which involves writing or purchasing options on one
currency to hedge against changes in exchange rates for a
different, but related currency. As with other types of
options, however, the writing of an option on foreign
currency will constitute only a partial hedge up to the
amount of the premium received, and the Fund could be
required to purchase or sell foreign currencies at
disadvantageous exchange rates, thereby incurring losses.
The purchase of an option on foreign currency may be used to
hedge against fluctuations in exchange rates although, in
the event of exchange rate movements adverse to the Fund's
position, it may forfeit the entire amount of the premium
plus related transaction costs. In addition, the Fund may
purchase call options on currency when the Manager
anticipates that the currency will appreciate in value.
There is no assurance that a liquid secondary market on an
options exchange will exist for any particular option, or at
any particular time. If the Fund is unable to effect a
closing purchase transaction with respect to covered options
it has written, the Fund will not be able to sell the
underlying currency or dispose of assets held in a
segregated account until the options expire or are
exercised. Similarly, if the Fund is unable to effect a
closing sale transaction with respect to options it has
purchased, it would have to exercise the options in order to
realize any profit and will incur transaction costs upon the
purchase or sale of underlying currency. The Fund pays
brokerage commissions or spreads in connection with its
options transactions.
As in the case of forward contracts, certain options on
foreign currencies are traded over-the-counter and involve
liquidity and credit risks which may not be present in the
case of exchange-traded currency options. The Fund's ability
to terminate OTC Options will be more limited than with
exchange-traded options. It is also possible that broker-
dealers participating in OTC Options transactions will not
fulfill their obligations. Until such time as the staff of
the SEC changes its position, the Fund will treat purchased
OTC Options and assets used to cover written OTC Options as
illiquid securities. With respect to options written with
primary dealers in U.S. Government securities pursuant to an
agreement requiring a closing purchase transaction at a
formula price, the amount of illiquid securities may be
calculated with reference to the repurchase formula.
The Fund will write and purchase options only to the extent
permitted by the policies of state securities authorities in
states where shares of the Fund are qualified for offer and
sale.
There can be no assurance that the use of these Fund
strategies will be successful.
Repurchase Agreements. In a repurchase agreement the
Fund buys a security and simultaneously agrees to sell it
back at a higher price. In the event of the bankruptcy of
the other party to either a repurchase agreement or a
securities loan, the Fund could experience delays in
recovering either its cash or the securities it lent. To the
extent that, in the meantime, the value of the securities
repurchased had decreased or the value of the securities
lent had increased, the Fund could experience a loss. In all
cases, the Manager must find the creditworthiness of the
other party to the transaction satisfactory. A repurchase
agreement is considered a collateralized loan under the 1940
Act.
Asset Coverage. To assure that the Fund'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 Fund will cover
such transactions, as required under applicable
interpretations of the SEC, either by owning the underlying
securities or by establishing a segregated account with the
Fund's custodian containing high grade liquid debt
securities in an amount at all times equal to or exceeding
the Fund's commitment with respect to these instruments or
contracts.
Investment Manager of the Fund
BANKERS TRUST GLOBAL INVESTMENT MANAGEMENT
a unit of
BANKERS TRUST COMPANY
Administrator
FIRST DATA INVESTOR SERVICES GROUP, INC.
Distributor
440 FINANCIAL DISTRIBUTORS, INC.
Custodian
BANKERS TRUST COMPANY
Transfer Agent
FIRST DATA INVESTOR SERVICES GROUP, INC.
Independent Auditors
ERNST & YOUNG LLP
Counsel
WILLKIE FARR & GALLAGHER
No person has been authorized to give any information or to
make any representation other than those contained in the
Fund's Prospectus, its Statement of Additional Information
or the Fund's official sales literature in connection with
the offering of the Fund's shares and, if given or made,
such other information or representations must not be relied
on as having been authorized by the Fund. This Prospectus
does not constitute an offer in any state in which, or to
any person to whom, such offer may not lawfully be made
BT INSURANCE FUNDS TRUST
PROSPECTUS: ____________, 1996
International Equity Fund
Seeks long-term capital appreciation primarily from non-U.S.
equities, or other securities with equity characteristics.
This Prospectus offers shares of the International Equity
Fund (the "Fund"), a series of BT Insurance Funds Trust (the
"Trust"), which is an open-end management investment company
having multiple series. Shares of the Fund are available to
the public only through the purchase of certain variable
annuity and variable life insurance contracts
("Contract(s)") issued by various insurance companies (the
"Companies").
Please read this Prospectus carefully before investing and
retain it for future reference. It contains important
information about the Fund that you should know and can
refer to in deciding whether the Fund's goals match your
own.
A Statement of Additional Information ("SAI") with the
same date has been filed with the Securities and Exchange
Commission, and is incorporated herein by reference. You may
request a free copy of the SAI by calling the Trust at the
Customer Service Center at the telephone number shown in the
accompanying prospectus.
Shares of the Fund are not deposits or obligations of, or
guaranteed or endorsed by, Bankers Trust Company and the
shares are not Federally insured by the Federal Deposit
Insurance Corporation, the Federal Reserve Board or any
other agency.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
BANKERS TRUST GLOBAL INVESTMENT MANAGEMENT, a unit of
BANKERS TRUST COMPANY
Investment Manager of the Fund
440 FINANCIAL DISTRIBUTORS, INC.
Distributor
4400 Computer Drive
Westborough, MA 01581
TABLE OF CONTENTS
Investment Objective, Policies and Risks 2
Risk Factors; Matching the Fund to Your Investment Needs
4
Net Asset Value 6
Purchase and Redemption of Shares . 7
Dividends, Distributions and Taxes 8
Performance Information and Reports 8
Management of the Fund 9
Additional Information 13
INVESTMENT OBJECTIVE, POLICIES AND RISKS
The Fund's investment objective is long-term capital
appreciation from investment in foreign equity securities
(or other securities with equity characteristics); the
production of any current income is incidental to this
objective. There can be no assurance that the investment
objective of the Fund will be achieved. 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.
The Fund seeks to provide long-term capital appreciation by
investing primarily in the equity securities of foreign
issuers, consisting of common stock and other securities
with equity characteristics. These issuers are primarily
established companies based in developed countries outside
the United States. However, the Fund may also invest in
securities of issuers in underdeveloped countries.
Investments in these countries will be based on an
acceptable degree of risk in anticipation of superior
returns. Under normal circumstances, the Fund will invest at
least 65% of the value of its total assets in the equity
securities of issuers based in at least three countries
other than the United States. For further discussion of the
unique risks associated with investing in foreign securities
in both developed and underdeveloped countries, see "Risk
Factors; Matching the Fund to Your Investment Needs" and
"Additional Information" herein and the Statement of
Additional Information.
The Fund's investments will generally be diversified among
several geographic regions and countries. Criteria for
determining the appropriate distribution of investments
among various countries and regions include the prospects
for relative growth among foreign countries, expected levels
of inflation, government policies influencing business
conditions, the outlook for currency relationships and the
range of alternative opportunities available to
international investors.
In countries and regions with well-developed capital
markets where more information is available, Bankers Trust
Company ("Bankers Trust" or the "Manager") will seek to
select individual investments for the Fund. Criteria for
selection of individual securities include the issuer's
competitive position, prospects for growth, managerial
strength, earnings quality, underlying asset value, relative
market value and overall marketability. The Fund may invest
in securities of companies having various levels of net
worth, including smaller companies whose securities may be
more volatile than securities offered by larger companies
with higher levels of net worth.
In other countries and regions where capital markets are
underdeveloped or not easily accessed and information is
difficult to obtain, the Fund may choose to invest only at
the market level. Here, the Fund may seek to achieve country
exposure through use of options or futures based on an
established local index. Similarly, country exposure may
also be achieved through investments in other registered
investment companies. Restrictions on both these types of
investments are fully explained herein and in the Statement
of Additional Information.
The remainder of the Fund's assets will be invested in
dollar and nondollar denominated short-term instruments.
These investments are subject to the conditions described in
"Short-term Instruments" below.
Equity Investments. The Fund invests primarily in common
stock and other securities with equity characteristics. For
purposes of the Fund's policy of investing at least 65% of
the value of its total assets in the equity securities of
foreign issuers, equity securities are defined as common
stock, preferred stock, trust or limited partnership
interests, rights and warrants, and convertible securities,
consisting of debt securities or preferred stock that may be
converted into common stock or that carry the right to
purchase common stock. The Fund invests in securities listed
on foreign or domestic securities exchanges and securities
traded in foreign or domestic over-the-counter markets and
may invest in restricted or unlisted securities.
With respect to certain countries in which capital markets
are either less developed or not easily accessed,
investments by the Fund may be made through investment in
other investment companies that in turn are authorized to
invest in the securities of such countries. Investment in
other investment companies is limited in amount by the
Investment Company Act of 1940, as amended (the "1940 Act"),
will involve the indirect payment of a portion of the
expenses, including advisory fees, of such other investment
companies and may result in a duplication of fees and
expenses.
Short-term Instruments. The Fund intends to stay invested
in the securities described above to the extent practical in
light of its objective and long-term investment perspective.
However, the Fund's assets may be invested in short-term
instruments with remaining maturities of 397 days or less to
meet anticipated redemptions and expenses or for day-to-day
operating purposes and when, in Bankers Trust's opinion, it
is advisable to adopt a temporary defensive position because
of unusual and adverse conditions affecting the equity
markets. In addition, when the Fund experiences large cash
inflows through the sale of securities and desirable equity
securities that are consistent with the Fund's investment
objective are unavailable in sufficient quantities or at
attractive prices, the Fund may hold short-term investments
for a limited time pending availability of such equity
securities. Short-term instruments consist of foreign and
domestic: (i) short-term obligations of sovereign
governments, their agencies, instrumentalities, authorities
or political subdivisions; (ii) other short-term debt
securities rated Aa or higher by Moody's Investors Service,
Inc. ("Moody's") or AA or higher by Standard & Poor's
Ratings Group ("S&P") or, if unrated, of comparable quality
in the opinion of Bankers Trust; (iii) commercial paper;
(iv) bank obligations, including negotiable certificates of
deposit, time deposits and bankers' acceptances; and (v)
repurchase agreements. At the time the Fund invests in
commercial paper, bank obligations or repurchase agreements,
the issuer or the issuer's parent must have outstanding debt
rated Aa or higher by Moody's or AA or higher by S&P or
outstanding commercial paper or bank obligations rated
Prime-1 by Moody's or A-1 by S&P; or, if no such ratings are
available, the instrument must be of comparable quality in
the opinion of Bankers Trust. These instruments may be
denominated in U.S. dollars or in foreign currencies and
will have been determined to be of high quality by a
nationally recognized statistical rating organization, or if
unrated, by Bankers Trust.
Additional Investment Techniques
The Fund may also utilize the following investments and
investment techniques and practices: foreign currency
exchange transactions, options on foreign currencies,
American Depositary Receipts and European Depositary
Receipts, options on stocks, options on foreign stock
indices, futures contracts on foreign stock indices, options
on futures contracts, Rule 144A securities, when-issued and
delayed delivery securities, securities lending and
repurchase agreements. See "Additional Information" herein
for further information.
Additional Investment Limitations
As a diversified fund, no more than 5% of the assets of the
Fund may be invested in the securities of one issuer (other
than U.S. Government securities), except that up to 25% of
the Fund's assets may be invested without regard to this
limitation. The Fund will not invest more than 25% of its
assets in the securities of issuers in any one industry.
These are fundamental investment policies of the Fund which
may not be changed without investor approval.
As a non-fundamental investment policy, no more than 15%
of the Fund's net assets may be invested in illiquid or not
readily marketable securities (including repurchase
agreements and time deposits maturing in more than seven
days). Another of the Fund's non-fundamental investment
policies is that the Fund will not purchase securities
issued by any open-end or closed-end investment company
except in the open market or, in the case of closed-end
investment companies, where such purchase is part of a
merger or consolidation plan. Additional limitations on
purchases of investment company securities are imposed by
statute and set forth in the Statement of Additional
Information. Additional investment policies of the Fund are
contained in the Statement of Additional Information.
RISK FACTORS; MATCHING THE FUND TO YOUR INVESTMENT
NEEDS
By itself, the Fund does not constitute a balanced
investment plan; the Fund seeks long-term capital
appreciation from investment primarily in the equity
securities (or other securities with equity characteristics)
of foreign issuers. Changes in domestic and foreign interest
rates may affect the value of the Fund's investments, and
rising interest rates can be expected to reduce the Fund's
share value. A description of a number of investments and
investment techniques available to the Fund, including
foreign investments and the use of options and futures, and
certain risks associated with these investments and
techniques is included under "Additional Information." The
Fund's share price and total return fluctuate and your
investment may be worth more or less than your original cost
when you redeem your shares.
Risk of Investing in Foreign Securities
Investors should realize that investing in securities of
foreign issuers involves considerations not typically
associated with investing in securities of companies
organized and operated in the United States. Although the
Fund intends to invest primarily in securities of
established companies based in developed countries,
investors should realize that the value of the Fund's
investments may be adversely affected by changes in
political or social conditions, diplomatic relations,
confiscatory taxation, expropriation, nationalization,
limitation on the removal of funds or assets, or imposition
of (or change in) exchange control or tax regulations in
those foreign countries. In addition, changes in government
administrations or economic or monetary policies in the
United States or abroad could result in appreciation or
depreciation of portfolio securities and could favorably or
unfavorably affect the Fund's operations. Furthermore, the
economies of individual foreign nations may differ from the
U.S. economy, whether favorably or unfavorably, in areas
such as growth of gross national product, rate of inflation,
capital reinvestment, resource self-sufficiency and balance
of payments position; it may also be more difficult to
obtain and enforce a judgment against a foreign issuer. In
general, less information is publicly available with respect
to foreign issuers than is available with respect to U.S.
companies. Most foreign companies are also not subject to
the uniform accounting and financial reporting requirements
applicable to issuers in the United States. Any foreign
investments made by the Fund must be made in compliance with
U.S. and foreign currency restrictions and tax laws
restricting the amounts and types of foreign investments.
The Fund may invest in the securities of issuers based in
underdeveloped countries, including those in Eastern Europe.
Investment in securities of issuers based in underdeveloped
countries entails all of the risks of investing in
securities of foreign issuers outlined in this section to a
heightened degree. These heightened risks include: (i)
greater risks of expropriation, confiscatory taxation,
nationalization, and less social, political and economic
stability; (ii) the smaller size of the market for such
securities and a low or nonexistent volume of trading,
resulting in lack of liquidity and in price volatility;
(iii) certain national policies which may restrict the
Fund's investment opportunities including restrictions on
investing in issuers or industries deemed sensitive to
relevant national interests; and (iv) in the case of Eastern
Europe, the absence of developed capital market and legal
structures governing private or foreign investment and
private property and the possibility that recent favorable
economic and political developments could be slowed or
reversed by unanticipated events. The Fund will not invest
more than 5% of the value of its total assets in securities
of issuers based in Eastern Europe.
Because foreign securities generally are denominated and pay
dividends or interest in foreign currencies, and the Fund
holds various foreign currencies from time to time, the
value of the net assets of the Fund as measured in U.S.
dollars will be affected favorably or unfavorably by changes
in exchange rates. Generally, the Fund's currency exchange
transactions will be conducted on a spot (i.e., cash) basis
at the spot rate prevailing in the currency exchange market.
The cost of the Fund's currency exchange transactions will
generally be the difference between the bid and offer spot
rate of the currency being purchased or sold. In order to
protect against uncertainty in the level of future foreign
currency exchange rates, the Fund is authorized to enter
into certain foreign currency exchange transactions. See
"Additional Information."
In addition, while the volume of transactions effected on
foreign stock exchanges has increased in recent years, in
most cases it remains appreciably below that of the New York
Stock Exchange Inc. (the "NYSE"). Accordingly, the Fund's
foreign investments may be less liquid and their prices may
be more volatile than comparable investments in securities
of U.S. companies. Moreover, the settlement periods for
foreign securities, which are often longer than those for
securities of U.S. issuers, may affect portfolio liquidity.
In buying and selling securities on foreign exchanges, the
Fund normally pays fixed commissions that are generally
higher than the negotiated commissions charged in the United
States. In addition, there is generally less government
supervision and regulation of securities exchanges, brokers
and issuers in foreign countries than in the United States.
The Fund intends to manage its holdings actively to pursue
its investment objective. The Fund does not expect to trade
in securities for short-term profits but, when circumstances
warrant, securities may be sold without regard to the length
of time held.
Derivatives
The Fund 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 for cash management purposes
as a low cost method of gaining exposure to a particular
securities market without investing directly in those
securities. However, some derivatives are used for leverage,
which tends to magnify the effects of an instrument's price
changes as market conditions change. Leverage involves the
use of a small amount of money to control a large amount of
financial assets, and can in some circumstances, lead to
significant losses. The Manager will use derivatives only in
circumstances where the Manager believes they offer the most
economic means of improving the risk/reward profile of the
Fund. Derivatives will not be used to increase portfolio
risk above the level that could be achieved using only
traditional investment securities or to acquire exposure to
changes in the value of assets or Indices that by themselves
would not be purchased for the Fund. The use of derivatives
for non-hedging purposes may be considered speculative. A
description of the derivatives that the Fund may use and
some of their associated risks is found under "Additional
Information."
Although a change in the Fund's investment objective does
not require shareholder approval, shareholders of the Fund
will receive 30 days prior written notice with respect to
any such change. If there is a change in the Fund's
investment objective, the Fund's shareholders should
consider whether the Fund remains an appropriate investment
in light of their then-current needs. See "Investment
Objective, Policies and Risks" for a description of the
fundamental policies of the Fund that cannot be changed
without approval by the holders of "a majority of the
outstanding voting securities" (as defined in the 1940 Act)
of the Fund.
For descriptions of the management of the Fund, see
"Management of the Fund" herein and "Management of the
Funds" in the Statement of Additional Information. For
descriptions of the expenses of the Fund, see "Management of
the Fund" herein.
NET ASSET VALUE
The net asset value per share of the Fund is calculated on
each day on which the NYSE is open (each such day being a
"Valuation Day"). The NYSE is currently open on each day,
Monday through Friday, except: (a) January 1st, Presidents'
Day (the third Monday in February), Good Friday, Memorial
Day (the last Monday in May), July 4th, Labor Day (the first
Monday in September), Thanksgiving Day (the last Thursday in
November) and December 25th; and (b) the preceding Friday or
the subsequent Monday when one of the calendar-determined
holidays falls on a Saturday or Sunday, respectively.
The net asset value per share of the Fund is calculated once
on each Valuation Day as of the close of regular trading on
the NYSE, which under normal circumstances is 4:00 p.m., New
York time. The net asset value per share of the Fund is
computed by dividing the value of the Fund's assets, less
all liabilities, by the total number of its shares
outstanding. 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.
Under procedures adopted by the Board, a net asset value for
a Fund later determined to have been inaccurate for any
reason will be recalculated. Purchases and redemptions made
at a net asset value determined to have been inaccurate will
be adjusted if the difference between the original net asset
value and the recalculated net asset value divided by the
recalculated net asset value is 0.005 (1/2 of 1%) or greater
and the difference between the net asset value is equal to
or greater than $0.01, unless the impact of the error to a
shareholder account was $10 or less.
PURCHASE AND REDEMPTION OF SHARES
Shares of the Fund are continuously offered to each
Company's separate accounts at the net asset value per share
next determined after a completed and signed purchase
request has been received by the Company. The Company then
offers to owners of the Contracts which provide for
investment in the Fund ("Contractowner(s)") units in its
separate accounts which directly correspond to shares in the
Fund. Each Company will process a purchase order from a
prospective Contractowner within two business days of its
receipt or its completion. If an initial purchase request
remains incomplete after five business days, the prospective
Contractowner will be informed by the Company as to the
reasons for delay and the initial purchase payment will be
returned, unless the prospective Contractowner consents to
the Company's retaining the purchase payment until the
purchase request is completed.
Each Company submits purchase and redemption orders to
the Fund based on allocation instructions for premium
payments, transfer instructions and surrender or partial
withdrawal requests which are furnished to the Company by
such Contractowners. Contractowners can send such
instructions and requests to the Companies by first class
mail, overnight mail or express mail sent to the address set
forth in the relevant Company's offering memorandum included
with this prospectus. The Fund and 440 Financial
Distributors, Inc., the Fund's distributor ("440
Distributors" or the "Distributor"), reserve the right to
reject any purchase order.
Payment for redeemed shares will ordinarily be made
within three (3) business days after the Fund receives a
redemption order from the relevant Company. The redemption
price will be the net asset value per share next determined
after the Company receives the Contractowner's completed and
signed redemption order.
The Fund may suspend the right of redemption or postpone
the date of payment during any period when trading on the
NYSE is restricted, or the NYSE is closed for other than
weekends and holidays; when an emergency makes it not
reasonably practicable for the Fund to dispose of assets or
calculate its net asset value; or as permitted by the
Securities and Exchange Commission (the "SEC").
The accompanying offering memorandum for a Company's
variable annuity or variable life insurance policy describes
the allocation, transfer and withdrawal provisions of such
annuity or policy.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Fund distributes substantially all of its net
investment income and capital gains each year. All
dividends and capital gains distributions paid by the Fund
will be automatically reinvested, at net asset value, by the
Companies' separate accounts in additional shares of the
Fund, unless an election is made by a Contractowner to
receive distributions in cash. Contractowners who own units
in a separate account which correspond to shares in the Fund
will be notified when distributions are made.
The Fund will be treated as a separate entity for Federal
income tax purposes. The Fund intends to qualify as a
"regulated investment company" under the Internal Revenue
Code of 1986, as amended (the "Code"), in order to be
relieved of Federal income tax on that part of its net
investment income and realized capital gains which it
distributes to the Companies' separate accounts.
The Code and Treasury Department regulations promulgated
thereunder require that mutual funds that are offered
through insurance company separate accounts must meet
certain diversification requirements to preserve the tax-
deferral benefits provided by the variable contracts which
are offered in connection with such separate accounts. The
Manager intends to diversify the Fund's investments in
accordance with those requirements. The enclosed offering
memorandum for a Company's variable annuity or variable life
insurance policies describes the Federal income tax
treatment of distributions from such contracts to
Contractowners.
The foregoing is only a brief summary of important tax
law provisions that affect the Fund. Other Federal, state
or local tax law provisions may also affect the Fund and its
operations. Anyone who is considering allocating,
transferring or withdrawing monies held under a variable
contract to or from the Fund should consult a qualified tax
adviser.
PERFORMANCE INFORMATION AND REPORTS
The Fund's performance may be used from time to time in
advertisements, shareholder reports or other communications
to existing or prospective owners of the Companies' variable
contracts. When performance information is provided in
advertisements, it will include the effect of all charges
deducted under the terms of the specified contract, as well
as all recurring and non-recurring charges incurred by the
Fund. Performance information may include the Fund's
investment results and/or comparisons of its investment
results to the MSCI GDP weighted EAFE Index, MSCI EAFE
Index, and the Lipper International Average or other various
unmanaged indices or results of other mutual funds or
investment or savings vehicles. The Fund's investment
results as used in such communications will be calculated on
a total rate of return basis in the manner set forth below.
From time to time, fund rankings may be quoted from various
sources, such as Lipper Analytical Services, Inc., Value
Line and Morningstar Inc.
The Trust may provide period and average annualized "total
return" quotations for the Fund. The Fund's "total return"
refers to the change in the value of an investment in the
Fund over a stated period based on any change in net asset
value per share and including the value of any shares
purchasable with any dividends or capital gains distributed
during such period. Period total return may be annualized.
An annualized total return is a compounded total return
which assumes that the period total return is generated over
a one-year period, and that all dividends and capital gain
distributions are reinvested. An annualized total return
will be higher than a period total return if the period is
shorter than one year, because of the compounding effect.
Unlike some bank deposits or other investments which pay a
fixed yield for a stated period of time, the total return of
the Fund will vary depending upon interest rates, the
current market value of the securities held by the Fund and
changes in the Fund's expenses. In addition, during certain
periods for which total return quotations may be provided,
Bankers Trust may have voluntarily agreed to waive portions
of its fees on a month-to-month basis. Such waivers will
have the effect of increasing the Fund's net income (and
therefore its total return) during the period such waivers
are in effect.
Shareholders will receive financial reports semiannually
that include the Fund's financial statements, including
listings of investment securities held by the Fund at those
dates. Annual reports are audited by independent
accountants.
MANAGEMENT OF THE FUND
Board of Trustees
The affairs of the Fund are managed under the supervision
of the Board of Trustees of the Trust, of which the Fund is
a series. By virtue of the responsibilities assumed by
Bankers Trust, neither the Trust nor the Fund requires
employees other than the Trust's officers. None of the
Trust's officers devotes full time to the affairs of the
Trust or the Fund.
For more information with respect to the Trustees of the
Trust, see "Management of the Funds" in the Statement of
Additional Information.
Investment Manager
The Fund has retained the services of Bankers Trust
Global Investment Management, a unit of Bankers Trust, as
investment manager. Bankers Trust, a New York banking
corporation with executive offices at 280 Park Avenue, New
York, New York 10017, is a wholly owned subsidiary of
Bankers Trust New York Corporation. Bankers Trust conducts a
variety of general banking and trust activities and is a
major wholesaler supplier of financial services to the
international and domestic institutional markets.
As of December 31, 1995, Bankers Trust New York
Corporation was the ninth largest bank holding company in
the United States with total assets of approximately $104
billion. Bankers Trust is a worldwide merchant bank
dedicated to servicing the needs of corporations,
governments, financial institutions and private clients
through a global network of over 120 offices in more than 40
countries. Investment management is a core business of
Bankers Trust, built on a tradition of excellence from its
roots as a trust bank founded in 1903. The scope of Bankers
Trust's investment management capability is unique due to
its leadership positions in both active and passive
quantitative management and its presence in major equity and
fixed income markets around the world. Bankers Trust is one
of the nation's largest and most experienced investment
managers with approximately $210 billion in assets under
management as of March 31, 1996.
Bankers Trust has more than 50 years of experience managing
retirement assets for the nation's largest corporations and
institutions. Now, the Trust brings Bankers Trust's
extensive investment management expertise -- once available
to only the largest institutions in the U.S. -- to
individual investors. Bankers Trust's officers have had
extensive experience in managing investment portfolios
having objectives similar to those of the Fund.
Bankers Trust, subject to the supervision and direction
of the Board of Trustees, manages the Fund in accordance
with the Fund's investment objective and stated investment
policies, makes investment decisions for the Fund, places
orders to purchase and sell securities and other financial
instruments on behalf of the Fund, employs professional
investment managers and securities analysts who provide
research services to the Fund, oversees the administration
of all aspects of the Trust's business and affairs and
supervises the performance of professional services provided
by other vendors. Bankers Trust may utilize the expertise
of any of its world wide subsidiaries and affiliates to
assist it in its role as investment manager. All orders for
investment transactions on behalf of the Fund are placed by
Bankers Trust with broker-dealers and other financial
intermediaries that it selects, including those affiliated
with Bankers Trust. A Bankers Trust affiliate will be used
in connection with a purchase or sale of an investment for
the Fund only if Bankers Trust believes that the affiliate's
charge for the transaction does not exceed usual and
customary levels. The Fund will not invest in obligations
for which Bankers Trust or any of its affiliates is the
ultimate obligor or accepting bank. The Fund may, however,
invest in the obligations of correspondents and customers of
Bankers Trust.
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 Fund described in this
Prospectus and the Statement of Additional Information
without violation of the Glass-Steagall Act or other
applicable banking laws or regulations. 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.
Mr. Michael Levy will be the primary portfolio manager
for the International Equity Fund. He also heads the
international active equity team, which provides assistance
in the day-to-day management of the Fund. Mr. Levy has been
the head of this team since joining Bankers Trust in March
1993, and is a Managing Director and International Equity
Strategist of Bankers Trust. Prior to joining Bankers
Trust. Mr. Levy was an investment banker and an equity
analyst with Oppenheimer & Company. He has twenty-four
years of business experience, of which fourteen years have
been in the investment industry.
Mr. Robert Reiner will be the co-manager for the
International Equity Fund. Mr. Reiner is responsible for
managing global portfolios and developing analytical and
investment tools for Bankers Trust's global equity team.
As a member of the international active equity team, he
focuses on Japanese and European markets. Prior to joining
Bankers Trust in 1994, he was an equity analyst and also
provided macroeconomic coverage for Scudder, Stevens and
Clark. He previously served as Senior Analyst at Sanford C.
Bernstein & Co. and was instrumental in the development of
Bernstein's International Value Fund. For more than nine
years, Mr. Reiner was employed by S&P in its ratings group.
His tenure included managing the day to day operations of
S&P's Tokyo office for three years.
As compensation for its services to the Fund, Bankers Trust
receives a fee from the Fund computed daily and paid monthly
at the annual rate of .98% of the average daily net assets
of the Fund.
Expenses
In addition to the fees of the Manager, the Fund is
responsible for the payment of all its other expenses
incurred in the operation of the Fund, which include, among
other things, expenses for legal and independent auditor's
services, charges of the Fund's custodian and transfer
agent, SEC fees, a pro rata portion of the fees of the
Trust's unaffiliated trustees, accounting costs for reports
sent to Contractowners, the Fund's pro rata portion of
membership fees in trade organizations, a pro rata portion
of the fidelity bond coverage for the Trust's officers,
interest, brokerage and other trading costs, taxes, all
expenses of computing the Fund's net asset value per share,
expenses involved in registering and maintaining the
registration of the Fund's shares with the SEC and
qualifying the Fund for sale in various jurisdictions and
maintaining such qualification, litigation and other
extraordinary or non-recurring expenses. However, other
typical Fund expenses such as Contractowner servicing,
distribution of reports to Contractowners and prospectus
printing and postage will be borne by the relevant
Company.
Administrator and Transfer Agent
First Data Investor Services Group, Inc. ("First Data"),
a subsidiary of First Data Corporation, One Exchange Place,
Boston, Massachusetts 02109, serves as the Fund's
administrator pursuant to an Administration Agreement with
the Trust. Under the terms of the Administration Agreement,
First Data generally assists in all aspects of the Fund's
operations, other than providing investment advice, subject
to the overall authority of the Trust's Board of Trustees.
First Data also serves as the transfer agent for the
Fund.
Distributor
440 Financial Distributors, Inc. serves as distributor of
the Fund's shares to separate accounts of the Companies for
which it receives no separate fee from the Fund. The
principal business address of the Distributor is 4400
Computer Drive, Westborough, Massachusetts 01581.
Custodian
Bankers Trust acts as custodian of the assets of the
Fund.
Organization of the Trust
The Trust was organized on January 19, 1996, 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 its two series, par value $0.001 per
share. The shares of the other series of the Trust are
offered through a separate Prospectus. No series of shares
has any preference over any other series. All shares, when
issued, will be fully paid and nonassessable. The Trust's
Board of Trustees has the authority to create additional
series without obtaining shareholder approval.
The Trust is an entity of the type commonly known as a
"Massachusetts business trust." Under Massachusetts law,
shareholders of such a business trust may, under certain
circumstances, be held personally liable as partners for its
obligations. However, the risk of a shareholder incurring
financial loss on account of shareholder liability is
limited to circumstances in which both inadequate insurance
existed and the Trust itself was unable to meet its
obligations.
Through its separate accounts, the Companies are the
Fund's sole stockholder of record, so under the 1940 Act,
the Companies are deemed to be in control of the Fund.
Nevertheless, when a shareholders' meeting occurs, each
Company solicits and accepts voting instructions from its
Contractowners who have allocated or transferred monies for
an investment in the Fund as of the record date of the
meeting. Each Company then votes the Fund's shares that are
attributable to its Contractowners' interests in the Fund in
proportion to the voting instructions received. Each
Company will vote any share that it is entitled to vote
directly due to amounts it has contributed or accumulated in
its separate accounts in the manner described in the
prospectuses for its variable annuities and variable life
insurance policies.
Each share of the Fund is entitled to one vote, and
fractional shares are entitled to fractional votes. Fund
shares have non-cumulative voting rights, so the vote of
more than 50% of the shares can elect 100% of the
Trustees.
The Trust is not required, and does not intend, to hold
regular annual shareholder meetings, but may hold special
meetings for consideration of proposals requiring
shareholder approval.
The Fund is only available to owners of variable annuities
or variable life insurance policies issued by the Companies
through their respective separate accounts. The Fund does
not currently foresee any disadvantages to Contractowners
arising from offering its shares to variable annuity and
variable life insurance policy separate accounts
simultaneously, and the Board of Trustees monitors events
for the existence of any material irreconcilable conflict
between or among Contractowners. If a material
irreconcilable conflict arises, one or more separate
accounts may withdraw their investments in the Fund. This
could possibly force the Fund to sell portfolio securities
at disadvantageous prices. Each Company will bear the
expenses of establishing separate portfolios for its
variable annuity and variable life insurance separate
accounts if such action becomes necessary; however, ongoing
expenses that are ultimately borne by Contractowners will
likely increase due to the loss of economies of scale
benefits that can be provided to mutual funds with
substantial assets.
ADDITIONAL INFORMATION
American Depositary Receipts and European Depositary
Receipts. The Fund may invest in securities of foreign
issuers directly or in the form of American Depositary
Receipts ("ADRs"), Global Depositary Receipts ("GDRs") and
European Depositary Receipts ("EDRs") or other similar
securities representing securities of foreign issuers. These
securities may not necessarily be denominated in the same
currency as the securities they represent. ADRs and GDRs are
receipts typically issued by a U.S. bank or trust company
evidencing ownership of the underlying securities. EDRs are
receipts issued by a European financial institution
evidencing a similar arrangement. Generally, ADRs and GDRs,
in registered form, are designed for use in the U.S.
securities markets, and EDRs, in bearer form, are designed
for use in European securities markets.
Rule 144A Securities. The Fund may purchase securities in
the United States that are not registered for sale under
Federal securities laws but which can be resold to
institutions under SEC Rule 144A. Provided that a dealer or
institutional trading market in such securities exists,
these restricted securities are treated as exempt from the
Fund's 15% limit on illiquid securities. Under the
supervision of the Board of Trustees of the Fund, the
Manager determines the liquidity of restricted securities
and, through reports from the Manager, the Board will
monitor trading activity in restricted securities. If
institutional trading in restricted securities were to
decline, the liquidity of the Fund could be adversely
affected.
When-Issued and Delayed Delivery Securities. The Fund may
purchase securities on a when-issued or delayed delivery
basis. Delivery of and payment for these securities may take
place as long as a month or more after the date of the
purchase commitment. The value of these securities is
subject to market fluctuation during this period and no
income accrues to the Fund until settlement takes place. The
Fund maintains with the custodian a segregated account
containing high grade liquid securities in an amount at
least equal to these commitments. When entering into a when-
issued or delayed delivery transaction, the Fund will rely
on the other party to consummate the transaction; if the
other party fails to do so, the Fund may be disadvantaged.
Securities Lending. The Fund is permitted to lend up to 30%
of the total value of its securities. These loans must be
secured continuously by cash or equivalent collateral or by
a letter of credit at least equal to the market value of the
securities loaned plus accrued income. By lending its
securities, the Fund can increase its income by continuing
to receive income on the loaned securities as well as by the
opportunity to receive interest on the collateral. Any gain
or loss in the market price of the borrowed securities which
occurs during the term of the loan inures to the Fund and
its investors.
WEBS. The Fund may invest from time to time in World
Equity Benchmark Shares ("WEBS"). WEBS are shares of
underlying common stock portfolios constructed to provide
investment results that track the performance of publicly
traded securities in the aggregate, as represented by a
particular Morgan Stanley Capital International benchmark
country index. WEBS are listed for trading on the American
Stock Exchange, Inc. ("AMEX") and are non-redeemable, except
when aggregated in "creation units" of a specified number of
shares. It is expected that non-redeemable WEBS will trade
on the AMEX at prices which may differ from their net asset
value and there can be no assurance that an active market
will develop for WEBS. Investing in WEBS generally involves
the same risks as investing in foreign securities, as
described above in "Risk of Investing in Foreign
Securities."
Foreign Currency Exchange Transactions. Because the Fund
buys and sells securities denominated in currencies other
than the U.S. dollar and receives interest, dividends and
sale proceeds in currencies other than the U.S. dollar, the
Fund from time to time may enter into foreign currency
exchange transactions to convert to and from different
foreign currencies and to convert foreign currencies to and
from the U.S. dollar. The Fund either enters into these
transactions on a spot (i.e., cash) basis at the spot rate
prevailing in the foreign currency exchange market or uses
forward contracts to purchase or sell foreign currencies.
A forward foreign currency exchange contract is an
obligation by the Fund to purchase or sell a specific
currency at a future date, which may be any fixed number of
days from the date of the contract. Forward foreign currency
exchange contracts establish an exchange rate at a future
date. These contracts are transferable in the interbank
market conducted directly between currency traders (usually
large commercial banks) and their customers. A forward
foreign currency exchange contract generally has no deposit
requirement and is traded at a net price without commission.
The Fund maintains with its custodian a segregated account
of high grade liquid assets in an amount at least equal to
its obligations under each forward foreign currency exchange
contract. Neither spot transactions nor forward foreign
currency exchange contracts eliminate fluctuations in the
prices of the Fund's securities or in foreign exchange
rates, or prevent loss if the prices of these securities
should decline.
The Fund may enter into foreign currency hedging
transactions in an attempt to protect against changes in
foreign currency exchange rates between the trade and
settlement dates of specific securities transactions or
changes in foreign currency exchange rates that would
adversely affect a portfolio position or an anticipated
investment position. Since consideration of the prospect for
currency parities will be incorporated into the Manager's
long-term investment decisions, the Fund will not routinely
enter into foreign currency hedging transactions with
respect to security transactions; however, the Manager
believes that it is important to have the flexibility to
enter into foreign currency hedging transactions when it
determines that the transactions would be in the Fund's best
interest. Although these transactions tend to minimize the
risk of loss due to a decline in the value of the hedged
currency, at the same time they tend to limit any potential
gain that might be realized should the value of the hedged
currency increase. The precise matching of the forward
contract amounts and the value of the securities involved
will not generally be possible because the future value of
such securities in foreign currencies will change as a
consequence of market movements in the value of such
securities between the date the forward contract is entered
into and the date it matures. The projection of currency
market movements is extremely difficult, and the successful
execution of a hedging strategy is highly uncertain.
Options on Foreign Currencies. The Fund may write covered
put and call options and purchase put and call options on
foreign currencies for the purpose of protecting against
declines in the dollar value of portfolio securities and
against increases in the dollar cost of securities to be
acquired. The Fund may use options on currency to cross-
hedge, which involves writing or purchasing options on one
currency to hedge against changes in exchange rates for a
different, but related currency. As with other types of
options, however, the writing of an option on foreign
currency will constitute only a partial hedge up to the
amount of the premium received, and the Fund could be
required to purchase or sell foreign currencies at
disadvantageous exchange rates, thereby incurring losses.
The purchase of an option on foreign currency may be used to
hedge against fluctuations in exchange rates although, in
the event of exchange rate movements adverse to the Fund's
position, it may forfeit the entire amount of the premium
plus related transaction costs. In addition, the Fund may
purchase call options on currency when the Manager
anticipates that the currency will appreciate in value.
There is no assurance that a liquid secondary market on an
options exchange will exist for any particular option, or at
any particular time. If the Fund is unable to effect a
closing purchase transaction with respect to covered options
it has written, the Fund will not be able to sell the
underlying currency or dispose of assets held in a
segregated account until the options expire or are
exercised. Similarly, if the Fund is unable to effect a
closing sale transaction with respect to options it has
purchased, it would have to exercise the options in order to
realize any profit and will incur transaction costs upon the
purchase or sale of underlying currency. The Fund pays
brokerage commissions or spreads in connection with its
options transactions.
As in the case of forward contracts, certain options on
foreign currencies are traded over-the-counter and involve
liquidity and credit risks which may not be present in the
case of exchange-traded currency options. The Fund's ability
to terminate over-the-counter options ("OTC Options") will
be more limited than with exchange-traded options. It is
also possible that broker-dealers participating in OTC
Options transactions will not fulfill their obligations.
Until such time as the staff of the SEC changes its
position, the Fund will treat purchased OTC Options and
assets used to cover written OTC Options as illiquid
securities. With respect to options written with primary
dealers in U.S. Government securities pursuant to an
agreement requiring a closing purchase transaction at a
formula price, the amount of illiquid securities may be
calculated with reference to the repurchase formula.
The Fund will write and purchase options only to the extent
permitted by the policies of state securities authorities in
states where shares of the Fund are qualified for offer and
sale.
Options on Stocks. The Fund may write and purchase put and
call options on stocks. A call option gives the purchaser of
the option the right to buy, and obligates the writer to
sell, the underlying stock at the exercise price at any time
during the option period. Similarly, a put option gives the
purchaser of the option the right to sell, and obligates the
writer to buy, the underlying stock at the exercise price at
any time during the option period. A covered call option,
which is a call option with respect to which the Fund owns
the underlying stock, sold by the Fund exposes the Fund
during the term of the option to possible loss of
opportunity to realize appreciation in the market price of
the underlying stock or to possible continued holding of a
stock which might otherwise have been sold to protect
against depreciation in the market price of the stock. A
covered put option sold by the Fund exposes the Fund during
the term of the option to a decline in price of the
underlying stock. A put option sold by the Fund is covered
when, among other things, cash or liquid securities are
placed in a segregated account to fulfill the obligations
undertaken.
To close out a position when writing covered options, the
Fund may make a "closing purchase transaction," which
involves purchasing an option on the same stock with the
same exercise price and expiration date as the option which
it has previously written on the stock. The Fund 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 Fund may make a "closing sale transaction,"
which involves liquidating the Fund's position by selling
the option previously purchased.
The Fund intends to treat OTC Options purchased and the
assets used to "cover" OTC Options written as not readily
marketable and therefore subject to the limitations
described in "Investment Restrictions" in the Statement of
Additional Information.
Options on Foreign Stock Indices. The Fund may purchase
and write put and call options on foreign stock indices
listed on domestic and foreign stock exchanges. A stock
index fluctuates with changes in the market values of the
stocks included in the index.
Options on stock indices are generally similar to options
on stock except that the delivery requirements are
different. Instead of giving the right to take or make
delivery of stock at a specified price, an option on a stock
index gives the holder the right to receive a cash "exercise
settlement amount" equal to (a) the amount, if any, by which
the fixed exercise price of the option exceeds (in the case
of a put) or is less than (in the case of a call) the
closing value of the underlying index on the date of
exercise, multiplied by (b) a fixed "index multiplier."
Receipt of this cash amount will depend upon the closing
level of the stock index upon which the option is based
being greater than, in the case of a call, or less than, in
the case of a put, the exercise price of the option. The
amount of cash received will be equal to such difference
between the closing price of the index and the exercise
price of the option expressed in dollars or a foreign
currency, the case may be, times a specified multiple. The
writer of the option is obligated, in return for the premium
received, to make delivery of this amount. The writer may
offset its position in stock index options prior to
expiration by entering into a closing transaction on an
exchange or the option may expire unexercised.
To the extent permitted by U.S. Federal or state
securities laws, the Fund may invest in options on foreign
stock indices in lieu of direct investment in foreign
securities. The Fund may also use foreign stock index
options for hedging purposes.
Because the value of an index option depends upon
movements in the level of the index rather than the price of
a particular stock, whether the Fund will realize a gain or
loss from the purchase or writing of options on an index
depends upon movements in the level of stock prices in the
stock market generally or, in the case of certain indices,
in an industry or market segment, rather than movements in
the price of a particular stock. Accordingly, successful use
by the Fund of options on stock indices will be subject to
the Manager's ability to predict correctly movements in the
direction of the stock market generally or of a particular
industry. This requires different skills and techniques than
predicting changes in the price of individual stocks.
Futures Contracts on Foreign Stock Indices. The Fund may
enter into contracts providing for the making and acceptance
of a cash settlement based upon changes in the value of an
index of securities ("futures contracts"). This investment
technique is designed only to hedge against anticipated
future change in general market prices which otherwise might
either adversely affect the value of securities held by the
Fund or adversely affect the prices of securities which are
intended to be purchased at a later date for the Fund. A
futures contract may also be entered into to close out or
offset an existing futures position.
In general, each transaction in futures contracts
involves the establishment of a position which will move in
a direction opposite to that of the investment being hedged.
If these hedging transactions are successful, the futures
positions taken for the Fund will rise in value by an amount
which approximately offsets the decline in value of the
portion of the Fund's investments that are being hedged.
Should general market prices move in an unexpected manner,
the full anticipated benefits of futures contracts may not
be achieved or a loss may be realized.
Although futures contracts would be entered into for
hedging purposes only, such transactions do involve certain
risks. These risks could include a lack of correlation
between the futures contract and the foreign equity market
being hedged, a potential lack of liquidity in the secondary
market and incorrect assessments of market trends which may
result in poorer overall performance than if a futures
contract had not been entered into.
Brokerage costs will be incurred and "margin" will be
required to be posted and maintained as a good-faith deposit
against performance of obligations under futures contracts
written for the Fund. The Fund may not purchase or sell a
futures contract if immediately thereafter its margin
deposits on its outstanding futures contracts would exceed
5% of the market value of the Fund's total assets.
Options on Futures Contracts. The Fund may invest in
options on such futures contracts for similar purposes.
All options that the Fund writes will be covered under
applicable requirements of the SEC. The Fund will write and
purchase options only to the extent permitted by the
policies of state securities authorities in states where
shares of the Fund are qualified for offer and sale.
Repurchase Agreements. In a repurchase agreement the Fund
buys a security and simultaneously agrees to sell it back at
a higher price. In the event of the bankruptcy of the other
party to either a repurchase agreement or a securities loan,
the Fund could experience delays in recovering either its
cash or the securities it lent. To the extent that, in the
meantime, the value of the securities repurchased had
decreased or the value of the securities lent had increased,
the Fund could experience a loss. In all cases, the Manager
must find the creditworthiness of the other party to the
transaction satisfactory. A repurchase agreement is
considered a collateralized loan under the 1940 Act.
There can be no assurances that the use of these portfolio
strategies will be successful.
Asset Coverage. To assure that the Fund'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 Fund will cover
such transactions, as required under applicable
interpretations of the SEC, either by owning the underlying
securities or by establishing a segregated account with the
Fund's custodian containing high grade liquid debt
securities in an amount at all times equal to or exceeding
the Fund's commitment with respect to these instruments or
contracts.
Investment Manager of the Fund
BANKERS TRUST GLOBAL INVESTMENT MANAGEMENT
a unit of
BANKERS TRUST COMPANY
Administrator
FIRST DATA INVESTOR SERVICES GROUP, INC.
Distributor
440 FINANCIAL DISTRIBUTORS, INC.
Custodian
BANKERS TRUST COMPANY
Transfer Agent
FIRST DATA INVESTOR SERVICES GROUP, INC.
Independent Auditors
ERNST & YOUNG LLP
Counsel
WILLKIE FARR & GALLAGHER
No person has been authorized to give any information or to
make any representation other than those contained in the
Fund's Prospectus, its Statement of Additional Information
or the Fund's official sales literature in connection with
the offering of the Fund's shares and, if given or made,
such other information or representations must not be relied
on as having been authorized by the Fund. This Prospectus
does not constitute an offer in any state in which, or to
any person to whom, such offer may not lawfully be made.
............................................................
...................
STATEMENT OF
ADDITIONAL INFORMATION
____________, 1996
BT INSURANCE FUNDS TRUST
Small Cap Fund
International Equity Fund
BT Insurance Funds Trust (the "Trust") is comprised of the Small Cap Fund
and the International Equity Fund (each, a "Fund"). The shares of these
two funds are described herein.
Table of Contents
Investment Objectives, Policies and Restrictions 2
Performance Information 21
Valuation of Securities; Redemption in Kind 23
Management of the Funds 24
Organization of the Trust 28
Taxation 29
Appendix A (Bond, Commercial Paper and Municipal Obligations Ratings)
32
Shares of the Funds are available to the public only through the
purchase of
certain variable annuity and variable life insurance contracts
("Contract(s)") issued by
various insurance companies (the "Companies"). The investment manager of
each Fund
is Bankers Trust Global Investment Management, a unit of Bankers Trust
Company (the
"Manager" or "Bankers Trust"). The distributor of each Fund's shares is
440 Financial
Distributors, Inc. (the "Distributor" or "440 Distributors").
The Prospectus for each Fund is dated ____________, 1996. Each
Prospectus provides
the basic information investors should know before investing and may
be obtained
without charge by calling the telephone number listed below. This Statement of
Additional Information, which is not a Prospectus, is intended to provide
additional
information regarding the activities and operations of each Fund and should
be read in
conjunction with that Fund's Prospectus. This Statement of Additional
Information is
not an offer of any Fund for which an investor has not received a Prospectus.
Capitalized terms not otherwise defined in this Statement of Additional
Information
have the meanings accorded to them in each Fund's Prospectus.
BANKERS TRUST GLOBAL INVESTMENT MANAGEMENT, a unit of
BANKERS TRUST COMPANY
Investment Manager of each Fund
440 FINANCIAL DISTRIBUTORS, INC.
Distributor
4400 Computer Drive
Westborough, MA 01581
INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
Investment Objectives
The investment objective of each Fund is described in that Fund's Prospectus.
There can, of course, be no assurance that any Fund will achieve its investment
objective.
Investment Policies
The following is a discussion of the various investments of and techniques
employed by each Fund.
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.
Foreign Securities: Special Considerations Concerning Eastern Europe. The
Funds may invest in foreign securities issued by Eastern European countries.
Investments in companies domiciled in Eastern European countries may be subject
to potentially greater risks than those of other foreign issuers. These
risks include:
(i) potentially less social, political and economic stability; (ii) the
small current size
of the markets for such securities and the low volume of trading, which
result in
less liquidity and in greater price volatility; (iii) certain national
policies which
may restrict a Fund's investment opportunities, including restrictions on
investment
in issuers or industries deemed sensitive to national interests; (iv)
foreign taxation;
(v) the absence of developed legal structures governing private or foreign
investment or allowing for judicial redress for injury to private property;
(vi) the
absence, until recently in certain Eastern European countries, of a capital
market
structure or market-oriented economy; and (vii) the possibility that recent
favorable
economic developments in Eastern Europe may be slowed or reversed by
unanticipated political or social events in such countries, or in the
Commonwealth
of Independent States (formerly the Union of Soviet Socialist Republics).
The economic situation remains difficult for Eastern European countries in
transition from central planning, following what has already been a sizable
decline
in output. The contraction now appears to be bottoming out in parts of Eastern
Europe, where some countries are projected to register positive growth
in 1995.
Following three successive years of output declines, there are preliminary
indications of a turnaround in the former Czech and Slovak Federal Republic,
Hungary and Poland; growth in private sector activity and strong exports now
appear to have contained the fall in output. A number of their governments,
including those of Hungary and Poland, are currently implementing or
considering
reforms directed at political and economic liberalization, including efforts
to foster
multi-party political systems, decentralize economic planning, and a move
toward
free-market economies. But key aspects of the reform and stabilization
efforts have
not yet been fully implemented, and there remain risks of policy slippage. At
present, no Eastern European country has a developed stock market, but Poland,
Hungary and the Czech Republic have small securities markets in operation.
In many other countries of the region, output losses have been even larger.
These
declines reflect the adjustment difficulties during the early stages of
the transition,
high rates of inflation, the compression of imports, disruption in trade among
the
countries of the former Soviet Union, and uncertainties about the reform
process
itself. Large-scale subsidies are delaying industrial restructuring and are
exacerbating the fiscal situation. A reversal of these adverse factors is not
anticipated in the near term, and output is expected to decline further in
most of
these countries. In the Russian Federation and most other countries of the
former
Soviet Union, economic conditions are of particular concern because of economic
instability due to political unrest and armed conflicts in many regions.
Further, no
accounting standards exist in Eastern European countries. Although certain
Eastern European currencies may be convertible into U.S. dollars, the
conversion
rates may be artificial to the actual market values and may be adverse to
a Fund's
shareholders.
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.
In recent years, however, a large institutional market has developed for
certain securities that are not registered under the 1933 Act, including
repurchase
agreements, commercial paper, foreign securities, municipal securities and
corporate bonds and notes. Institutional investors depend on an efficient
institutional market in which the unregistered security can be readily
resold or on
an issuer's ability to honor a demand for repayment. The fact that there are
contractual or legal restrictions on resale of such investments to the general
public
or to certain institutions may not be indicative of their liquidity.
The 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 Manager anticipates
that the
market for certain restricted securities such as institutional commercial
paper will
expand further as a result of this regulation and the development of automated
systems for the trading, clearance and settlement of unregistered securities of
domestic and foreign issuers, such as the PORTAL System sponsored by the
National Association of Securities Dealers, Inc.
The Manager will monitor the liquidity of Rule 144A securities in each
Fund's portfolio under the supervision of the Fund's Board of Trustees. In
reaching liquidity decisions, the Manager will consider, among other
things, the
following factors: (1) the frequency of trades and quotes for the security;
(2) the
number of dealers and other potential purchasers wishing to purchase or
sell the
security; (3) dealer undertakings to make a market in the security; and (4) the
nature of the security and of the marketplace trades (e.g., the time needed to
dispose of the security, the method of soliciting offers and the mechanics of
the
transfer).
Lending of Portfolio Securities. Each Fund has the authority to lend
portfolio securities to brokers, dealers and other financial organizations.
The
Funds will not lend securities to Bankers Trust, 440 Distributors or their
affiliates.
By lending its securities, a Fund can increase its income by continuing to
receive
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 interest paid by the
borrower
when U.S. Government obligations are used as collateral. There may be risks of
delay in receiving additional collateral or risks of delay in recovery of
the securities
or even loss of rights in the collateral should the borrower of the
securities fail
financially. Each Fund will adhere to the following conditions whenever its
securities are loaned: (i) the Fund must receive at least 100 percent cash
collateral
or equivalent securities 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 Fund must be able to
terminate the
loan at any time; (iv) the Fund must received reasonable interest on the
loan, as
well as any dividends, interest or other distributions on the loaned
securities, and
any increase in market value; (v) the Fund may pay only reasonable custodian
fees
in connection with the loan; and (vi) 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 terminate the
loan and
regain the right to vote the securities.
Futures Contracts and Options on Futures Contracts
General. The successful use of such instruments draws upon the Manager's
skill and experience with respect to such instruments and usually depends
on the
Manager's ability to forecast interest rate and currency exchange rate
movements
correctly. Should interest or exchange rates move in an unexpected manner, a
Fund 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.
Futures Contracts. A Fund may enter into contracts for the purchase or sale for
future delivery of fixed-income securities or foreign currencies, or
contracts based
on financial indices including any index of U.S. Government securities, foreign
government securities or corporate debt securities. U.S. futures contracts
have
been designed by exchanges which have been designated "contracts markets"
by the
Commodity Futures Trading Commission (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 exchange
markets, and, through their clearing corporations, the exchanges guarantee
performance of the contracts as between the clearing members of the exchange.
A
Fund 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, GNMA modified pass-through mortgage-backed
securities and three-month U.S. Treasury Bills. A Fund may also enter into
futures
contracts which are based on bonds issued by entities other than the U.S.
Government.
At the same time a futures contract is purchased or sold, a Fund must
allocate cash
or securities as a deposit payment ("initial deposit"). It is expected that
the initial
deposit would be approximately 1 1/2% to 5% of a contract's face value. Daily
thereafter, the futures contract is valued and the payment of "variation
margin"
may be required, since each day the Fund 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 by their terms call for the actual delivery or
acquisition
of securities, in most cases the contractual obligation is fulfilled before
the date of
the contract without having to make or take delivery of the securities. The
offsetting of a contractual obligation is accomplished by buying (or selling,
as the
case may be) on a commodities exchange an identical futures contract calling
for
delivery in the same month. Such a transaction, which is effected through a
member of an exchange, cancels the obligation to make or take delivery of the
securities. Since all transactions in the futures market are made, offset
or fulfilled
through a clearinghouse associated with the exchange on which the contracts are
traded, a Fund will incur brokerage fees when it purchases or sells futures
contracts.
The purpose of the acquisition or sale of a futures contract, in the case
of a Fund
which holds or intends to acquire fixed-income securities, is to attempt to
protect
the Fund 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 Fund 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 Fund. If
interest
rates did increase, the value of the debt security in the Fund's portfolio
would
decline, but the value of the futures contracts to the Fund would increase at
approximately the same rate, thereby keeping the net asset value of the Fund
from
declining as much as it otherwise would have. The Fund 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 Fund 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 fluctuations in the value of futures contracts
should be similar to those of debt securities, a Fund 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 contract could be liquidated and
the Fund
could then buy debt securities on the cash market. To the extent a Fund
enters into
futures contracts for this purpose, the assets in the segregated asset account
maintained to cover the Fund's obligations with respect to such futures
contracts
will consist of cash, cash equivalents or high quality liquid debt securities
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 Fund 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 participants entering
into offsetting transactions rather than making or taking delivery. To the
extent participants decide to make or take delivery, liquidity in the futures
market could be reduced, thus producing distortion. Third, from the point
of view of speculators, the margin deposit requirements in the futures market
are less onerous than margin requirements in the securities market. Therefore,
increased participation by speculators in the futures market may cause
temporary price distortions. Due to the possibility of distortion, a correct
forecast of general interest rate trends by the Manager may still not result
in a successful transaction.
In addition, futures contracts entail risks. Although the Manager believes
that use of such contracts will benefit the Funds, if the Manager's investment
judgment about the general direction of interest rates is incorrect, a Fund's
overall performance would be poorer than if it had not entered into any such
contract. For example, if a Fund 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 Fund
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 Fund 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 Fund
may have to sell securities at a time when it may be disadvantageous to do so.
Options on Futures Contracts. Each Fund 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. Depending on the pricing of the option compared to either the
price of
the futures contract upon which it is based or the price of the underlying debt
securities, it may or may not be less risky than ownership of the futures
contract or
underlying debt securities. As with the purchase of futures contracts,
when a Fund
is not fully invested it may purchase a call option on a futures contract
to hedge
against a market advance due to declining interest rates.
The writing of a call option on a futures contract constitutes a partial
hedge against
declining prices of 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 Fund will retain the full amount of the option
premium
which provides a partial hedge against any decline that may have occurred
in the
Fund's portfolio holdings. The writing of a put option on a futures contract
constitutes a partial hedge against increasing prices of 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
Fund will
retain the full amount of the option premium which provides a partial
hedge against
any increase in the price of securities which the Fund intends to purchase.
If a put
or call option the Fund has written is exercised, the Fund 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 Fund'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 is similar in some
respects to the purchase of protective put options on portfolio securities.
For example, a Fund may purchase a put option on a futures contract to
hedge its portfolio against the risk of rising interest rates.
The amount of risk a Fund 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.
The Board of Trustees has adopted the requirement with respect to each
Fund that futures contracts and options on futures contracts be used only as
a hedge and not for speculation. In addition to this requirement, the Board
of Trustees has also adopted a restriction with respect to each Fund that
the Fund 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 Fund and premiums
paid on outstanding options on futures contracts owned by the Fund would exceed
5% of the market value of the total assets of the Fund.
Options on Foreign Currencies. Each Fund 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 Fund may purchase
put
options on the foreign currency. If the value of the currency does decline,
a Fund
will have the right to sell such currency for a fixed amount in dollars
and will
thereby 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, a Fund 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 Fund
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 Fund
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.
Each Fund may write options on foreign currencies for the same types of hedging
purposes. For example, where a Fund 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 option 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, a Fund could
write a put
option on the relevant currency which, if rates move in the manner
projected, will
expire unexercised and allow the Fund 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 Fund 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
Fund 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.
Each Fund intends to write covered call options on foreign currencies. A call
option written on a foreign currency by a Fund is "covered" if the Fund
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 Fund 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
Fund in cash, U.S. Government securities and other high quality liquid debt
securities in a segregated account with its custodian.
Each Fund also intends to 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 Fund 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 Fund
collateralizes the option by maintaining in a segregated account with its
custodian,
cash or U.S. Government securities or other high quality liquid debt
securities in
an amount not less than the value of the underlying foreign currency in U.S.
dollars marked to market daily.
Additional Risks of Options on Futures Contracts, Forward Contracts and Options
on Foreign Currencies. Unlike transactions entered into by a Fund 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 market-makers, 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. Similarly, options on currencies may be traded
over-the-counter.
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, due
to the margin and collateral requirements associated with such positions.
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 ("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 Fund 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, 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.
As in the case of forward contracts, certain options on foreign currencies
are traded
over-the-counter and involve liquidity and credit risks which may not be
present in
the case of exchange-traded currency options. A Fund'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 Fund will treat purchased over-the-counter
options
and assets used to cover written over-the-counter options as illiquid
securities.
With respect to options written with primary dealers in U.S. Government
securities
pursuant to an agreement requiring a closing purchase transaction at a formula
price, the amount of illiquid securities may be calculated with reference
to the repurchase formula.
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 a Fund'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.
Options on Securities. Each Fund may write (sell) covered call and put options
("covered options") to a limited extent on its portfolio securities in an
attempt to
increase income. However, the Fund 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 Fund.
When a Fund 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 Fund 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 Fund has no control, the Fund must sell the underlying
security to
the option holder at the exercise price. By writing a covered call option,
the Fund
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.
When a Fund writes a covered put option, it gives the purchaser of the
option the
right to sell the underlying security to the Fund at the specified exercise
price at
any time during the option period. If the option expires unexercised, the
Fund 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 Fund has no control, the
Fund
must purchase the underlying security from the option holder at the exercise
price.
By writing a covered put option, the Fund, 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 Fund will only write put options involving
securities
for which a determination is made at the time the option is written that the
Fund wishes to acquire the securities at the exercise price.
A Fund 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."
Where the Fund 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 Fund writes an option, an amount equal to the net premium received by
the
Fund is included in the liability section of the Fund'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 Fund enters into a closing
purchase transaction, the Fund 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 Fund 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
Fund.
A Fund may purchase call and put options on any securities in which it may
invest.
A Fund 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
Fund, in exchange for the premium paid, to purchase a security at a specified
price
during the option period. The Fund 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.
A Fund 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 Fund, in exchange for the premium paid, to sell a security, which may or
may
not be held in the Fund'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 Fund's portfolio securities. Put options
also may
be purchased by the Fund for the purpose of affirmatively benefiting from a
decline
in the price of securities which the Fund does not own. The Fund 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.
Each Fund has adopted certain other nonfundamental policies concerning option
transactions which are discussed below. The Fund's activities in options
may also
be restricted by the requirements of the Internal Revenue Code of 1986, as
amended (the "Code"), for qualification as a regulated investment company.
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 Fund may engage in over-the-counter options transactions with broker-dealers
who make markets in these options. At present, approximately tenbroker-
dealers, including several of the largest primary dealers in U.S. Government
securities, make these markets. 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 Fund 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 Manager will
monitor the creditworthiness of dealers with whom the Funds enter into such
options transactions under the general supervision of the Funds' Trustees.
Options on Securities Indices. In addition to options on securities, each
Fund 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."
The International Equity Fund 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 a Fund
generally
will only purchase or write such an option if the Manager 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. A Fund will not purchase such options unless the Manager 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 Fund's portfolio may not correlate precisely with
movements in the level of an index and, therefore, the use of options on
ndices cannot serve as a complete hedge. Because options on securities
indices require settlement in cash, the Manager may be forced to liquidate
portfolio
securities to meet settlement obligations.
Forward Foreign Currency Exchange Contracts. Because each Fund buys and sells
securities denominated in currencies other than the U.S. dollar and receives
interest, dividends and sale proceeds in currencies other than the U.S.
dollar, each
Fund from time to time may enter into foreign currency exchange transactions to
convert to and from different foreign currencies and to convert foreign
currencies
to and from the U.S. dollar. A Fund either enters into these transactions
on a spot
(i.e., cash) basis at the spot rate prevailing in the foreign currency
exchange market
or uses forward contracts to purchase or sell foreign currencies.
A forward foreign currency exchange contract is an obligation by a Fund to
purchase or sell a specific currency at a future date, which may be any fixed
number of days from the date of the contract. Forward foreign currency
exchange
contracts establish an exchange rate at a future date. These contracts are
transferable in the interbank market conducted directly between currency
traders
(usually large commercial banks) and their customers. A forward foreign
currency
exchange contract generally has no deposit requirement and is traded at a
net price
without commission. Each Fund maintains with its custodian a segregated
account
of high grade liquid assets in an amount at least equal to its obligations
under each
forward foreign currency exchange contract. Neither spot transactions nor
forward
foreign currency exchange contracts eliminate fluctuations in the prices of the
Fund's securities or in foreign exchange rates, or prevent loss if the
prices of these securities should decline.
Each Fund may enter into foreign currency hedging transactions in an attempt to
protect against changes in foreign currency exchange rates between the trade
and
settlement dates of specific securities transactions or changes in foreign
currency
exchange rates that would adversely affect a portfolio position or an
anticipated
investment position. Since consideration of the prospect for currency
parities will
be incorporated into Bankers Trust's long-term investment decisions, a Fund
will
not routinely enter into foreign currency hedging transactions with respect to
security transactions; however, Bankers Trust believes that it is important
to have
the flexibility to enter into foreign currency hedging transactions when it
determines that the transactions would be in the Fund'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 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, a
Fund's
ability to utilize forward contracts in the manner set forth in the
Prospectus 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
Fund
than if it had not entered into such contracts. The use of foreign 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 Fund's foreign currency
denominated
portfolio securities and the use of such techniques will subject a Fund 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 Fund may
not
always be able to enter into foreign currency forward contracts at
attractive prices
and this will limit the Fund's ability to use such contract to hedge or
cross-hedge
its assets. Also, with regard to a Fund'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 Fund's cross-hedges and the movements in the exchange
rates of the foreign currencies in which the Fund's assets that are the
subject of such cross-hedges are denominated.
WEBS. World Equity Benchmark Shares ("WEBS") are shares of common stock of
separate series (each, an "Index Series") of Foreign Fund, Inc.
("Foreign Fund"),
an open-end management company registered under the 1940 Act. Each Index
Series invests primarily in common stocks in an effort to track the
performance of a
specified foreign equity market index compiled by Morgan Stanley Capital
International ("MSCI"). The investment objective of each of the initial
seventeen
Index Series is to seek to provide investment results that correspond
generally to
the price and yield performance of publicly traded securities in the
aggregate in
particular markets, as represented by a particular foreign equity securities
index.
Each MSCI Index is a market capital weighted index of equity securities
traded on
the principal securities exchange(s) and, in some cases, the over-the-counter
market, of the respective country. An Index Series generally will not hold
all of
the issues that comprise the subject MSCI Index, due in part to the costs
involved
and, in certain instances, the potential illiquidity of certain securities.
Instead,
each Index Series will attempt to hold a representative sample of the
securities in
the Index, which will be selected by the adviser utilizing quantitative
analytical
models in a technique known as "portfolio sampling". Under this technique,
each
stock is considered for inclusion in the Index Series based on its contribution
to
certain capitalization, industry and fundamental investment characteristics.
Foreign Fund will issue and redeem WEBS of each Index Series only in
aggregations of a specified number of shares (each, a "Creation Unit") at net
asset
value. Except when aggregated in Creation Units, WEBS are not redeemable
securities of the Foreign Fund. The WEBS have been listed for trading on the
American Stock Exchange, Inc. (the "AMEX"). It is expected that the non-
redeemable WEBS will trade on the AMEX during the day at prices that differ to
some degree from their net asset value.
There can be no assurance that the investment objective of any Index Series
will be achieved. In this regard, it should be noted that the benchmark
indices are
unmanaged and bear no management, administration, distribution, transaction or
other expenses or taxes, while each Index Series must bear these expenses
and are
also subject to a number of limitations on their investment flexibility.
In addition,
certain Index Series are subject to foreign tax withholding at rates
different than
those assumed by the relevant benchmark index. Investing in WEBS of an Index
Series involves special risks of investing in securities of the relevant
foreign country.
Because each Index Series' assets will generally be invested in non-U.S.
securities, and because a substantial portion of the revenues and income of
each
Index Series will be received in a foreign currency, while Index Series
dividends
and other distributions are paid in US dollars, the dollar value of an Index
Series'
net assets will be adversely affected by reductions in the value of subject
foreign
currency relative to the dollar and would be positively affected by increases
in the
value of such currency relative to the dollar. Any such currency
fluctuations will
affect the net asset value of an Index Series irrespective of the performance
of its
underlying portfolio.
Foreign Fund is a newly organized investment company with no previous
operating history. As indicated above, the WEBS have been listed for
trading on
the AMEX. There can be no assurance that active trading markets for the WEBS
will develop.
The stocks of particular issuers, or of issuers in particular industries,
may
dominate the benchmark indices of certain Index Series and, consequently, the
investment portfolios of such Index Series, which may adversely affect the
performance of such Index Series or subject such Index Series to greater price
volatility than that experienced by more diversified investment companies. The
WEBS of an Index Series may be more susceptible to any single economic,
political or regulatory occurrence than the portfolio securities of an
investment
company that is more broadly invested than the subject Index Series in the
equity
securities of the relevant market.
Rating Services
The ratings of rating services represent their opinions as to the
quality of the
securities that they undertake to rate. It should be emphasized, however, that
ratings are relative and subjective and are not absolute standards of quality.
Although these ratings are an initial criterion for selection of portfolio
investments,
Bankers Trust also makes its own evaluation of these securities, subject to
review
by the Board of Trustees. After purchase by a Fund, an obligation may cease
to be
rated or its rating may be reduced below the minimum required for purchase
by the
Fund. Neither event would require a Fund to eliminate the obligation from its
portfolio, but Bankers Trust will consider such an event in its determination
of
whether a Fund should continue to hold the obligation. A description of the
ratings used herein and in the Funds' Prospectuses is set forth in Appendix A.
Investment Restrictions
The following investment restrictions are "fundamental policies" of each
Fund and
may not be changed with respect to the Fund without the approval of a
"majority of
the outstanding voting securities" of the Fund. "Majority of the
outstanding voting
securities" under the Investment Company Act of 1940, as amended (the "1940
Act"), and as used in this Statement of Additional Information and the
Prospectuses, means, with respect to a Fund, the lesser of (i) 67% or more
of the outstanding voting securities of the Fund present at a meeting, if
the holders of more than 50% of the outstanding voting securities of the
Fund are present or represented by proxy or (ii) more than 50% of the
outstanding votingsecurities of the Fund.
As a matter of fundamental policy, neither Fund may:
(1) borrow money or mortgage or hypothecate assets of the Fund,
except that in an amount not to exceed 1/3 of the current value of the
Fund's net
assets, it may borrow money, but only 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
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;
(2) underwrite securities issued by other persons except insofar as 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
Fund's portfolio securities and provided that any such loans not exceed 30%
of the 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
(the Fund may hold and sell, for the Fund's portfolio, real estate acquired
as a result of the 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 Fund's 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.
As an operating policy, neither Fund will invest in another open-end or
closed-end registered investment company except, with respect to the
International Equity Fund, in the secondary market. This policy is
non-fundamental and thus may be changed without shareholder approval.
Statutory Restrictions. In order to comply with certain statutes and regulatory
policies, neither Fund will, as a matter of operating policy:
(i) 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;
(ii) invest for the purpose of exercising control or management;
(iii) 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 Fund if
such purchase at the time thereof would cause: (a) more than 10% of the
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 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 Fund; provided
further that, except in the case of a merger or consolidation, the Fund shall
not purchase any securities of any open-end investment company;
(iv) invest more than 15% of the Fund's net assets (taken at the
greater of cost or market value) in securities that are illiquid or not readily
marketable (excluding Rule 144A securities deemed by the Board of Trustees
to be liquid);
(v) purchase securities of any issuer if such purchase at the time
thereof would cause the Fund to hold more than 10% of any class of securities
of such issuer, for which purposes all indebtedness of an issuer shall be
deemed a single class and all preferred stock of an issuer shall be deemed a
single class, except that futures or option contracts shall not be subject to
this restriction;
(vi) with respect to 75% of its assets, invest more than 5% of its total
assets in the securities (excluding U.S. Government securities) of any one
issuer; and
(vii) invest more than 5% of the Fund's net assets in warrants (valued
at the lower of cost or market), but not more than 2% of the Fund's net
assets may be invested in warrants not listed on the New York Stock Exchange
Inc. ("NYSE")
or the AMEX.
Portfolio Transactions and Brokerage Commissions
The Manager is responsible for decisions to buy and sell securities,
futures contracts and options on such securities and futures for each Fund,
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 Fund are frequently
placed by the Manager 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 Fund. 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 Manager 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 Fund, 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 Fund to reported commissions paid by
others. The Manager reviews on a routine basis commission rates, execution and
settlement services performed, making internal and external comparisons.
The Manager is authorized, consistent with Section 28(e) of the Securities
Exchange Act of 1934, as amended, when placing portfolio transactions for a
Fund 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 Rules of Fair Practice of the
National Association of Securities Dealers, Inc. and such other policies as the
Trustees of the Funds may determine, the Manager may consider sales of shares
of the Funds and of other investment company clients of Bankers Trust as a
factor in the selection of broker-dealers to execute portfolio transactions.
Bankers Trust will make such allocations if commissions are comparable to
those charged by nonaffiliated, qualified broker-dealers for similar services.
Higher commissions may be paid to firms that provide research services to the
extent permitted by law. Bankers Trust may use this research information in
managing each Fund'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 Fund and to the Manager, it is the opinion of
the management of the Funds that such information is only supplementary to the
Manager's own research effort, since the information must still be analyzed,
weighed and reviewed by the Manager's staff. Such information may be useful to
the Manager in providing services to clients other than the Funds, and not
all such information is used by the Manager in connection with the Funds.
Conversely, such information provided to the Manager by brokers and dealers
through whom other clients of the Manager effect securities transactions may
be useful to the Manager in providing services to the Funds.
In certain instances there may be securities which are suitable for a Fund
as well as for one or more of the Manager's other clients. Investment
decisions for a Fund and for the Manager'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 manager, 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 Fund is concerned. However, it is believed that the ability of a Fund
to participate in volume transactions will produce better executions for the
Fund.
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. These performance
figures are calculated in the following manner:
Total return. A Fund's average annual total return is calculated for certain
periods by determining the average annual compounded rates of return over
those periods that would cause an investment of $1,000 (made at the maximum
public offering price with all distributions reinvested) to reach the value
of that investment at the end of the periods. A Fund may also calculate
total return figures which represent aggregate performance over a period
or year-by-year performance.
Performance Results. Any total return quotation provided for a Fund should
not be considered as representative of the performance of the Fund in the
future since the net asset value and public offering price of shares of the
Fund will vary based not only on the type, quality and maturities of the
securities held in the Fund, but also on changes in the current value of
such securities and on changes in the expenses of the Fund. 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
"MoneyWatch" section featuring financial news.
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.
Working Women, a monthly publication that features a "Financial Workshop"
section reporting on the mutual fund/financial industry.
VALUATION OF SECURITIES; REDEMPTION IN KIND
In valuing a Fund's assets, all securities for which market quotations are
readily available are valued (i) at the last sale price prior to the time of
determination if there was a sale on the date of determination, (ii) at the
mean between the last current bid and asked prices if there was no sales price
of such date and bid and asked quotations are available, and (iii) at the bid
price if there was no sales price on such date and only bid quotations are
available. In instances where a price determined above is deemed not to
represent fair market value, the price is determined in such manner as the
Board of Trustees may prescribe. Securities may be valued by independent
pricing services which use prices provided by market-makers or estimates of
market values obtained from yield data relating to instruments or securities
with similar characteristics. Short-term investments having a maturity of
60 days or less are valued at amortized cost, unless the Board
of Trustees determines that such valuation does not constitute fair value. In
valuing assets, prices denominated in foreign currencies are converted to
dollar equivalents at the current exchange rate. Securities for which
reliable quotations or pricing services are not readily available and all
other securities and assets are valued at fair value as determined in good
faith by, or under procedures established by, the Board of Trustees.
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 a Fund purchases securities which
are restricted as to resale or for which current market quotations are not
available, the Manager of the Fund will value such securities based upon all
relevant factors as outlined in FRR 1.
The Trust, on behalf of each Fund, reserves 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, and valued as they are for purposes of
computing the Fund's net asset value (a redemption in kind). If payment is
made to a Fund shareholder in securities, the shareholder may incur transaction
expenses in converting these securities into cash. The Trust, on behalf of
each Fund, has elected, however, to be governed by Rule 18f-1 under the 1940
Act as a result of which each 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 at the beginning of the
period.
MANAGEMENT OF THE FUNDS
The Trustees and officers of the Trust, of which each Fund is a series, and
their principal occupations during the past five years, are set forth below.
Their titles may have varied during that period. An asterisk indicates the
Trustee who is an "interested person" (as defined in the 1940 Act) of the Trust.
Unless otherwise indicated, the address of each Trustee and officer is Exchange
Place, Boston, Massachusetts 02109.
Trustees and Officers
Name, Address and Age
Position Held
with the Trust Principal Occupations
During Past 5 Years
Robert R. Coby, 45
118 North Drive
North Massapequa, NY 11758
Trustee President of Leadership Capital Inc. since 1995; Chief Operating
Officer of CS First Boston Investment Management (1994-1995); President of
Blackhawk L.P. (1993-1994); Chief Financial Officer of Equitable Capital prior
to February 1993.
Desmond G. Fitzgerald, 52
2015 West Main Street
Stamford, CT 06902
Trustee Chairman of North American Properties Group since January 1987.
James S. Pasman, Jr., 65
29 The Trillium
Pittsburgh, PA 15238
Trustee Retired; President and Chief Operations Officer of National Intergroup
Inc.
(1989-1991).
*William E. Small, 54
Trustee and President Executive Vice President of First Data Investor Services
Group Inc. ("First Data") since 1994; Senior Vice President of The Shareholder
Services Group Inc. (1993-1994); independent consultant (1990-1993).
Michael Kardok, 36
Vice President and Treasurer Vice President of First Data since May 1994; Vice
President of The Boston Company Advisors Inc. prior to May 1994.
Julie A. Tedesco, 38
Vice President and Secretary Counsel of First Data since May 1994; Counsel of
The Boston Company Advisors Inc. (1992-1994); associate at Hutchins, Wheeler &
Dittmar prior to July 1992.
Mr. Kardok and Ms. Tedesco also hold similar positions for other
investment companies for which 440 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 440 Distributors or
any of its affiliates will receive any compensation from the Trust for serving
as an officer or Trustee of the Trust.
As of January 22, 1996, the Trustees and officers of the Trust owned in the
aggregate less than 1% of the shares of any Fund or the Trust (both series
taken together).
Investment Manager
Under the terms of each Fund's investment management agreement with Bankers
Trust (the "Management Agreement"), Bankers Trust manages the Fund subject to
the supervision and direction of the Board of Trustees of the Trust, of which
each Fund is a series. Bankers Trust will: (i) act in strict conformity with
the Trust's Declaration of Trust, the 1940 Act and the Investment Advisers Act
of 1940, as the same may from time to time be amended; (ii) manage each Fund
in accordance with the Fund's investment objectives, restrictions and policies;
(iii) make investment decisions for each Fund; (iv) place purchase and sale
orders for securities and other financial instruments on behalf of each Fund;
(v) oversee the administration of all aspects of the Trust's business and
affairs; and (vi) supervise the performance of professional services provided
by others.
Bankers Trust bears all expenses in connection with the performance of
services under each Management Agreement. Each Fund bears certain other
expenses incurred in its operation, including: taxes, interest, brokerage fees
and commissions, if any; fees of Trustees of the Trust who are not officers,
directors or employees of Bankers Trust, 440 Distributors or any of their
affiliates; SEC fees and state Blue Sky qualification fees; charges of
custodians and transfer and dividend disbursing agents; certain insurance
premiums; outside auditing and legal expenses; costs of maintenance of corporate
existence; costs attributable to investor services, including, without
limitation, telephone and personnel expenses; costs of preparing and printing
prospectuses and statements of additional information for regulatory purposes
and for distribution to existing shareholders; costs of shareholders' reports
and meetings of shareholders, officers and Trustees of the Trust; and any
extraordinary expenses.
Bankers Trust may have deposit, loan and other commercial banking relationships
with the issuers of obligations which may be purchased on behalf of the Funds,
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, in making its
investment decisions, 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 Funds, Bankers Trust will not inquire or take into
consideration whether an issuer of securities proposed for purchase or sale by
a Fund is a customer of Bankers Trust, its parent or its subsidiaries or
affiliates and, in dealing with its customers, Bankers Trust, its parent,
subsidiaries and affiliates will not inquire or take into consideration whether
securities of such customers are held by any fund managed by Bankers Trust or
any such affiliate.
Each Fund's prospectus contains disclosure as to the amount of Bankers
Trust's investment management fee.
Bankers Trust has agreed that if in any fiscal year the aggregate expenses
of any Fund (including fees pursuant to the Management Agreement, but excluding
interest, taxes, brokerage and, if permitted by the relevant state securities
commissions, extraordinary expenses) exceed the expense limitation of any state
having jurisdiction over a Fund, Bankers Trust will reimburse the Fund for the
excess expense to the extent required by state law. As of the date of this
Statement of Additional Information, the most restrictive annual expense
limitation applicable to any Fund is 2.50% of the Fund's first $30 million of
average annual net assets, 2.00% of the next $70 million of average annual net
assets and 1.50% of the remaining average annual net assets.
Administrator and Transfer Agent
First Data, One Exchange Place, Boston, Massachusetts 02109, serves as
administrator of each Fund. As administrator, First Data is obligated on a
continuous basis to provide such administrative services as the Board of
Trustees of the Trust reasonably deems necessary for the proper administration
of each Fund. First Data will generally assist in all aspects of the Funds'
operations; supply and maintain office facilities (which may be in First Data'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 the Declaration of Trust; by-laws, investment
objectives and policies and with Federal and state securities laws; arrange for
appropriate insurance coverage; calculate net asset
values, net income and realized capital gains or losses, and negotiate
arrangements with, and supervise and coordinate the activities of, agents and
others to supply services.
First Data serves as transfer agent of the Trust and of each Fund. Under
its transfer agency agreement with the Trust, First Data maintains the
shareholder account records for each Fund, handles certain communications
between shareholders and the Fund and causes to be distributed any dividends
and distributions payable by a Fund.
First Data may be reimbursed by the Funds for out-of-pocket expenses.
Custodian
Bankers Trust, 280 Park Avenue, New York, New York 10017, serves as
custodian for each Fund. As custodian, it holds the Funds' assets. Bankers
Trust will comply with the self-custodian provisions of Rule 17f-2 under the
1940 Act.
Bankers Trust may be reimbursed by the Funds for out-of-pocket expenses.
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 manager to the
Funds. The Trust has acknowledged that the term "BT" is used by and is a
property right of certain subsidiaries of Bankers Trust and that those
subsidiaries and/or Bankers Trust may at any time permit others to use that
term.
The Trust may be required, on 60 days' notice from Bankers Trust at any time,
to abandon use of the acronym "BT" as part of its name. If this were to occur,
the Trustees would select an appropriate new name for the Trust, but there
would be no other material effect on the Trust, its shareholders or activities.
Banking Regulatory Matters
Bankers Trust has been advised by its counsel that in its opinion Bankers Trust
may perform the services for the Funds contemplated by the Management
Agreements and other activities for the Funds described in the Prospectuses and
this Statement of Additional Information 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 Funds. State
laws on this issue may differ from the interpretations of relevant Federal law
and banks and financial institutions may be required to register as dealers
pursuant to state securities law. If the circumstances described above should
change, the Board of Trustees would review the relationships with Bankers Trust
and consider taking all actions necessary in the circumstances.
Counsel and Independent Auditors
Willkie Farr & Gallagher, One Citicorp Center, 153 East 53rd Street, New York,
New York 10022-4669, serves as Counsel to the Trust and each Fund. Ernst &
Young LLP, 787 Seventh Avenue, New York, New York 10019, acts as
independent accountants of the Trust and each Fund.
ORGANIZATION OF THE TRUST
Shares of the Trust do not have cumulative voting rights, which means that
holders of more than 50% of the shares voting for the election of Trustees can
elect all Trustees. Shares are transferable but have no preemptive, conversion
or subscription rights. Shareholders generally vote by Fund, except with
respect to the election of Trustees and the ratification of the selection of
independent accountants.
Through its separate accounts the Companies are each Fund's sole stockholders
of record, so under the 1940 Act, the Companies are deemed to be in control of
the Funds. Nevertheless, when a shareholders' meeting occurs, each Company
solicits and accepts voting instructions from its Contractowners who have
allocated or transferred monies for an investment in a Fund as of the record
date of the meeting. Each Company then votes the Fund's shares that are
attributable to its Contractowners' interest in the Fund in proportion to the
voting instructions received. Each Company will vote any share that it is
entitled to vote directly due to amounts it has contributed or accumulated in
its separate accounts in the manner described in the offering memoranda for
its variable annuities and variable life insurance policies.
Massachusetts law provides that shareholders could under certain circumstances
be held personally liable for the obligations of the Trust. However, the
Trust's Declaration of Trust disclaims shareholder liability for acts or
obligations of the Trust and requires that notice of this disclaimer be given
in each agreement, obligation or instrument entered into or executed by the
Trust or a Trustee. The Declaration of Trust provides for indemnification
from the Trust's property for all losses and expenses of any shareholder held
personally liable for the obligations of the Trust. Thus, the risk of a
shareholder's incurring financial loss on account of shareholder liability is
limited to circumstances in which the Trust itself would be
unable to meet its obligations, a possibility that the Trust believes is
remote. Upon payment of any liability incurred by the Trust, the shareholder
paying theliability will be entitled to reimbursement from the general assets
of the Trust. The Trustees intend to conduct the operations of the Trust in a
mannerso as toavoid, as far as possible, ultimate liability of the shareholders
forliabilities ofthe Trust.
The Trust was organized on January 19, 1996.
TAXATION
Taxation of the Funds
It is the intention of the Trust that each Fund elect to
be treated as a regulated investment company and qualify
annually under Subchapter M of 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 its
shareholders, that is, the Companies' separate accounts.
Each 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 Code and Treasury Department regulations
promulgated thereunder require that mutual funds that are
offered through insurance company separate accounts must
meet certain diversification requirements to preserve the
tax-deferred benefits provided by the variable contracts
which are offered in connection with such separate
accounts. The Manager intends to diversify each Fund's
investments in accordance with those requirements. The
offering memoranda for each Company's variable annuities
and variable life insurance policies describe the Federal
income tax treatment of distributions from such
contracts.
To comply with regulations under Section 817(h) of
the Code, each Fund will be required to diversify its
investments so that on the last day of each calendar
quarter no more than 55% of the value of its assets is
represented by any one investment, no more than 70% is
represented by any two investments, no more than 80% is
represented by any three investments and no more than 90%
is represented by any four investments. Generally, all
securities of the same issuer are treated as a single
investment. For the purposes of Section 817(h) of the
Code, obligations of the U.S. Treasury and each U.S.
Government instrumentality are treated as securities of
separate issuers. The Treasury Department has indicated
that it may issue future pronouncements addressing the
circumstances in which a variable annuity contractowner's
control of the investments of a separate account may
cause the variable contractowner, rather than the
separate account's sponsoring insurance company, to be
treated as the owner of the assets held by the separate
account. If the variable annuity contractowner is
considered the owner of the securities underlying the
separate account, income and gains produced by those
securities would be included currently in the variable
annuity contractowner's gross income. It is not known
what standards will be set forth in such pronouncements
or when, if at all, these pronouncements may be issued.
In the event that rules or regulations are adopted, there
can be no assurance that a Fund will be able to operate
as described currently in the Prospectus or that the Fund
will not have to change its investment policies or goals.
The foregoing is only a brief summary of important
tax law provisions that affect the Funds. Other Federal,
state or local tax law provisions may also affect the
Funds and their operations. Anyone who is considering
allocating, transferring or withdrawing monies held under
a variable contract to or from a Fund should consult a
qualified tax adviser.
Distributions
All dividends and capital gains distributions paid by a
Fund will be automatically reinvested, at net asset
value, by the Companies' separate accounts in additional
shares of the Fund. There is no fixed dividend rate, and
there can be no assurance that either Fund will pay any
dividends or realize any capital gains. However, each
Fund currently intends to pay dividends and capital gains
distributions, if any, on an annual basis. The offering
memorandum for a Company's variable annuity or variable
life insurance policies describes the frequency of
distributions to Contractowners and the Federal income
tax treatment of distributions from such contracts to
Contractowners.
Sale of Shares
Any gain or loss realized by a shareholder upon the sale or other
disposition of
hares of the Fund, or upon receipt of a distribution in complete liquidation
of a
Fund, generally will be a capital gain or loss which will be long-term or
short-term, generally depending upon the shareholder's holding period for the
shares. Any loss realized on a sale or exchange will be disallowed to the
extent the
shares disposed of are replaced (including shares acquired pursuant to a
dividend
reinvestment plan) within a period of 61 days beginning 30 days before and
ending
30 days after disposition of the shares. In such a case, the basis of the
shares
acquired will be adjusted to reflect the disallowed loss. Any loss realized
by a
shareholder on a disposition of Fund shares held by the shareholder for six
months
or less will be treated as a long-term capital loss to the extent of any
distributions
of net capital gains received by the shareholder with respect to such shares.
Shareholders will be notified annually as to the U.S. Federal tax status of
distributions.
Foreign Withholding Taxes
Income received by a Fund from sources within foreign countries may be
subject to
withholding and other taxes imposed by such countries.
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.
Fund shareholders may be subject to state and local taxes on their Fund
distributions. Shareholders are advised to consult their own tax advisers with
respect to the particular tax consequences to them of an investment in a Fund.
APPENDIX A
BOND, COMMERCIAL PAPER AND MUNICIPAL OBLIGATIONS
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 Municipal Obligations and
securities which they undertake to rate. It should be emphasized, however,
that
ratings are relative and subjective and are not absolute standards of quality.
Moody's Bond Ratings
Aaa. Bonds which are rated Aaa are judged to be the best quality. They carry
the
smallest degree of investment risk and are generally referred to as "gilt
edge".
Interest payments are protected by a large or by an exceptionally stable
margin and
principal is secure. While the various protective elements are likely to
change,
such changes as can be visualized are most unlikely to impair the fundamentally
strong position of such issues.
Aa. Bonds which are rated Aa are judged to be of high quality by all
standards.
Together with the Aaa group they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuations 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 which are 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 which are 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 which are 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 which are rated B generally lack characteristics of a desirable
investment.
Assurance of interest principal payments or of maintenance of other terms
of the
contract over any long period of time may be small.
Caa. Bonds which are 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 which are rated Ca represent obligations which are speculative in
a high
degree. Such issues are often in default or have other marked shortcomings.
C. Bonds which are rated C are the lowest rated class of bonds, and issues so
rated
can be regarded as having extremely poor prospects of ever attaining any real
investment standing.
Unrated. Where no rating has been assigned or where a rating has been suspended
or withdrawn, it may be for reasons unrelated to the quality of the issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities that are not rated
as a matter
of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not published in
Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise, the
effects of which preclude satisfactory analysis; if there is no longer
available
reasonable up-to-date data to permit a judgment to be formed; if a bond is
called
for redemption; or for other reasons.
Note: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's believes
possess the strongest investment attributes are designated by the symbols Aa-1,
A-1, Baa-1 and B-1.
S&P's Bond Rating
AAA. Bonds rated AAA have the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA. Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the higher rated issues only in small degree.
A. Bonds rated A have a strong capacity to pay interest and repay principal
although they are somewhat more susceptible to the adverse effects of
changes in
circumstances and economic conditions than bonds in the highest rated
categories.
BBB. Bonds rated BBB are regarded as having an adequate capacity to pay
interest
and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely
to lead to a weakened capacity to pay interest and repay principal for bonds
in this
category than in higher rated categories.
BB, B, CCC, CC, and C. Bonds rated BB, B, CCC, CC, and C are regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and
repay principal in accordance with the terms of this obligations. BB
indicates the
lowest degree of speculation and C the highest degree of speculation. While
such
bonds will likely have some quality and protective characteristics, they are
outweighed by large uncertainties of major risk exposures to adverse conditions.
C1. The rating C1 is reserved for income bonds on which no interest is being
paid.
D. Bonds rated D are in default, and payment of interest and/or repayment of
principal is in arrears.
Plus (+) or Minus (-). The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating
categories.
NR. Indicates that no rating has been requested, that there is insufficient
information on which to base a rating, or that S&P does not rate a
particular type
of obligation as a matter of policy.
Fitch Investors Service Bond Ratings
AAA. Securities of this rating are regarded as strictly high-grade, broadly
marketable, suitable for investment by trustees and fiduciary institutions,
and liable
to but slight market fluctuation other than through changes in the money
rate. The
factor last named is of importance varying with the length of maturity. Such
securities are mainly senior issues of strong companies, and are most
numerous in
the railway and public utility fields, though some industrial obligations
have this
rating. The prime feature of an AAA rating is showing of earnings several
times
or many times interest requirements with such stability of applicable
earnings that
safety is beyond reasonable question whatever changes occur in conditions.
Other
features may enter in, such as a wide margin of protection through collateral
security or direct lien on specific property as in the case of high class
equipment
certificates or bonds that are first mortgages on valuable real estate.
Sinking funds
or voluntary reduction of the debt by call or purchase are often factors, while
guarantee or assumption by parties other than the original debtor may also
influence the rating.
AA. Securities in this group are of safety virtually beyond question, and
as a class
are readily salable while many are highly active. Their merits are not greatly
unlike those of the AAA class, but a security so rated may be of junior though
strong lien in many cases directly following an AAA security or the margin of
safety is less strikingly broad. The issue may be the obligation of a small
company, strongly secured but influenced as to ratings by the lesser financial
power of the enterprise and more local type of market.
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.
Fitch Investors Service and Duff & Phelps Commercial Paper Ratings
Commercial paper rated Fitch-1 is considered to be the highest grade paper
and is
regarded as having the strongest degree of assurance for timely payment.
Fitch-2
is considered very good grade paper and reflects an assurance of timely payment
only slightly less in degree than the strongest issue.
Commercial paper issues rated Duff 1 by Duff & Phelps, Inc. have the following
characteristics: very high certainty of timely payment, excellent liquidity
factors
supported by strong fundamental protection factors, and risk factors which
are very
small. Issues rated Duff 2 have a good certainty of timely payment, sound
liquidity factors and company fundamentals, small risk factors, and good
access to
capital markets.
Investment Manager of each Fund
Bankers Trust Global Investment Management
a unit of
Bankers Trust Company
280 Park Avenue
New York, NY 10017
Distributor
440 Financial Distributors, Inc.
4400 Computer Drive
Westborough, MA 01581
Custodian
Bankers Trust Company STATEMENT OF
280 Park Avenue ADDITIONAL
INFORMATION
New York, NY 10017 ____________, 1996
Administrator and Transfer Agent
First Data Investor Services Group, Inc.
Exchange Place
Boston, MA 02109
Independent Accountants
Ernst & Young LLP
787 Seventh Avenue
New York, NY 10019
Legal Counsel
Willkie Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, NY 10022-4669
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
Included in Part A
None
Included in Part B
None
(b) Exhibits:
Exhibit
Number Description
1 Declaration of Trust is hereby incorporated by
reference to the initial Registration Statement filed
with the Securities and Exchange Commission on January
26, 1996.
2 The Registrant's By-Laws are incorporated by
reference to Amendment No. 1 filed with the Securities
and Exchange Commission on September 18, 1996.
3 Not Applicable.
4 Not Applicable.
5(a) The form of Investment Management Agreement between
Managed Assets Fund and Bankers Trust Company is
incorporated by reference to Amendment No. 1 filed with
the Securities and Exchange Commission on September 18,
1996.
(b) The form of Investment Management Agreement between
BT Insurance Funds Trust and Bankers Trust Company is
filed herewith.
6 The form of Distribution Agreement between
Registrant and 440 Financial Distributors, Inc. is filed
herewith.
7 Not Applicable.
8 The Custodian Agreement between Registrant and
Bankers Trust Company is incorporated by reference to
Amendment No. 1 filed with the Securities and Exchange
Commission on September 18, 1996.
Exhibit
Number Description
9(a) The form of Transfer Agency Agreement between
Registrant and First Data Investor Services Group, Inc.
is incorporated by reference to Amendment No. 1 filed
with the Securities and Exchange Commission on September
18, 1996.
(b) The form of Administration Agreement between
Registrant and First Data Investor Services Group, Inc.
is filed herewith.
10 Opinion and Consent of Counsel is filed herewith.
11 The Consent of Independent Accountants is filed
herewith.
12 Not Applicable.
13(a) The form of Purchase Agreement relating to Initial
Capital is incorporated by reference to Amendment No. 1
filed with the Securities and Exchange Commission on
September 18, 1996.
(b) The form of Purchase Agreement relating to Small
Cap Fund and International Equity Fund is filed herewith.
14 Not Applicable.
15 Not Applicable.
16 Not Applicable.
17 Not Applicable.
18 Not Applicable.
Item 25. Persons Controlled by or Under Common Control
with Registrant
All of the outstanding shares of each portfolio of
Registrant on the date Registrant's Registration
Statement becomes effective will be owned by First Data
Investor Services Group, Inc. ("First Data"), a
Massachusetts business trust.
Item 26. Number of Holders of Securities
It is anticipated that First Data will hold all of
the Registrant's shares, par value $0.001 per share, on
the date the Registrant's Registration Statement is
declared effective.
Item 27. Indemnification
Reference is made to Articles IV and V of
Registrant's Declaration of Trust filed with Securities
and Exchange Commission on January 26, 1996.
Insofar as indemnification for liabilities arising
under the Securities Act of 1933 (the "Securities Act")
may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant understands that
in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as
expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for
indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by
a director, officer, or controlling person of the
Registrant in the successful defense of any action, suit
or proceeding) is asserted by such director, officer or
controlling person in connection with the securities
being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by
it is against public policy as expressed in the
Securities Act and will be governed by the final
adjudication of such issue.
Item 28. Business and Other Connections of Investment
Adviser
Bankers Trust serves as investment adviser to each
Portfolio of the Trust. Bankers Trust, a New York
banking corporation, is a wholly owned subsidiary of
Bankers Trust New York Corporation. 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 or has been at any time during the past
two fiscal years engaged in any other business,
profession, vocation or employment of a substantial
nature, except that certain directors and officers also
hold various positions with and engage in business for
Bankers Trust New York Corporation. Set forth below are
the names and principal businesses of the directors and
officers of Bankers Trust who are or during the past two
fiscal years have been engaged in any other business,
profession, vocation or employment of a substantial
nature. These persons may be contacted c/o Bankers Trust
Company, 130 Liberty Street, New York, New York 10006.
NAME AND PRINCIPAL BUSINESS ADDRESS, PRINCIPAL OCCUPATION
AND OTHER INFORMATION
George B. Beitzel, 29 King Street, Chappaqua, NY 10514-
3432. Retired Senior Vice President and Director of
International Business Machines Corporation. Director of
Bankers Trust and Bankers Trust New York Corporation.
Director of Computer Task Group, Flight Safety
International, Inc., Phillips Gas Company, Phillips
Petroleum Company, Caliber Systems, Inc. (formerly
Roadway Services, Inc.), Rohm and Hass Company and TIG
Holdings, Chairman Emeritus of Amherst College, and
Chairman of the Colonial Williamsburg Foundation.
Phillip A. Griffiths, Director, Institute for Advanced
Study, Olden Lane, Princeton, NJ 08540. Director of
Bankers Trust Company. Chairman, Committee on Science,
Engineering and Public Policy of the National Academies
of Sciences and Engineering & the Institute of Medicine;
member, National Academy of Sciences, American Academy of
Arts and Sciences, American Philosophical Society, member
and chairman of the Nominations Committee and Committee
on Science and Engineering Indicators, National Science
Board, and trustee of North Carolina School of Science
and Mathematics and the Woodward Academy. Former member
of the board of directors, Research Triangle Institute.
William R. Howell, J.C. Penney Company, Inc., P.O. Box
10001, Dallas, TX 75301-0001. Chairman of the Board and
Chief Executive Officer, J.C. Penney Company, Inc.
Director of Bankers Trust and Bankers Trust New York
Corporation. Also a Director of Exxon Corporation,
Halliburton Company, Warner-Lambert Corporation, National
Urban League, Inc. and the National Retail Federation.
Jon M. Huntsman, Huntsman Corporation, 500 Huntsman Way,
Salt Lake City, UT 84108. Chairman and Chief Executive
Officer, Huntsman Corporation and other affiliated
companies. Director of Bankers Trust and Bankers Trust
New York Corporation. Chairman, chief executive officer
and director of Sunstar Corporation and JK Corp.
Chairman and director of Co-Ex Plastics Inc. and Global
Polymers Corporation. Chairman of Constar Corporation
and Petrostar Corporation. President of Autostar
Corporation and Restar Corporation. Director of Airstar
Corporation, Consolidated Press International
(Australia), Razzleberry Foods Corporation and Thiokol
Corporation. General Partner of Huntsman Group Ltd.,
McLeod Creek Partnership and Trustar Ltd. Chairman of
Primary Children's Medical Center Foundation, an
overseer, The Wharton School, University of Pennsylvania,
an advisor, University of Utah, Eccles Business School,
founder of Huntsman Cancer Institute, University of Utah,
chairman and director of the Huntsman Cancer Foundation,
and a trustee and president of the Jon and Karen Huntsman
Foundation.
Vernon E. Jordan, Jr., Akin, Gump, Strauss, Hauer & Feld,
LLP, 1333 New Hampshire Ave., N.W., Suite 400,
Washington, DC 20036. Senior Partner, Akin, Gump,
Strauss, Hauer & Feld, LLP. Director of Bankers Trust
and Bankers Trust New York Corporation. Also a Director
of American Express Company, Corning Incorporated, Dow
Jones, Inc., J.C. Penney Company, Inc., Revlon Group
Incorporated, Ryder System, Inc., Sara Lee Corporation,
Union Carbide Corporation and Xerox Corporation, a
trustee of Brookings Institution, The Ford Foundation and
Howard University, and governor of the Joint Center for
Political and Economic Studies.
Harnish Maxwell, Philip Morris Companies Inc., 100 Park
Avenue, 10th Floor, New York, NY 10017. Retired Chairman
and Chief Executive Officer, Philip Morris Companies Inc.
Director of Bankers Trust and Bankers Trust New York
Corporation. Director of The New Corporation Limited and
Sola International Inc.
Frank N. Newman, President and Chief Executive Officer of
Bankers Trust Company and Bankers Trust New York
Corporation, 130 Liberty Street, New York, NY 10006.
Director of Bankers Trust Company. Former Deputy
Secretary of the United States Treasury and former vice
chairman of the board and director of BankAmerica
Corporation and Bank of America. Also a director of
Carnegie Hall.
N.J. Nicholas Jr., 15 West 53rd Street, New York, NY
10019. Former President, Co-Chief Executive Officer and
Director of Time Warner Inc. Director of Bankers Trust
and Bankers Trust New York Corporation. Also a Director
of Boston Scientific Corporation and Xerox Corporation.
Russell E. Palmer, The Palmer Group, 3600 Market Street,
Suite 530, Philadelphia, PA 19104. Chairman and Chief
Executive Officer of The Palmer Group. Director of
Bankers Trust and Bankers Trust New York Corporation.
Former Dean of The Wharton School, University of
Pennsylvania and former chief executive officer of Touche
Ross & Co. (now Deloitte and Touche). Also Director of
Allied-Signal Inc., Contel Cellular, Inc., Federal Home
Loan Mortgage Corporation, GTE Corporation, Goodyear-Tire
& Rubber Company, Imasco Limited, The May Department
Stores Company and Safeguard Scientifics, Inc. Member,
Radnor Venture Partners Advisory Board, advisory board of
the Controller General of the United States, and a
trustee, the University of Pennsylvania.
Donald L. Stahelli, Chairman of the Board and Chief
Executive Officer, Continental Grain Company, 277 Park
Avenue, 50th Floor, New York, NY 10172. Director of
Bankers Trust Company. Also a director of ContiFinancial
Corporation, Prudential Life Insurance Company of
America, National Committee on United States-China
Relations, America-China Society, U.S.-Russia Trade
Council, The Points of Light Foundation and New York City
Partnership, Vice Chairman of the U.S.-China Business
Council, member of the Advisory Board of Rabobank
Nederland (Utrecht, The Netherlands), Council on Foreign
Relations and the Executive Committee of the National
Advisory Council of Brigham Young University's Marriott
School of Management and a trustee of the American
Graduate School of International Management.
Patricia Carry Stewart, c/o Office of the Secretary, 280
Park Avenue - 17W, New York, NY 10017. Former Vice
President, The Edna McConnell Clark Foundation. Director
of Bankers Trust and Bankers Trust New York Corporation.
Director, Borden Inc., Continental Corp. and Melville
Corporation, director and vice chair of Community
Foundation for Palm Beach and Martin Counties, and a
trustee emerita of Cornell University.
George J. Vojta, Bankers Trust Company, 130 Liberty
Street, New York, NY 10006. Vice Chairman of the Board
of Bankers Trust and Bankers Trust New York Corporation.
Director of Northwest Airlines and Private Export Funding
Corp., the New York State Banking Board and St. Lukes-
Roosevelt Hospital Center, a partner of New York City
Partnership and chairman, Wharton Financial Services
Center.
Item 29. Principal Underwriters
(a) In addition to BT Insurance Funds Trust, 440
Financial Distributors, Inc. (the "Distributor")
currently acts as distributor for The Galaxy Fund, The
Galaxy VIP Fund, Galaxy Fund II, Armada Funds (formerly
known as NCC Funds), Panorama Funds and the AMBAC Funds.
The Distributor is registered with the Securities and
Exchange Commission as a broker-dealer and is a member of
the National Association of Securities Dealers. The
Distributor is a wholly-owned subsidiary of First Data
Corporation, 4400 Computer Drive, Westborough, MA 01581.
(b) The information required by this Item 29 (b)
with respect to each director, officer, or partner of 440
Financial Distributors, Inc. is incorporated by reference
to Schedule A of Form BD filed by 440 Financial
Distributors, Inc. with the Securities and Exchange
Commission pursuant to the Securities Act of 1934 (File
No. 8-45467).
(c) Not Applicable.
Item 30. Location of Accounts and Records
All accounts books and other documents required to
be maintained by Registrant by Section 31(a) of the
Investment Company Act of 1940 and the Rules thereunder
will be maintained at the offices of:
(1) Bankers Trust Global Investment Management
280 Park Avenue
New York, NY 10017
(2) 440 Financial Distributors, Inc.
4400 Computer Drive
Westborough, MA 01581
(3) Bankers Trust Company
280 Park Avenue
New York, NY 10017
(4) First Data Investor Services Group, Inc.
One Exchange Place
Boston, MA 02109
Item 31. Management Services
Not Applicable.
Item 32. Undertakings
(a) Not Applicable.
(b) The undersigned Registrant hereby undertakes
to file a post-effective amendment, using financial
statements which need not be certified, within four to
six months after the effective date of the Registration
Statement under the Securities Act of 1933.
(c) The Registrant will furnish each person to
whom a prospectus is delivered with a copy of the
Registrant's latest annual report to shareholders, upon
request and without charge.
(d) Registrant hereby undertakes to call a
meeting of its shareholders for the purpose of voting
upon the question of removal of a trustee or trustees of
Registrant when requested in writing to do so by the
holders of at least 10% of Registrant's outstanding
shares. Registrant undertakes further, in connection
with the meeting, to comply with the provisions of
Section 16(c) of the Investment Company Act of 1940, as
amended, relating to communications with the shareholders
of certain common-law trusts.
INDEX TO EXHIBITS
Exhibit Number Exhibit
5(b) The form of Investment Management
Agreement
between BT Insurance Funds Trust and Bankers Trust
Company.
6 The form of Distribution Agreement between
Registrant and 440 Financial Distributors, Inc.
9(b) The form of Administration Agreement between
Registrant and First Data Investor Services Group, Inc.
10 Opinion and Consent of Counsel.
11 The Consent of Independent Accountants.
13 The form of Purchase Agreement relating
to Small Cap Fund and International Equity
Fund.
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DRAFT
INVESTMENT MANAGEMENT AGREEMENT
_____________, 1996
Bankers Trust Company
Four Albany Street
New York, New York 10006
Dear Sirs:
BT Insurance Funds Trust, a business trust organized under
the laws of the Commonwealth of Massachusetts (the "Trust"),
hereby confirms its agreement with Bankers Trust Company (the
"Manager") regarding investment management services to be provided
by the Manager to those portfolios of the Trust listed on Appendix
A attached hereto (each, a "Fund" and collectively, the "Funds"),
as set forth below.
1. Investment Description; Appointment
The Trust anticipates that the Fund will employ its
capital by investing and reinvesting in investments of the kind
and in accordance with the investment objective, policies and
limitations specified in its Declaration of Trust, dated January
19, 1996, as amended from time to time (the "Declaration of
Trust"), its By-laws, as amended from time to time, in the Funds'
prospectuses (the "Prospectus") and the statement of additional
information (the "Statement") filed with the Securities and
Exchange Commission under the Investment Company Act of 1940, as
amended (the "1940 Act"), and the Securities Act of 1933, as
amended, as part of the Trust's Registration Statement on Form N-
1A, as amended from time to time, and in the manner and to the
extent as may from time to time be approved in the manner set
forth in the Declaration of Trust. Copies of the Fund's
Prospectus, Statement, Declaration of Trust and By-laws have been
or will be submitted to the Manager. Each Fund desires to employ
and hereby appoints the Manager to act as its investment adviser,
to oversee the administration of all aspects of the Fund's
business and affairs and to supervise the performance of
professional services provided by others, including the
administrator, transfer agent, custodian and distributor to the
Fund.
2. Services
Subject to the overall supervision and direction of
the Board of Trustees of the Trust, the Manager shall have general
responsibility for the investment and management of the Funds'
assets, subject to and in accordance with the Funds' investment
objectives, policies and restrictions as stated in the
Prospectuses and Statement, as from time to time in effect, and
the Declaration of Trust and By-laws, the 1940 Act and the
Investment Advisors Act of 1940, as the same may from time to time
be amended. In discharging its responsibility, the Manager shall
determine and monitor the investments of the Funds' investment
portfolios. In addition, the Manager shall have full authority to
implement its determinations by selecting and placing individual
transactions on behalf of each Fund.
3. Information Provided to the Funds
The Manager will keep the Funds informed of
developments materially affecting the Funds' portfolios and, in
addition to providing the Funds with whatever statistical or other
information the Funds may reasonably request with respect to their
investments, the Manager will, on its own initiative, furnish the
Funds from time to time with whatever information the Manager
believes is appropriate for this purpose.
4. Standard of Care
The Manager shall exercise its best judgment in
rendering the services listed in paragraph 2 above. The Manager
shall not be liable for any error of judgment or mistake of law or
for any loss suffered by the Trust in connection with the matters
to which this Agreement relates, provided that nothing in this
Agreement shall be deemed to protect or purport to protect the
Manager against any liability to the Trust or to holders of the
Funds' shares ("Shareholders") to which the Manager would
otherwise be subject by reason of willful misfeasance, bad faith
or gross negligence on its part in the performance of its duties
or by reason of the Manager's reckless disregard of its
obligations and duties under this Agreement.
5. Indemnification
(a) The Trust shall indemnify and hold the Manager
harmless from and against any and all claims, costs, expenses
(including reasonable attorneys' fees), losses, damages, charges,
payments and liabilities of any sort or kind which may be asserted
against the Manager or for which the Manager may be held to be
liable in connection with this Agreement or the Manager's
performance hereunder (a "Claim"), unless such Claim resulted from
a grossly negligent act or omission to act or bad faith by the
Manager in the performance of its duties hereunder.
(b) In any case in which the Trust may be asked to
indemnify or hold the Manager harmless, the Manager will notify
the Trust promptly after identifying any situation which it
believes presents or appears likely to present a claim for
indemnification against the Trust although the failure to do so
shall not prevent recovery by the Manager and shall keep the Trust
advised with respect to all developments concerning such
situation. The Trust shall have the option to defend the Manager
against any Claim which may be the subject of this
indemnification, and, in the event that the Trust so elects, such
defense shall be conducted by counsel chosen by the Trust and
satisfactory to the Manager, and thereupon the Trust shall take
over complete defense of the Claim and the Manager shall sustain
no further legal or other expenses in respect of such Claim. The
Manager will not confess any Claim or make any compromise in any
case in which the Trust will be asked to provide indemnification,
except with the Trust's prior written consent. The obligations of
the parties hereto under this Section 5 shall survive the
termination of this Agreement.
6. Compensation
In consideration of the services rendered pursuant to
this Agreement, the Fund will pay the Manager a fee at annual
rates based on the Funds' average daily net assets as set forth on
Appendix A. These fees shall be computed daily and shall be
payable on the first business day of each month for services
performed the preceding month. Upon any termination of this
Agreement before the end of a month, the fee for such part of that
month shall be prorated according to the proportion that such
period bears to the full monthly period and shall be payable upon
the date of termination of this Agreement. For the purpose of
determining fees payable to the Manager, the value of each Fund's
net assets shall be computed at the times and in the manner
specified in the Fund's Prospectus and/or the Statement.
7. Expenses
The Manager will bear all expenses in connection with
the performance of its services under this Agreement. The Trust
will bear certain other expenses to be incurred in its operation,
including: (a) payment of the fees payable to the Manager under
paragraph 6 hereof; (b) organization expenses; (c) brokerage fees
and commissions; (d) taxes; (e) interest charges on borrowings;
(f) the costs of liability insurance or fidelity bond coverage for
the Trust's officers and employees, and directors' and officers'
errors and omissions insurance coverage; (g) legal, auditing and
accounting fees and expenses; (h) charges of the Trust's Custodian
and Transfer and Dividend Disbursing Agent; (i) the Trust's pro
rata portion of dues, fees and charges of any trade association of
which the Trust is a member; (j) the expenses of printing,
preparing, distributing and mailing proxies, stock certificates
and all reports required by the Securities and Exchange Commission
and State securities administrations, including the Funds'
Prospectuses, Statement, and notices to shareholders; (k) filing
fees for the registration or qualification of the Funds and their
shares under federal or state securities laws; (l) the fees and
expenses involved in registering and maintaining registration of
the Funds' shares with the Securities and Exchange Commission and
State securities administrations; (m) the expenses of holding
shareholder meetings; (n) the compensation, including fees, of any
of the Trust's unaffiliated directors, officers or employees; (o)
all expenses of computing the Funds' net asset values per share,
including any equipment or services obtained solely for the
purpose of pricing shares or valuing the Funds' investment
portfolios; (p) expenses of personnel performing shareholder
servicing functions; and (q) litigation and other extraordinary or
non-recurring expenses and other expenses properly payable by the
Trust or the Funds.
8. Service to Other Companies or Accounts
The Trust understands that the Manager and its
affiliates may act as investment manager to fiduciary and other
managed accounts and to one or more other investment companies,
and the Trust has no objection to their so acting, provided that
whenever the Trust and one or more other clients advised by the
Manager and its affiliates have available funds for investment,
investments suitable and appropriate for each will be allocated in
a manner believed by the Manager to be equitable to each client.
The Trust recognizes that in some cases this procedure may
adversely affect whether a particular security is available to the
Trust, the size of the position obtainable for the Trust or the
price at which that position may be obtained or disposed. In
addition, the Trust understands that the persons employed by the
Manager to assist in the performance of the Manager's duties under
this Agreement will not devote their full time to such service and
nothing contained in this Agreement shall be deemed to limit or
restrict the right of the Manager or any affiliate of the Manager
to engage in and devote time and attention to other businesses or
to render services of any kind or nature.
9. Term of Agreement
This Agreement shall become effective on the date
hereof, shall continue in effect for two years and thereafter
shall continue for successive annual periods, provided such
continuance is specifically approved at least annually by (i) the
Trust's Board of Trustees or (ii) a vote of a "majority" (as
defined in the 1940 Act) of each Fund's outstanding voting
securities (as defined in the 1940 Act), provided that in either
event the continuance is also approved by a majority of the
Trustees who are not "interested persons" (as defined in the 1940
Act) of any party to this Agreement, by vote cast in person at a
meeting called for the purpose of voting on such approval. This
Agreement is terminable with respect to each Fund, without
penalty, on 60 days' written notice, by the Trust's Trustees or by
vote of holders of a majority of such Fund's outstanding voting
securities, or upon 60 days' written notice, by the Manager. This
Agreement will also terminate automatically in the event of its
assignment (as defined in the 1940 Act).
10. Governing Law
This Agreement shall be governed by and construed in
accordance with the laws of the State of New York giving effect to
the conflict of law rules thereof.
If the foregoing is in accordance with your
understanding, kindly indicate your acceptance of this Agreement
by signing and returning the enclosed copy of this Agreement.
Very truly yours,
BT INSURANCE FUNDS TRUST
By: ______________________________
AGREED TO AND ACCEPTED:
BANKERS TRUST COMPANY
By: _________________________
APPENDIX A
Compensation (as a Percentage
Name of Fund of Average Daily Net Assets)
Small Cap Fund 0.80%
International Equity Fund 1.00%
- -5-
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g:\shared\bankers\agmts\invmgt5.doc
FORM OF DISTRIBUTION AGREEMENT
THIS AGREEMENT is made as of this ____ day of ________, 1996
(the "Agreement") by and between BT Insurance Funds Trust, a
Massachusetts business trust (the "Trust") and 440 Financial
Distributors, Inc. (the "Distributor"), a Massachusetts
corporation having its principal place of business at 290 Donald
Lynch Boulevard, Marlboro, Massachusetts 01752.
WHEREAS, the Trust is registered as a diversified, open-end
management investment company under the Investment Company Act of
1940, as amended (the "1940 Act"); and is currently offering units
of beneficial interest (such units of all series are hereinafter
called the "Shares"), representing interests in investment
portfolios of the Trust identified on Schedule A hereto (the
"Funds") which are registered with the Securities and Exchange
Commission (the "SEC") pursuant to the Trust's Registration
Statement on Form N-1A (the "Registration Statement"); and
WHEREAS, the Trust desires to retain the Distributor as
distributor for the Funds to provide for the sale and distribution
of the Shares of the Funds identified on Schedule A to separate
accounts of insurance companies and for such additional classes or
series as the Trust may issue, and the Distributor is prepared to
provide such services commencing on the date first written above.
NOW THEREFORE, in consideration of the premises and mutual
covenants set forth herein and intending to be legally bound
hereby the parties hereto agree as follows:
1. Service as Distributor
1.1 The Distributor will act on behalf of the Trust for the
distribution of the Shares covered by the Registration Statement
under the Securities Act of 1933, as amended (the "1933 Act").
The Distributor will have no liability for payment for the
purchase of Shares sold pursuant to this Agreement or with respect
to redemptions or repurchases of Shares.
1.2 The Distributor agrees to use efforts deemed appropriate by
the Distributor to solicit orders for the sale of the Shares and
will undertake such advertising and promotion as it believes
reasonable in connection with such solicitation. The Trust
understands that the Distributor is now, and may in the future be,
the distributor of the shares of several investment companies or
series (collectively, the "Investment Entities"), including
Investment Entities having investment objectives similar to those
of the Trust. The Trust further understands that investors and
potential investors in the Trust may invest in shares of such
other Investment Entities. The Trust agrees that the
Distributor's duties to such Investment Entities shall not be
deemed in conflict with its duties to the Trust under this Section
1.2.
1.3 The Distributor shall not utilize any materials in
connection with the sale or offering of Shares except the Trust's
prospectus and statement of additional information and such other
materials as the Trust shall provide or approve.
1.4 All activities by the Distributor and its employees, as
distributor of the Shares, shall comply with all applicable laws,
rules and regulations, including, without limitation, all rules
and regulations made or adopted by the SEC or the National
Association of Securities Dealers.
1.5 The Distributor will transmit any orders received by it for
purchase or redemption of the Shares to the transfer agent for the
Trust.
1.6 Whenever in its judgment such action is warranted by unusual
market, economic or political conditions, the Trust may decline to
accept any orders for, or make any sales of, the Shares until such
time as the Trust deems it advisable to accept such orders and to
make such sales.
1.7 The Trust agrees at its own expense to execute any and all
documents and to furnish any and all information and otherwise to
take all actions that may be reasonably necessary in connection
with the qualification of the Shares for sale in such states as
the Distributor may designate.
1.8 The Trust shall furnish from time to time, for use in
connection with the sale of the Shares, such information with
respect to the Trust and the Shares as the Distributor may
reasonably request; and the Trust warrants that the statements
contained in any such information shall fairly show or represent
what they purport to show or represent. The Trust shall also
furnish the Distributor upon request with: (a) audited annual
statements and unaudited semi-annual statements of a Fund's books
and accounts prepared by the Trust, (b) quarterly earnings
statements prepared by the Trust, (c) a monthly itemized list of
the securities in the Funds, (d) monthly balance sheets as soon as
practicable after the end of each month, and (e) from time to time
such additional information regarding the financial condition of
the Trust as the Distributor may reasonably request.
1.9 The Trust represents to the Distributor that all
Registration Statements and prospectuses filed by the Trust with
the SEC under the 1933 Act with respect to the Shares have been
prepared in conformity with the requirements of the 1933 Act and
the rules and regulations of the SEC thereunder. As used in this
Agreement, the term "Registration Statement" shall mean any
Registration Statement and any prospectus and any statement of
additional information relating to the Trust filed with the SEC
and any amendments or supplements thereto at any time filed with
the SEC. Except as to information included in the Registration
Statement in reliance upon information provided to the Trust by
the Distributor or any affiliate of the Distributor, the Trust
represents and warrants to the Distributor that any Registration
Statement, when such Registration Statement becomes effective,
will contain statements required to be stated therein in
conformity with the 1933 Act and the rules and regulations of the
SEC; that all statements of fact contained in any such
Registration Statement will be true and correct when such
Registration Statement becomes effective; and that no Registration
Statement when such Registration Statement becomes effective will
include an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make
the statements therein not misleading to a purchaser of the
Shares. The Trust may but shall not be obligated to propose from
time to time such amendment or amendments to any Registration
Statement and such supplement or supplements to any prospectus as,
in the light of future developments, may, in the opinion of the
Trust's counsel, be necessary or advisable. The Trust shall
promptly notify the Distributor of any advice given to it by its
counsel regarding the necessity or advisability of amending or
supplementing such Registration Statement. If the Trust shall not
propose such amendment or amendments and/or supplement or
supplements within fifteen days after receipt by the Trust of a
written request from the Distributor to do so, the Distributor
may, at its option, terminate this Agreement. The Trust shall not
file any amendment to any Registration Statement or supplement to
any prospectus without giving the Distributor reasonable notice
thereof in advance; provided, however, that nothing contained in
this Agreement shall in any way limit the Trust's right to file at
any time such amendments to any Registration Statements and/or
supplements to any prospectus, of whatever character, as the Trust
may deem advisable, such right being in all respects absolute and
unconditional.
1.10 The Trust authorizes the Distributor to use any prospectus
or statement of additional information in the form furnished from
time to time in connection with the sale of the Shares. The Trust
agrees to indemnify and hold harmless the Distributor, its
officers, directors, and employees, and any person who controls
the Distributor within the meaning of Section 15 of the 1933 Act,
free and harmless from and against any and all claims, costs,
expenses (including reasonable attorneys' fees) losses, damages,
charges, payments and liabilities of any sort or kind which the
Distributor, its officers, directors, employees or any such
controlling person may incur under the 1933 Act, under any other
statute, at common law or otherwise, arising out of or based upon:
(a) any untrue statement, or alleged untrue statement, of a
material fact contained in the Trust's Registration Statement,
prospectus, statement of additional information, or sales
literature (including amendments and supplements thereto), or
(b) any omission, or alleged omission, to state a material fact
required to be stated in the Trust's Registration Statement,
prospectus, statement of additional information or sales
literature (including amendments or supplements thereto),
necessary to make the statements therein not misleading, provided,
however, that insofar as losses, claims, damages, liabilities or
expenses arise out of or are based upon any such untrue statement
or omission or alleged untrue statement or omission made in
reliance on and in conformity with information furnished to the
Trust by the Distributor or its affiliated persons for use in the
Trust's Registration Statement, prospectus, or statement of
additional information or sales literature (including amendments
or supplements thereto), such indemnification is not applicable.
1.11 The Distributor agrees to indemnify and hold harmless the
Trust, its several officers and Trustees and each person, if any,
who controls a Fund within the meaning of Section 15 of the 1933
Act against any and all claims, costs, expenses (including
reasonable attorneys' fees), losses, damages, charges, payments
and liabilities of any sort or kind which the Trust, its officers,
Trustees or any such controlling person may incur under the 1933
Act, under any other statute, at common law or otherwise, but only
to the extent that such liability or expense incurred by the
Trust, its officers or Trustees, or any controlling person
resulting from such claims or demands arose out of the acquisition
of any Shares by any person which may be based upon any untrue
statement, or alleged untrue statement, of a material fact
contained in the Trust's Registration Statement, prospectus or
statement of additional information (including amendments and
supplements thereto), or any omission, or alleged omission, to
state a material fact required to be stated therein or necessary
to make the statements therein not misleading, if such statement
or omission was made in reliance upon information furnished or
confirmed in writing to the Trust by the Distributor or its
affiliated persons (as defined in the 1940 Act).
1.12 In any case in which one party hereto (the "Indemnifying
Party") may be asked to indemnify or hold the other party hereto
(the "Indemnified Party") harmless, the Indemnified Party will
notify the Indemnifying Party promptly after identifying any
situation which it believes presents or appears likely to present
a claim for indemnification (an "Indemnification Claim") against
the Indemnifying Party, although the failure to do so shall not
prevent recovery by the Indemnified Party, and shall keep the
Indemnifying Party advised with respect to all developments
concerning such situation. The Indemnifying Party shall have the
option to defend the Indemnified Party against any Indemnification
Claim which may be the subject of this indemnification, and, in
the event that the Indemnifying Party so elects, such defense
shall be conducted by counsel chosen by the Indemnifying Party and
satisfactory to the Indemnified Party, and thereupon the
Indemnifying Party shall take over complete defense of the
Indemnification Claim and the Indemnified Party shall sustain no
further legal or other expenses in respect of such Indemnification
Claim. The Indemnified Party will not confess any Indemnification
Claim or make any compromise in any case in which the Indemnifying
Party will be asked to provide indemnification, except with the
Indemnifying Party's prior written consent. The obligations of
the parties hereto under this Section 1.12 shall survive the
termination of this Agreement.
In the event that the Trust is the Indemnifying Party and
the Indemnifying Party does not elect to assume the defense of any
such suit, or in case the Distributor reasonably does not approve
of counsel chosen by the Trust, or in case there is a conflict of
interest between the Trust or the Distributor, the Trust will
reimburse the Distributor, its officers, directors and employees,
or the controlling person or persons named as defendant or
defendants in such suit, for the fees and expenses of any counsel
retained by the Distributor or them. The Trust's indemnification
agreement contained in this Section 1.12 and the Trust's
representations and warranties in this Agreement shall remain
operative and in full force and effect regardless of any
investigation made by or on behalf of the Distributor, its
officers, directors and employees, or any controlling person, and
shall survive the delivery of any Shares. This agreement of
indemnity will inure exclusively to the Distributor's benefit, to
the benefit of its several officers, directors and employees, and
their respective estates and to the benefit of the controlling
persons and their successors. The Trust agrees promptly to notify
the Distributor of the commencement of any litigation or
proceedings against the Trust or any of its officers or trustees
in connection with the issue and sale of any Shares.
1.13 No Shares shall be offered by either the Distributor or the
Trust under any of the provisions of this Agreement and no orders
for the purchase or sale of Shares hereunder shall be accepted by
the Trust if and so long as effectiveness of the Registration
Statement then in effect or any necessary amendments thereto shall
be suspended under any of the provisions of the 1933 Act, or if
and so long as a current prospectus as required by Section 5(b)(2)
of the 1933 Act is not on file with the SEC; provided, however,
that nothing contained in this Section 1.13 shall in any way
restrict or have any application to or bearing upon the Trust's
obligation to redeem Shares tendered for redemption by any
shareholder in accordance with the provisions of the Trust's
Registration Statement, Declaration of Trust, or bylaws.
1.14 The Trust agrees to advise the Distributor as soon as
reasonably practical by a notice in writing delivered to the
Distributor:
(a) of any request by the SEC for amendments to the Registration
Statement, prospectus or statement of additional information then
in effect or for additional information;
(b) in the event of the issuance by the SEC of any stop order
suspending the effectiveness of the Registration Statement,
prospectus or statement of additional information then in effect
or the initiation by service of process on the Trust of any
proceeding for that purpose;
(c) of the happening of any event that makes untrue any
statement of a material fact made in the Registration Statement,
prospectus or statement of additional information then in effect
or that requires the making of a change in such Registration
Statement, prospectus or statement of additional information in
order to make the statements therein not misleading; and
(d) of all actions of the SEC with respect to any amendments to
any Registration Statement, prospectus or statement of additional
information which may from time to time be filed with the SEC.
For purposes of this section, informal requests by or acts
of the Staff of the SEC shall not be deemed actions of or requests
by the SEC.
2. Term
(a) This Agreement shall become effective on the date
first written above and, unless sooner terminated as provided
herein, shall continue for an initial two-year term and thereafter
shall be renewed for successive one-year terms, provided such
continuance is specifically approved at least annually by (i) the
Trust's Board of Trustees or (ii) by a vote of a majority (as
defined in the 1940 Act and Rule 18f-2 thereunder) of the
outstanding voting securities of the Trust, provided that in
either event the continuance is also approved by a majority of the
Trustees who are not parties to this Agreement and who are not
interested persons (as defined in the 1940 Act) of any party to
this Agreement, by vote cast in person at a meeting called for the
purpose of voting on such approval. This Agreement is terminable
without penalty, on at least sixty days' written notice, by the
Trust's Board of Trustees, by vote of a majority (as defined in
the 1940 Act and Rule 18f-2 thereunder) of the outstanding voting
securities of the Trust, or by the Distributor. This Agreement
will also terminate automatically in the event of its assignment
(as defined in the 1940 Act and the rules thereunder).
(b) In the event a termination notice is given by the
Trust, all expenses associated with movement of records and
materials and conversion thereof will be borne by the Trust.
3. Limitation of Liability
(a) The Distributor shall not be liable to the Trust for any
error of judgment or mistake of law or for any loss suffered by
the Trust in connection with the performance of its obligations
and duties under this Agreement, except a loss resulting from the
Distributor's willful misfeasance, bad faith or gross negligence
in the performance of such obligations and duties, or by reason of
its reckless disregard thereof. The Trust will indemnify the
Distributor against and hold it harmless from any and all claims,
costs, expenses (including reasonable attorneys' fees), losses,
damages, charges, payments and liabilities of any sort or kind
which may be asserted against the Distributor for which the
Distributor may be held to be liable in connection with this
Agreement or the Distributor's performance hereunder (a "Section
3(a) Claim"), unless such Section 3(a) Claim resulted from a
grossly negligent act or omission to act or bad faith by the
Distributor in the performance of its duties hereunder. The
provisions of paragraph 1 of Section 1.12 shall apply to any
indemnification provided by the Trust pursuant to this Section
3(a).
(b) Notwithstanding any provision in this Agreement to the
contrary, the Distributor's cumulative liability (to the Trust)
for all losses, claims, suits, controversies, breaches, or damages
("Liability Claims") for any cause whatsoever and regardless of
the form of action or legal theory, shall not exceed One Million
Dollars ($1,000,000). The Trust understands the limitation on the
Distributor's damages to be a reasonable allocation of risk and
the Trust expressly consents with respect to such allocation of
risk.
(c) Neither party may assert any cause of action against the
other party under this Agreement that accrued more than two (2)
years prior to the filing of the suit (or commencement of
arbitration proceedings) alleging such cause of action.
(d) Each party shall have the duty to mitigate damages for which
the other party may become responsible.
(e) notwithstanding anything in this agreement to the contrary,
in no event shall the distributor, its affiliates or any of its or
their directors, officers, employees, agents or subcontractors be
liable under any theory of tort, contract, strict liability of
other legal or equitable theory for lost profits, exemplary,
punitive, special, incidental, indirect or consequential damages,
each of which is hereby excluded by agreement of the parties
regardless of whether such damages were foreseeable or whether
either party or any entity has been advised of the possibility of
such damages.
4. Exclusion of Warranties
This is a service agreement. Except as expressly provided
in this agreement, the Distributor disclaims all other
representations or warranties, express or implied, made to the
Fund or any other person, including, without limitation, any
warranties regarding quality, suitability, merchantability,
fitness for a particular purpose or otherwise (irrespective of any
course of dealing, custom or usage of trade) of any services or
any goods provided incidental to services provided under this
agreement. The Distributor disclaims any warranty of title or
non-infringement except as otherwise set forth in this agreement.
5. Modifications and Waivers
No change, termination, modification, or waiver of any term or
condition of the Agreement shall be valid unless in writing signed
by each party. No such writing shall be effective as against the
Distributor unless said writing is executed by a Senior Vice
President, Executive Vice President or President of the
Distributor. A party's waiver of a breach of any term or
condition in the Agreement shall not be deemed a waiver of any
subsequent breach of the same or another term or condition.
6. No Presumption Against Drafter
The Distributor and the Trust have jointly participated in
the negotiation and drafting of this Agreement. The Agreement
shall be construed as if drafted jointly by the Trust and the
Distributor, and no presumptions arise favoring any party by
virtue of the authorship of any provision of this Agreement.
7. Publicity
Neither the Distributor nor the Trust shall release or
publish news releases, public announcements, advertising or other
publicity relating to this Agreement or to the transactions
contemplated by it without prior review and written approval of
the other party; provided, however, that either party may make
such disclosures as are required by legal, accounting or
regulatory requirements after making reasonable efforts in the
circumstances to consult in advance with the other party.
8. Severability
The parties intend every provision of this Agreement to be
severable. If a court of competent jurisdiction determines that
any term or provision is illegal or invalid for any reason, the
illegality or invalidity shall not affect the validity of the
remainder of this Agreement. In such case, the parties shall in
good faith modify or substitute such provision consistent with the
original intent of the parties. Without limiting the generality
of this paragraph, if a court determines that any remedy stated in
this Agreement has failed of its essential purpose, then all other
provisions of this Agreement, including the limitations on
liability and exclusion of damages, shall remain fully effective.
9. Force Majeure
No party shall be liable for any default or delay in the
performance of its obligations under this Agreement if and to the
extent such default or delay is caused, directly or indirectly, by
(i) fire, flood, elements of nature or other acts of God; (ii) any
outbreak or escalation of hostilities, war, riots or civil
disorders in any country, (iii) any act or omission of the other
party or any governmental authority; (iv) any labor disputes
(whether or not the employees' demands are reasonable or within
the party's power to satisfy); or (v) nonperformance by a third
party or any similar cause beyond the reasonable control of such
party, including without limitation, failures or fluctuations in
telecommunications or other equipment. In any such event, the
non-performing party shall be excused from any further performance
and observance of the obligations so affected only for so long as
such circumstances prevail and such party continues to use
commercially reasonable efforts to recommence performance or
observance as soon as practicable.
10. Miscellaneous
(a) Any notice or other instrument authorized or required by
this Agreement to be given in writing to the Trust or the
Distributor shall be sufficiently given if addressed to the party
and received by it at its office set forth below or at such other
place as it may from time to time designate in writing.
To the Trust:
BT Insurance Funds Trust
200 Park Avenue
New York, New York
To the Distributor:
440 Financial Distributors, Inc.
290 Donald Lynch Boulevard
Marlboro, Massachusetts 01752
(b) The laws of the Commonwealth of Massachusetts, excluding the
laws on conflicts of laws, and the applicable provisions of the
1940 Act shall govern the interpretation, validity, and
enforcement of this Agreement. To the extent the provisions of
Massachusetts law or the provisions hereof conflict with the 1940
Act, the 1940 Act shall control. All actions arising from or
related to this Agreement shall be brought in the state and
federal courts sitting in the City of Boston, and the Distributor
and the Trust hereby submit themselves to the exclusive
jurisdiction of those courts.
(c) This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original and
which collectively shall be deemed to constitute only one
instrument.
(d) The captions of this Agreement are included for convenience
of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or
effect.
(e) This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and
is not intended to confer upon any other person any rights or
remedies hereunder.
11. Confidentiality
(a) The parties agree that the Proprietary Information (defined
below) and the contents of this Agreement (collectively
"Confidential Information") are confidential information of the
parties and their respective licensers. The Trust and the
Distributor shall exercise reasonable care to safeguard the
confidentiality of the Confidential Information of the other. The
Trust and the Distributor may each use the Confidential
Information only to exercise its rights or perform its duties
under this Agreement. The Trust and the Distributor shall not
duplicate, sell or disclose to others the Confidential Information
of the other, in whole or in part, without the prior written
permission of the other party. The Trust and the Distributor may,
however, disclose Confidential Information to its employees who
have a need to know the Confidential Information to perform work
for the other, provided that each shall use reasonable efforts to
ensure that the Confidential Information is not duplicated or
disclosed by its employees in breach of this Agreement. The Trust
and the Distributor may also disclose the Confidential Information
to independent contractors, auditors and professional advisors,
provided they first agree in writing to be bound by the
confidentiality obligations substantially similar to this Section
11. Notwithstanding the previous sentence, in no event shall
either the Trust or the Distributor disclose the Confidential
Information to any competitor of the other without specific, prior
written consent.
(b) Proprietary Information means:
(i) any data or information that is completely sensitive
material, and not generally known to the public, including, but
not limited to, information about product plans, marketing
strategies, finance, operations, customer relationships, customer
profiles, sales estimates, business plans, and internal
performance results relating to the past, present or future
business activities of the Trust or the Distributor, their
respective subsidiaries and affiliated companies and the
customers, clients and suppliers of any of them;
(ii) any scientific or technical information, design,
process, procedure, formula, or improvement that is commercially
valuable and secret in the sense that its confidentiality affords
the Trust or the Distributor a competitive advantage over its
competitors: and
(iii) all confidential or proprietary concepts,
documentation, reports, data, specifications, computer software,
source code, object code, flow charts, databases, inventions,
know-how, show-how and trade secrets, whether or not patentable or
copyrightable.
(c) Confidential Information includes, without limitation, all
documents, inventions, substances, engineering and laboratory
notebooks, drawings, diagrams, specifications, bills of material,
equipment, prototypes and models, and any other tangible
manifestation of the foregoing of either party which now exist or
come into the control or possession of the other.
(d) The Trust acknowledges that breach of the restrictions on
use, dissemination or disclosure of any Confidential Information
would result in immediate and irreparable harm, and money damages
would be inadequate to compensate the Distributor for that harm.
The Distributor shall be entitled to equitable relief, in addition
to all other available remedies, to redress any such breach.
12. The Trust and the Distributor agree that the obligations of
the Trust under the Agreement shall not be binding upon any of the
Trustees, shareholders, nominees, officers, employees or agents,
whether past, present or future, of the Trust individually, but
are binding only upon the assets and property of the Trust, as
provided in the Declaration of Trust. The execution and delivery
of this Agreement have been authorized by the Trustees of the
Trust, and signed by an authorized officer of the Trust, acting as
such, and neither such authorization by such Trustees nor such
execution and delivery by such officer shall be deemed to have
been made by any of them or any shareholder of the Trust
individually or to impose any liability on any of them or any
shareholder of the Trust personally, but shall bind only the
assets and property of the Trust as provided in the Declaration of
Trust.
13. Entire Agreement
This Agreement, including all Schedules hereto, constitutes the
entire agreement between the parties with respect to the subject
matter hereof and supersedes all prior and contemporaneous
proposals, agreements, contracts, representations, and
understandings, whether written or oral, between the parties with
respect to the subject matter hereof.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed all as of the day and year first
above written.
bt insurance funds trust
By:_________________________
Name:_______________________
Title:________________________
440 FINANCIAL DISTRIBUTORS, INC.
By:_________________________
Name:_______________________
Title:________________________
SCHEDULE A
to the Distribution Agreement
between BT Insurance Funds Trust and
440 Financial Distributors, Inc.
Name of Funds
Small Cap Fund
International Equity Fund
bt insurance funds trust 440 FINANCIAL DISTRIBUTORS,
INC.
By:_____________________________
By:_______________________________
Name:___________________________
Name:_____________________________
Title:____________________________
Title:______________________________
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A-1
G:\SHARED\3RDPARTY\AMBAC\AGREEEMENT\DISTRIB.DOC
FORM OF ADMINISTRATION AGREEMENT
THIS ADMINISTRATION AGREEMENT is made as of ,
1996, by and between FIRST DATA INVESTOR SERVICES GROUP, INC., a
Massachusetts corporation ("FDISG"), and BT INSURANCE FUNDS TRUST,
a Massachusetts business trust (the "Trust").
WITNESSETH:
WHEREAS, the Trust desires to retain FDISG to render certain
administrative services to each portfolio of the Trust listed on
Schedule A annexed hereto and incorporated herein, as the same may
be amended from time to time (collectively, the "Funds"); and
WHEREAS, FDISG is willing to render such services;
NOW, THEREFORE, in consideration of the premises and mutual
covenants herein contained, it is agreed between the parties
hereto as follows:
1. Appointment. The Trust hereby appoints FDISG to act
as Administrator on the terms set forth in this Agreement. FDISG
accepts such appointment and agrees to render the services herein
set forth for the compensation herein provided. In the event that
the Trust decides to retain FDISG to act as Administrator
hereunder with respect to one or more portfolios other than the
Funds, the Trust shall notify FDISG in writing. If FDISG is
willing to render such services, it shall notify the Trust in
writing whereupon such portfolio shall become a Fund hereunder.
2. Delivery of Documents. The Trust has furnished FDISG
with copies properly certified or authenticated of each of the
following:
(a) The Trust's Declaration of Trust (the
"Declaration of Trust") filed with the Commonwealth of
Massachusetts and all amendments thereto;
(b) The Trust's Registration Statement on Form N-1A
(the "Registration Statement") under the Securities Act of 1933
and under the 1940 Act, as filed with the Securities and Exchange
Commission ("SEC") on January 26, 1996, relating to shares of
beneficial interest of the Trust, the $.001 par value per share,
and all amendments thereto; and
(c) Each Fund's most recent prospectus and statement
of additional information, and all amendments and supplements
thereto (collectively, the "Prospectuses").
The Trust will furnish FDISG from time to time with copies,
properly certified or authenticated, of all amendments of or
supplements to the foregoing. Furthermore, the Trust will provide
FDISG with any other documents that FDISG may reasonably request
and will notify FDISG as soon as possible of any matter materially
affecting the performance by FDISG of its services under this
Agreement.
3. Duties as Administrator. Subject to the supervision
and direction of the Trust, FDISG, as Administrator, will assist
in supervising various aspects of the Trust's administrative
operations and undertakes to perform the following specific
services:
(a) Maintaining office facilities (which may be in
the offices of FDISG or a corporate affiliate);
(b) Furnishing statistical and research data, data
processing services, clerical services, and internal legal,
executive and administrative services and stationery and office
supplies in connection with the foregoing;
(c) Furnishing corporate secretarial services
including preparation and distribution of materials for Board of
Trustees meetings (Board meetings in excess of five in any
calendar year and shareholder meetings shall involve an additional
reasonable charge as may be agreed upon by the parties hereto);
(d) Accounting and bookkeeping services (including
maintenance of such accounts, books and records of the Trust as
may be required by Section 31(a) of the 1940 Act and the rules
thereunder);
(e) Internal auditing;
(f) Valuing the assets of each Fund and calculating
the net asset value of the shares of each Fund at the close of
trading on the New York Stock Exchange (the "NYSE") on each day on
which the NYSE is open for trading and at such other times as the
Board of Trustees may reasonably request;
(g) Calculating the net income and realized capital
gains or losses of each Fund;
(h) Accumulating information for and, subject to
approval by the Trust's Treasurer, preparing reports to the
Trust's shareholders of record and the SEC including, but not
necessarily limited to, Annual Reports and Semi-Annual Reports on
Form N-SAR;
(i) Preparing and filing various reports or other
documents required by federal, state and other applicable laws and
regulations, other than those filed or required to be filed by the
Trust's investment adviser (the "Adviser") or transfer agent;
(j) Preparing and filing the Trust's tax returns;
(k) Assisting the Adviser in monitoring and
developing compliance procedures for the Trust which will include,
among other matters, procedures to assist the Adviser in
monitoring compliance with each Fund's investment objective,
policies, restrictions, tax matters and applicable laws and
regulations; and
(l) Preparing and furnishing the Trust (at the
Trust's request) with performance information (including yield and
total return information) calculated in accordance with applicable
U.S. securities laws and reporting to external databases such
information as may reasonably be requested; and
(m) Performing the "Routine Projects" and "Special
Projects" on Schedule B annexed hereto and incorporated herein.
In performing all services under this Agreement, FDISG: (a)
shall act in conformity with the Declaration of Trust, the
Prospectuses, the Registration Statements and the instructions and
directions of the Trust or the Adviser, and will conform to and
comply with the requirements of the Investment Company Act of 1940
("1940 Act") and all other applicable federal or state laws and
regulations; and (b) will consult with legal counsel to the Trust,
as necessary or appropriate. Furthermore, FDISG shall not have or
be required to have any authority to supervise the investment or
reinvestment of the securities or other properties which comprise
the assets of the Trust or any of the Funds and shall not provide
any investment advisory services to the Trust or any of the Funds.
4. Compensation and Allocation of Expenses. FDISG shall
bear all expenses in connection with the performance of its
services under this Agreement, except as indicated below.
(a) FDISG may from time to time employ such person
or persons as FDISG may believe to be particularly suited to
assist it in performing services under this Agreement. Such
person or persons may be officers or employees of FDISG. The
compensation of such person or persons shall be paid by FDISG and
no obligation shall be incurred on behalf of the Trust in such
respect.
(b) FDISG shall not be required to pay any of the
following expenses which may be incurred by the Trust: membership
dues in the Investment Company Institute or any similar
organization; investment advisory expenses; costs of printing and
mailing stock certificates, prospectuses, reports and notices;
interest on borrowed money; brokerage commissions; stock exchange
listing fees; taxes and fees payable to Federal, state and other
governmental agencies; fees of Trustees of the Trust who are not
affiliated with FDISG; outside auditing expenses; outside legal
expenses; or other expenses not specified in this Section 4 which
may be properly payable by the Trust.
(c) For the services to be rendered, the facilities
to be furnished and the payments to be made by FDISG, as provided
for in this Agreement, the Funds will pay FDISG on the first
business day of each month a fee for the previous month as set
forth on Schedule C annexed hereto and incorporated herein. The
fee for the period from the date the Registration Statement is
declared effective by the SEC to the end of the month during which
the Registration Statement is declared effective shall be prorated
according to the proportion that such period bears to the full
monthly period. Upon any termination of this Agreement before the
end of any month, the fee for such part of a month shall be
prorated according to the proportion which such period bears to
the full monthly period and shall be payable upon the date of
termination of this Agreement. For the purpose of determining
fees payable to FDISG, the value of each Fund's net assets shall
be computed at the times and in the manner specified in the
Registration Statement.
(d) The Trust shall compensate FDISG for its
services rendered pursuant to this Agreement in accordance with
the fees set forth above. Such fees do not include out-of-pocket
disbursements of FDISG for which FDISG shall be entitled to bill
separately. Out-of-pocket disbursements shall include, but shall
not be limited to, the items specified in Schedule D annexed
hereto and incorporated herein. Schedule D may be modified by
FDISG upon not less than thirty (30) days' prior written notice to
the Trust with the Trust's consent.
(e) FDISG will bill the Trust for out-of-pocket
expenses as soon as practicable after the end of each calendar
month, and such billings will be detailed in accordance with the
out-of-pocket schedule. The Trust will pay to FDISG the amount of
such billing within thirty (30) days of receipt.
(f) The Trust acknowledges that the fees that FDISG
charges the Trust under this Agreement reflect the allocation of
risk between the parties hereto, including the disclaimer of
warranties in Section 7 and the limitations on liability in
Section 5. Modifying the allocation of risk from what is stated
here would affect the fees that FDISG charges, and in
consideration of those fees, the Trust agrees to the stated
allocation of risk.
5. Limitation of Liability.
(a) FDISG, its directors, officers, employees,
shareholders and agents shall not be liable for any error of
judgment or mistake of law or for any loss suffered by the Trust
in connection with the performance of its obligations and duties
under this Agreement, except a loss resulting from FDISG's willful
misfeasance, bad faith or negligence in the performance of such
obligations and duties, or by reason of its reckless disregard
thereof.
(b) Notwithstanding any provision in this Agreement
to the contrary, FDISG's cumulative liability to the Trust for all
losses, claims, suits, controversies, breaches, or damages
("Liability Claims") for any cause whatsoever arising out of or
related to this Agreement and regardless of the form of action or
legal theory, shall not exceed One Million Dollars ($1,000,000),
plus any and all amounts available to FDISG or to the Company in
respect of such Claims under FDISG's liability insurance, which
FDISG agrees continuously to maintain in principal coverage
amounts of at least Five Million Dollars ($5,000,000) at all times
during the term of this Agreement and for at least one (1) year
thereafter. FDISG agrees to furnish initial certification of such
insurance coverage and immediate notification of any modification
or termination of such coverage thereafter.
(c) Each party shall have the duty to mitigate
damages for which the other party may become responsible.
(d) notwithstanding anything in this AGREEMENT TO
THE CONTRARY, IN NO EVENT SHALL EITHER PARTY HERETO, ITS
AFFILIATES OR ANY OF ITS OR THEIR DIRECTORS, OFFICERS, EMPLOYEES,
AGENTS OR SUBCONTRACTORS BE LIABLE UNDER ANY THEORY OF TORT,
CONTRACT, STRICT LIABILITY OR OTHER LEGAL OR EQUITABLE THEORY FOR
LOST PROFITS, EXEMPLARY, PUNITIVE, SPECIAL, INCIDENTAL, INDIRECT
OR CONSEQUENTIAL DAMAGES, EACH OF WHICH IS HEREBY EXCLUDED BY
AGREEMENT OF THE PARTIES REGARDLESS OF WHETHER SUCH DAMAGES WERE
FORESEEABLE OR WHETHER EITHER PARTY OR ANY ENTITY HAS BEEN ADVISED
OF THE POSSIBILITY OF SUCH DAMAGES.
6. Indemnification.
(a) The Trust shall indemnify and hold FDISG harmless
from and against any and all claims, costs, expenses (including
reasonable attorneys' fees), losses, damages, charges, payments
and liabilities of any sort or kind which may be asserted against
FDISG or for which FDISG may be held to be liable in connection
with this Agreement or FDISG's performance hereunder (a "Claim"),
unless such Claim resulted from a negligent act or omission to act
or bad faith by FDISG in the performance of its duties hereunder.
(b) In any case in which the Trust may be asked to
indemnify or hold FDISG harmless, FDISG will notify the Trust in
writing promptly after identifying any situation which it believes
presents or appears likely to present a claim for indemnification
against the Trust although the failure to do so shall not prevent
recovery by FDISG unless the Trust is prejudiced by such failure
to notify and shall keep the Trust advised with respect to all
developments concerning such situation. The Trust shall have the
option to defend FDISG against any Claim which may be the subject
of this indemnification, and, in the event that the Trust so
elects, such defense shall be conducted by counsel chosen by the
Trust and satisfactory to FDISG, and thereupon the Trust shall
take over complete defense of the Claim and FDISG shall sustain no
further legal or other expenses in respect of such Claim. FDISG
will not confess any Claim or make any compromise in any case in
which the Trust will be asked to provide indemnification, except
with the Trust's prior written consent. The obligations of the
parties hereto under this Section 6 shall survive the termination
of this Agreement.
7. EXCLUSION OF WARRANTIES. THIS IS A SERVICE AGREEMENT.
EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT, FDISG DISCLAIMS
ALL OTHER REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, MADE
TO THE TRUST OR ANY OTHER PERSON, INCLUDING, WITHOUT LIMITATION,
ANY WARRANTIES REGARDING QUALITY, SUITABILITY, MERCHANTABILITY,
FITNESS FOR A PARTICULAR PURPOSE OR OTHERWISE (IRRESPECTIVE OF ANY
COURSE OF DEALING, CUSTOM OR USAGE OF TRADE) OF ANY SERVICES OR
ANY GOODS PROVIDED INCIDENTAL TO SERVICES PROVIDED UNDER THIS
AGREEMENT. FDISG DISCLAIMS ANY WARRANTY OF TITLE OR NON-
INFRINGEMENT EXCEPT AS OTHERWISE SET FORTH IN THIS AGREEMENT.
8. Term and Termination of Agreement.
(a) This Agreement shall become effective on the
date first written above and shall continue for a period of one
(1) year (the "Initial Term"), unless earlier terminated pursuant
to the terms of this Agreement. Thereafter, this Agreement shall
automatically be renewed for successive terms of one (1) year
("Renewal Terms") each.
(b) Either party may terminate this Agreement at the
end of the Initial Term or at the end of any subsequent Renewal
Term upon not than less than ninety (90) days' or more than one
hundred-eighty (180) days' prior written notice to the other
party.
(c) In the event a termination notice is given by
the Trust, all expenses associated with the movement of records
and materials and conversion thereof will be borne by the Trust.
(d) If a party hereto is guilty of a material
failure to perform its duties and obligations hereunder (a
"Defaulting Party") resulting in a material loss to the other
party, such other party (the "Non-Defaulting Party") may give
written notice thereof to the Defaulting Party, and if such
material breach shall not have been remedied within thirty (30)
days after such written notice is given, then the Non-Defaulting
Party may terminate this Agreement by giving thirty (30) days'
written notice of such termination to the Defaulting Party. If
FDISG is the Non-Defaulting Party, its termination of this
Agreement shall not constitute a waiver of any other rights or
remedies of FDISG with respect to services performed prior to such
termination or rights of FDISG to be reimbursed for out-of-pocket
expenses. In all cases, termination by the Non-Defaulting Party
shall not constitute a waiver by the Non-Defaulting Party of any
other rights it might have under this Agreement or otherwise
against the Defaulting Party.
9. Modifications and Waivers. No change, termination,
modification, or waiver of any term or condition of the Agreement
shall be valid unless in writing signed by each party. No such
writing shall be effective as against FDISG unless said writing is
executed by an Executive Vice President or the President of FDISG.
A party's waiver of a breach of any term or condition in the
Agreement shall not be deemed a waiver of any subsequent breach of
the same or another term or condition.
10. No Presumption Against Drafter. FDISG and the Trust
have jointly participated in the negotiation and drafting of this
Agreement. The Agreement shall be construed as if drafted jointly
by the Trust and FDISG, and no presumptions arise favoring any
party by virtue of the authorship of any provision of this
Agreement.
11. Publicity. Neither FDISG nor the Trust shall release
or publish news releases, public announcements, advertising or
other publicity relating to this Agreement or to the transactions
contemplated by it without prior review and written approval of
the other party; provided, however, that either party may make
such disclosures as are required by legal, accounting or
regulatory requirements after making reasonable efforts in the
circumstances to consult in advance with the other party.
12. Severability. The parties intend every provision of
this Agreement to be severable. If a court of competent
jurisdiction determines that any term or provision is illegal or
invalid for any reason, the illegality or invalidity shall not
affect the validity of the remainder of this Agreement. In such
case, the parties shall in good faith modify or substitute such
provision consistent with the original intent of the parties.
Without limiting the generality of this paragraph, if a court
determines that any remedy stated in this Agreement has failed of
its essential purpose, then all other provisions of this
Agreement, including the limitations on liability and exclusion of
damages, shall remain fully effective.
13. Miscellaneous.
(a) Any notice or other instrument authorized or
required by this Agreement to be given in writing to the Trust or
FDISG shall be sufficiently given if addressed to the party and
received by it at its office set forth below or at such other
place as it may from time to time designate in writing.
To the Trust:
c/o Bankers Trust Company
Four Albany Street
New York, New York 10006
Attention: Brian Wixted
With a copy to:
Burton Leibert, Esq.
Willkie Farr & Gallagher
153 East 53rd Street
New York, New York 10022
To FDISG:
First Data Investor Services Group, Inc.
53 State Street
Boston, Massachusetts 02109-2873
Attention: Vincent Fabiani
(b) This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective
successors and permitted assigns and is not intended to confer
upon any other person any rights or remedies hereunder. This
Agreement may not be assigned or otherwise transferred by either
party hereto, without the prior written consent of the other
party, which consent shall not be unreasonably withheld; provided,
however, that FDISG may, in its sole discretion, assign all its
right, title and interest in this Agreement to an affiliate,
parent or subsidiary. FDISG may, in its sole discretion, engage
subcontractors to perform any of the obligations contained in this
Agreement to be performed by FDISG, provided however, that FDISG
shall be as fully responsible to the Trust for the acts and
omissions of any subcontractor as it is for its own acts and
omissions.
(c) The laws of the Commonwealth of Massachusetts,
excluding the laws on conflicts of laws, shall govern the
interpretation, validity, and enforcement of this Agreement. All
actions arising from or related to this Agreement shall be brought
in the state and federal courts sitting in the City of Boston, and
FDISG and the Trust hereby submit themselves to the exclusive
jurisdiction of those courts.
(d) This Agreement may be executed in any number of
counterparts each of which shall be deemed to be an original and
which collectively shall be deemed to constitute only one
instrument.
(e) The captions of this Agreement are included for
convenience of reference only and in no way define or delimit any
of the provisions hereof or otherwise affect their construction or
effect.
14. Confidentiality.
(a) The parties agree that the Proprietary
Information (defined below) and the contents of this Agreement
(collectively "Confidential Information") are confidential
information of the parties and their respective licensers. The
Trust and FDISG shall exercise reasonable care to safeguard the
confidentiality of the Confidential Information of the other. The
Trust and FDISG may each use the Confidential Information only to
exercise its rights or perform its duties under this Agreement.
Except as required by law, the Trust and FDISG shall not
duplicate, sell or disclose to others the Confidential Information
of the other, in whole or in part, without the prior written
permission of the other party. The Trust and FDISG may, however,
disclose Confidential Information to its employees who have a need
to know the Confidential Information to perform work for the
other, provided that each shall use reasonable efforts to ensure
that the Confidential Information is not duplicated or disclosed
by its employees in breach of this Agreement. The Trust and FDISG
may also disclose the Confidential Information to independent
contractors, auditors and professional advisors, provided they
first agree in writing to be bound by the confidentiality
obligations substantially similar to this Section 14.
Notwithstanding the previous sentence, in no event shall either
the Trust or FDISG disclose the Confidential Information to any
competitor of the other without specific, prior written consent.
(b) Proprietary Information means:
(i) any data or information that is completely
sensitive material, and not generally known to the public,
including, but not limited to, information about product plans,
marketing strategies, finance, operations, customer relationships,
customer profiles, sales estimates, business plans, and internal
performance results relating to the past, present or future
business activities of the Trust or FDISG, their respective
subsidiaries and affiliated companies and the customers, clients
and suppliers of any of them;
(ii) any scientific or technical information,
design, process, procedure, formula, or improvement that is
commercially valuable and secret in the sense that its
confidentiality affords the Trust or FDISG a competitive advantage
over its competitors; and
(iii) all confidential or proprietary concepts,
documentation, reports, data, specifications, computer software,
source code, object code, flow charts, databases, inventions,
know-how, show-how and trade secrets, whether or not patentable or
copyrightable.
(c) Confidential Information includes, without
limitation, all documents, inventions, substances, engineering and
laboratory notebooks, drawings, diagrams, specifications, bills of
material, equipment, prototypes and models, and any other tangible
manifestation of the foregoing of either party hereto which now
exist or come into the control or possession of the other party
hereto.
(d) The Trust acknowledges that breach of the
restrictions on use, dissemination or disclosure of any
Confidential Information would result in immediate and irreparable
harm, and money damages would be inadequate to compensate FDISG
for that harm. FDISG shall be entitled to equitable relief, in
addition to all other available remedies, to redress any such
breach.
15. Force Majeure. No party shall be liable for any
default or delay in the performance of its obligations under this
Agreement if and to the extent such default or delay is caused,
directly or indirectly, by (i) fire, flood, elements of nature or
other acts of God; (ii) any outbreak or escalation of hostilities,
war, riots or civil disorders in any country, (iii) any act or
omission of the other party or any governmental authority; or (iv)
nonperformance by a third party or any similar cause beyond the
reasonable control of such party, including without limitation,
failures or fluctuations in telecommunications or other equipment.
In any such event, the non-performing party shall be excused from
any further performance and observance of the obligations so
affected only for so long as such circumstances prevail and such
party continues to use commercially reasonable efforts to
recommence performance or observance as soon as practicable.
16. Limitation of Trustee/Shareholder Liability. A copy
of the Declaration of Trust of the Trust dated january 19, 1996 is
on file with the Secretary of the Commonwealth of Massachusetts,
and notice is hereby given that this instrument is executed on
behalf of the Trustees of the Trust as Trustees and not
individually and that the obligations of this instrument are not
binding upon any of the Trustees or the Trust's shareholders
individually but are binding only upon the assets and property of
the Trust.
17. Entire Agreement. This Agreement, including all
Schedules hereto, constitutes the entire agreement between the
parties with respect to the subject matter hereof and supersedes
all prior and contemporaneous proposals, agreements, contracts,
representations, and understandings, whether written or oral,
between the parties with respect to the subject matter hereof.
IN WITNESS WHEREOF, the parties hereto have caused this
instrument to be duly executed and delivered by their duly
authorized officers as of the date first written above.
FIRST DATA INVESTOR SERVICES GROUP, INC.
By:
Name:
Title:
bankers trust company
By:
Name:
Title:
SCHEDULE A
Names of Funds
Managed Assets Fund
Small Cap Fund
International Equity Fund
bt insurance funds trust 440 FINANCIAL DISTRIBUTORS, INC.
By:_____________________________
By:_______________________________
Name:___________________________
Name:_____________________________
Title:____________________________
Title:______________________________
schedule b
Fund Accounting and Administrative Services
Routine Projects
o Daily, Weekly, and Monthly Reporting
o Portfolio and General Ledger Accounting
o Daily Pricing of all Securities
o Daily Valuation and NAV Calculation
o Comparison of NAV to market movement
o Review of price tolerance/fluctuation report
o Research items appearing on the price exception report
o Weekly cost monitoring along with market-to-market
valuations in accordance with Rule 2a7
o Preparation of monthly ex-dividend monitor
o Daily cash reconciliation with the custodian bank
o Daily updating of price and rate information to the Transfer
Agent/Insurance Agent
o Daily support and report delivery to Portfolio Management
o Daily calculation of fund advisor fees and waivers
o Daily calculation of distribution rates
o Daily maintenance of each fund's general ledger including
expense accruals
o Daily price notification to other vendors as required
o Calculation of 30-day adjusted SEC yields
o Preparation of month-end reconciliation package
o Monthly reconciliation of fund expense records
o Preparation of monthly pay down gain/loss summaries
o Preparation of all annual and semi-annual audit work papers
o Preparation and Printing of Financial Statements
o Providing Shareholder Tax Information to Transfer Agent
o Producing Drafts of IRS and State Tax Returns
o Treasury Services including:
Provide Officer for the fund
Expense Accrual Monitoring
Determination of Dividends
Prepare materials for review by the board, e.g., 2a-
7,10f-3, 17a-7, 17e-1
Tax and Financial Counsel
o Monthly Compliance Testing including section 817H
o Provide 1940 Act attorney to assist in organization
o Prepare agenda and background materials for legal approval
at Board Meetings; make
presentations where appropriate; prepare minutes; follow up
on issues
o Review and filing of Form N-SAR
o Review and filing of Annual and Semi-Annual Financial
Reports
o Assistance in Preparation of Fund Registration Statements
o Review of all Sales Material and Advertising
o Coordinate all aspects of the printing and mailing process
with outside printers for all
shareholder publication
schedule b (CONTINUED)
o Support for all quarterly board meetings
o Preparation of proxy materials for one meeting per year
o Annual update Post-Effective Amendment (PEA)
o Prospectus supplements as needed
o Consultations regarding legal issues as needed
o SEC audit report
o Arrange insurance coverage
o Support for one special board meeting per year and consent
votes where needed
o One additional PEA (other than annual update)
o One exemptive order application
o Assist with marketing strategy and product development
Special Projects*
o Proxy material preparation for additional meetings beyond
one per year
o N-14 preparation (merger document)
o Additional PEAs beyond two per year
o Prospectus simplification
o Additional exemptive order applications beyond one per year
o Extraordinary non-recurring projects - e.g., arranging CDSC
financing programs
o Basic sales, mutual funds, and product training to branch
and sales representatives
*Charged on a project-by-project basis.
schedule c
Fees (On an Annual Basis)
$70,000 per Fund per annum, plus
2.0 basis points on first $2 billion in aggregate assets
1.0 basis point on next $3 billion in aggregate assets
0.75 basis point on excess
Start-Up Fees
$20,000 per Fund start-up fee
fdisg reserves the right to renegotiate the fees set forth on this
schedule c and in section 4 of the agreement should the actual
services required vary materially from the assumptions provided.
It is specifically understood by the parties that fees for those
services provided by fdisg which are not described in section 3 of
the agreement or which are not included on Schedule B under
"Routine Projects" will be charged separately by fdisg and are not
included in the fees referenced above.
SCHEDULE D
Out-of-Pocket Expenses
Out-of-pocket expenses include, but are not limited to, the
following:
- - Overnight delivery and courier service
- - Telephone and telecommunications charges (including fax)
- - Terminals, transmitting lines and any expenses incurred in
connection with such lines
- - Any other unusual expenses in association with the services
rendered under this Agreement, such as excessive duplicating
charges
- - Pricing services
- - Vendor set-up charges for Blue Sky services
FDISG reserves the right to renegotiate the fees set forth on this
Schedule D and in Section 4 of the Agreement should the actual
services required vary materially from the assumptions provided.
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g:\shared\bankers\agmts\admin5.doc
September 19, 1996
BT Insurance Funds Trust
One Exchange Place
Boston, MA 02109
RE: Pre-Effective Amendment No. 1 to
Form N-1A Registration Statement
File Nos. 333-00479 and 811-07507
Ladies and Gentlemen:
The undersigned is Counsel of First Data Investor Services
Group, Inc., which serves as administrator to BT Insurance Funds
Trust (the "Trust"). In such capacity, from time to time and for
certain purposes, I act as counsel for the Trust. The Trust has
registered an indefinite number of shares pursuant to Rule 24f-2
under the Investment Company Act of 1940, as amended (the "1940
Act"). In accordance with the requirements of Rule 24f-2, you
have asked that I render the necessary legal opinion required by
said Rule with respect to the offer and sale of an indefinite
number of shares of beneficial interest having a par value of
$.001 per share (the "Shares") of the Small Cap Fund and
International Equity Fund (the "Funds") of the Trust covered by
the above-referenced Registration Statement.
The Trust was organized as a Massachusetts business trust
pursuant to a Declaration of Trust ("Declaration of Trust") filed
with the Secretary of State of the Commonwealth of Massachusetts
on January 19, 1996. The Funds were established as separate
series of the Trust pursuant to approval by at least a majority of
the Trust's Trustees at a meeting duly called and held on April
16, 1996.
I have examined the Trust's Declaration of Trust, its By-
Laws, the minutes of meetings of the Board of Trustees of the
Trust, the Trust's Prospectuses and Statement of Additional
Information included as part of the aforementioned Registration
Statement, and such other documents, records and certificates as I
deemed necessary for purposes of this opinion.
Based on the foregoing, I am of the opinion that the Trust
has been duly organized and is validly existing in accordance with
the laws of The Commonwealth of Massachusetts and that the Shares
which are the subject of the Registration Statement will, when
sold in accordance with the terms of the current Prospectuses and
Statement of Additional Information at the time of sale, be duly
authorized and validly issued and fully paid and non-assessable by
the Trust. This opinion is for the limited purpose expressed
above and should not be deemed to be an expression of opinion as
to compliance with the Securities
BT Insurance Funds Trust
September 19, 1996
Page 2
Act of 1933, the 1940 Act or applicable state "blue sky" or
securities laws in connection with the sale of the Shares.
The Trust is an entity of the type commonly known as a
"Massachusetts business trust." Under Massachusetts laws,
shareholders could, under certain circumstances, be held
personally liable for the obligations of the Trust. However, the
Declaration of Trust provides that if a shareholder of any series
of the Trust (such as the Funds) is charged or held personally
liable solely by reason of being or having been a shareholder, the
shareholder shall be entitled out of the assets of said series to
be held harmless from and indemnified against all loss and expense
arising from such liability. Thus, the risk of a shareholder
incurring financial loss on account of shareholders liability is
limited to circumstances in which that series itself would be
unable to meet its obligations.
I consent to the filing of this opinion as part of the
Trust's Registration Statement.
Very truly yours,
JULIE A. TEDESCO
Julie A. Tedesco
Counsel
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g:\shared\bankers\letters\lglopin.doc
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions
"Counsel and Independent Auditors" and "Independent Auditors" in
this Pre-Effective Amendment No. 1 to the Registration Statement
(Form N-1A No. 811-07507) of BT Insurance Funds Trust.
ERNST & YOUNG LLP
ERNST & YOUNG LLP
New York, New York
September 19, 1996
BT INSURANCE FUNDS TRUST
PURCHASE AGREEMENT
BT Insurance Funds Trust (the "Trust"), a Massachusetts
business trust, and First Data Investor Services Group, Inc.
("First Data"), hereby agree as follows:
1. The Trust hereby offers First Data and First Data
hereby purchases 5,000 shares (the "Shares") at $10.00 per share
of each of the Trust's Small Cap Fund and International Equity
Fund (the "Portfolios"), each with par value of $.001 per share.
The Shares are the "initial shares" of the Portfolios. First Data
hereby acknowledges receipt of a purchase confirmation reflecting
the purchase of 10,000 Shares, and the Trust hereby acknowledges
receipt from First Data of funds in the amount of $100,000 in full
payment for the Shares.
2. First Data represents and warrants to the Trust that
the Shares are being acquired for investment purposes and not for
the purpose of distribution.
3. First Data agrees that if it or any direct or indirect
transferee of the Shares redeems the Shares prior to the fifth
anniversary of the date that the Trust begins its investment
activities, First Data will pay to the Trust an amount equal to
the number resulting from multiplying the Trust's total
unamortized organizational expenses by a fraction, the numerator
of which is equal to the number of Shares redeemed by First Data
or such transferee and the denominator of which is equal to the
number of Shares outstanding as of the date of such redemption, as
long as the administrative position of the staff of the Securities
and Exchange Commission requires such reimbursement.
4. The Trust represents that a copy of its Declaration of
Trust is on file at the Secretary of State's Office.
5. This Agreement has been executed on behalf of the
Trust by the undersigned officer of the Trust in his capacity as
an officer of the Trust. The obligations of this Agreement shall
be binding only upon the assets and property of each individual
Portfolio and not upon the assets and property of any other
portfolio of the Trust and shall not be binding upon any Director,
officer or shareholder of a Portfolio or the Trust individually.
6. This agreement shall be governed by, and construed and
interpreted in accordance with, the laws of The Commonwealth of
Massachusetts.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the _______ day of ________, 1996.
Attest: BT INSURANCE FUNDS TRUST
By:
Name:
Title:
Attest: FIRST DATA INVESTOR SERVICES GROUP, INC.
By:
Name:
Title:
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