As filed with the Securities and Exchange Commission on November
22, 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
X
Pre-Effective Amendment No.
Post-Effective Amendment No. 1 X
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 3 X
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
on pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a)(i), or
on pursuant to paragraph (a)(i)
X 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
Objectives and Policies; Risk Factors and Certain Securities and
Investment Practices; Who May Want to Invest; Investment
Principles and Risks
Item 5. Management of the Fund Management of the
Trust; Purchase and Redemption of Shares
Item 5A. Management's Discussion of
Fund Performance Not Applicable
Item 6. Capital Stock and Other Securities Dividends,
Distributions and Taxes
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 Risk
Factors and Certain Securities and Investment Practices
Item 14. Management of the Fund Management of the
Trust; Organization of the Trust
Item 15. Control Persons and Principal
Holders of Securities Management of the Trust;
Organization of the Trust
Item 16. Investment Advisory and
Other Services Management of the Trust
Item 17. Brokerage Allocation and
Other Practices Valuation of Securities;
Redemption in Kind
Item 18. Capital Stock and Other Securities Risk
Factors and Certain Securities and Investment Practices
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 FUND TRUST
PROSPECTUS: ____________, 1996
Small Cap Index Fund
This Prospectus offers shares of the Small Cap Index Fund (the
"Fund"), a series of BT Insurance Funds Trust (the "Trust"),
which is an open-end management investment company currently
having six 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").
The Fund seeks to replicate as closely as possible the
performance of the Russell 2000 Index before the deduction of
Fund expenses (the "Expenses"). There is no assurance, however,
that the Fund will achieve its stated objective.
Bankers Trust Company ("Bankers Trust") is the investment
manager (the "Manager") of the Fund.
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.
Fund shares are not deposits or obligations of, or guaranteed
by, Bankers Trust or any depository institution. Shares are not
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 NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
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
Page
THE FUND 3
Who May Want to Invest
Investment Principles and Risks
THE FUND IN DETAIL 3
Investment Objectives and Policies
Risk Factors and Certain Securities and Investment Practices
Net Asset Value
Performance Information and Reports
Management of the Trust
SHAREHOLDER AND ACCOUNT POLICIES 13
Purchase and Redemption of Shares
Dividends, Distributions and Taxes
THE FUND
The Fund seeks to replicate as closely as possible (before
deduction of Expenses) the total return of the Russell 2000
Small Stock Index (the "Russell 2000"), an index consisting of
2,000 small-capitalization common stocks. The Fund will include
the common stock of companies included in the Russell 2000, on
the basis of computer-generated statistical data, that are
deemed representative of the industry diversification of the
entire Russell 2000.
WHO MAY WANT TO INVEST
Shares of the Fund are available to the public only through the
purchase of Contracts issued by the Companies.
The Fund is not managed according to traditional methods of
"active" investment management, which involve the buying and
selling of securities based upon economic, financial and market
analysis and investment judgment. Instead, the Fund utilizes a
"passive" or "indexing" investment approach and attempts to
replicate the investment performance of the Russell 2000 through
statistical procedures.
The Fund may be appropriate for investors who are willing to
endure stock market fluctuations in pursuit of potentially
higher long-term returns. The Fund invests for growth and does
not pursue income as a primary objective. Over time, stocks,
although more volatile, have shown greater growth potential than
other types of securities. In the shorter term, however, stock
prices can fluctuate dramatically in response to market factors.
The Fund is intended to be a long-term investment vehicle and is
not designated to provide investors with a means of speculating
on short-term market movements. The Fund is not in itself a
balanced investment plan. Investors should consider their
investment objective and tolerance for risk when making an
investment decision. When an investor sells his or her Fund
shares, they may be worth more or less than what the investor
paid for them.
INVESTMENT PRINCIPLES AND RISKS
The value of the Fund's investments varies based on many
factors. Stock values fluctuate, sometimes dramatically, in
response to the activities of individual companies and general
market and economic conditions. Over time, however, stocks have
shown greater long-term growth potential than other types of
securities. Lower quality securities offer higher yields, but
also carry more risk.
General economic factors in the various world markets can also
impact the value of an investors investment. When investors
sell Fund shares, they may be worth more or less than what the
investors paid for them. See "Risk Factors and Certain
Securities and Investment Practices" for more information.
THE FUND IN DETAIL
INVESTMENT OBJECTIVES AND POLICIES
The following is a discussion of the various investments of and
techniques employed by the Fund. Additional information about
the investment policies of the Fund appears in "Risk Factors and
Certain Securities and Investment Practices" in this Prospectus
and in the Fund's SAI. There can be no assurance that the
investment objective of the Fund will be achieved.
The Fund seeks to replicate as closely as possible (before
deduction of Fund expenses) the total return of the Russell
2000. The Russell 2000 is composed of approximately 2,000
small-capitalization common stocks. A company's stock market
capitalization is the total market value of its floating
outstanding shares. As of December 31, 1995, the average stock
market capitalization of the Russell 2000 was $280 million and
the weighted average stock market capitalization of the Russell
2000 was $540 million.
The Fund is neither sponsored by nor affiliated with the Frank
Russell Company. Frank Russell's only relationship to the Fund
is the licensing of the use of the Russell 2000. Frank Russell
Company is the owner of the trademarks and copyrights relating
to the Russell indices.
The Fund invests in a statistically selected sample of the 2,000
stocks included in the Russell 2000. The stocks of the Russell
2000 to be included in the Fund will be selected utilizing a
statistical sampling technique known as "optimization." This
process selects stocks for the Fund so that various industry
weightings, market capitalizations and fundamental
characteristics (e.g., price-to-book, price-to-earnings and
debt-to-asset ratios and dividend yields) closely approximate
those of the Russell 2000. For instance, if 10% of the
capitalization of the Russell 2000 consists of utility companies
with relatively small capitalizations, then the Fund is
constructed so that approximately 10% of the Fund's assets are
invested in the stocks of utility companies with relatively
small capitalizations. The stocks held by the Fund are weighted
to make the Fund's aggregate investment characteristics similar
to those of the Russell 2000 as a whole.
General
Over time, the correlation between the performance of the Fund
and the Russell 2000 is expected to be 0.95 or higher before
deduction of Fund expenses. A correlation of 1.00 would
indicate perfect correlation, which would be achieved when the
net asset value of the Fund, including the value of its dividend
and any capital gain distributions, increases or decreases in
exact proportion to changes in the Russell 2000. The Fund's
ability to track the Russell 2000 may be affected by, among
other things, transaction costs, administration and other
expenses incurred by the Fund, changes in either the composition
of the Russell 2000 or the assets of the Fund, and the timing
and amount of Fund investor contributions and withdrawals, if
any. In the unlikely event that a high correlation is not
achieved, the Trust's Board of Trustees will consider
alternatives. Because the Fund seeks to track the Russell 2000,
Bankers Trust will not attempt to judge the merits of any
particular stock as an investment.
Under normal circumstances, the Fund will invest at least 80% of
its assets in the securities of the Russell 2000.
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. In the unlikely
event that the Russell 2000 should concentrate to an extent
greater than that amount, the Fund's ability to achieve its
objective may be impaired. These are fundamental investment
policies of the Fund which may not be changed without
shareholder approval. 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 with
maturities of more than seven days). Additional investment
policies of the Fund are contained in the SAI.
The Fund may maintain up to 25% of its assets in short-term debt
securities and money market instruments to meet redemption
requests or to facilitate investment in the securities of the
Russell 2000. Securities index futures contracts and related
options, warrants and convertible securities may be used for
several reasons: to simulate full investment in the Russell
2000 while retaining a cash balance for fund management
purposes, to facilitate trading, to reduce transaction costs or
to seek higher investment returns when a futures contract,
option, warrant or convertible security is priced more
attractively than the underlying equity security or the Russell
2000. These instruments may be considered derivatives. See
"Risk Factors and Certain Securities and Investment Practices --
Derivatives."
The use of derivatives for non-hedging purposes may be
considered speculative. While each of these securities can be
used as leveraged investments, the Fund may not use them to
leverage its net assets. The Fund will not invest in such
instruments as part of a temporary defensive strategy (in
anticipation of declining stock prices) to protect the Fund
against potential market declines.
The Fund may lend its investment securities and purchase
securities on a when-issued and a delayed delivery basis. See
"Risk Factors and Certain Securities and Investment Practices"
for more information about the investment practices of the Fund.
RISK FACTORS AND CERTAIN SECURITIES AND INVESTMENT PRACTICES
The following pages contain more detailed information about
types of instruments in which the Fund may invest and strategies
Bankers Trust may employ in pursuit of the Fund's investment
objective. A summary of risks and restrictions associated with
these instrument types and investment practices is included as
well.
Bankers Trust may not buy all of these instruments or use all of
these techniques to the full extent permitted unless it believes
that doing so will help the Fund achieve its goal. Holdings and
recent investment strategies are described in the financial
reports of the Fund, which are sent to Fund shareholders on a
semi-annual and annual basis.
Market Risk
As a mutual fund investing primarily in common stocks, the Fund
is subject to market risk --- i.e., the possibility that common
stock prices will decline over short or even extended periods.
The U.S. stock market tends to be cyclical, with periods when
stock prices generally rise and periods when prices generally
decline.
Risks of Investing in Medium- and Small-Capitalization Stocks
Historically, medium- and small-capitalization stocks have been
more volatile in price than the larger-capitalization stocks
included in the Standard & Poor's 500 Composite Stock Price
Index. Among the reasons for the greater price volatility of
these securities are: the less certain growth prospects of
smaller firms, the lower degree of liquidity in the markets for
such stocks, and the greater sensitivity of medium- and small-
size companies to changing economic conditions. In addition to
exhibiting greater volatility, medium- and small-size company
stocks may fluctuate independently of larger company stocks.
Medium- and small-size company stocks may decline in price as
large company stocks rise, or rise in price as large company
stocks decline.
The Fund's investment objective is not a fundamental policy and
may be changed upon notice to, but without the approval of, the
Fund's shareholders. If there is a change in the Fund's
investment objective, the Fund's shareholders should consider
whether the Fund remains an appropriate investment in light of
their then-current needs. Shareholders of the Fund will
receive 30 days prior written notice with respect to any change
in the investment objective of the Fund. See "Risk Factors and
Certain Securities and Investment Practices" in the SAI for a
description of the fundamental policies of the Fund that cannot
be changed without approval by "the vote 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 investment objective, policies and
restrictions of the Fund, see "The Fund in Detail" herein and
"Risk Factors and Certain Securities and Investment Practices"
herein and in the SAI. For descriptions of the management and
expenses of the Fund, see "Management of the Trust" herein and
in the SAI.
Short-Term Investments. The Fund may invest in certain short-
term fixed income securities. Such securities may be used to
invest uncommitted cash balances, to maintain liquidity to meet
shareholder redemptions or to serve as collateral for the
obligations underlying the Fund's investment in securities index
futures or related options or warrants. These securities
include: obligations issued or guaranteed by the U.S. Government
or any of its agencies or instrumentalities or by any of the
states, repurchase agreements, time deposits, certificates of
deposit, bankers' acceptances and commercial paper.
U.S. Government Securities are obligations of, or guaranteed by,
the U.S. Government, its agencies or instrumentalities. Some
U.S. Government securities, such as Treasury bills, notes and
bonds, are supported by the full faith and credit of the United
States; others, such as those of the Federal Home Loan Banks,
are supported by the right of the issuer to borrow from the
Treasury; others, such as those of the Federal National Mortgage
Association, are supported by the discretionary authority of the
U.S. Government to purchase the agency's obligations; and still
others, such as those of the Student Loan Marketing Association,
are supported only by the credit of the instrumentality.
Securities Lending. The Fund may lend its investment securities
to qualified institutional investors for either short-term or
long-term purposes of realizing additional income. Loans of
securities by the Fund will be collateralized by cash, letters
of credit, or securities issued or guaranteed by the U.S.
Government or its agencies. The collateral will equal at least
100% of the current market value of the loaned securities, and
such loans may not exceed 30% of the value of the Fund's net
assets. The risks in lending portfolio securities, as with
other extensions of credit, consist of possible loss of rights
in the collateral should the borrower fail financially. In
determining whether to lend securities, Bankers Trust will
consider all relevant facts and circumstances, including the
creditworthiness of the borrower.
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 its
custodian a segregated account containing cash or liquid
portfolio securities in an amount at least equal to these
commitments.
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 the Fund from exposure to changing interest
rates, securities prices or currency exchange rates and as a low
cost method of gaining exposure to a particular securities
market without investing directly in those securities. The
Manager will only use derivatives for cash management purposes.
Derivatives will not be used to increase portfolio risk above
the level that would 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.
Securities Index Futures and Related Options. The Fund may
enter into securities index futures contracts and related
options provided that not more than 5% of its assets are
required as a margin deposit for futures contracts or options
and provided that not more than 20% of the Fund's assets are
invested in futures and options at any time. When the Fund has
cash from new investments in the Fund or holds a portion of its
assets in money market instruments, it may enter into index
futures or options to attempt to increase its exposure to the
market. Strategies the Fund could use to accomplish this
include purchasing futures contracts, writing put options and
purchasing call options. When the Fund wishes to sell
securities, because of shareholder redemptions or otherwise, it
may use index futures or options to hedge against market risk
until the sale can be completed. These strategies could include
selling futures contracts, writing call options and purchasing
put options.
Warrants. Warrants are instruments which entitle the holder to
buy underlying equity securities at a specific price for a
specific period of time. A warrant tends to be more volatile
than its underlying securities and ceases to have value if it is
not exercised prior to its expiration date. In addition,
changes in the value of a warrant do not necessarily correspond
to changes in the value of its underlying securities.
Convertible Securities. The Fund may invest in convertible
securities which are a bond or preferred stock which may be
converted at a stated price within a specific period of time
into a specified number of shares of common stock of the same or
different issuer. Convertible securities are senior to common
stock in a corporation's capital structure, but usually are
subordinated to non-convertible debt securities. While providing
a fixed income stream -- generally higher in yield than the
income derived from a common stock but lower than that afforded
by a non-convertible debt security -- a convertible security
also affords an investor the opportunity, through its conversion
feature, to participate in the capital appreciation of common
stock into which it is convertible.
In general, the market value of a convertible security is the
higher of its investment value (its value as a fixed income
security) or its conversion value (the value of the underlying
shares of common stock if the security is converted). As a fixed
income security, the market value of a convertible security
generally increases when interest rates decline and generally
decreases when interest rates rise; however, the price of a
convertible security generally increases as the market value of
the underlying stock increases, and generally decreases as the
market value of the underlying stock declines. Investments in
convertible securities generally entail less risk than
investments in the common stock of the same issuer.
Further risks associated with the use of futures contracts,
options, warrants and convertible securities. The risk of loss
associated with futures contracts in some strategies can be
substantial due to both the low margin deposits required and the
extremely high degree of leverage involved in futures pricing.
As a result, a relatively small price movement in a futures
contract may result in an immediate and substantial loss or
gain. However, the Fund will not use futures contracts,
options, warrants and convertible securities for speculative
purposes or to leverage their net assets. Accordingly, the
primary risks associated with the use of futures contracts,
options, warrants and convertible securities by the Fund are:
(i) imperfect correlation between the change in market value of
the securities held by the Fund and the prices of futures
contracts, options, warrants and convertible securities; and
(ii) possible lack of a liquid secondary market for a futures
contract and the resulting inability to close a futures position
prior to its maturity date. The risk of imperfect correlation
will be minimized by investing only in those contracts whose
behavior is expected to resemble that of the Fund's underlying
securities. The risk that the Fund will be unable to close out
a futures position will be minimized by entering into stock
transactions on an exchange with an active and liquid secondary
market. However, options, warrants and convertible securities
purchased or sold over-the-counter may be less liquid than
exchange-traded securities. Illiquid securities, in general,
may not represent more than 15% of the net assets of the Fund.
Asset Coverage. To assure that futures and related options, as
well as when-issued and delayed-delivery securities, are not
used by the Fund to achieve excessive investment leverage, the
Fund will cover such transactions, as required under applicable
interpretations of the Securities and Exchange Commission (the
"SEC"), either by owning the underlying securities, entering
into an off-setting transaction, or by establishing a segregated
account with the Fund's custodian containing cash or liquid
portfolio securities in an amount at all times equal to or
exceeding the Fund's commitment with respect to these
instruments or contracts.
Portfolio Turnover
The frequency of Fund transactions - the Fund's turnover rate -
will vary from year to year depending on market conditions and
the Fund's cash flows. The Fund's annual portfolio turnover
rate is not expected to exceed 100%.
NET ASSET VALUE
The Fund is open for business each day 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.
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
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 and/or
the Trust's other service providers may have voluntarily agreed
to waive portions of their respective fees, or reimburse certain
operating expenses of the Fund, 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.
Total returns are based on past results and are not an
indication of future performance.
Shareholders will receive unaudited 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 TRUST
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 require 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 Trust" 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 June 30, 1996, Bankers Trust New York Corporation was the
seventh largest bank holding company in the United States with
total assets of approximately $115 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 $215 billion
in assets under management globally.
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.
As compensation for its services to the Fund, Bankers Trust
receives a fee from the Fund, accrued daily and paid monthly,
equal on an annual basis to 0.15% of the average daily net
assets of the Fund for its then-current fiscal year.
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 SAI
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.
Fund Manager
Frank Salerno, Managing Director of Bankers Trust, is
responsible for the day-to-day management of the Fund. Mr.
Salerno oversees administration, management and trading of
international and domestic equity index strategies. He has been
employed by Bankers Trust since 1981.
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 and
officers, accounting costs for reports sent to owners of the
Contracts which provide for investment in the Fund
("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
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. Pursuant to the terms of the
Administration Agreement, dated April 16, 1996, the Trust has
agreed to pay First Data a monthly fee at the annual rate of
0.02% of the value of the Trust's average monthly net assets not
exceeding $2 billion; 0.01% of the Trust's monthly average net
assets exceeding $2 billion but not exceeding $3 billion; and
0.0075% of the Trust's monthly average net assets exceeding $3
billion, in addition to a flat fee of $70,000 per year per Fund.
Distributor
440 Financial Distributors, Inc. (the "Distributor") 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 and Transfer Agent
Bankers Trust acts as custodian of the assets of the Fund and
First Data serves as the transfer agent for 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 the Fund and the Trust's other series, par value
$0.001 per share. The shares of each of the other series of the
Trust are offered through separate Prospectuses. 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, such 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 investment 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.
SHAREHOLDER AND ACCOUNT POLICIES
PURCHASE AND REDEMPTION OF SHARES
Shares of the Fund will be continuously offered to each
Company's separate accounts at the net asset value per share
next determined after a proper purchase request has been
received by the Company. The Company then offers to
Contractowners units in its separate accounts which directly
correspond to shares in the Fund. 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 the Distributor reserve the
right to reject any purchase order for shares of the Fund.
Payment for redeemed shares will ordinarily be made within seven
(7) 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 request in proper form.
A transaction fee of 0.50% is deducted from redemptions and
exchanges out of the Fund. These transaction fees are paid to
the respective Funds and are deducted automatically from the
amount redeemed.
The purpose of the 0.50% transaction fee is to allocate
transaction costs associated with redemptions and exchanges to
investors making those redemptions and exchanges, thus
insulating existing shareholders from those transaction costs.
These costs include: (1) brokerage costs; (2) the effect of the
"bid-ask" spread in small and medium sized company stock and
international markets; and (3) taxes in some countries. Since
the investors, not the Fund, bears these costs, the Fund is
expected to be able to track its benchmark index more closely.
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 SEC.
The accompanying offering memorandum for the 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 income and
capital gains to shareholders each year. The Fund distributes
capital gains and income dividends annually. 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.
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"). As a regulated investment company the
Fund will not be subject to U.S. Federal income tax on its
investment company taxable income and net capital gains (the
excess of net long-term capital gains over net short-term
capital losses), if any, that it distributes to shareholders.
The Fund intends to distribute to its shareholders, at least
annually, substantially all of its investment company taxable
income and net capital gains, and therefore does not anticipate
incurring a Federal income tax liability.
The 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.
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 Accountants
COOPERS & LYBRAND 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
EAFE Equity Index Fund
This Prospectus offers shares of the EAFE Equity Index Fund
(the "Fund"). The Fund is a series of BT Insurance Funds Trust
(the "Trust"), which is an open-end management investment
company currently having six 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").
The Fund seeks to replicate as closely as possible the
performance of the Morgan Stanley Capital International Europe,
Australia, Far East (EAFE) Index (the "EAFE Index") before the
deduction of Fund expenses (the "Expenses"). There is no
assurance, however, that the Fund will achieve its stated
objective.
Bankers Trust Company ("Bankers Trust") is the investment
manager (the "Manager") of the Fund.
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.
Fund shares are not deposits or obligations of, or guaranteed
by, Bankers Trust or any depository institution. Shares are not
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 NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The EAFE Index is the exclusive property of Morgan Stanley.
Morgan Stanley Capital International is a service mark of Morgan
Stanley and has been licensed for use by Bankers Trust Company.
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
Page
THE FUND 3
Who May Want to Invest
Investment Principles and Risks
THE FUND IN DETAIL 4
Investment Objectives and Policies
Risk Factors and Certain Securities and Investment Practices
Net Asset Value
Performance Information and Reports
Management of the Trust
SHAREHOLDER AND ACCOUNT POLICIES 13
Purchase and Redemption of Shares
Dividends, Distributions and Taxes
THE FUND
The Fund seeks to replicate as closely as possible (before
deduction of Expenses) the total return of EAFE Index, a
capitalization-weighted index containing approximately 1,100
equity securities of companies located outside the United
States. The Fund will be invested primarily in equity
securities of business enterprises organized and domiciled
outside of the United States or for which the principal trading
market is outside the United States. Statistical methods will
be employed to replicate the EAFE Index by buying most of the
EAFE Index securities. Securities purchased for the Fund will
generally, but not necessarily, be traded on a foreign
securities exchange.
WHO MAY WANT TO INVEST
Shares of the Fund are available to the public only through the
purchase of Contracts issued by the Companies.
The Fund is not managed according to traditional methods of
"active" investment management, which involve the buying and
selling of securities based upon economic, financial and market
analysis and investment judgment. Instead, the Fund utilizes a
"passive" or "indexing" investment approach and attempts to
replicate the investment performance of the EAFE Index through
statistical procedures.
The Fund may be appropriate for investors who are willing to
endure stock market fluctuations in pursuit of potentially
higher long-term returns. The Fund invests for growth and does
not pursue income. Over time, stocks, although more volatile,
have shown greater growth potential than other types of
securities. In the shorter term, however, stock prices can
fluctuate dramatically in response to market factors.
The Fund may be appropriate for investors who want to pursue
their investment goals in markets outside of the United States.
By including international investments in their portfolio,
investors can achieve an extra level of diversification and also
participate in opportunities around the world. However, there
are additional risks involved with international investing. The
performance of international funds depends upon currency values,
the political and regulatory environment, and overall economic
factors in the countries in which the Fund invests.
The Fund is intended to be a long-term investment vehicle and is
not designated to provide investors with a means of speculating
on short-term market movements. The Fund is not in itself a
balanced investment plan. Investors should consider their
investment objective and tolerance for risk when making an
investment decision. When an investor sells his or her Fund
shares, they may be worth more or less than what the investor
paid for them.
INVESTMENT PRINCIPLES AND RISKS
The value of the Fund's investments varies based on many
factors. Stock values fluctuate, sometimes dramatically, in
response to the activities of individual companies and general
market and economic conditions. Over time, however, stocks have
shown greater long-term growth potential than other types of
securities. Lower quality securities offer higher yields, but
also carry more risk.
Because many foreign investments are denominated in foreign
currencies, changes in the value of these currencies can
significantly affect the Fund's share price. General economic
factors in the various world markets can also impact the value
of an investors investment. When investors sell Fund shares,
they may be worth more or less than what the investors paid for
them. See "Risk Factors and Certain Securities and Investment
Practices" for more information.
THE FUND IN DETAIL
INVESTMENT OBJECTIVES AND POLICIES
The following is a discussion of the various investments of and
techniques employed by the Fund. Additional information about
the investment policies of the Fund appears in "Risk Factors and
Certain Securities and Investment Practices" in this Prospectus
and in the Fund's SAI. There can be no assurance that the
investment objective of the Fund will be achieved.
The Fund seeks to replicate as closely as possible (before
deduction of Expenses) the total return of the EAFE Index. The
Fund attempts to achieve this objective by investing in a
statistically selected sample of the equity securities included
in the EAFE Index.
The EAFE Index is a capitalization-weighted index containing
approximately 1,100 equity securities of companies located in
countries outside the United States. The countries currently
included in the EAFE Index are Australia, Austria, Belgium,
Denmark, Finland, France, Germany, Hong Kong, Ireland, Italy,
Japan, Malaysia, The Netherlands, New Zealand, Norway,
Singapore, Spain, Sweden, Switzerland and United Kingdom.
The Fund is constructed to have aggregate investment
characteristics similar to those of the EAFE Index. The Fund
invests in a statistically selected sample of the securities of
companies included in the EAFE Index, although not all companies
within a country will be represented in the Fund at the same
time. Stocks are selected for inclusion in the Fund based on
country of origin, market capitalization, yield, volatility and
industry sector. Bankers Trust will manage the Fund using
advanced statistical techniques to determine which stocks are to
be purchased or sold to replicate the EAFE Index. From time to
time, adjustments may be made in the Fund because of changes in
the composition of the EAFE Index, but such changes should be
infrequent.
The Fund is not sponsored, endorsed, sold or promoted by Morgan
Stanley. Morgan Stanley makes no representation or warranty,
express or implied, to the owners of the Fund or any member of
the public regarding the advisability of investing in securities
generally or in the Fund particularly or the ability of the EAFE
Index to track general stock market performance. Morgan Stanley
is the licenser of certain trademarks, service marks and trade
names of Morgan Stanley and of the EAFE Index which is
determined, composed and calculated by Morgan Stanley without
regard to the issuer of the Fund or the Fund itself. Morgan
Stanley has no obligation to take the needs of the issuer of the
Fund or the owners of the Fund into consideration in
determining, composing or calculating the EAFE Index. Inclusion
of a security in the EAFE Index in no way implies an opinion by
Morgan Stanley as to its attractiveness as an investment. Morgan
Stanley is not responsible for and has not participated in the
determination of the timing of, prices at, or quantities of the
Fund to be issued or in the determination or calculation of the
equation by which the Fund is redeemable for cash. Morgan
Stanley has no obligation or liability to owners of the Fund in
connection with the administration, marketing or trading of the
Fund. The Fund is neither sponsored by nor affiliated with
Morgan Stanley.
ALTHOUGH MORGAN STANLEY SHALL OBTAIN INFORMATION FOR INCLUSION
IN OR FOR USE IN THE CALCULATION OF THE INDICES FROM SOURCES
WHICH MORGAN STANLEY CONSIDERS RELIABLE, MORGAN STANLEY DOES NOT
GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE INDICES OR
ANY DATA INCLUDED THEREIN. MORGAN STANLEY MAKES NO WARRANTY,
EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY LICENSEE,
LICENSEE'S CUSTOMERS AND COUNTERPARTIES, OWNERS OF THE PRODUCTS,
OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE INDICES OR ANY
DATA INCLUDED THEREIN IN CONNECTION WITH THE RIGHTS LICENSED
HEREUNDER OR FOR ANY OTHER USE. MORGAN STANLEY MAKES NO EXPRESS
OR IMPLIED WARRANTIES, AND HEREBY EXPRESSLY DISCLAIMS ALL
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE WITH RESPECT TO THE INDICES OR ANY DATA INCLUDED
THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT
SHALL MORGAN STANLEY HAVE ANY LIABILITY FOR ANY DIRECT,
INDIRECT, SPECIAL, PUNITIVE, CONSEQUENTIAL OR ANY OTHER DAMAGES
(INCLUDING LOST PROFITS) EVEN IF NOTIFIED OF THE POSSIBILITY OF
SUCH DAMAGES.
General
Over time, the correlation between the performance of the Fund
and the EAFE Index is expected to be 0.95 or higher before
deduction of Fund expenses. A correlation of 1.00 would
indicate perfect correlation, which would be achieved when the
net asset value of the Fund, including the value of its dividend
and any capital gain distributions, increases or decreases in
exact proportion to changes in the EAFE Index. The Fund's
ability to track the EAFE Index may be affected by, among other
things, transaction costs, administration and other expenses
incurred by the Fund, changes in either the composition of the
EAFE Index or the assets of the Fund, and the timing and amount
of Fund investor contributions and withdrawals, if any. In the
unlikely event that a high correlation is not achieved, the
Trust's Board of Trustees will consider alternatives. Because
the Fund seeks to track the EAFE Index, Bankers Trust will not
attempt to judge the merits of any particular stock as an
investment.
Under normal circumstances, the Fund will invest at least 80% of
its assets in the securities of the EAFE Index.
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. In the unlikely event
that the EAFE Index should concentrate to an extent greater than
that amount, the Funds ability to achieve its objective may be
impaired. 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 with
maturities of more than seven days). These are fundamental
investment policies of the Fund which may not be changed without
shareholder approval. Additional investment policies of the
Fund are contained in the SAI.
The Fund may maintain up to 25% of its assets in short-term debt
securities and money market instruments to meet redemption
requests or to facilitate investment in the securities of the
EAFE Index. Securities index futures contracts and related
options, warrants and convertible securities may be used for
several reasons: to simulate full investment in the EAFE Index
while retaining a cash balance for fund management purposes, to
facilitate trading, to reduce transaction costs or to seek
higher investment returns when a futures contract, option,
warrant or convertible security is priced more attractively than
the underlying equity security or EAFE Index. These instruments
may be considered derivatives. See "Risk Factors and Certain
Securities and Investment Practices -- Derivatives."
The use of derivatives for non-hedging purposes may be
considered speculative. While each of these securities can be
used as leveraged investments, the Fund may not use them to
leverage its net assets. The Fund will not invest in such
instruments as part of a temporary defensive strategy (in
anticipation of declining stock prices) to protect the Fund
against potential market declines.
The Fund may lend its investment securities and purchase
securities on a when-issued and a delayed delivery basis. The
Fund may engage in foreign currency forward and futures
transactions for the purpose of enhancing Fund returns or
hedging against foreign exchange risk arising from the Fund's
investment or anticipated investment in securities denominated
in foreign currencies. See "Risk Factors and Certain Securities
and Investment Practices" for more information about the
investment practices of the Fund.
RISK FACTORS AND CERTAIN SECURITIES AND INVESTMENT PRACTICES
The following pages contain more detailed information about
types of instruments in which the Fund may invest and strategies
Bankers Trust may employ in pursuit of the Fund's investment
objective. A summary of risks and restrictions associated with
these instrument types and investment practices is included as
well.
Bankers Trust may not buy all of these instruments or use all of
these techniques to the full extent permitted unless it believes
that doing so will help the Fund achieve its goal. Holdings and
recent investment strategies are described in the financial
reports of the Fund, which are sent to Fund shareholders on a
semi-annual and annual basis.
Market Risk
As a mutual fund investing primarily in common stocks, the Fund
is subject to market risk --- i.e., the possibility that common
stock prices will decline over short or even extended periods.
The U.S. and foreign stock markets tend to be cyclical, with
periods when stock prices generally rise and periods when prices
generally decline.
Risks 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. Investors should realize that the value of
the Fund's foreign investments may be adversely affected by
changes in political or social conditions, diplomatic relations,
confiscatory taxation, expropriation, nationalization,
limitation on the removal of funds or assets, or imposition of
(or change in) exchange control or tax regulations in 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.
Because foreign securities generally are denominated and pay
dividends or interest in foreign currencies, 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.
In order to protect against uncertainty in the level of future
foreign currency exchange rates, the Fund is also authorized to
enter into certain foreign currency exchange transactions.
Furthermore, 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. The settlement
periods for foreign securities, which are often longer than
those for securities of U.S. issuers, may affect Fund liquidity.
Finally, there may be less government supervision and regulation
of securities exchanges, brokers and issuers in foreign
countries than in the United States.
The Fund's investment objective is not a fundamental policy and
may be changed upon notice to, but without the approval of, the
Fund's shareholders. If there is a change in the Fund's
investment objective, the Fund's shareholders should consider
whether the Fund remains an appropriate investment in light of
their then-current needs. Shareholders of the Fund will receive
30 days prior written notice with respect to any change in the
investment objective of the Fund. See "Risk Factors and Certain
Securities and Investment Practices" in the SAI for a
description of the fundamental policies of the Fund that cannot
be changed without approval by "the vote 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 investment objective, policies and
restrictions of the Fund, see "The Fund in Detail" herein and
"Risk Factors and Certain Securities and Investment Practices"
herein and in the SAI. For a description of the management and
expenses of the Fund, see "Management of the Trust" herein and
in the SAI.
Short-Term Investments. The Fund may invest in certain short-
term fixed income securities. Such securities may be used to
invest uncommitted cash balances, to maintain liquidity to meet
shareholder redemptions or to serve as collateral for the
obligations underlying the Fund's investment in securities index
futures or related options or warrants. These securities
include: obligations issued or guaranteed by the U.S. Government
or any of its agencies or instrumentalities or by any of the
states, repurchase agreements, time deposits, certificates of
deposit, bankers' acceptances and commercial paper.
U.S. Government Securities are obligations of, or guaranteed by,
the U.S. Government, its agencies or instrumentalities. Some
U.S. Government securities, such as Treasury bills, notes and
bonds, are supported by the full faith and credit of the United
States; others, such as those of the Federal Home Loan Banks,
are supported by the right of the issuer to borrow from the
Treasury; others, such as those of the Federal National Mortgage
Association, are supported by the discretionary authority of the
U.S. Government to purchase the agency's obligations; and still
others, such as those of the Student Loan Marketing Association,
are supported only by the credit of the instrumentality.
Securities Lending. The Fund may lend its investment securities
to qualified institutional investors for either short-term or
long-term purposes of realizing additional income. Loans of
securities by the Fund will be collateralized by cash, letters
of credit, or securities issued or guaranteed by the U.S.
Government or its agencies. The collateral will equal at least
100% of the current market value of the loaned securities, and
such loans may not exceed 30% of the value of the Fund's net
assets. The risks in lending portfolio securities, as with
other extensions of credit, consist of possible loss of rights
in the collateral should the borrower fail financially. In
determining whether to lend securities, Bankers Trust will
consider all relevant facts and circumstances, including the
creditworthiness of the borrower.
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 its
custodian a segregated account containing cash or liquid
portfolio securities in an amount at least equal to these
commitments.
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 the Fund from exposure to changing interest
rates, securities prices or currency exchange rates and as a low
cost method of gaining exposure to a particular securities
market without investing directly in those securities. The
Manager will only use derivatives for cash management purposes.
Derivatives will not be used to increase portfolio risk above
the level that would 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.
Securities Index Futures and Related Options. The Fund may
enter into securities index futures contracts and related
options provided that not more than 5% of its assets are
required as a margin deposit for futures contracts or options
and provided that not more than 20% of the Fund's assets are
invested in futures and options at any time. When the Fund has
cash from new investments in the Fund or holds a portion of its
assets in money market instruments, it may enter into index
futures or options to attempt to increase its exposure to the
market. Strategies the Fund could use to accomplish this
include purchasing futures contracts, writing put options and
purchasing call options. When the Fund wishes to sell
securities, because of shareholder redemptions or otherwise, it
may use index futures or options to hedge against market risk
until the sale can be completed. These strategies could include
selling futures contracts, writing call options and purchasing
put options.
Warrants. Warrants are instruments which entitle the holder to
buy underlying equity securities at a specific price for a
specific period of time. A warrant tends to be more volatile
than its underlying securities and ceases to have value if it is
not exercised prior to its expiration date. In addition,
changes in the value of a warrant do not necessarily correspond
to changes in the value of its underlying securities.
Convertible Securities. The Fund may invest in convertible
securities which are a bond or preferred stock which may be
converted at a stated price within a specific period of time
into a specified number of shares of common stock of the same or
different issuer. Convertible securities are senior to common
stock in a corporation's capital structure, but usually are
subordinated to non-convertible debt securities. While providing
a fixed income stream -- generally higher in yield than the
income derived from a common stock but lower than that afforded
by a non-convertible debt security -- a convertible security
also affords an investor the opportunity, through its conversion
feature, to participate in the capital appreciation of common
stock into which it is convertible.
In general, the market value of a convertible security is the
higher of its investment value (its value as a fixed income
security) or its conversion value (the value of the underlying
shares of common stock if the security is converted). As a fixed
income security, the market value of a convertible security
generally increases when interest rates decline and generally
decreases when interest rates rise; however, the price of a
convertible security generally increases as the market value of
the underlying stock increases, and generally decreases as the
market value of the underlying stock declines. Investments in
convertible securities generally entail less risk than
investments in the common stock of the same issuer.
Further risks associated with the use of futures contracts,
options, warrants and convertible securities. The risk of loss
associated with futures contracts in some strategies can be
substantial due to both the low margin deposits required and the
extremely high degree of leverage involved in futures pricing.
As a result, a relatively small price movement in a futures
contract may result in an immediate and substantial loss or
gain. However, the Fund will not use futures contracts,
options, warrants and convertible securities for speculative
purposes or to leverage their net assets. Accordingly, the
primary risks associated with the use of futures contracts,
options, warrants and convertible securities by the Fund are:
(i) imperfect correlation between the change in market value of
the securities held by the Fund and the prices of futures
contracts, options, warrants and convertible securities; and
(ii) possible lack of a liquid secondary market for a futures
contract and the resulting inability to close a futures position
prior to its maturity date. The risk of imperfect correlation
will be minimized by investing only in those contracts whose
behavior is expected to resemble that of the Fund's underlying
securities. The risk that the Fund will be unable to close out
a futures position will be minimized by entering into stock
transactions on an exchange with an active and liquid secondary
market. However, options, warrants and convertible securities
purchased or sold over-the-counter may be less liquid than
exchange-traded securities. Illiquid securities, in general,
may not represent more than 15% of the net assets of the Fund.
Foreign Currency Forward, Futures and Related Options
Transactions. The Fund may enter into foreign currency forward
and foreign currency futures contracts in order to maintain the
same currency exposure as the EAFE Index. The Fund may not
enter into such contracts as a way of protecting against
anticipated adverse changes in exchange rates between foreign
currencies and the U.S. dollar. A foreign currency forward
contract is an obligation 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 agreed upon by the parties, at a
price set at the time of the contract. Such contracts do not
eliminate fluctuations in the underlying prices of securities
held by the Fund. Although such contracts tend to minimize the
risk of loss due to a decline in the value of a currency that
has been sold forward, and the risk of loss due to an increase
in the value of a currency that has been purchased forward, at
the same time they tend to limit any potential gain that might
be realized should the value of such currency increase.
Asset Coverage. To assure that futures and related options, as
well as when-issued and delayed-delivery securities, are not
used by the Fund to achieve excessive investment leverage, the
Fund will cover such transactions, as required under applicable
interpretations of the Securities and Exchange Commission (the
"SEC"), either by owning the underlying securities, entering
into an off-setting transaction, or by establishing a segregated
account with the Fund's custodian containing cash or liquid
portfolio securities in an amount at all times equal to or
exceeding the Fund's commitment with respect to these
instruments or contracts.
Portfolio Turnover
The frequency of Fund transactions - the Fund's turnover rate -
will vary from year to year depending on market conditions and
the Fund's cash flows. The Fund's annual portfolio turnover
rate is not expected to exceed 100%.
NET ASSET VALUE
The Fund is open for business on each day when both the NYSE and
the Tokyo Stock Exchange are open (each such day being a
"Valuation Day"). 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 Fund will not process orders on any
day when either the NYSE or the Tokyo Stock Exchange is closed.
Orders received on such days will be priced on the next day the
Fund computes its net asset value. As such, investors may
experience a delay in purchasing or redeeming shares of the
Fund. 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.
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 the 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 and/or
the Trust's other service providers may have voluntarily agreed
to waive portions of their respective fees, or reimburse certain
operating expenses of the Fund, 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.
Total returns are based on past results and are not an
indication of future performance.
Shareholders will receive unaudited 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 TRUST
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 Trust" 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 June 30, 1996, Bankers Trust New York Corporation was the
seventh largest bank holding company in the United States with
total assets of approximately $115 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 $215 billion
in assets under management globally.
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.
As compensation for its services to the Fund, Bankers Trust
receives a fee from the Fund, accrued daily and paid monthly,
equal on an annual basis to 0.25% of the average daily net
assets of the Fund for its then-current fiscal year.
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 SAI
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.
Fund Manager
Richard J. Vella, Managing Director of Bankers Trust, is
responsible for the day-to-day management of the Fund. Mr.
Vella has been employed by Bankers Trust since 1985 and has ten
years of trading and investment experience.
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 and
officers, accounting costs for reports sent to owners of the
Contracts which provide for investment in the Fund
("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
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. Pursuant to the terms of the
Administration Agreement, dated April 16, 1996, the Trust has
agreed to pay First Data a monthly fee at the annual rate of
0.02% of the value of the Trust's average monthly net assets not
exceeding $2 billion; 0.01% of the Trust's monthly average net
assets exceeding $2 billion but not exceeding $3 billion and
0.0075% of the Trust's monthly average net assets exceeding $3
billion, in addition to a flat fee of $70,000 per year per Fund.
Distributor
440 Financial Distributors, Inc. (the "Distributor") 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 and Transfer Agent
Bankers Trust acts as custodian of the assets of the Fund and
First Data serves as the transfer agent for 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 the Fund and the Trust's other series, par value
$0.001 per share. The shares of the other series of the Trust
are offered through separate Prospectuses. 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, such 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 investment 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.
SHAREHOLDER AND ACCOUNT POLICIES
PURCHASE AND REDEMPTION OF SHARES
Shares of the Fund will be continuously offered to each
Company's separate accounts at the net asset value per share
next determined after a proper purchase request has been
received by the Company. The Company then offers to
Contractowners units in its separate accounts which directly
correspond to shares in the Fund. 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 the Distributor reserve the
right to reject any purchase order for shares of the Fund.
Payment for redeemed shares will ordinarily be made within seven
(7) 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 request in proper form.
A transaction fee of 0.50% is deducted from redemptions and
exchanges out of the Fund. These transaction fees are paid to
the respective Funds and are deducted automatically from the
amount redeemed.
The purpose of the 0.50% transaction fee is to allocate
transaction costs associated with redemptions and exchanges to
investors making those redemptions and exchanges, thus
insulating existing shareholders from those transaction costs.
These costs include: (1) brokerage costs; (2) the effect of the
"bid-ask" spread in small and medium sized company stock and
international markets; and (3) taxes in some countries. Since
the investors, not the Fund, bears these costs, the Fund is
expected to be able to track its benchmark index more closely.
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 SEC.
The accompanying offering memorandum for the 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 income and
capital gains to shareholders each year. The Fund distributes
capital gains and income dividends annually. 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.
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"). As a regulated investment company the
Fund will not be subject to U.S. Federal income tax on its
investment company taxable income and net capital gains (the
excess of net long-term capital gains over net short-term
capital losses), if any, that it distributes to shareholders.
The Fund intends to distribute to its shareholders, at least
annually, substantially all of its investment company taxable
income and net capital gains, and therefore does not anticipate
incurring a Federal income tax liability.
The 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 and 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.
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 Accountants
COOPERS & LYBRAND 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
Equity 500 Index Fund
This Prospectus offers shares of the Equity 500 Index Fund (the
"Fund"). The Fund is a series of BT Insurance Funds Trust (the
"Trust"), which is an open-end management investment company
currently having six 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").
The Fund seeks to replicate as closely as possible the
performance of the Standard & Poor's 500 Composite Stock Price
Index before the deduction of Fund expenses (the "Expenses").
There is no assurance, however, that the Fund will achieve its
stated objective.
Bankers Trust Company ("Bankers Trust") is the investment
manager (the "Manager") of the Fund.
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.
Fund shares are not deposits or obligations of, or guaranteed
by, Bankers Trust or any depository institution. Shares are not
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 NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
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
Page
THE FUND 3
Who May Want to Invest
Investment Principles and Risks
THE FUND IN DETAIL 4
Investment Objectives and Policies
Risk Factors and Certain Securities and Investment Practices
Net Asset Value
Performance Information and Reports
Management of the Trust
SHAREHOLDER AND ACCOUNT POLICIES 13
Purchase and Redemption of Shares
Dividends, Distributions and Taxes
THE FUND
The Fund seeks to replicate as closely as possible (before
deduction of Expenses) the total return of the Standard & Poor's
500 Composite Stock Price Index (the "S&P 500"), an index
emphasizing large-capitalization stocks. The Fund will include
the common stock of those companies included in the S&P 500,
other than Bankers Trust New York Corporation, selected on the
basis of computer generated statistical data, that are deemed
representative of the industry diversification of the entire S&P
500.
WHO MAY WANT TO INVEST
Shares of the Fund are available to the public only through the
purchase of Contracts issued by the Companies.
The Fund is not managed according to traditional methods of
"active" investment management, which involve the buying and
selling of securities based upon economic, financial and market
analysis and investment judgment. Instead, the Fund utilizes a
"passive" or "indexing" investment approach and attempts to
replicate the investment performance of the Russell 2000 through
statistical procedures.
The Fund may be appropriate for investors who are willing to
endure stock market fluctuations in pursuit of potentially
higher long-term returns. The Fund invests for growth and does
not pursue income. Over time, stocks, although more volatile,
have shown greater growth potential than other types of
securities. In the shorter term, however, stock prices can
fluctuate dramatically in response to market factors.
The Fund is intended to be a long-term investment vehicle and is
not designated to provide investors with a means of speculating
on short-term market movements. The Fund is not in itself a
balanced investment plan. Investors should consider their
investment objective and tolerance for risk when making an
investment decision. When an investor sells his or her Fund
shares, they may be worth more or less than what the investor
paid for them.
INVESTMENT PRINCIPLES AND RISKS
The Fund's investments vary based on many factors. Stock values
fluctuate, sometimes dramatically, in response to the activities
of individual companies and general market and economic
conditions. Over time, however, stocks have shown greater long-
term growth potential than other types of securities. Lower
quality securities offer higher yields, but also carry more
risk.
General economic factors in the various world markets can also
impact the value of an investors investment. When investors
sell Fund shares, they may be worth more or less than what the
investors paid for them. See "Risk Factors and Certain
Securities and Investment Practices" for more information.
THE FUND IN DETAIL
INVESTMENT OBJECTIVES AND POLICIES
The following is a discussion of the various investments of and
techniques employed by the Fund. Additional information about
the investment policies of the Fund appears in "Risk Factors and
Certain Securities and Investment Practices" herein and in the
Fund's SAI. There can be no assurance that the investment
objective of the Fund will be achieved.
The Fund seeks to replicate as closely as possible (before
deduction of Expenses) the total return of the S&P 500.
The S&P 500 is an index of 500 common stocks, most of which
trade on the New York Stock Exchange Inc. (the "NYSE"). Bankers
Trust believes that the S&P 500 is representative of the
performance of publicly traded common stocks in the U.S. in
general.
In seeking to replicate the performance of the S&P 500, before
deduction of Expenses, Bankers Trust will attempt over time to
allocate the Fund's investment among common stocks in
approximately the same proportions as they are represented in
the S&P 500, beginning with the heaviest weighted stocks that
make up a larger portion of the Index's value.
The Manager utilizes a two-stage sampling approach in seeking to
obtain its objective. Stage one, which encompasses large
capitalization stocks, maintains the stock holdings at or near
their benchmark weights. Large capitalization stocks are defined
as those securities which represent 0.10% or more of the S&P
500. In stage two, smaller stocks are analyzed and selected
using risk characteristics and industry weights in order to
match the sector and risk characteristics of the smaller
companies in the S&P 500. This approach helps to maximize Fund
liquidity while minimizing costs.
Bankers Trust generally will seek to match the composition of
the S&P 500 but usually will not invest the Fund's stock
portfolio to mirror the S&P 500 exactly. Because of the
difficulty and cost of executing relatively small stock
transactions, the Fund may not always be invested in the less
heavily weighted S&P 500 stocks, and may at times have its
portfolio weighted differently than the S&P 500, particularly if
the Fund has a low level of assets. In addition, the Fund may
omit or remove any S&P 500 stock from the Fund if, following
objective criteria, Bankers Trust judges the stock to be
insufficiently liquid or believes the merit of the investment
has been substantially impaired by extraordinary events or
financial conditions. Bankers Trust will not purchase the stock
of Bankers Trust New York Corporation, which is included in the
S&P 500, and instead will overweight its holdings of companies
engaged in similar businesses.
About the S&P 500. The S&P 500 is composed of 500 common stocks,
which are chosen by Standard & Poor's Corporation ("S&P") on a
statistical basis to be included in the S&P 500. The inclusion
of a stock in the S&P 500 in no way implies that S&P believes
the stock to be an attractive investment. The 500 securities,
most of which trade on the NYSE, represented, as of March 31,
1996, approximately 79.7% of the market value of all U.S. common
stocks. Each stock in the S&P 500 is weighted by its market
value. Bankers Trust believes that the performance of the S&P
500 is representative of the performance of publicly traded
common stocks in general. The composition of the S&P 500 is
determined by S&P and is based on such factors as the market
capitalization and trading activity of each stock and its
adequacy as a representation of stocks in a particular industry
group, and may be changed from time to time.
The Fund is not sponsored, endorsed, sold or promoted by S&P.
S&P makes no representation or warranty, express or implied, to
the shareholders of the Fund or any member of the public
regarding the advisability of investing in securities generally
or in the Fund particularly or the ability of the S&P 500 to
track general stock market performance.
S&P does not guarantee the accuracy and/or the completeness of
the S&P 500 or any data included therein.
S&P makes no warranty, express or implied, as to the results to
be obtained by the Fund, owners of the Fund, or any other person
or entity from the use of the S&P 500 or any data included
therein. S&P makes no express or implied warranties and hereby
expressly disclaims all such warranties of merchantability or
fitness for a particular purpose or use with respect to the S&P
500 or any data included therein.
For more information about the performance of the S&P 500, see
the SAI.
General
Over time, the correlation between the performance of the Fund
and the S&P 500 is expected to be 0.95 or higher before
deduction of Fund expenses. A correlation of 1.00 would
indicate perfect correlation, which would be achieved when the
net asset value of the Fund, including the value of its dividend
and any capital gain distributions, increases or decreases in
exact proportion to changes in the S&P 500. The Fund's ability
to track the S&P 500 may be affected by, among other things,
transaction costs, administration and other expenses incurred by
the Fund, changes in either the composition of the S&P 500 or
the assets of the Fund, and the timing and amount of Fund
investor contributions and withdrawals, if any. In the unlikely
event that a high correlation is not achieved, the Trust's Board
of Trustees will consider alternatives. Because the Fund seeks
to track the S&P 500, Bankers Trust will not attempt to judge
the merits of any particular stock as an investment.
Under normal circumstances, the Fund will invest at least 80% of
its assets in the securities of the S&P 500.
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. In the unlikely event
that the S&P 500 should concentrate to an extent greater than
that amount, the Funds ability to achieve its objective may be
impaired. These are fundamental investment policies of the Fund
which may not be changed without shareholder approval. 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 with maturities of more than seven
days). Additional investment policies of the Fund are contained
in the SAI.
The Fund may maintain up to 25% of its assets in short-term debt
securities and money market instruments to meet redemption
requests or to facilitate investment in the securities of the
S&P 500. Securities index futures contracts and related
options, warrants and convertible securities may be used for
several reasons: to simulate full investment in the S&P 500
while retaining a cash balance for fund management purposes, to
facilitate trading, to reduce transaction costs or to seek
higher investment returns when a futures contract, option,
warrant or convertible security is priced more attractively than
the underlying equity security or S&P 500. These instruments
may be considered derivatives. See "Risk Factors and Certain
Securities and Investment Practices -- Derivatives."
The use of derivatives for non-hedging purposes may be
considered speculative. While each of these securities can be
used as leveraged investments, the Fund may not use them to
leverage its net assets. No Fund will invest in such
instruments as part of a temporary defensive strategy (in
anticipation of declining stock prices) to protect the Fund
against potential market declines.
The Fund may lend its investment securities and purchase
securities on a when-issued and a delayed delivery basis. See
"Risk Factors and Certain Securities and Investment Practices"
for more information about the investment practices of the Fund.
RISK FACTORS AND CERTAIN SECURITIES AND INVESTMENT PRACTICES
The following pages contain more detailed information about
types of instruments in which the Fund may invest and strategies
Bankers Trust may employ in pursuit of the Fund's investment
objective. A summary of risks and restrictions associated with
these instrument types and investment practices is included as
well.
Bankers Trust may not buy all of these instruments or use all of
these techniques to the full extent permitted unless it believes
that doing so will help the Fund achieve its goal. Holdings and
recent investment strategies are described in the financial
reports of the Fund, which are sent to Fund shareholders on a
semi-annual and annual basis.
Market Risk
As a mutual fund investing primarily in common stocks, the Fund
is subject to market risk --- i.e., the possibility that common
stock prices will decline over short or even extended periods.
The U.S. stock market tends to be cyclical, with periods when
stock prices generally rise and periods when prices generally
decline.
The Fund's investment objective is not a fundamental policy and
may be changed upon notice to, but without the approval of, the
Fund's shareholders. If there is a change in the Fund's
investment objective, the Fund's shareholders should consider
whether the Fund remains an appropriate investment in light of
their then-current needs. Shareholders of the Fund will receive
30 days prior written notice with respect to any change in the
investment objective of the Fund. See "Risk Factors and Certain
Securities and Investment Practices" in the SAI for a
description of the fundamental policies of the Fund that cannot
be changed without approval by "the vote 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 investment objective, policies and
restrictions of the Fund, see "The Fund in Detail" herein and
"Risk Factors and Certain Securities and Investment Practices"
herein and in the SAI. For descriptions of the management and
expenses of the Fund, see "Management of the Trust" herein and
in the SAI.
Short-Term Investments. The Fund may invest in certain short-
term fixed income securities. Such securities may be used to
invest uncommitted cash balances, to maintain liquidity to meet
shareholder redemptions or to serve as collateral for the
obligations underlying the Fund's investment in securities index
futures or related options or warrants. These securities
include: obligations issued or guaranteed by the U.S. Government
or any of its agencies or instrumentalities or by any of the
states, repurchase agreements, time deposits, certificates of
deposit, bankers' acceptances and commercial paper.
U.S. Government Securities are obligations of, or guaranteed by,
the U.S. Government, its agencies or instrumentalities. Some
U.S. Government securities, such as Treasury bills, notes and
bonds, are supported by the full faith and credit of the United
States; others, such as those of the Federal Home Loan Banks,
are supported by the right of the issuer to borrow from the
Treasury; others, such as those of the Federal National Mortgage
Association, are supported by the discretionary authority of the
U.S. Government to purchase the agency's obligations; and still
others, such as those of the Student Loan Marketing Association,
are supported only by the credit of the instrumentality.
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. In lending
securities to brokers, dealers and other organizations, the Fund
is subject to risks which, like those associated with other
extensions of credit, include delays in recovery and possible
loss of rights in the collateral should the borrower fail
financially.
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 its
custodian a segregated account containing cash or liquid
portfolio securities in an amount at least equal to these
commitments.
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 as a low
cost method of gaining exposure to a particular securities
market without investing directly in those securities. The
Manager will only use derivatives for cash management purposes.
Derivatives will not be used to increase portfolio risk above
the level that would 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.
Securities Index Futures and Related Options. The Fund may
enter into securities index futures contracts and related
options provided that not more than 5% of its assets are
required as a margin deposit for futures contracts or options
and provided that not more than 20% of the Fund's assets are
invested in futures and options at any time. When the Fund has
cash from new investments in the Fund or holds a portion of its
assets in money market instruments, it may enter into index
futures or options to attempt to increase its exposure to the
market. Strategies the Fund could use to accomplish this
include purchasing futures contracts, writing put options and
purchasing call options. When the Fund wishes to sell
securities, because of shareholder redemptions or otherwise, it
may use index futures or options to hedge against market risk
until the sale can be completed. These strategies could include
selling futures contracts, writing call options and purchasing
put options.
Warrants. Warrants are instruments which entitle the holder to
buy underlying equity securities at a specific price for a
specific period of time. A warrant tends to be more volatile
than its underlying securities and ceases to have value if it is
not exercised prior to its expiration date. In addition,
changes in the value of a warrant do not necessarily correspond
to changes in the value of its underlying securities.
Convertible Securities. The Fund may invest in convertible
securities which are a bond or preferred stock which may be
converted at a stated price within a specific period of time
into a specified number of shares of common stock of the same or
different issuer. Convertible securities are senior to common
stock in a corporation's capital structure, but usually are
subordinated to non-convertible debt securities. While providing
a fixed income stream -- generally higher in yield than the
income derived from a common stock but lower than that afforded
by a non-convertible debt security -- a convertible security
also affords an investor the opportunity, through its conversion
feature, to participate in the capital appreciation of common
stock into which it is convertible.
In general, the market value of a convertible security is the
higher of its investment value (its value as a fixed income
security) or its conversion value (the value of the underlying
shares of common stock if the security is converted). As a fixed
income security, the market value of a convertible security
generally increases when interest rates decline and generally
decreases when interest rates rise; however, the price of a
convertible security generally increases as the market value of
the underlying stock increases, and generally decreases as the
market value of the underlying stock declines. Investments in
convertible securities generally entail less risk than
investments in the common stock of the same issuer.
Further risks associated with the use of futures contracts,
options, warrants and convertible securities. The risk of loss
associated with futures contracts in some strategies can be
substantial due to both the low margin deposits required and the
extremely high degree of leverage involved in futures pricing.
As a result, a relatively small price movement in a futures
contract may result in an immediate and substantial loss or
gain. However, the Fund will not use futures contracts,
options, warrants and convertible securities for speculative
purposes or to leverage their net assets. Accordingly, the
primary risks associated with the use of futures contracts,
options, warrants and convertible securities by the Fund are:
(i) imperfect correlation between the change in market value of
the securities held by the Fund and the prices of futures
contracts, options, warrants and convertible securities; and
(ii) possible lack of a liquid secondary market for a futures
contract and the resulting inability to close a futures position
prior to its maturity date. The risk of imperfect correlation
will be minimized by investing only in those contracts whose
behavior is expected to resemble that of the Fund's underlying
securities. The risk that the Fund will be unable to close out
a futures position will be minimized by entering into stock
transactions on an exchange with an active and liquid secondary
market. However, options, warrants and convertible securities
purchased or sold over-the-counter may be less liquid than
exchange-traded securities. Illiquid securities, in general,
may not represent more than 15% of the net assets of the Fund.
Asset Coverage. To assure that futures and related options, as
well as when-issued and delayed-delivery securities, are not
used by the Fund to achieve excessive investment leverage, the
Fund will cover such transactions, as required under applicable
interpretations of the Securities and Exchange Commission (the
"SEC"), either by owning the underlying securities, entering
into an off-setting transaction, or by establishing a segregated
account with the Fund's custodian containing cash or liquid
portfolio securities in an amount at all times equal to or
exceeding the Fund's commitment with respect to these
instruments or contracts.
Portfolio Turnover
The frequency of Fund transactions - the Fund's turnover rate -
will vary from year to year depending on market conditions and
the Fund's cash flows. The Fund's annual portfolio turnover
rate is not expected to exceed 100%.
NET ASSET VALUE
The Fund is open for business each day 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.
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 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 and/or
the Trust's other service providers may have voluntarily agreed
to waive portions of their respective fees, or reimburse certain
operating expenses of the Fund, 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.
Total returns are based on past results and are not an
indication of future performance.
Shareholders will receive unaudited 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 TRUST
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 require 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 Trust" 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 June 30, 1996, Bankers Trust New York Corporation was the
seventh largest bank holding company in the United States with
total assets of approximately $115 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 $215 billion
in assets under management globally.
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.
As compensation for its services to the Fund, Bankers Trust
receives a fee from the Fund, accrued daily and paid monthly,
equal on an annual basis to 0.10% of the average daily net
assets of the Fund for its then-current fiscal year.
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 SAI
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.
Fund Manager
Frank Salerno, Managing Director of Bankers Trust, is
responsible for the day-to-day management of the Fund. Mr.
Salerno oversees administration, management and trading of
international and domestic equity index strategies. He has been
employed by Bankers Trust since 1981.
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 and
officers, accounting costs for reports sent to owners of the
Contracts which provide for investment in the Fund
("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
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. Pursuant to the terms of the
Administration Agreement, dated April 16, 1996, the Trust has
agreed to pay First Data a monthly fee at the annual rate of
0.02% of the value of the Trust's average monthly net assets not
exceeding $2 billion; 0.01% of the Trust's monthly average net
assets exceeding $2 billion but not exceeding $3 billion; and
0.0075% of the Trust's monthly average net assets exceeding $3
billion, in addition to a flat fee of $70,000 per year per Fund.
Distributor
440 Financial Distributors, Inc. (the "Distributor") 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 and Transfer Agent
Bankers Trust acts as custodian of the assets of the Fund and
First Data serves as the transfer agent for 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 the Fund and the Trust's other series, par value
$0.001 per share. The shares of the other series of the Trust
are offered through separate Prospectuses. 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, such 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 investment 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.
SHAREHOLDER AND ACCOUNT POLICIES
PURCHASE AND REDEMPTION OF SHARES
Shares of the Fund will be continuously offered to each
Company's separate accounts at the net asset value per share
next determined after a proper purchase request has been
received by the Company. The Company then offers to
Contractowners units in its separate accounts which directly
correspond to shares in the Fund. 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 the Distributor reserve the
right to reject any purchase order for shares of the Fund.
Payment for redeemed shares will ordinarily be made within seven
(7) 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 request in proper form.
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 SEC.
The accompanying offering memorandum for the 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 income and
capital gains to shareholders each year. The Fund distributes
capital gains and income dividends annually. 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.
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"). As a regulated investment company the
Fund will not be subject to U.S. Federal income tax on its
investment company taxable income and net capital gains (the
excess of net long-term capital gains over net short-term
capital losses), if any, that it distributes to shareholders.
The Fund intends to distribute to its shareholders, at least
annually, substantially all of its investment company taxable
income and net capital gains, and therefore does not anticipate
incurring a Federal income tax liability.
The 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 contact a qualified tax adviser.
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 Accountants
COOPERS & LYBRAND 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 Index Fund
BT Insurance Funds Trust (the "Trust") is currently
comprised of six series: the Small Cap Index Fund (the "Fund")
and five other series. The shares of the Fund are described
herein. Capitalized terms not otherwise defined herein shall
have the same meaning as in the Prospectus.
Table of Contents
Risk Factors and Certain Securities and Investment Practices
2
Performance Information 12
Valuation of Securities; Redemption in Kind 13
Management of the Trust 14
Organization of the Trust 18
Taxation 18
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"). The investment adviser of the Fund is
Bankers Trust Global Investment Management, a unit of Bankers
Trust Company (the "Manager" or "Bankers Trust"). The
distributor of the Fund shares is 440 Financial Distributors,
Inc. (the "Distributor" or "440 Distributors").
The Prospectus for the Fund is dated _________, 1996. The
Prospectus provides the basic information investors should know
before investing and may be obtained without charge by calling
the Trust at the Customer Service Center at the telephone number
shown in the accompanying prospectus. This Statement of
Additional Information, which is not a Prospectus, is intended
to provide additional information regarding the activities and
operations of the Fund and should be read in conjunction with
the 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 the Fund's Prospectus.
BANKERS TRUST GLOBAL INVESTMENT MANAGEMENT,
a unit of BANKERS TRUST COMPANY
Investment Manager of the Fund
The Trust's distributor is 440 FINANCIAL DISTRIBUTORS, INC.,
4400 Computer Drive, Westborough, MA 01581.
RISK FACTORS AND CERTAIN SECURITIES AND INVESTMENT
PRACTICES
Investment Objective
The investment objective of the Fund is described in the
Fund's Prospectus. There can, of course, be no assurance that
the Fund will achieve its investment objective.
Investment Practices
The following is a discussion of the various investments
of and techniques employed by the 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.
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 the Fund's portfolio under the supervision of the
Trust's Board of Trustees. In reaching liquidity decisions, the
Manager will consider, among other things, the following
factors: (i) the frequency of trades and quotes for the
security; (ii) the number of dealers and other potential
purchasers wishing to purchase or sell the security;
(iii) dealer undertakings to make a market in the security and
(iv) the nature of the security and of the marketplace trades
(e.g., the time needed to dispose of the security, the method of
soliciting offers and the mechanics of the transfer).
Lending of Portfolio Securities. The Fund has the
authority to lend portfolio securities to brokers, dealers and
other financial organizations. The Fund will not lend
securities to Bankers Trust, the Distributor or their
affiliates. By lending its securities, the 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. The 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 receive
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 Trust's Board of Trustees must
terminate the loan and regain the right to vote the securities.
Short-Term Instruments. 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, which 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: (i) short-term obligations
issued or guaranteed by the U.S. government or any of its
agencies or instrumentalities or by any of the states; (ii)
other short-term debt securities rated AA or higher by S&P or Aa
or higher by Moody's or, if unrated, of comparable quality in
the opinion of Bankers Trust; (iii) commercial paper; (iv) bank
obligations, including negotiable certificates of deposit, time
deposits and bankers' acceptances; and (v) repurchase
agreements. At the time the Fund invests in commercial paper,
bank obligations or repurchase agreements, the issuer of the
issuer's parent must have outstanding debt rated AA or higher by
S&P or Aa or higher by Moody's or outstanding commercial paper
or bank obligations rated A-1 by S&P or Prime-1 by Moody's; or,
if no such ratings are available, the instrument must be of
comparable quality in the opinion of Bankers Trust.
When-Issued and Delayed Delivery Securities. The Fund may
purchase securities on a when-issued or delayed delivery basis.
For example, delivery of and payment for these securities can
take place a month or more after the date of the purchase
commitment. The purchase price and the interest rate payable,
if any, on the securities are fixed on the purchase commitment
date or at the time the settlement date is fixed. The value of
such securities is subject to market fluctuation and no interest
accrues to the Fund until settlement takes place. At the time
the Fund makes the commitment to purchase securities on a
when-issued or delayed delivery basis, it will record the
transaction, reflect the value each day of such securities in
determining its net asset value and, if applicable, calculate
the maturity for the purposes of average maturity from that
date. At the time of settlement a when-issued security may be
valued at less than the purchase price. To facilitate such
acquisitions, the Fund will maintain with the Fund's custodian a
segregated account with liquid assets, consisting of cash, U.S.
Government securities or other appropriate securities, in an
amount at least equal to such commitments. On delivery dates
for such transactions, the Fund will meet its obligations from
maturities or sales of the securities held in the segregated
account and/or from cash flow. If the Fund chooses to dispose
of the right to acquire a when-issued security prior to its
acquisition, it could, as with the disposition of any other Fund
obligation, incur a gain or loss due to market fluctuation. It
is the current policy of the Fund not to enter into when-issued
commitments exceeding in the aggregate 15% of the market value
of the Fund's total assets, less liabilities other than the
obligations created by when-issued commitments.
Additional U.S. Government Obligations. The Fund may
invest in obligations issued or guaranteed by U.S. Government
agencies or instrumentalities. These obligations may or may not
be backed by the "full faith and credit" of the United States.
In the case of securities not backed by the full faith and
credit of the United States, the Fund must look principally to
the federal agency issuing or guaranteeing the obligation for
ultimate repayment, and may not be able to assert a claim
against the United States itself in the event the agency or
instrumentality does not meet its commitments. Securities in
which the Fund may invest that are not backed by the full faith
and credit of the United States include, but are not limited to,
obligations of the Tennessee Valley Authority, the Federal Home
Loan Mortgage Corporation and the U.S. Postal Service, each of
which has the right to borrow from the U.S. Treasury to meet its
obligations, and obligations of the Federal Farm Credit System
and the Federal Home Loan Banks, both of whose obligations may
be satisfied only by the individual credits of each issuing
agency. Securities which are backed by the full faith and
credit of the United States include obligations of the
Government National Mortgage Association, the Farmers Home
Administration, and the export-import Bank.
Equity Investments. The Fund may invest in equity
securities listed on any domestic securities exchange or traded
in the over-the-counter market as well as certain restricted or
unlisted securities. They may or may not pay dividends or carry
voting rights. Common stock occupies the most junior position
in a company's capital structure.
Reverse Repurchase Agreements. The Fund may borrow funds
for temporary or emergency purposes, such as meeting larger than
anticipated redemption requests, and not for leverage, by among
other things, agreeing to sell portfolio securities to financial
institutions such as banks and broker-dealers and to repurchase
them at a mutually agreed date and price (a "reverse repurchase
agreement"). At the time the Fund enters into a reverse
repurchase agreement it will place in a segregated custodial
cash account, U.S. Government Obligations or high-grade debt
obligations having a value equal to the repurchase price,
including accrued interest. Reverse repurchase agreements
involve the risk that the market value of the securities sold by
the Fund may decline below the repurchase price of those
securities. Reverse repurchase agreements are considered to be
borrowings by the Fund.
Warrants. Warrants entitle the holder to buy common stock
from the issuer at a specific price (the strike price) for a
specific period of time. The strike price of warrants sometimes
is much lower than the current market price of the underlying
securities, yet warrants are subject to similar price
fluctuations. As a result, warrants may be more volatile
investments than the underlying securities.
Warrants do not entitle the holder to dividends or voting
rights with respect to the underlying securities and do not
represent any rights in the assets of the issuing company.
Also, the value of the warrant does not necessarily change with
the value of the underlying securities and a warrant ceases to
have value if it is not exercised prior to the expiration date.
Convertible Securities. Convertible securities may be a
debt security or preferred stock which may be converted into
common stock or 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.
The terms of any convertible security determine its
ranking in a company's capital structure. In the case of
subordinated convertible debentures, the holders' claims on
assets and earnings are subordinated to the claims of other
creditors, and are senior to the claims of preferred and common
shareholders. In the case of convertible preferred stock, the
holders' claims on assets and earnings are subordinated to the
claims of all creditors and are senior to the claims of common
shareholders.
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. When futures are purchased to hedge against a
possible increase in the price of securities before the Fund is
able to invest its cash (or cash equivalents) in an orderly
fashion, it is possible that the market may decline instead; if
the Fund then concludes not to invest its cash at that time
because of concern as to possible further market decline or for
other reasons, the Fund will realize a loss on the futures
contract that is not offset by a reduction in the price of the
instruments that were to be purchased. 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 hedged will not be perfect and could produce
unanticipated losses.
Successful use of the futures contract and related options
are subject to special risk considerations. A liquid secondary
market for any futures or options contract may not be available
when a futures or options position is sought to be closed. In
addition, there may be an imperfect correlation between
movements in the securities in the Fund. Successful use of
futures or options contracts is further dependent on Bankers
Trust's ability to correctly predict movements in the securities
markets and no assurance can be given that its judgment will be
correct. Successful use of options on securities or stock
indices are subject to similar risk considerations. In
addition, by writing covered call options, the Fund gives up the
opportunity, while the option is in effect, to profit from any
price increase in the underlying securities above the options
exercise price.
Futures Contracts. The Fund may enter into securities
index futures contracts. U.S. futures contracts have been
designed by exchanges which have been designated "contracts
markets" by the CFTC, and must be executed through a futures
commission merchant, or brokerage firm, which is a member of the
relevant contract market. Futures contracts trade on a number
of exchange markets, and, through their clearing corporations,
the exchanges guarantee performance of the contracts as between
the clearing members of the exchange.
These investments will be made by the Fund solely for cash
management purposes. Such investments will only be made if they
are economically appropriate to the reduction of risks involved
in the management of the Fund. In this regard, the Fund may
enter into futures contracts or options on futures related to
the Russell 2000 Index.
At the same time a futures contract is purchased or sold,
the 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.
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, the Fund will incur brokerage fees
when it purchases or sells 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.
In addition, futures contracts entail risks. The Manager
believes that use of such contracts will benefit the Fund. The
successful use of futures contracts, however, depends on the
degree of correlation between the futures and securities
markets.
Options on Futures Contracts. The Fund may use stock
index futures on a continual basis to equitize cash so that the
Fund may maintain 100% equity exposure. The Board of Trustees
has adopted a restriction 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 (other than those entered
into for bona fide hedging purposes) would exceed 5% of the
market value of the total assets of the Fund.
The Fund may purchase and write options on the futures
contract described above. A futures option gives the holder, in
return for the premium paid, the right to buy (call) from or
sell (put) to the writer of the option a futures contract at a
specified price at any time during the period of the option.
Upon exercise, the writer of the option is obligated to pay the
difference between the cash value of the futures contract and
the exercise price. Like the buyer or seller of a futures
contract, the holder, or writer, of an option has the right to
terminate its position prior to the scheduled expiration of the
option by selling, or purchasing an option of the same series,
at which time the person entering into the closing transaction
will realize a gain or loss. The Fund will be required to
deposit initial margin and variation margin with respect to put
and call options on futures contracts written by it pursuant to
brokers' requirements similar to those described above. Net
option premiums received will be included as initial margin
deposits. In anticipation of a decline in interest rates, the
Fund may purchase call options on futures contracts as a
substitute for the purchase of futures contracts to hedge
against a possible increase in the price of securities which the
Fund intends to purchase. Similarly, if the value of the
securities held by the Fund is expected to decline as a result
of an increase in interest rates, the Fund might purchase put
options or sell call options on futures contracts rather than
sell futures contracts.
Investments in futures options involve some of the same
considerations that are involved in connection with investments
in futures contracts (for example, the existence of a liquid
secondary market). In addition, the purchase or sale of an
option also entails the risk that changes in the value of the
underlying futures contract will not correspond to changes in
the value of the option purchased. Depending on the pricing of
the option compared to either the futures contract upon which it
is based, or upon the price of the securities being hedged, an
option may or may not be less risky than ownership of the
futures contract or such securities. In general, the market
prices of options can be expected to be more volatile than the
market prices on the underlying futures contracts. Compared to
the purchase or sale of futures contracts, however, the purchase
of call or put options on futures contracts may frequently
involve less potential risk to the Fund because the maximum
amount at risk is the premium paid for the options (plus
transaction costs). The writing of an option on a futures
contract involves risks similar to those risks relating to the
sale of futures contracts.
The 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,
the 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.
Options on Securities Indices. The Fund may 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.
Options on securities indices entail certain risks. The
absence of a liquid secondary market to close out options
positions on securities indices may occur, although the 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. The
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 the Fund's portfolio may not correlate
precisely with movements in the level of an index and,
therefore, the use of options on indices cannot serve as a
complete hedge. Because options on securities indices require
settlement in cash, the Manager may be forced to liquidate
portfolio securities to meet settlement obligations.
Investment Restrictions
The following investment restrictions are "fundamental
policies" of the Fund and may not be changed without the
approval of a "majority of the outstanding voting securities" of
the Fund. "Majority of the outstanding voting securities" under
the 1940 Act, and as used in this Statement of Additional
Information and the Prospectus, means, with respect to the 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 voting securities of the Fund.
As a matter of fundamental policy, the Fund may not:
(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 assets, it may borrow money as a temporary
measure for extraordinary or emergency purposes and enter into
reverse repurchase agreements or dollar roll transactions, and
except that it may pledge, mortgage or hypothecate not more than
1/3 of such assets to secure such borrowings (it is intended
that money would be borrowed only from banks and only either to
accommodate requests for the withdrawal of beneficial interests
(redemption of shares) while effecting an orderly liquidation of
portfolio securities or to maintain liquidity in the event of an
unanticipated failure to complete a portfolio security
transaction or other similar situations) or reverse repurchase
agreements, provided that collateral arrangements with respect
to options and futures, including deposits of initial deposit
and variation margin, are not considered a pledge of assets for
purposes of this restriction (as an operating policy, the Funds
may not engage in dollar roll transactions);
(2) underwrite securities issued by other persons except
insofar as the Trust or the Funds may technically be deemed an
underwriter under the 1933 Act in selling a portfolio security;
(3) make loans to other persons except: (a) through the
lending of the Fund's portfolio securities and provided that any
such loans not exceed 30% of the Fund's total assets (taken at
market value); or (b) through the use of repurchase agreements
or the purchase of short-term obligations;
(4) purchase or sell real estate (including limited
partnership interests but excluding securities secured by real
estate or interests therein), in the ordinary course of business
(except that the Trust 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 the Fund's investment
objective(s), up to 25% of its total assets may be invested in
any one industry;
(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
(except to the extent permitted in investment restriction No.
1), 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; and
(7) purchase the securities of any one issuer if as a
result more than 5% of the value of its total assets would be
invested in the securities of such issuer or the Fund would own
more than 10% of the outstanding voting securities of such
issuer, except that up to 25% of the value of its total assets
may be invested without regard to these 5% limitation and
provided that there is no limitation with respect to investments
in U.S. Government Securities.
Additional investment restrictions adopted by the Fund,
which may be changed by the Board of Trustees, provide that the
Fund may not:
(i) purchase any security or evidence of interest
therein on margin, except that such short-term credit as may be
necessary for the clearance of purchases and sales of securities
may be obtained and except that deposits of initial deposit and
variation margin may be made in connection with the purchase,
ownership, holding or sale of futures;
(ii) invest for the purpose of exercising control
or management;
(iii) purchase for the Fund securities of any
investment company 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 (as an operating policy, the Fund will not
invest in another open-end registered investment company); or
(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 not including (a)
Rule 144A securities that have been determined to be liquid by
the Board of Trustees; and (b) commercial paper that is sold
under section 4(2) of the 1933 Act which is not traded flat or
in default as to interest or principal.
There will be no violation of any investment restriction
if that restriction is complied with at the time the relevant
action is taken notwithstanding a later change in market value
of an investment, in net or total assets, in the securities
rating of the investment, or any other later change.
The Fund will comply with the state securities laws and
regulations of all states in which it is registered.
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 the 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 fund 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
fund securities on behalf of the 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 the
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 the 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 Trust may
determine, the Manager may consider sales of shares of a Fund as
a factor in the selection of broker-dealers to execute portfolio
transactions. Bankers Trust will make such allocations if
commissions are comparable to those charged by nonaffiliated,
qualified broker-dealers for similar services.
Higher commissions may be paid to firms that provide
research services to the extent permitted by law. Bankers Trust
may use this research information in managing the 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 the Fund
and to the Manager, it is the opinion of the management of the
Trust 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 Fund, and not all such information is
used by the Manager in connection with the Fund. 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 Fund.
In certain instances there may be securities which are
suitable for the Fund as well as for one or more of the
Manager's other clients. Investment decisions for the 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 adviser, particularly when the same security
is suitable for the investment objectives of more than one
client. When two or more clients are simultaneously engaged in
the purchase or sale of the same security, the securities are
allocated among clients in a manner believed to be equitable to
each. It is recognized that in some cases this system could
have a detrimental effect on the price or volume of the security
as far as the Fund is concerned. However, it is believed that
the ability of the Fund to participate in volume transactions
will produce better executions for the Fund.
PERFORMANCE INFORMATION
Standard Performance Information
From time to time, quotations of the Fund's performance
may be included in advertisements, sales literature or
shareholder reports. These performance figures are calculated
in the following manner:
Total Return: The Fund's average annual total return is
calculated for certain periods by determining the average annual
compounded rates of return over those periods that would cause
an investment of $1,000 (made at the maximum public offering
price with all distributions reinvested) to reach the value of
that investment at the end of the periods. The Fund may also
calculate total return figures which represent aggregate
performance over a period or year-by-year performance.
Performance Results: Any total return quotation provided
for the Fund should not be considered as representative of the
performance of the Fund in the future since the net asset value
and 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 the Fund to total returns published for other
investment companies or other investment vehicles. Total return
reflects the performance of both principal and income.
Comparison of Fund Performance
Comparison of the quoted nonstandardized performance of
various investments is valid only if performance is calculated
in the same manner. Since there are different methods of
calculating performance, investors should consider the effect of
the methods used to calculate performance when comparing
performance of the Fund with performance quoted with respect to
other investment companies or types of investments.
In connection with communicating its performance to
current or prospective shareholders, the Fund also may compare
these figures to the performance of other mutual funds tracked
by mutual fund rating services or to unmanaged indices which may
assume reinvestment of dividends but generally do not reflect
deductions for administrative and management costs.
Evaluations of the Fund's performance made by independent
sources may also be used in advertisements concerning the Fund.
Sources for the Fund's performance information could include the
following: Barron's, Business Week, Changing Times, The
Kiplinger's Magazine, Consumer Digest, Financial Times,
Financial World, Forbes, Fortune, Investor's Daily, Lipper
Analytical Services, Inc.'s Mutual Fund Performance Analysis,
Money, Morningstar Inc., New York Times, Personal Investing
News, Personal Investor, Success, U.S. News and World Report,
Value Line, Wall Street Journal, Weisenberger Investment
Companies Services and Working Women.
VALUATION OF SECURITIES; REDEMPTION IN KIND
Equity and debt securities (other than short-term debt
obligations maturing in 60 days or less), including listed
securities and securities for which price quotations are
available, will normally be valued on the basis of market
valuations furnished by a pricing service. Short-term debt
obligations and money market securities maturing in 60 days or
less are valued at amortized cost, which approximates market.
Securities for which market quotations are not available
are valued by Bankers Trust pursuant to procedures adopted by
the Trust's Board of Trustees. It is generally agreed that
securities for which market quotations are not readily available
should not be valued at the same value as that carried by an
equivalent security which is readily marketable.
The problems inherent in making a good faith determination
of value are recognized in the codification effected by SEC
Financial Reporting Release No. 1 ("FRR 1" (formerly Accounting
Series Release No. 113)) which concludes that there is "no
automatic formula" for calculating the value of restricted
securities. It recommends that the best method simply is to
consider all relevant factors before making any calculation.
According to FRR 1 such factors would include consideration of
the:
type of security involved, financial statements,
cost at date of purchase, size of holding, discount from market
value of unrestricted securities of the same class at the time
of purchase, special reports prepared by analysts, information
as to any transactions or offers with respect to the security,
existence of merger proposals or tender offers affecting the
security, price and extent of public trading in similar
securities of the issuer or comparable companies, and other
relevant matters.
To the extent that the Fund purchases securities which are
restricted as to resale or for which current market quotations
are not 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 the 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 the Fund, and the Fund have
elected, however, to be governed by Rule 18f-1 under the
1940 Act as a result of which the Fund is obligated to redeem
shares with respect to any one investor during any 90-day
period, solely in cash up to the lesser of $250,000 or 1% of the
net asset value of the Fund at the beginning of the period.
MANAGEMENT OF THE TRUST
The Board of Trustees of the Trust is composed of persons
experienced in financial matters who meet throughout the year to
oversee the activities of the Fund. In addition, the Trustees
review contractual arrangements with companies that provide
services to the Fund and review the Fund's performance.
The Trustees and officers of the Trust and their principal
occupations during the past five years are set forth below.
Their titles may have varied during that period. Asterisks
indicate those Trustees who are "interested persons" (as defined
in the 1940 Act) of the Trust. Unless otherwise indicated, the
address of each Trustee and officer is One Exchange Place,
Boston, Massachusetts.
Trustees and Officers
Name, Address and Age Position Held with the Trust Principal
Occupations
DuringPast 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, 55 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, 37 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, 39 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 September 1, 1996 the Trustees and officers of the
Trust owned in the aggregate less than 1% of the shares of the
Fund or the Trust (all series taken together).
Investment Manager
Under the terms of the 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. 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 the
Fund in accordance with the Fund's investment objectives,
restrictions and policies; (iii) make investment decisions for
the Fund; (iv) place purchase and sale orders for securities and
other financial instruments on behalf of the 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 the Management Agreement. The
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; cost 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 Fund, 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 Fund, Bankers Trust
will not inquire or take into consideration whether an issuer of
securities proposed for purchase or sale by the 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.
The Fund's prospectus contains disclosure as to the amount
of Bankers Trust's investment advisory and administration and
services fees.
Bankers Trust has agreed that if in any fiscal year the
aggregate expenses of the 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 the 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 the 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 assets and 1.50% of the remaining average annual
net assets.
Administrator
First Data, One Exchange Place, Boston, Massachusetts
02109, serves as administrator of the 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 the
Fund. First Data will generally assist in all aspects of the
Fund's 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.
Custodian and Transfer Agent
Bankers Trust, 280 Park Avenue, New York, New York 10017,
serves as custodian for the Fund. As custodian, it holds the
Fund's assets. Bankers Trust will comply with the self-
custodian provisions of Rule 17f-2 under the 1940 Act.
First Data serves as transfer agent of the Trust. Under
its transfer agency agreement with the Trust, First Data
maintains the shareholder account records for the Fund, handles
certain communications between shareholders and the Fund and
causes to be distributed any dividends and distributions payable
by the Fund.
Bankers Trust and First Data may be reimbursed by the Fund
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 Fund. The Trust has acknowledged
that the term "BT" is used by and is a property right of certain
subsidiaries of Bankers Trust and that those subsidiaries and/or
Bankers Trust may at any time permit others to use that term.
The Trust may be required, on 60 days' notice from Bankers
Trust at any time, to abandon use of the acronym "BT" as part of
its name. If this were to occur, the Trustees would select an
appropriate new name for the Trust, but there would be no other
material effect on the Trust, its shareholders or activities.
Banking Regulatory Matters
Bankers Trust has been advised by its counsel that in its
opinion Bankers Trust may perform the services for the Fund
contemplated by the Management Agreement and other activities
for the Fund described in the Prospectus 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
Trust and the Fund. State laws on this issue may differ from
the interpretations of relevant Federal law and banks and
financial institutions may be required to register as dealers
pursuant to state securities law. If the circumstances
described above should change, the Boards of Trustees would
review the relationships with Bankers Trust and consider taking
all actions necessary in the circumstances.
Counsel and Independent Accountants
Willkie Farr & Gallagher, One Citicorp Center, 153 East
53rd Street, New York, New York 10022-4669, serves as Counsel to
the Trust and the Fund. Ernst & Young L.L.P., 787 Seventh
Avenue, New York, New York 10019, acts as independent
accountants of the Trust and the 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 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 a 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 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 a Trust, the shareholder paying the liability will
be entitled to reimbursement from the general assets of the
Trust. The Trustees intend to conduct the operations of the
Trust in a manner so as to avoid, as far as possible, ultimate
liability of the shareholders for liabilities of the Trust.
The Trust was organized on January 19, 1996.
TAXATION
Taxation of the Funds
The Trust intends to qualify annually and to elect the
Fund to be treated as a regulated investment company under the
Code.
As a regulated investment company, the Fund will not be
subject to U.S. Federal income tax on its investment company
taxable income and net capital gains (the excess of net long-
term capital gains over net short-term capital losses), if any,
that it distributes to its shareholders, that is, the Companies'
separate accounts. The Fund intends to distribute to its
shareholders, at least annually, substantially all of its
investment company taxable income and net capital gains and,
therefore, does not anticipate incurring 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 the 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, the 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 contract owner's control of the investments of a
separate account may cause the variable contract owner, 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 contract owner 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 contract owner'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 the 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 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.
Distributions
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. There is no fixed dividend rate, and there can be no
assurance that the Fund will pay any dividends or realize any
capital gains. However, the 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 shares of the Fund, or upon receipt of a
distribution in complete liquidation of the Fund, generally will
be a capital gain or loss which will be long-term or short-term,
generally depending upon the shareholder's holding period for
the shares. Any loss realized on a sale or exchange will be
disallowed to the extent the shares disposed of are replaced
(including shares acquired pursuant to a dividend reinvestment
plan) within a period of 61 days beginning 30 days before and
ending 30 days after disposition of the shares. In such a case,
the basis of the shares acquired will be adjusted to reflect the
disallowed loss. Any loss realized by a shareholder on a
disposition of fund shares held by the shareholder for six
months or less will be treated as a long-term capital 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.
Backup Withholding
The Fund may be required to withhold U.S. Federal income
tax at the rate of 31% of all taxable distributions payable to
shareholders who fail to provide the Fund with their correct
taxpayer identification number or to make required
certifications, or who have been notified by the Internal
Revenue Service that they are subject to backup withholding.
Corporate shareholders and certain other shareholders specified
in the Code generally are exempt from such backup withholding.
Backup withholding is not an additional tax. Any amounts
withheld may be credited against the shareholder's U.S. Federal
income tax liability.
Other Taxation
The Trust is organized as a Massachusetts business trust
and, under current law, neither the Trust nor the Fund is viable
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 the Fund.
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 Accountants
ERNST & YOUNG LLP
Counsel
WILLKIE FARR & GALLAGHER
No person has been authorized to give any information or to
make any representations other than those contained in the Fund's
Prospectuses, the Statement of Additional Information or the
Trust'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 Trust. Neither the Prospectus nor this Statement of
Additional Information constitutes an offer in any state in which,
or to any person to whom, such offer may not lawfully be made.
STATEMENT OF
ADDITIONAL INFORMATION
________________________, 1996
BT INSURANCE FUNDS TRUST
EAFE Equity Index Fund
BT Insurance Funds Trust (the "Trust") is currently
comprised of six series: the EAFE Equity Index Fund (the "Fund")
and five other series. The shares of the Fund are described
herein. Capitalized terms not otherwise defined herein shall have
the same meaning as in the Prospectus.
Table of Contents
Risk Factors and Certain Securities and Investment Practices
2
Performance Information 16
Valuation of Securities; Redemption in Kind 17
Management of the Trust 18
Organization of the Trust 22
Taxation 23
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"). The investment adviser of the Fund is Bankers
Trust Global Investment Management, a unit of Bankers Trust
Company (the "Manager" or "Bankers Trust"). The distributor of
the Fund shares is 440 Financial Distributors, Inc. (the
"Distributor" or "440 Distributors").
The Prospectus for the Fund is dated _________, 1996. The
Prospectus provides the basic information investors should know
before investing and may be obtained without charge by calling the
Trust at the Customer Service Center at the telephone number shown
in the accompanying prospectus. This Statement of Additional
Information, which is not a Prospectus, is intended to provide
additional information regarding the activities and operations of
the Fund and should be read in conjunction with the 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 the Fund's Prospectus.
BANKERS TRUST GLOBAL INVESTMENT MANAGEMENT,
a unit of BANKERS TRUST COMPANY
Investment Manager of the Fund
The Trust's distributor is 440 FINANCIAL DISTRIBUTORS, INC., 4400
Computer Drive, Westborough, MA 01581.
RISK FACTORS AND CERTAIN SECURITIES AND INVESTMENT PRACTICES
Investment Objective
The investment objective of the Fund is described in the
Fund's Prospectus. There can, of course, be no assurance that the
Fund will achieve its investment objective.
Investment Practices
The following is a discussion of the various investments of
and techniques employed by the 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.
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 the Fund's portfolio under the supervision of the
Trust's Board of Trustees. In reaching liquidity decisions, the
Manager will consider, among other things, the following factors:
(i) the frequency of trades and quotes for the security; (ii) the
number of dealers and other potential purchasers wishing to
purchase or sell the security; (iii) dealer undertakings to make a
market in the security and (iv) the nature of the security and of
the marketplace trades (e.g., the time needed to dispose of the
security, the method of soliciting offers and the mechanics of the
transfer).
Lending of Portfolio Securities. The Fund has the authority
to lend portfolio securities to brokers, dealers and other
financial organizations. The Fund will not lend securities to
Bankers Trust, the Distributor or their affiliates. By lending
its securities, the 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.
The 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 receive
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 Trust's Board of Trustees must terminate
the loan and regain the right to vote the securities.
Short-Term Instruments. 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, which 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 S&P or Aa
or higher by Moody's or, if unrated, of comparable quality in the
opinion of Bankers Trust; (iii) commercial paper; (iv) bank
obligations, including negotiable certificates of deposit, time
deposits and bankers' acceptances; and (v) repurchase agreements.
At the time the Fund invests in commercial paper, bank obligations
or repurchase agreements, the issuer of the issuer's parent must
have outstanding debt rated AA or higher by S&P or Aa or higher by
Moody's or outstanding commercial paper or bank obligations rated
A-1 by S&P or Prime-1 by Moody's; or, if no such ratings are
available, the instrument must be of comparable quality in the
opinion of Bankers Trust. These instruments may be denominated in
U.S dollars or in foreign currencies.
When-Issued and Delayed Delivery Securities. The Fund may
purchase securities on a when-issued or delayed delivery basis.
For example, delivery of and payment for these securities can take
place a month or more after the date of the purchase commitment.
The purchase price and the interest rate payable, if any, on the
securities are fixed on the purchase commitment date or at the
time the settlement date is fixed. The value of such securities
is subject to market fluctuation and no interest accrues to the
Fund until settlement takes place. At the time the Fund makes the
commitment to purchase securities on a when-issued or delayed
delivery basis, it will record the transaction, reflect the value
each day of such securities in determining its net asset value
and, if applicable, calculate the maturity for the purposes of
average maturity from that date. At the time of settlement a
when-issued security may be valued at less than the purchase
price. To facilitate such acquisitions, the Fund will maintain
with the Fund's custodian a segregated account with liquid assets,
consisting of cash, U.S. Government securities or other
appropriate securities, in an amount at least equal to such
commitments. On delivery dates for such transactions, the Fund
will meet its obligations from maturities or sales of the
securities held in the segregated account and/or from cash flow.
If the Fund chooses to dispose of the right to acquire a
when-issued security prior to its acquisition, it could, as with
the disposition of any other Fund obligation, incur a gain or loss
due to market fluctuation. It is the current policy of the Fund
not to enter into when-issued commitments exceeding in the
aggregate 15% of the market value of the Fund's total assets, less
liabilities other than the obligations created by when-issued
commitments.
Additional U.S. Government Obligations. The Fund may invest
in obligations issued or guaranteed by U.S. Government agencies or
instrumentalities. These obligations may or may not be backed by
the "full faith and credit" of the United States. In the case of
securities not backed by the full faith and credit of the United
States, the Fund must look principally to the federal agency
issuing or guaranteeing the obligation for ultimate repayment, and
may not be able to assert a claim against the United States itself
in the event the agency or instrumentality does not meet its
commitments. Securities in which the Fund may invest that are not
backed by the full faith and credit of the United States include,
but are not limited to, obligations of the Tennessee Valley
Authority, the Federal Home Loan Mortgage Corporation and the U.S.
Postal Service, each of which has the right to borrow from the
U.S. Treasury to meet its obligations, and obligations of the
Federal Farm Credit System and the Federal Home Loan Banks, both
of whose obligations may be satisfied only by the individual
credits of each issuing agency. Securities which are backed by
the full faith and credit of the United States include obligations
of the Government National Mortgage Association, the Farmers Home
Administration, and the export-import Bank.
Equity Investments. The Fund may invest in equity
securities listed on any domestic or foreign securities exchange
or traded in the over-the-counter market as well as certain
restricted or unlisted securities. They may or may not pay
dividends or carry voting rights. Common stock occupies the most
junior position in a company's capital structure.
Reverse Repurchase Agreements. The Fund may borrow funds
for temporary or emergency purposes, such as meeting larger than
anticipated redemption requests, and not for leverage, by among
other things, agreeing to sell portfolio securities to financial
institutions such as banks and broker-dealers and to repurchase
them at a mutually agreed date and price (a "reverse repurchase
agreement"). At the time the Fund enters into a reverse
repurchase agreement it will place in a segregated custodial cash
account, U.S. Government Obligations or high-grade debt
obligations having a value equal to the repurchase price,
including accrued interest. Reverse repurchase agreements involve
the risk that the market value of the securities sold by the Fund
may decline below the repurchase price of those securities.
Reverse repurchase agreements are considered to be borrowings by
the Fund.
Warrants. Warrants entitle the holder to buy common stock
from the issuer at a specific price (the strike price) for a
specific period of time. The strike price of warrants sometimes
is much lower than the current market price of the underlying
securities, yet warrants are subject to similar price
fluctuations. As a result, warrants may be more volatile
investments than the underlying securities.
Warrants do not entitle the holder to dividends or voting
rights with respect to the underlying securities and do not
represent any rights in the assets of the issuing company. Also,
the value of the warrant does not necessarily change with the
value of the underlying securities and a warrant ceases to have
value if it is not exercised prior to the expiration date.
Convertible Securities. Convertible securities may be a
debt security or preferred stock which may be converted into
common stock or 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.
The terms of any convertible security determine its ranking
in a company's capital structure. In the case of subordinated
convertible debentures, the holders' claims on assets and earnings
are subordinated to the claims of other creditors, and are senior
to the claims of preferred and common shareholders. In the case
of convertible preferred stock, the holders' claims on assets and
earnings are subordinated to the claims of all creditors and are
senior to the claims of common shareholders.
Foreign Securities: Special Considerations Concerning Hong
Kong, Malaysia, Singapore and Japan. Many Asian countries may be
subject to a greater degree of social, political and economic
instability than is the case in the United States and European
countries. Such instability may result from (i) authoritarian
governments or military involvement in political and economic
decision-making; (ii) popular unrest associated with demands for
improved political, economic and social conditions; (iii) internal
insurgencies; (iv) hostile relations with neighboring countries;
and (v) ethnic, religious and racial disaffection.
The economies of most of the Asian countries are heavily
dependent upon international trade and are accordingly affected by
protective trade barriers and the economic conditions of their
trading partners, principally, the United States, Japan, China and
the European Community. The enactment by the United States or
other principal trading partners of protectionist trade
legislation, reduction of foreign investment in the local
economies and general declines in the international securities
markets could have a significant adverse effect upon the
securities markets of the Asian countries.
Hong Kong's impending return to Chinese dominion in 1997 has
not initially had a positive effect on its economic growth which
was vigorous in the 1980s. However, authorities in Beijing have
agreed to maintain a capitalist system for 50 years that, along
with Hong Kong's economic growth, continued to further strong
stock market returns. In preparation for 1997, Hong Kong has to
develop trade with China, where it is the largest foreign
investor, while also maintaining its long-standing export
relationship with the United States. Spending on infrastructure
improvements is a significant priority of the colonial government
while the private sector continues to diversify abroad based on
its position as an established international trade center in the
Far East.
The Hong Kong stock market is undergoing a period of growth
and change which may result in trading volatility and difficulties
in the settlement and recording of transactions, and in
interpreting and applying the relevant law and regulations.
The Malaysian economy continued to perform well, growing at
an average annual rate of 9% from 1987 through 1991. This placed
Malaysia as one of the fastest growing economies in the Asian-
Pacific region. Malaysia has become the world's third-largest
producer of semiconductor devices (after the US and Japan) and the
world's largest exporter of semiconductor devices. More
remarkable is the country's ability to achieve rapid economic
growth with relative price stability (2% inflation over the past
five years) as the government followed prudent fiscal/monetary
policies. Malaysia's high export dependence level leaves it
vulnerable to a recession in the Organization for Economic
Cooperation and Development countries or a fall in world commodity
prices.
Singapore has an open entrepreneurial economy with strong
service and manufacturing sectors and excellent international
trading links derived from its history. During the 1970s and
early 1980s, the economy expanded rapidly, achieving an average
annual growth rate of 9%. Per capita GDP is among the highest in
Asia. Singapore holds a position as a major oil refining and
services center.
Investing in Japanese securities may involve the risks
associated with investing in foreign securities generally. In
addition, because it invests in Japan, the Fund will be subject to
the general economic and political conditions in Japan.
Share prices of companies listed on Japanese stock exchanges
and on the Japanese OTC market reached historical peaks (which
were later referred to as the "bubble") as well as historically
high trading volumes in 1989 and 1990. Since then, stock prices in
both markets decreased significantly, with listed stock prices
reaching their lowest levels in the third quarter of 1992 and OTC
stock prices reaching their lowest levels in the fourth quarter of
1992. During the period from January 1, 1989 through December 31,
1994, the highest Nikkei stock average and Nikkei OTC average were
38,915.87 and 4,149.20, respectively, and the lowest for each were
14,309.41 and 1,099.32, respectively. There can be no assurance
that additional market corrections will not occur.
The common stocks of many Japanese companies continue to
trade at high price earnings ratios in comparison with those in
the United States, even after the recent market decline.
Differences in accounting methods make it difficult to compare the
earnings of Japanese companies with those of companies in other
countries, especially the United States.
Since the Fund invests in securities denominated in yen,
changes in exchange rates between the U.S. dollar and the yen
affect the U.S. dollar value of the Fund's assets. Such rate of
exchange is determined by forces of supply and demand on the
foreign exchange markets. These forces are in turn affected by the
international balance of payments and other economic, political
and financial conditions, government intervention, speculation and
other factors.
Japanese securities held by the Fund are not registered with
the SEC nor are the issuers thereof subject to its reporting
requirements. There may be less publicly available information
about issuers of Japanese securities than about U.S. companies and
such issuers may not be subject to accounting, auditing and
financial reporting standards and requirements comparable to those
to which U.S. companies are subject.
Although the Japanese economy has grown substantially over
the past four decades, recently the rate of growth had slowed
substantially. During 1991, 1992 and 1993, the Japanese economy
grew at rates of 4.3%, 1.1% and 0.1%, respectively, as measured by
real gross domestic product.
Japan's success in exporting its products has generated a
sizable trade surplus. Such trade surplus has caused tensions at
times between Japan and some of its trading partners. In
particular, Japan's trade relations with the United States have
recently been the subject of discussion and negotiation between
the two nations. The United States has imposed certain measures
designed to address trade issues in specific industries. These
measures and similar measures in the future may adversely affect
the performance of the Fund.
Japan's economy has typically exhibited low inflation and
low interest rates. There can be no assurance that low inflation
and low interest rates will continue, and it is likely that a
reversal of such factors would adversely affect the Japanese
economy. Moreover, the Japanese economy may differ, favorably or
unfavorably, from the U.S. economy in such respects as growth of
gross national product, rate of inflation, capital reinvestment,
resources, self-sufficiency and balance of payments position.
Japan has a parliamentary form of government. In 1993 a
coalition government was formed which, for the first time since
1955, did not include the Liberal Democratic Party. Since
mid-1993, there have been several changes in leadership in Japan.
What, if any, effect the current political situation will have on
prospective regulatory reforms of the economy in Japan cannot be
predicted. Recent and future developments in Japan and neighboring
Asian countries may lead to changes in policy that might adversely
affect the Fund.
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. When futures are purchased to hedge against a
possible increase in the price of securities before the Fund is
able to invest its cash (or cash equivalents) in an orderly
fashion, it is possible that the market may decline instead; if
the Fund then concludes not to invest its cash at that time
because of concern as to possible further market decline or for
other reasons, the Fund will realize a loss on the futures
contract that is not offset by a reduction in the price of the
instruments that were to be purchased. Successful use of futures
to hedge against foreign exchange risk depends on the Manager's
ability to forecast currency exchange rate movements correctly.
Should exchange rates move in an unexpected manner, the 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.
Successful use of the futures contract and related options
are subject to special risk considerations. A liquid secondary
market for any futures or options contract may not be available
when a futures or options position is sought to be closed. In
addition, there may be an imperfect correlation between movements
in the securities or currency in the Fund. Successful use of
futures or options contracts is further dependent on Bankers
Trust's ability to correctly predict movements in the securities
or foreign currency markets and no assurance can be given that its
judgment will be correct. Successful use of options on securities
or stock indices are subject to similar risk considerations. In
addition, by writing covered call options, the Fund gives up the
opportunity, while the option is in effect, to profit from any
price increase in the underlying securities above the options
exercise price.
Futures Contracts. The Fund may enter into contracts for
the purchase or sale for future delivery of foreign currencies or
contracts based on the EAFE Index. U.S. futures contracts have
been designed by exchanges which have been designated "contracts
markets" by the CFTC, and must be executed through a futures
commission merchant, or brokerage firm, which is a member of the
relevant contract market. Futures contracts trade on a number of
exchange markets, and, through their clearing corporations, the
exchanges guarantee performance of the contracts as between the
clearing members of the exchange.
At the same time a futures contract is purchased or sold,
the 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.
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, the Fund will incur brokerage fees when it purchases
or sells 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.
In addition, futures contracts entail risks. The Manager
believes that use of such contracts will benefit the Fund. The
successful use of futures contracts, however, depends on the
degree of correlation between the futures and securities markets.
Options on Futures Contracts. A futures option gives the
holder, in return for the premium paid, the right to buy (call)
from or sell (put) to the writer of the option a futures contract
at a specified price at any time during the period of the option.
Upon exercise, the writer of the option is obligated to pay the
difference between the cash value of the futures contract the
exercise price. Like the buyer or seller of a futures contract,
the holder, or writer, of an option has the right to terminate its
position prior to the scheduled expiration of the option by
selling, or purchasing an option of the same series, at which time
the person entering into the closing transaction will realize a
gain or loss. The Fund will be required to deposit initial margin
and variation margin with respect to put and call options on
futures contracts written by its pursuant to brokers' requirements
similar to those described above. Net option premiums received
will be included as initial margin deposits. In anticipation of a
decline in interest rates, the Fund may purchase call options on
futures contracts as a substitute for the purchase of futures
contracts to hedge against a possible increase in the price of
securities which the Fund intends to purchase. Similarly, if the
value of the securities held by the Fund is expected to decline as
a result of an increase in interest rates, the Fund might purchase
put options or sell call options on futures contracts rather than
sell futures contracts.
Investments in futures options involve some of the same
considerations that are involved in connection with investments in
futures contracts (for example, the existence of a liquid
secondary market). In addition, the purchase or sale of an option
also entails the risk that changes in the value of the underlying
futures contract will not correspond to changes in the value of
the option purchased. Depending on the pricing of the option
compared to either the futures contract upon which it is based, or
upon the price of the securities being hedged, an option may or
may not be less risky than ownership of the futures contract or
such securities. In general, the market prices of options can be
expected to be more volatile than the market prices on the
underlying futures contract. Compared to the purchase or sale of
futures contracts, however, the purchase of call or put options on
futures contracts may frequently involved less potential risk to
the Fund because the maximum amount at risk is the premium paid
for the options (plus transaction costs). The writing of an
option on a futures contract involves risks similar to those risks
relating to the sale of futures contracts.
The Trust's Board of Trustees has adopted the requirement
for the Fund that futures contracts and options on futures
contracts be used as a hedge and may also use stock index futures
on a continual basis to equitize cash so that the Fund may
maintain 100% equity exposure. In addition to this requirement,
the Board of Trustees has also adopted a restriction 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 (other
than those entered into for bona fide hedging purposes) would
exceed 5% of the market value of the total assets of the Fund.
Additional Risks of Options on Futures Contracts and Forward
Contracts. Unlike transactions entered into by the Fund in
futures contracts, 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.
The 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, the
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.
Futures contracts, options on futures contracts and forward
contracts may be traded on foreign exchanges. Such transactions
are subject to the risk of governmental actions affecting trading
in or the prices of foreign currencies or securities. The value
of such positions also could be adversely affected by: (i) other
complex foreign political and economic factors; (ii) lesser
availability than in the United States of data on which to make
trading decisions; (iii) delays in the 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 Indices. The Fund may 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.
Options on securities indices entail certain risks. The
absence of a liquid secondary market to close out options
positions on securities indices may occur, although the 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. The 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 the Fund's portfolio may not correlate
precisely with movements in the level of an index and, therefore,
the use of options on indices cannot serve as a complete hedge.
Because options on securities indices require settlement in cash,
the Manager may be forced to liquidate portfolio securities to
meet settlement obligations.
Forward Foreign Currency Exchange Contracts. Because the
Fund may buy and sell securities denominated in currencies other
than the U.S. dollar and receives interest, dividends and sale
proceeds in currencies other than the U.S. dollar, 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 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. The Fund maintains with its custodian a segregated
account of cash and liquid portfolio 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 that would adversely affect the 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,
the 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 same time they tend to limit any potential gain that might
be realized should the value of the hedged currency increase. The
precise matching of the forward contract amounts and the value of
the securities involved will not generally be possible because the
future value of such securities in foreign currencies will change
as a consequence of market movements in the value of such
securities between the date the forward contract is entered into
and the date it matures. The projection of currency market
movements is extremely difficult, and the successful execution of
a hedging strategy is highly uncertain.
While these contracts are not presently regulated by the
CFTC, the CFTC may in the future assert authority to regulate
forward contracts. In such event the 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 the Fund's foreign currency denominated portfolio securities
and the use of such techniques will subject the 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, the 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 contracts to hedge its assets.
Investment Restrictions
The following investment restrictions are "fundamental
policies" of the Fund and may not be changed without the approval
of a "majority of the outstanding voting securities" of the Fund.
"Majority of the outstanding voting securities" under the 1940
Act, and as used in this Statement of Additional Information and
the Prospectus, means, with respect to the 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
voting securities of the Fund.
As a matter of fundamental policy, the Fund may not:
(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 assets, it may borrow money as a temporary
measure for extraordinary or emergency purposes and enter into
reverse repurchase agreements or dollar roll transactions, and
except that it may pledge, mortgage or hypothecate not more than
1/3 of such assets to secure such borrowings (it is intended that
money would be borrowed only from banks and only either to
accommodate requests for the withdrawal of beneficial interests
(redemption of shares) while effecting an orderly liquidation of
portfolio securities or to maintain liquidity in the event of an
unanticipated failure to complete a portfolio security transaction
or other similar situations) or reverse repurchase agreements,
provided that collateral arrangements with respect to options and
futures, including deposits of initial deposit and variation
margin, are not considered a pledge of assets for purposes of this
restriction (as an operating policy, the Funds may not engage in
dollar roll transactions);
(2) underwrite securities issued by other persons except
insofar as the Trust or the Funds may technically be deemed an
underwriter under the 1933 Act in selling a portfolio security;
(3) make loans to other persons except: (a) through the
lending of the Fund's portfolio securities and provided that any
such loans not exceed 30% of the Fund's total assets (taken at
market value); or (b) through the use of repurchase agreements or
the purchase of short-term obligations;
(4) purchase or sell real estate (including limited
partnership interests but excluding securities secured by real
estate or interests therein), in the ordinary course of business
(except that the Trust 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 the Fund's investment
objective(s), up to 25% of its total assets may be invested in any
one industry;
(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,
(except to the extent permitted in investment restriction No. 1),
the 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; and
(7) purchase the securities of any one issuer if as a
result more than 5% of the value of its total assets would be
invested in the securities of such issuer or the Fund would own
more than 10% of the outstanding voting securities of such issuer,
except that up to 25% of the value of its total assets may be
invested without regard to these 5% limitation and provided that
there is no limitation with respect to investments in U.S.
Government Securities.
Additional investment restrictions adopted by the Fund,
which may be changed by the Board of Trustees, provide that the
Fund may not:
(i) purchase any security or evidence of interest
therein on margin, except that such short-term credit as may be
necessary for the clearance of purchases and sales of securities
may be obtained and except that deposits of initial deposit and
variation margin may be made in connection with the purchase,
ownership, holding or sale of futures;
(ii) invest for the purpose of exercising control or
management;
(iii) purchase for the Fund securities of any
investment company 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 (as
an operating policy, the Fund will not invest in another open-end
registered investment company); or
(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 not including (a) Rule 144A
securities that have been determined to be liquid by the Board of
Trustees; and (b) commercial paper that is sold under section 4(2)
of the 1933 Act which is not traded flat or in default as to
interest or principal.
There will be no violation of any investment restriction if
that restriction is complied with at the time the relevant action
is taken notwithstanding a later change in market value of an
investment, in net or total assets, in the securities rating of
the investment, or any other later change.
The Fund will comply with the state securities laws and
regulations of all states in which it is registered.
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 the 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 fund 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 fund securities on
behalf of the 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 the
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 the 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 Trust may
determine, the Manager may consider sales of shares of a Fund as a
factor in the selection of broker-dealers to execute portfolio
transactions. Bankers Trust will make such allocations if
commissions are comparable to those charged by nonaffiliated,
qualified broker-dealers for similar services.
Higher commissions may be paid to firms that provide
research services to the extent permitted by law. Bankers Trust
may use this research information in managing the 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 the Fund and
to the Manager, it is the opinion of the management of the Trust
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 Fund, and not all such information is used by the Manager
in connection with the Fund. 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 Fund.
In certain instances there may be securities which are
suitable for the Fund as well as for one or more of the Manager's
other clients. Investment decisions for the 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 adviser,
particularly when the same security is suitable for the investment
objectives of more than one client. When two or more clients are
simultaneously engaged in the purchase or sale of the same
security, the securities are allocated among clients in a manner
believed to be equitable to each. It is recognized that in some
cases this system could have a detrimental effect on the price or
volume of the security as far as the Fund is concerned. However,
it is believed that the ability of the Fund to participate in
volume transactions will produce better executions for the Fund.
PERFORMANCE INFORMATION
Standard Performance Information
From time to time, quotations of the Fund's performance may
be included in advertisements, sales literature or shareholder
reports. These performance figures are calculated in the
following manner:
Total Return: The Fund's average annual total return is
calculated for certain periods by determining the average annual
compounded rates of return over those periods that would cause an
investment of $1,000 (made at the maximum public offering price
with all distributions reinvested) to reach the value of that
investment at the end of the periods. The Fund may also calculate
total return figures which represent aggregate performance over a
period or year-by-year performance.
Performance Results: Any total return quotation provided
for the Fund should not be considered as representative of the
performance of the Fund in the future since the net asset value
and 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 the Fund
to total returns published for other investment companies or other
investment vehicles. Total return reflects the performance of
both principal and income.
Comparison of Fund Performance
Comparison of the quoted nonstandardized performance of
various investments is valid only if performance is calculated in
the same manner. Since there are different methods of calculating
performance, investors should consider the effect of the methods
used to calculate performance when comparing performance of the
Fund with performance quoted with respect to other investment
companies or types of investments.
In connection with communicating its performance to current
or prospective shareholders, the Fund also may compare these
figures to the performance of other mutual funds tracked by mutual
fund rating services or to unmanaged indices which may assume
reinvestment of dividends but generally do not reflect deductions
for administrative and management costs.
Evaluations of the Fund's performance made by independent
sources may also be used in advertisements concerning the Fund.
Sources for the Fund's performance information could include the
following: Asian Wall Street Journal, Barron's, Business Week,
Changing Times, The Kiplinger Magazine, Consumer Digest, Financial
Times, Financial World, Forbes, Fortune, Global Investor,
Investor's Daily, Lipper Analytical Services, Inc.'s Mutual Fund
Performance Analysis, Money, Morningstar Inc., New York Times,
Personal Investing News, Personal Investor, Success, U.S. News and
World Report, Value Line, Wall Street Journal, Weisenberger
Investment Companies Services and Working Women.
VALUATION OF SECURITIES; REDEMPTION IN KIND
Equity and debt securities (other than short-term debt
obligations maturing in 60 days or less), including listed
securities and securities for which price quotations are
available, will normally be valued on the basis of market
valuations furnished by a pricing service. Short-term debt
obligations and money market securities maturing in 60 days or
less are valued at amortized cost, which approximates market.
Securities for which market quotations are not available are
valued by Bankers Trust pursuant to procedures adopted by the
Trust's Board of Trustees. It is generally agreed that securities
for which market quotations are not readily available should not
be valued at the same value as that carried by an equivalent
security which is readily marketable.
The problems inherent in making a good faith determination
of value are recognized in the codification effected by SEC
Financial Reporting Release No. 1 ("FRR 1" (formerly Accounting
Series Release No. 113)) which concludes that there is "no
automatic formula" for calculating the value of restricted
securities. It recommends that the best method simply is to
consider all relevant factors before making any calculation.
According to FRR 1 such factors would include consideration of
the:
type of security involved, financial statements, cost
at date of purchase, size of holding, discount from market value
of unrestricted securities of the same class at the time of
purchase, special reports prepared by analysts, information as to
any transactions or offers with respect to the security, existence
of merger proposals or tender offers affecting the security, price
and extent of public trading in similar securities of the issuer
or comparable companies, and other relevant matters.
To the extent that the Fund purchases securities which are
restricted as to resale or for which current market quotations are
not 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 the 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 the Fund, and the Fund have elected,
however, to be governed by Rule 18f-1 under the 1940 Act as a
result of which the Fund is obligated to redeem shares with
respect to any one investor during any 90-day period, solely in
cash up to the lesser of $250,000 or 1% of the net asset value of
the Fund at the beginning of the period.
MANAGEMENT OF THE TRUST
The Board of Trustees of the Trust is composed of persons
experienced in financial matters who meet throughout the year to
oversee the activities of the Fund. In addition, the Trustees
review contractual arrangements with companies that provide
services to the Fund and review the Fund's performance.
The Trustees and officers of the Trust and their principal
occupations during the past five years are set forth below. Their
titles may have varied during that period. Asterisks indicate
those Trustees who are "interested persons" (as defined in the
1940 Act) of the Trust. Unless otherwise indicated, the address
of each Trustee and officer is One Exchange Place, Boston,
Massachusetts.
Trustees and Officers
Name, Address and Age Position Held with the Trust Principal
Occupations
DuringPast 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, 55 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, 37 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, 39 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 September 1, 1996 the Trustees and officers of the
Trust owned in the aggregate less than 1% of the shares of the
Fund or the Trust (all series taken together).
Investment Manager
Under the terms of the 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. 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 the Fund in accordance
with the Fund's investment objectives, restrictions and policies;
(iii) make investment decisions for the Fund; (iv) place purchase
and sale orders for securities and other financial instruments on
behalf of the 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 the Management Agreement. The 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; cost 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 Fund, 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 Fund, Bankers Trust will not inquire or
take into consideration whether an issuer of securities proposed
for purchase or sale by the 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.
The Fund's prospectus contains disclosure as to the amount
of Bankers Trust's investment advisory and administration and
services fees.
Bankers Trust has agreed that if in any fiscal year the
aggregate expenses of the 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 the 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 the
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 assets
and 1.50% of the remaining average annual net assets.
Administrator
First Data, One Exchange Place, Boston, Massachusetts 02109,
serves as administrator of the 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 the Fund. First Data
will generally assist in all aspects of the Fund's 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.
Custodian and Transfer Agent
Bankers Trust, 280 Park Avenue, New York, New York 10017,
serves as custodian for the Fund. As custodian, it holds the
Fund's assets. Bankers Trust will comply with the self-custodian
provisions of Rule 17f-2 under the 1940 Act.
First Data serves as transfer agent of the Trust. Under its
transfer agency agreement with the Trust, First Data maintains the
shareholder account records for the Fund, handles certain
communications between shareholders and the Fund and causes to be
distributed any dividends and distributions payable by the Fund.
Bankers Trust and First Data may be reimbursed by the Fund
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 Fund. The Trust has acknowledged
that the term "BT" is used by and is a property right of certain
subsidiaries of Bankers Trust and that those subsidiaries and/or
Bankers Trust may at any time permit others to use that term.
The Trust may be required, on 60 days' notice from Bankers
Trust at any time, to abandon use of the acronym "BT" as part of
its name. If this were to occur, the Trustees would select an
appropriate new name for the Trust, but there would be no other
material effect on the Trust, its shareholders or activities.
Banking Regulatory Matters
Bankers Trust has been advised by its counsel that in its
opinion Bankers Trust may perform the services for the Fund
contemplated by the Management Agreement and other activities for
the Fund described in the Prospectus 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 Trust and the Fund.
State laws on this issue may differ from the interpretations of
relevant Federal law and banks and financial institutions may be
required to register as dealers pursuant to state securities law.
If the circumstances described above should change, the Boards of
Trustees would review the relationships with Bankers Trust and
consider taking all actions necessary in the circumstances.
Counsel and Independent Accountants
Willkie Farr & Gallagher, One Citicorp Center, 153 East 53rd
Street, New York, New York 10022-4669, serves as Counsel to the
Trust and the Fund. Ernst & Young L.L.P., 787 Seventh Avenue, New
York, New York 10019, acts as independent accountants of the Trust
and the 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 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 a 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' 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 a Trust, the
shareholder paying the liability will be entitled to reimbursement
from the general assets of the Trust. The Trustees intend to
conduct the operations of the Trust in a manner so as to avoid, as
far as possible, ultimate liability of the shareholders for
liabilities of the Trust.
The Trust was organized on January 19, 1996.
TAXATION
Taxation of the Funds
The Trust intends to qualify annually and to elect the Fund
to be treated as a regulated investment company under the Code.
As a regulated investment company, the Fund will not be
subject to U.S. Federal income tax on its investment company
taxable income and net capital gains (the excess of net long-term
capital gains over net short-term capital losses), if any, that it
distributes to its shareholders, that is, the Companies' separate
accounts. The Fund intends to distribute to its shareholders, at
least annually, substantially all of its investment company
taxable income and net capital gains and, therefore, does not
anticipate incurring 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 the
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,
the 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 contract owner's control
of the investments of a separate account may cause the variable
contract owner, 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 contract owner
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 contract owner'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 the 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 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.
Distributions
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.
There is no fixed dividend rate, and there can be no assurance
that the Fund will pay any dividends to realize any capital gains.
However, the Fund currently intents 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 shares of the Fund, or upon receipt of a
distribution in complete liquidation of the Fund, generally will
be a capital gain or loss which will be long-term or short-term,
generally depending upon the shareholder's holding period for the
shares. Any loss realized on a sale or exchange will be
disallowed to the extent the shares disposed of are replaced
(including shares acquired pursuant to a dividend reinvestment
plan) within a period of 61 days beginning 30 days before and
ending 30 days after disposition of the shares. In such a case,
the basis of the shares acquired will be adjusted to reflect the
disallowed loss. Any loss realized by a shareholder on a
disposition of fund shares held by the shareholder for six months
or less will be treated as a long-term capital 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 the Fund from sources within foreign
countries may be subject to withholding and other taxes imposed by
such countries.
Backup Withholding
The Fund may be required to withhold U.S. Federal income tax
at the rate of 31% of all taxable distributions payable to
shareholders who fail to provide the Fund with their correct
taxpayer identification number or to make required certifications,
or who have been notified by the Internal Revenue Service that
they are subject to backup withholding. Corporate shareholders
and certain other shareholders specified in the Code generally are
exempt from such backup withholding. Backup withholding is not an
additional tax. Any amounts withheld may be credited against the
shareholder's U.S. Federal income tax liability.
Other Taxation
The Trust is organized as a Massachusetts business trust
and, under current law, neither the Trust nor the Fund is viable
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 the Fund.
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 Accountants
ERNST & YOUNG LLP
Counsel
WILLKIE FARR & GALLAGHER
No person has been authorized to give any information or to
make any representations other than those contained in the Fund's
Prospectuses, the Statement of Additional Information or the
Trust'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 Trust. Neither the Prospectus nor this Statement of
Additional Information constitutes an offer in any state in which,
or to any person to whom, such offer may not lawfully be made.
STATEMENT OF
ADDITIONAL INFORMATION
________________________, 1996
BT INSURANCE FUNDS TRUST
Equity 500 Index Fund
BT Insurance Funds Trust (the "Trust") is currently
comprised of six series: the Equity 500 Index Fund (the "Fund")
and five other series. The shares of the Fund are described
herein. Capitalized terms not otherwise defined herein shall have
the same meaning as in the Prospectus.
Table of Contents
Risk Factors and Certain Securities and Investment Practices
2
Performance Information 12
Valuation of Securities; Redemption in Kind 13
Management of the Trust 14
Organization of the Trust 17
Taxation 18
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"). The investment adviser of the Fund is Bankers
Trust Global Investment Management, a unit of Bankers Trust
Company (the "Manager" or "Bankers Trust"). The distributor of
the Fund shares is 440 Financial Distributors, Inc. (the
"Distributor" or "440 Distributors").
The Prospectus for the Fund is dated _________, 1996. The
Prospectus provides the basic information investors should know
before investing and may be obtained without charge by calling the
Trust at the Customer Service Center at the telephone number shown
in the accompanying prospectus. This Statement of Additional
Information, which is not a Prospectus, is intended to provide
additional information regarding the activities and operations of
the Fund and should be read in conjunction with the 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 the Fund's Prospectus.
BANKERS TRUST GLOBAL INVESTMENT MANAGEMENT,
a unit of BANKERS TRUST COMPANY
Investment Manager of the Fund
The Trust's distributor is 440 FINANCIAL DISTRIBUTORS, INC., 4400
Computer Drive, Westborough, MA 01581.
RISK FACTORS AND CERTAIN SECURITIES AND INVESTMENT PRACTICES
Investment Objective
The investment objective of the Fund is described in the
Fund's Prospectus. There can, of course, be no assurance that the
Fund will achieve its investment objective.
Investment Practices
The following is a discussion of the various investments of
and techniques employed by the 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.
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 the Fund's portfolio under the supervision of the
Trust's Board of Trustees. In reaching liquidity decisions, the
Manager will consider, among other things, the following factors:
(i) the frequency of trades and quotes for the security; (ii) the
number of dealers and other potential purchasers wishing to
purchase or sell the security; (iii) dealer undertakings to make a
market in the security and (iv) the nature of the security and of
the marketplace trades (e.g., the time needed to dispose of the
security, the method of soliciting offers and the mechanics of the
transfer).
Lending of Portfolio Securities. The Fund has the authority
to lend portfolio securities to brokers, dealers and other
financial organizations. The Fund will not lend securities to
Bankers Trust, the Distributor or their affiliates. By lending
its securities, the 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.
The 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 receive
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 Trust's Board of Trustees must terminate
the loan and regain the right to vote the securities.
Short-Term Instruments. 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, which 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: (i) short-term obligations
issued or guaranteed by the U.S. government or any of its agencies
or instrumentalities or by any of the states; (ii) other
short-term debt securities rated AA or higher by S&P or Aa or
higher by Moody's or, if unrated, of comparable quality in the
opinion of Bankers Trust; (iii) commercial paper; (iv) bank
obligations, including negotiable certificates of deposit, time
deposits and bankers' acceptances; and (v) repurchase agreements.
At the time the Fund invests in commercial paper, bank obligations
or repurchase agreements, the issuer of the issuer's parent must
have outstanding debt rated AA or higher by S&P or Aa or higher by
Moody's or outstanding commercial paper or bank obligations rated
A-1 by S&P or Prime-1 by Moody's; or, if no such ratings are
available, the instrument must be of comparable quality in the
opinion of Bankers Trust.
When-Issued and Delayed Delivery Securities. The Fund may
purchase securities on a when-issued or delayed delivery basis.
For example, delivery of and payment for these securities can take
place a month or more after the date of the purchase commitment.
The purchase price and the interest rate payable, if any, on the
securities are fixed on the purchase commitment date or at the
time the settlement date is fixed. The value of such securities
is subject to market fluctuation and no interest accrues to the
Fund until settlement takes place. At the time the Fund makes the
commitment to purchase securities on a when-issued or delayed
delivery basis, it will record the transaction, reflect the value
each day of such securities in determining its net asset value
and, if applicable, calculate the maturity for the purposes of
average maturity from that date. At the time of settlement a
when-issued security may be valued at less than the purchase
price. To facilitate such acquisitions, the Fund will maintain
with the Fund's custodian a segregated account with liquid assets,
consisting of cash, U.S. Government securities or other
appropriate securities, in an amount at least equal to such
commitments. On delivery dates for such transactions, the Fund
will meet its obligations from maturities or sales of the
securities held in the segregated account and/or from cash flow.
If the Fund chooses to dispose of the right to acquire a
when-issued security prior to its acquisition, it could, as with
the disposition of any other Fund obligation, incur a gain or loss
due to market fluctuation. It is the current policy of the Fund
not to enter into when-issued commitments exceeding in the
aggregate 15% of the market value of the Fund's total assets, less
liabilities other than the obligations created by when-issued
commitments.
Additional U.S. Government Obligations. The Fund may invest
in obligations issued or guaranteed by U.S. Government agencies or
instrumentalities. These obligations may or may not be backed by
the "full faith and credit" of the United States. In the case of
securities not backed by the full faith and credit of the United
States, the Fund must look principally to the federal agency
issuing or guaranteeing the obligation for ultimate repayment, and
may not be able to assert a claim against the United States itself
in the event the agency or instrumentality does not meet its
commitments. Securities in which the Fund may invest that are not
backed by the full faith and credit of the United States include,
but are not limited to, obligations of the Tennessee Valley
Authority, the Federal Home Loan Mortgage Corporation and the U.S.
Postal Service, each of which has the right to borrow from the
U.S. Treasury to meet its obligations, and obligations of the
Federal Farm Credit System and the Federal Home Loan Banks, both
of whose obligations may be satisfied only by the individual
credits of each issuing agency. Securities which are backed by
the full faith and credit of the United States include obligations
of the Government National Mortgage Association, the Farmers Home
Administration, and the export-import Bank.
Equity Investments. The Fund may invest in equity
securities listed on any domestic securities exchange or traded in
the over-the-counter market as well as certain restricted or
unlisted securities. They may or may not pay dividends or carry
voting rights. Common stock occupies the most junior position in
a company's capital structure.
Reverse Repurchase Agreements. The Fund may borrow funds
for temporary or emergency purposes, such as meeting larger than
anticipated redemption requests, and not for leverage, by among
other things, agreeing to sell portfolio securities to financial
institutions such as banks and broker-dealers and to repurchase
them at a mutually agreed date and price (a "reverse repurchase
agreement"). At the time the Fund enters into a reverse
repurchase agreement it will place in a segregated custodial cash
account, U.S. Government Obligations or high-grade debt
obligations having a value equal to the repurchase price,
including accrued interest. Reverse repurchase agreements involve
the risk that the market value of the securities sold by the Fund
may decline below the repurchase price of those securities.
Reverse repurchase agreements are considered to be borrowings by
the Fund.
Warrants. Warrants entitle the holder to buy common stock
from the issuer at a specific price (the strike price) for a
specific period of time. The strike price of warrants sometimes
is much lower than the current market price of the underlying
securities, yet warrants are subject to similar price
fluctuations. As a result, warrants may be more volatile
investments than the underlying securities.
Warrants do not entitle the holder to dividends or voting
rights with respect to the underlying securities and do not
represent any rights in the assets of the issuing company. Also,
the value of the warrant does not necessarily change with the
value of the underlying securities and a warrant ceases to have
value if it is not exercised prior to the expiration date.
Convertible Securities. Convertible securities may be a
debt security or preferred stock which may be converted into
common stock or 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.
The terms of any convertible security determine its ranking
in a company's capital structure. In the case of subordinated
convertible debentures, the holders' claims on assets and earnings
are subordinated to the claims of other creditors, and are senior
to the claims of preferred and common shareholders. In the case
of convertible preferred stock, the holders' claims on assets and
earnings are subordinated to the claims of all creditors and are
senior to the claims of common shareholders.
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. When futures are purchased to hedge against a
possible increase in the price of securities before the Fund is
able to invest its cash (or cash equivalents) in an orderly
fashion, it is possible that the market may decline instead; if
the Fund then concludes not to invest its cash at that time
because of concern as to possible further market decline or for
other reasons, the Fund will realize a loss on the futures
contract that is not offset by a reduction in the price of the
instruments that were to be purchased. 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 hedged or used for cover will not be perfect and could
produce unanticipated losses.
Successful use of the futures contract and related options
are subject to special risk considerations. A liquid secondary
market for any futures or options contract may not be available
when a futures or options position is sought to be closed. In
addition, there may be an imperfect correlation between movements
in the securities in the Fund. Successful use of futures or
options contracts is further dependent on Bankers Trust's ability
to correctly predict movements in the securities markets and no
assurance can be given that its judgment will be correct.
Successful use of options on securities or stock indices are
subject to similar risk considerations. In addition, by writing
covered call options, the Fund gives up the opportunity, while the
option is in effect, to profit from any price increase in the
underlying securities above the options exercise price.
Futures Contracts. The Fund may enter into securities index
futures contracts. U.S. futures contracts have been designed by
exchanges which have been designated "contracts markets" by the
CFTC, and must be executed through a futures commission merchant,
or brokerage firm, which is a member of the relevant contract
market. Futures contracts trade on a number of exchange markets,
and, through their clearing corporations, the exchanges guarantee
performance of the contracts as between the clearing members of
the exchange. These investments will be made by the Fund solely
for cash management purposes. Such investments will be made only
if they are economically appropriate to the reduction of risks
involved in the management of the Fund. In this regard, the Fund
may enter into futures contracts or options on futures related to
the Standard & Poor's 500 Composite Stock Price Index.
At the same time a futures contract is purchased or sold,
the 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.
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, the Fund will incur brokerage fees when it purchases
or sells 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. The Manager
believes that use of such contracts will benefit the Fund. The
successful use of futures contracts, however, depends on the
degree of correlation between the futures and securities markets.
Options on Futures Contracts. The Fund may use stock index
futures on a continual basis to equitize cash so that the Fund may
maintain 100% equity exposure. The Board of Trustees has adopted
a restriction 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 (other than those entered into
for bona fide hedging purposes) would exceed 5% of the market
value of the total assets of the Fund.
A futures option gives the holder, in return for the premium
paid, the right to buy (call) from or sell (put) to the writer of
the option a futures contract at a specified price at any time
during the period of the option. Upon exercise, the writer of the
option is obligated to pay the difference between the cash value
of the futures contract and the exercise price. Like the buyer or
seller of a futures contract, the holder, or writer, of an option
has the right to terminate its position prior to the scheduled
expiration of the option by selling, or purchasing an option of
the same series, at which time the person entering into the
closing transaction will realize a gain or loss. The Fund will be
required to deposit initial margin and variation margin with
respect to put and call options on futures contracts written by it
pursuant to brokers' requirements similar to those described
above. Net option premiums received will be included as initial
margin deposits. In anticipation of a decline in interest rates,
the Fund may purchase call options on futures contracts as a
substitute for the purchase of futures contracts to hedge against
a possible increase in the price of securities which the Fund
intends to purchase. Similarly, if the value of the securities
held by the Fund is expected to decline as a result of an increase
in interest rates, the Fund might purchase put options or sell
call options on futures contracts rather than sell futures
contracts.
Investments in futures options involve some of the same
considerations that are involved in connection with investments in
futures contracts (for example, the existence of a liquid
secondary market). In addition, the purchase or sale of an option
also entails the risk that changes in the value of the underlying
futures contract will not correspond to changes in the value of
the option purchased. Depending on the pricing of the option
compared to either the futures contract upon which it is based, or
upon the price of the securities being hedged, an option may or
may not be less risky than ownership of the futures contract or
such securities. In general, the market prices of options can be
expected to be more volatile than the market prices on the
underlying futures contract. Compared to the purchase or sale of
futures contracts, however, the purchase of call or put options on
futures contracts may frequently involve less potential risk to
the Fund because the maximum amount at risk is the premium paid
for the options (plus transaction costs). The writing of an
option on a futures contact involves risks similar to those risks
relating to the sale of futures contracts.
Options on Securities Indices. The Fund may 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.
Options on securities indices entail certain risks. The
absence of a liquid secondary market to close out options
positions on securities indices may occur, although the 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. The 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 the Fund's portfolio may not correlate
precisely with movements in the level of an index and, therefore,
the use of options on indices cannot serve as a complete hedge.
Because options on securities indices require settlement in cash,
the Manager may be forced to liquidate portfolio securities to
meet settlement obligations.
Investment Restrictions
The following investment restrictions are "fundamental
policies" of the Fund and may not be changed without the approval
of a "majority of the outstanding voting securities" of the Fund.
"Majority of the outstanding voting securities" under the 1940
Act, and as used in this Statement of Additional Information and
the Prospectus, means, with respect to the 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
voting securities of the Fund.
As a matter of fundamental policy, the Fund may not:
(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 assets, it may borrow money as a temporary
measure for extraordinary or emergency purposes and enter into
reverse repurchase agreements or dollar roll transactions, and
except that it may pledge, mortgage or hypothecate not more than
1/3 of such assets to secure such borrowings (it is intended that
money would be borrowed only from banks and only either to
accommodate requests for the withdrawal of beneficial interests
(redemption of shares) while effecting an orderly liquidation of
portfolio securities or to maintain liquidity in the event of an
unanticipated failure to complete a portfolio security transaction
or other similar situations) or reverse repurchase agreements,
provided that collateral arrangements with respect to options and
futures, including deposits of initial deposit and variation
margin, are not considered a pledge of assets for purposes of this
restriction (as an operating policy, the Funds may not engage in
dollar roll transactions);
(2) underwrite securities issued by other persons except
insofar as the Trust or the Funds may technically be deemed an
underwriter under the 1933 Act in selling a portfolio security;
(3) make loans to other persons except: (a) through the
lending of the Fund's portfolio securities and provided that any
such loans not exceed 30% of the Fund's total assets (taken at
market value); or (b) through the use of repurchase agreements or
the purchase of short-term obligations;
(4) purchase or sell real estate (including limited
partnership interests but excluding securities secured by real
estate or interests therein), in the ordinary course of business
(except that the Trust 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 the Fund's investment
objective(s), up to 25% of its total assets may be invested in any
one industry;
(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
(except to the extent permitted in investment restriction No. 1),
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; and
(7) purchase the securities of any one issuer if as a
result more than 5% of the value of its total assets would be
invested in the securities of such issuer or the Fund would own
more than 10% of the outstanding voting securities of such issuer,
except that up to 25% of the value of its total assets may be
invested without regard to these 5% limitation and provided that
there is no limitation with respect to investments in U.S.
Government Securities.
Additional investment restrictions adopted by the Fund,
which may be changed by the Board of Trustees, provide that the
Fund may not:
(i) purchase any security or evidence of interest
therein on margin, except that such short-term credit as may be
necessary for the clearance of purchases and sales of securities
may be obtained and except that deposits of initial deposit and
variation margin may be made in connection with the purchase,
ownership, holding or sale of futures;
(ii) invest for the purpose of exercising control or
management;
(iii) purchase for the Fund securities of any
investment company 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 (as
an operating policy, the Fund will not invest in another open-end
registered investment company); or
(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 not including (a) Rule 144A
securities that have been determined to be liquid by the Board of
Trustees; and (b) commercial paper that is sold under section 4(2)
of the 1933 Act which is not traded flat or in default as to
interest or principal.
There will be no violation of any investment restriction if
that restriction is complied with at the time the relevant action
is taken notwithstanding a later change in market value of an
investment, in net or total assets, in the securities rating of
the investment, or any other later change.
The Fund will comply with the state securities laws and
regulations of all states in which it is registered.
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 the 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 fund 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 fund securities on
behalf of the 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 the
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 the 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 Trust may
determine, the Manager may consider sales of shares of a Fund as a
factor in the selection of broker-dealers to execute portfolio
transactions. Bankers Trust will make such allocations if
commissions are comparable to those charged by nonaffiliated,
qualified broker-dealers for similar services.
Higher commissions may be paid to firms that provide
research services to the extent permitted by law. Bankers Trust
may use this research information in managing the 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 the Fund and
to the Manager, it is the opinion of the management of the Trust
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 Fund, and not all such information is used by the Manager
in connection with the Fund. 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 Fund.
In certain instances there may be securities which are
suitable for the Fund as well as for one or more of the Manager's
other clients. Investment decisions for the 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 adviser,
particularly when the same security is suitable for the investment
objectives of more than one client. When two or more clients are
simultaneously engaged in the purchase or sale of the same
security, the securities are allocated among clients in a manner
believed to be equitable to each. It is recognized that in some
cases this system could have a detrimental effect on the price or
volume of the security as far as the Fund is concerned. However,
it is believed that the ability of the Fund to participate in
volume transactions will produce better executions for the Fund.
PERFORMANCE INFORMATION
Standard Performance Information
From time to time, quotations of the Fund's performance may
be included in advertisements, sales literature or shareholder
reports. These performance figures are calculated in the
following manner:
Total return: The Fund's average annual total return is
calculated for certain periods by determining the average annual
compounded rates of return over those periods that would cause an
investment of $1,000 (made at the maximum public offering price
with all distributions reinvested) to reach the value of that
investment at the end of the periods. The Fund may also calculate
total return figures which represent aggregate performance over a
period or year-by-year performance.
Performance Results: Any total return quotation provided
for the Fund should not be considered as representative of the
performance of the Fund in the future since the net asset value
and 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 the Fund
to total returns published for other investment companies or other
investment vehicles. Total return reflects the performance of
both principal and income.
Comparison of Fund Performance
Comparison of the quoted nonstandardized performance of
various investments is valid only if performance is calculated in
the same manner. Since there are different methods of calculating
performance, investors should consider the effect of the methods
used to calculate performance when comparing performance of the
Fund with performance quoted with respect to other investment
companies or types of investments.
In connection with communicating its performance to current
or prospective shareholders, the Fund also may compare these
figures to the performance of other mutual funds tracked by mutual
fund rating services or to unmanaged indices which may assume
reinvestment of dividends but generally do not reflect deductions
for administrative and management costs.
Evaluations of the Fund's performance made by independent
sources may also be used in advertisements concerning the Fund.
Sources for the Fund's performance information could include the
following: Barron's, Business Week, Changing Times, The
Kiplinger's Magazine, Consumer Digest, Financial Times, Financial
World, Forbes, Fortune, Investor's Daily, Lipper Analytical
Services, Inc.'s Mutual Fund Performance Analysis, Money,
Morningstar Inc., New York Times, Personal Investing News,
Personal Investor, Success, U.S. News and World Report, Value
Line, Wall Street Journal, Weisenberger Investment Companies
Services and Working Women.
VALUATION OF SECURITIES; REDEMPTION IN KIND
Equity and debt securities (other than short-term debt
obligations maturing in 60 days or less), including listed
securities and securities for which price quotations are
available, will normally be valued on the basis of market
valuations furnished by a pricing service. Short-term debt
obligations and money market securities maturing in 60 days or
less are valued at amortized cost, which approximates market.
Securities for which market quotations are not available are
valued by Bankers Trust pursuant to procedures adopted by the
Trust's Board of Trustees. It is generally agreed that securities
for which market quotations are not readily available should not
be valued at the same value as that carried by an equivalent
security which is readily marketable.
The problems inherent in making a good faith determination
of value are recognized in the codification effected by SEC
Financial Reporting Release No. 1 ("FRR 1" (formerly Accounting
Series Release No. 113)) which concludes that there is "no
automatic formula" for calculating the value of restricted
securities. It recommends that the best method simply is to
consider all relevant factors before making any calculation.
According to FRR 1 such factors would include consideration of
the:
type of security involved, financial statements, cost
at date of purchase, size of holding, discount from market value
of unrestricted securities of the same class at the time of
purchase, special reports prepared by analysts, information as to
any transactions or offers with respect to the security, existence
of merger proposals or tender offers affecting the security, price
and extent of public trading in similar securities of the issuer
or comparable companies, and other relevant matters.
To the extent that the Fund purchases securities which are
restricted as to resale or for which current market quotations are
not 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 the 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 the Fund, and the Fund have elected,
however, to be governed by Rule 18f-1 under the 1940 Act as a
result of which the Fund is obligated to redeem shares with
respect to any one investor during any 90-day period, solely in
cash up to the lesser of $250,000 or 1% of the net asset value of
the Fund at the beginning of the period.
MANAGEMENT OF THE TRUST
The Board of Trustees of the Trust is composed of persons
experienced in financial matters who meet throughout the year to
oversee the activities of the Fund. In addition, the Trustees
review contractual arrangements with companies that provide
services to the Fund and review the Fund's performance.
The Trustees and officers of the Trust and their principal
occupations during the past five years are set forth below. Their
titles may have varied during that period. Asterisks indicate
those Trustees who are "interested persons" (as defined in the
1940 Act) of the Trust. Unless otherwise indicated, the address
of each Trustee and officer is One Exchange Place, Boston,
Massachusetts.
Trustees and Officers
Name, Address and Age Position Held with the Trust Principal
Occupations
DuringPast 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, 55 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, 37 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, 39 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 September 1, 1996 the Trustees and officers of the
Trust owned in the aggregate less than 1% of the shares of the
Fund or the Trust (all series taken together).
Investment Manager
Under the terms of the 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. 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 the Fund in accordance
with the Fund's investment objectives, restrictions and policies;
(iii) make investment decisions for the Fund; (iv) place purchase
and sale orders for securities and other financial instruments on
behalf of the 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 the Management Agreement. The 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; cost 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 Fund, 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 Fund, Bankers Trust will not inquire or
take into consideration whether an issuer of securities proposed
for purchase or sale by the 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.
The Fund's prospectus contains disclosure as to the amount
of Bankers Trust's investment advisory and administration and
services fees.
Bankers Trust has agreed that if in any fiscal year the
aggregate expenses of the 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 the 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 the
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 assets
and 1.50% of the remaining average annual net assets.
Administrator
First Data, One Exchange Place, Boston, Massachusetts 02109,
serves as administrator of the 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 the Fund. First Data
will generally assist in all aspects of the Fund's 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.
Custodian and Transfer Agent
Bankers Trust, 280 Park Avunue, New York, New York 10006,
serves as custodian for the Fund. As custodian, it holds the
Fund's assets. Bankers Trust will comply with the self-custodian
provisions of Rule 17f-2 under the 1940 Act.
First Data serves as transfer agent of the Trust. Under its
transfer agency agreement with the Trust, First Data maintains the
shareholder account records for the Fund, handles certain
communications between shareholders and the Fund and causes to be
distributed any dividends and distributions payable by the Fund.
Bankers Trust and First Data may be reimbursed by the Fund
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 Fund. The Trust has acknowledged
that the term "BT" is used by and is a property right of certain
subsidiaries of Bankers Trust and that those subsidiaries and/or
Bankers Trust may at any time permit others to use that term.
The Trust may be required, on 60 days' notice from Bankers
Trust at any time, to abandon use of the acronym "BT" as part of
its name. If this were to occur, the Trustees would select an
appropriate new name for the Trust, but there would be no other
material effect on the Trust, its shareholders or activities.
Banking Regulatory Matters
Bankers Trust has been advised by its counsel that in its
opinion Bankers Trust may perform the services for the Fund
contemplated by the Management Agreement and other activities for
the Fund described in the Prospectus 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 Trust and the Fund.
State laws on this issue may differ from the interpretations of
relevant Federal law and banks and financial institutions may be
required to register as dealers pursuant to state securities law.
If the circumstances described above should change, the Boards of
Trustees would review the relationships with Bankers Trust and
consider taking all actions necessary in the circumstances.
Counsel and Independent Accountants
Willkie Farr & Gallagher, One Citicorp Center, 153 East 53rd
Street, New York, New York 10022-4669, serves as Counsel to the
Trust and the Fund. Ernst & Young L.L.P., 787 Seventh Avenue, New
York, New York 10019, acts as independent accountants of the Trust
and the 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 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 a 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' 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 a Trust, the
shareholder paying the liability will be entitled to reimbursement
from the general assets of the Trust. The Trustees intend to
conduct the operations of the Trust in a manner so as to avoid, as
far as possible, ultimate liability of the shareholders for
liabilities of the Trust.
The Trust was organized on January 19, 1996.
TAXATION
Taxation of the Funds
The Trust intends to qualify annually and to elect the Fund
to be treated as a regulated investment company under the Internal
Revenue Code of 1986, as amended.
As a regulated investment company, the Fund will not be
subject to U.S. Federal income tax on its investment company
taxable income and net capital gains (the excess of net long-term
capital gains over net short-term capital losses), if any, that it
distributes to its shareholders, that is, the Companies' separate
accounts. The Fund intends to distribute to its shareholders, at
least annually, substantially all of its investment company
taxable income and net capital gains and, therefore, does not
anticipate incurring 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 the
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,
the 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 contract owner's control
of the investments of a separate account may cause the variable
contract owner, 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 contract owner
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 contract owner'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 the 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 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.
Distributions
All dividends and capital distributions paid by the 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 the Fund will pay any dividends or realize any capital gains.
However, the 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 shares of the Fund, or upon receipt of a
distribution in complete liquidation of the Fund, generally will
be a capital gain or loss which will be long-term or short-term,
generally depending upon the shareholder's holding period for the
shares. Any loss realized on a sale or exchange will be
disallowed to the extent the shares disposed of are replaced
(including shares acquired pursuant to a dividend reinvestment
plan) within a period of 61 days beginning 30 days before and
ending 30 days after disposition of the shares. In such a case,
the basis of the shares acquired will be adjusted to reflect the
disallowed loss. Any loss realized by a shareholder on a
disposition of fund shares held by the shareholder for six months
or less will be treated as a long-term capital 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.
Backup Withholding
The Fund may be required to withhold U.S. Federal income tax
at the rate of 31% of all taxable distributions payable to
shareholders who fail to provide the Fund with their correct
taxpayer identification number or to make required certifications,
or who have been notified by the Internal Revenue Service that
they are subject to backup withholding. Corporate shareholders
and certain other shareholders specified in the Code generally are
exempt from such backup withholding. Backup withholding is not an
additional tax. Any amounts withheld may be credited against the
shareholder's U.S. Federal income tax liability.
Other Taxation
The Trust is organized as a Massachusetts business trust
and, under current law, neither the Trust nor the Fund is viable
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 the Fund.
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 Accountants
ERNST & YOUNG LLP
Counsel
WILLKIE FARR & GALLAGHER
No person has been authorized to give any information or
to make any representations other than those contained in the
Fund's Prospectuses, the Statement of Additional Information or
the Trust'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 Trust. Neither the Prospectus nor this
Statement of Additional Information constitutes an offer in any
state in which, or to any person to whom, such offer may not
lawfully be made.
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 via EDGAR 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 via EDGAR 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 via EDGAR on September 18, 1996.
(b) The form of Investment Management Agreement between Small
Cap Index Fund and International Equity Fund and Bankers Trust
Company is incorporated by reference to Pre-Effective Amendment
No. 1 filed with the Securities and Exchange Commission via
EDGAR on September 20, 1996.
(c) The form of Investment Management Agreement between Small
Cap Index Fund, Equity 500 Index Fund and EAFE* Equity Index Fund
and Bankers Trust Company is filed herewith.
6 The form of Distribution Agreement between Registrant and
440 Financial Distributors, Inc. is incorporated by reference to
Pre-Effective Amendment No. 1 filed with the Securities and
Exchange Commission via EDGAR on September 20, 1996.
7 Not Applicable.
Exhibit
Number Description
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 via EDGAR on
September 18, 1996.
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 via EDGAR on September 18, 1996.
(b) The form of Administration Agreement between Registrant
and First Data Investor Services Group, Inc. is incorporated by
reference to Pre-Effective Amendment No. 1 filed with the
Securities and Exchange Commission via EDGAR on September 20,
1996.
10 Opinion and Consent of Counsel is filed herewith.
11 Not Applicable.
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 via EDGAR on September 18,
1996.
(b) The form of Purchase Agreement relating to Small Cap Fund
and International Equity Fund is incorporated by reference to
Pre-Effective Amendment No. 1 filed with the Securities and
Exchange Commission via EDGAR on September 20, 1996.
(c) The form of Purchase Agreement relating to Small Cap Index
Fund, EAFE* Equity Index Fund and Equity 500 Index 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 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
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 engaged in any
other business, profession, vocation or employment of a
substantial nature.
NAME AND PRINCIPAL BUSINESS ADDRESS, PRINCIPAL OCCUPATION AND
OTHER INFORMATION
George B. Beitzel, International Business Machines Corporation,
Old Orchard Road, Armonk, NY 10504. Retired Senior Vice
President and Director, Member of Advisory Board of
International Business Machines Corporation. Director of
Bankers Trust and Bankers Trust New York Corporation. Director
of FlightSafety International, Inc. Director of Phillips
Petroleum Company. Director of Roadway Services, Inc. Director
of Rohm and Hass Company.
William R. Howell, J.C. Penney Company, Inc., P.O. Box 10001,
Plano, 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 and Warner-Lambert
Corporation.
Jon M. Huntsman, Huntsman Chemical Corporation, 2000 Eagle Gate
Tower, Salt Lake City, UT 84111. Chairman and Chief Executive
Officer, Huntsman Chemical Corporation, Director of Bankers
Trust and Bankers Trust New York Corporation. Chairman of
Constar Corporation, Huntsman Corporation, Huntsman Holdings
Corporation and Petrostar Corporation. President of Autostar
Corporation, Huntsman Polypropylene Corporation and Restar
Corporation. Director of Razzleberry Foods Corporation and
Thiokol Corporation. General Partner of Huntsman Group Ltd.,
McLeod Creek Partnership and Trustar Ltd.
Vernon E. Jordan, Jr., Akin, Gump, Strauss, Hauer & Feld, LLP,
1333 New Hampshire Ave., N.W., Washington, DC 20036. 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., RJR Nabisco, Inc., Revlon Group
Incorporated, Ryder System, Inc., Sara Lee Corporation, Union
Carbide Corporation and Xerox Corporation.
Harnish Maxwell, Philip Morris Companies Inc., 120 Park Avenue,
New York, NY 10017. Chairman of the Executive Committee, Philip
Morris Companies Inc. Director of Bankers Trust and Bankers
Trust New York Corporation. Director of The News Corporation
Limited.
Donald F. McCullough, Collins & Aikman Corporation, 210 Madison
Avenue, New York, NY 10016. Chairman Emeritus, Collins & Aikman
Corporation. Director of Bankers Trust and Bankers Trust New
York Corporation. Director of Massachusetts Mutual Life
Insurance Co. and Melville Corporation.
N.J. Nicholas Jr., 745 Fifth Avenue, New York, NY 10020. 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 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. Also Director of Allied-
Signal Inc., Contel Cellular, Inc., Federal Home Loan Mortgage
Corporation, GTE Corporation, Goodyear Tire & Rubber Company,
Imasco Limited, May Department Stores Company and Safeguard
Scientifics, Inc. Member, Radnor Venture Partners Advisory
Board.
Didier Pineau-Valencienne, Schneider S.A., 4 Rue de Longchamp,
75116 Paris, France. Chairman and Chief Executive Officer,
Schneider S.A. Director and member of the European Advisory
Board of Bankers Trust and Director of Bankers Trust New York
Corporation. Director of AXA (France) and Equitable Life
Assurance Society of America, Arbed (Luxembourg), Banque Paribas
(France), Ciments Francais (France), Cofibel (Belgique),
Compagnie Industrielle de Paris (France), SIAPAP, Schneider USA,
Sema Group PLC (Great Britain), Spie-Batignolles, Tractebel
(Belgique) and Whirlpool. Chairman and Chief Executive Officer
of Societe Parisienne d'Entreprises et de Participations.
Charles S. Sanford, Jr., Bankers Trust Company, 280 Park Avenue,
New York, NY 10017. Chairman of the Board of Bankers Trust and
Bankers Trust New York Corporation. Also a Director of Mobil
Corporation and J.C. Penney Company, Inc.
Eugene B. Shanks, Jr., Bankers Trust Company, 280 Park Avenue,
New York, NY 10017. President of Bankers Trust and Bankers
Trust New York Corporation.
Patricia Carry Stewart, c/o Office of the Secretary, 280 Park
Avenue, 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.
George J. Vojta, Bankers Trust Company, 280 Park Avenue, New
York, NY 10017. Vice Chairman of the Board of Bankers Trust and
Bankers Trust New York Corporation. Director of Northwest
Airlines and Private Export Funding Corp.
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, AMBAC Funds and the Wilshire Target Funds, Inc. 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(c) The form of Investment Management Agreement between Small
Cap Index Fund, Equity 500 Index Fund and EAFE* Equity Index
Fund and Equity 500 Index Fund.
10 Opinion and Consent of Counsel.
13(c) The form of Purchase Agreement relating to Small Cap Index
Fund, EAFE* Equity Index Fund and Equity 500 Index Fund.
SIGNATURES
Pursuant to the requirements of the Investment Company Act
of 1940, as amended, the Registrant has duly caused this
Registration Statement on Form N-1A to be signed on its behalf
by the undersigned, thereto duly authorized, in the City of
Boston and Commonwealth of Massachusetts on the 22nd day of
November, 1996.
BT INSURANCE FUNDS TRUST
By: /s/ Julie A. Tedesco
Julie A. Tedesco
Secretary
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FORM OF
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 * (the "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 Fund's
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. The 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 Fund's
assets, subject to and in accordance with the Fund's investment
objective, policies and restrictions as stated in the Prospectus
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 seek to
replicate as closely as possible the performance of the [name
relevant index] before the deduction of Fund expenses and shall
determine and monitor the investments of the Fund's investment
portfolios accordingly.
3. Information Provided to the Trust
The Manager will keep the Fund informed of
developments materially affecting the Fund's portfolio and, in
addition to providing the Trust with whatever statistical or other
information the Trust may reasonably request with respect to its
investments, the Manager will, on its own initiative, furnish the
Trust 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
Fund's 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 the annual
rate of ** based on the Funds' average daily net assets. 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 the 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 Fund's
prospectus, Statements, and notices to shareholders; (k) filing
fees for the registration or qualification of the Fund and its
shares under federal or state securities laws; (l) the fees and
expenses involved in registering and maintaining registration of
the Fund's 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 Fund's net asset value per share,
including any equipment or services obtained solely for the
purpose of pricing shares or valuing the Fund's investment
portfolio; (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 Fund.
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 Trustees or (ii) a vote of a "majority" (as defined in the
1940 Act) of the 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,
without penalty, on 60 days' written notice, by the Trust's
Trustees or by vote of holders of a majority of the 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: _________________________
* Small Cap Index Fund
EAFE Equity Fund
Equity 500 Index Fund
** Small Cap Index Fund 0.15%
EAFE Equity Index Fund 0.25%
Equity 500 Index Fund 0.10%
- -4-
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November 14, 1996
BT Insurance Funds Trust
One Exchange Place
Boston, MA 02109
RE: Post-Effective Amendment No. 2 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 Index Fund, Equity
500 Index Fund and EAFE Equity Index 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 July 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 Act of 1933, the 1940 Act or
applicable state "blue sky" or securities laws in connection with
the sale of the Shares.
BT Insurance Funds Trust
November 14, 1996
Page 2
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,
/s/ Julie A. Tedesco
Julie A. Tedesco
Counsel
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FORM OF
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 1 share (the "Shares") at $10.00 per share of
each of the Trust's Small Cap Index Fund, EAFE Equity Index Fund
and Equity 500 Index 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 3 Shares, and the Trust
hereby acknowledges receipt from First Data of funds in the amount
of $30 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:
