As filed with the Securities and Exchange Commission on July 18, 1997
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. 2 X
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 4 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:
Brigid O. Bieber, 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)(1), or
on pursuant to paragraph (a)(1)
X 75 days after filing pursuant to paragraph (a)(2)
on __________ pursuant to paragraph (a)(2) 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.
9BT INSURANCE FUNDS TRUST
PROSPECTUS: ____________________, 1997
U.S. Bond Index Fund
This Prospectus offers shares of the U.S. Bond Index Fund (the
"Fund"), a series of BT Insurance Funds Trust (the "Trust"), which
is an open-end management investment company currently having
seven 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 Lehman Brothers Aggregate Bond 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 (the
"SEC"), 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 COMPANY
Investment Manager of the Fund
FIRST DATA 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 14
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 investment performance of the Lehman
Brothers Aggregate Bond Index (the "Aggregate Bond Index"), a
broad market weighted index which encompasses U.S. Treasury and
agency securities, corporate investment grade bonds, international
(dollar-denominated) investment grade bonds, and mortgage-backed
securities. The Fund will be invested primarily in fixed income
securities of the U.S. government or any agency thereof, publicly
issued fixed rate domestic debt of industrial, financial, and
utility corporations, and U.S. dollar denominated fixed income
securities of foreign and supranational entities issued publicly
in the United States. The Fund will also invest in mortgage pass-
through securities issued by the Government National Mortgage
Association ("GNMA"), the Federal Home Loan Mortgage Corporation
("FHLMC"), and the Federal National Mortgage Association ("FNMA").
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 Aggregate Bond 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 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 designed 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.
INVESTMENT PRINCIPLES AND RISKS
The value of the Fund's investments varies based on many factors.
The value of bonds fluctuates based on changes in domestic or
foreign interest rates, the credit quality of the issuer, market
conditions, and other economic and political news. In general,
bond prices rise when interest rates fall, and vice versa. This
effect is usually more pronounced for longer-term securities.
Lower-quality securities offer higher yields, but also carry more
risk.
When investors sell Fund shares, they may be worth more or less
than what the investor 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 investment performance of the
Aggregate Bond Index, a broad market weighted index which
encompasses four major classes of investment grade fixed-income
securities in the United States: U.S. Treasury and agency
securities, corporate bonds, international (dollar-denominated)
bonds, and mortgage-backed securities, with maturities greater
than one year.
As of ___________, 1997, the major classes of fixed-income
securities represented the following proportions of the Aggregate
Bond Index's total market value.
Aggregate
Bond Index
U.S. Treasury and agency securities ___
Corporate bonds
___
International (dollar-denominated) bonds ___
Mortgage-backed securities ___
Asset Backed Securities
___
Dollar-weighted average maturity (Years) ___
yrs
The Fund will be unable to hold all of the individual issues which
comprise the Aggregate Bond Index because of the large number of
securities involved. Instead, the Fund will hold a representative
sample of the securities in the Aggregate Bond Index, selecting
one or two issues to represent entire "classes" or types of
securities in the Aggregate Bond Index. The Fund will be
constructed so as to match as closely as possible the composition
of the Aggregate Bond Index by investing in fixed-income
securities approximating their relative proportion of the
Aggregate Bond Index's total market value.
The Fund may, from time to time, substitute one type of investment
grade bond for another. For instance, a Fund may hold more short-
term corporate bonds (and, in turn, hold fewer short U.S. Treasury
bonds) than represented in the Aggregate Bond Index so as to
increase income. This corporate substitution strategy will entail
the assumption of additional credit risk; however, substantial
diversification within the corporate sector should moderate issue-
specific credit risk.
Fixed-income securities will be primarily of investment grade
quality - i.e., those rated at least Baa by Moody's Investors
Service, Inc. ("Moody's") or BBB- by Standard & Poor's Ratings
Group ("S&P"). Securities rated Baa or BBB possess some
speculative characteristics.
The Fund may invest in U.S. Treasury bills, notes and bonds and
other "full faith and credit" obligations of the U.S. government
and in U.S. government agency securities, which are debt
obligations issued or guaranteed by agencies or instrumentalities
of the U.S. government ("U.S. Government Securities"). Such
"agency" securities may not be backed by the "full faith and
credit" of the U.S. government. Such U.S. government agencies may
include the Farm Credit Banks and the Resolution Trust
Corporation. Even though they all carry top (AAA) credit ratings,
agency obligations are not explicitly guaranteed by the U.S.
government and so are perceived as somewhat riskier than
comparable Treasury bonds.
As a mutual fund investing primarily in fixed-income securities,
the Fund is subject to interest rate, income, call and credit
risks. Since the Fund also invests in mortgage-backed securities,
it is also subject to prepayment risk. See "Risk Factors and
Certain Securities and Investment Practices."
General
Over time, the correlation between the performance of the Fund and
the Aggregate Bond 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 Aggregate Bond Index. The Fund's
ability to track the Aggregate Bond 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 Aggregate Bond 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 Aggregate Bond
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 Aggregate Bond 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. 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
Aggregate Bond Index. Securities index futures contracts and
related options, warrants, convertible securities and swap
agreements may be used for several reasons: to simulate full
investment in the Aggregate Bond 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, convertible security or swap
agreement is priced more attractively than the underlying equity
security or the Aggregate Bond 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 (such as altering the aggregate
maturity of the Fund) 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 also invest in mortgage-related and other asset-backed
securities. 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.
Fixed Income Security Risk
Investors in the Fund are exposed to four types of risk from fixed
income securities: (1) Interest rate risk is the potential for
fluctuations in bond prices due to changing interest rates; (2)
Income risk is the potential for a decline in a Fund's income due
to falling market interest rates; (3) Credit risk is the
possibility that a bond issuer will fail to make timely payments
of either interest or principal to the Fund; and (4) Prepayment
risk or call risk is the likelihood that, during periods of
falling interest rates, securities with high stated interest rates
will be prepaid (or "called") prior to maturity, requiring the
Fund to invest the proceeds at generally lower interest rates.
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" and "Risk
Factors and Certain Securities and Investment Practices" herein
and in the SAI.
Securities and Investment Practices
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. governmentU.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. Some U.S. governmentU.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 AssociationFNMA, are supported by
the discretionary authority of the U.S. governmentU.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. Ggovernment
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.
Mortgage-Related Securities. As part of its effort to replicate
the investment performance of the Aggregate Bond Index, the Fund
may invest in mortgage-backed securities. Mortgage-backed
securities represent an interest in an underlying pool of
mortgages. Unlike ordinary fixed-income securities, which
generally pay a fixed rate of interest and return principal upon
maturity, mortgage-backed securities repay both interest income
and principal as part of their periodic payments. Because the
mortgages underlying mortgage-backed certificates can be prepaid
at any time by homeowners or corporate borrowers, mortgage-backed
securities give rise to certain unique "pre-payment" risks. See
"Risk Factors and Certain Securities and Investment Practices."
The Fund may purchase mortgage-backed securities issued by the
Government National Mortgage Association (GNMA), the Federal Home
Loan Mortgage Corporation (FHLMC), the Federal National Mortgage
Association (FNMA), and the Federal Housing Authority ("FHA").
GNMA securities are guaranteed by the U.S. government as to the
timely payment of principal and interest; securities from other
Government-sponsored entities are generally not secured by an
explicit pledge of the U.S. government. The Fund may also invest
in conventional mortgage securities, which are packaged by private
corporations and are not guaranteed by the U.S. government.
Mortgage securities that are guaranteed by the U.S. government are
guaranteed only as to the timely payment of principal and
interest. The market value of such securities is not guaranteed
and may fluctuate.
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.
Swap Agreements. The Fund may enter into swap agreements only to
the extent that obligations under such agreements represent not
more than 10% of the Fund's total assets. Swap agreements are
contracts between parties in which one party agrees to make
payments to the other party based on the change in market value of
a specified index or asset. In return, the other party agrees to
make payments to the first party based on the return of a
different specified index or asset.
Although swap agreements entail the risk that a party will default
on its payment obligations thereunder, the Fund will minimize this
risk by entering into agreements that mark to market no less
frequently than quarterly. Swap agreements also bear the risk that
the Fund will not be able to meet its obligation to the
counterparty. This risk will be mitigated by investing the Fund in
the specific asset for which it is obligated to pay a return.
Warrants. The Fund's investment in warrants will not exceed more
than 5% of its assets (2% with respect to warrants not listed on a
recognized United States stock exchange). 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, convertible securities and swap agreements.
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, convertible securities and swap agreements for
speculative purposes or to leverage their net assets.
Accordingly, the primary risks associated with the use of futures
contracts, options, warrants, convertible securities and swap
agreements 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, convertible
securities and swap agreements; 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,
convertible securities and swap agreements 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, interest rate
swaps and related options transactions 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
Mutual fund performance is commonly measured as total return
and/or yield. The Fund's performance is affected by the expenses
of the Fund.
Total return is the change in value of an investment in the Fund
over a given period, assuming reinvestment of any dividends and
capital gains. A cumulative total return reflects actual
performance over a stated period of time. An average annual total
return is a hypothetical rate of return that, if achieved
annually, would have produced the same cumulative total return if
performance had been constant over the entire period. Average
annual total return calculations smooth out variations in
performance; they are not the same as actual year-by-year results.
Average annual total returns covering periods of less than one
year assume that performance will remain constant for the rest of
the year.
Yield refers to the income generated by an investment in a Fund
over a given period of time, expressed as an annual percentage
rate. Yields are calculated according to a standard that is
required for all stock and bond funds. Because this differs from
other accounting methods, the quoted yield may not equal the
income actually paid to shareholders.
Performance information may include comparisons of the Fund's
investment results to various unmanaged indices or results of
other mutual funds or investment or savings vehicles. From time to
time, Fund rankings may be quoted from various sources, such as
Lipper Analytical Services, Inc., Value Line and Morningstar, Inc.
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 may be provided, Bankers Trust may have voluntarily agreed
to waive portions of their 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 yield and 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 audited annual financial reports and
unaudited semiannual financial reports that include the Fund's
financial statements, including listings of investment securities
held by the Fund at those dates. For current Fund performance or
a free copy of the Fund's financial report, please contact the
relevant Company or Bankers Trust.
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 SAI.
Investment Manager
The Fund has retained the services of Bankers Trust Company, as
investment manager. Bankers Trust, a New York banking corporation
with principal offices at 130 Liberty Street, New York, New York
10006, 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 wholesale supplier of
financial services to the international and domestic institutional
markets.
As of June 30, 1997, Bankers Trust New York Corporation was the
[seventh] largest bank holding company in the United States with
total assets of approximately $___ 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 180 offices in more than
48 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 $233 billion in
assets under management globally. Of the total, approximately
$115 billion are in index assets alone, making Bankers Trust one
of the nation's leading managers of index funds.
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 Ffederal law, and banks and
financial institutions may be required to register as dealers
pursuant to state securities law.
Fund Manager
Louis R. D'Arienzo, Vice President of Bankers Trust, is
responsible for the day-to-day management of the Fund. Mr.
D'Arienzo has been employed by Bankers Trust since 1981 and has
twelve years trading and investment experience in fixed income
securities.
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
First Data Distributors, Inc. ("FDDI") 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.
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. Ffederal 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 Ffederal
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 Ffederal, 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 COMPANY
Administrator
FIRST DATA INVESTOR SERVICES GROUP, INC.
Distributor
FIRST DATA 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 representation other than those contained in the Fund's
Prospectus, its Statement of Additional Information SAI 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
____________, 1997
BT INSURANCE FUNDS TRUST
U.S. Bond Index Fund
BT Insurance Funds Trust (the "Trust") is currently
comprised of seven series: the U.S. Bond Index Fund (the "Fund")
and six 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 19
Valuation of Securities; Redemption in Kind 20
Management of the Trust 21
Organization of the Trust 25
Taxation 25
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 Company (the "Manager" or "Bankers Trust"). The distributor
of the Fund shares is First Data Distributors, Inc. (the
"Distributor" or "FDDI ").
The Prospectus for the Fund is dated __________,1997. 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 COMPANY
Investment Manager of the Fund
The Trust's distributor is
FIRST DATA 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,
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 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. governmentU.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 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 Investors Service, Inc. ("Moody's") or, if unrated, of
comparable quality in the opinion of Bankers Trust; (iii)
commercial paper; (iv) bank obligations, including negotiable
certificates of deposit, time deposits and 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 sSecurities 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. governmentU.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 (FHLMC) and the U.S. Postal Service,
each of which has the right to borrow from the U.S. Treasury to
meet its obligations, and obligations of the Farm Credit Banks and
the Federal Home Loan Banks, both of whose obligations may be
satisfied only by the individual credits of each issuing agency.
Securities which are backed by the full faith and credit of the
United States include obligations of the Government National
Mortgage Association, the Farmers Home Administration, and the
Export-Import Bank.
Swap Agreements. Swap agreements are contracts entered into
by two parties, primarily institutional investors, for periods
ranging from a few weeks to more than one year. In a standard swap
transaction, two parties agree to exchange the returns (or
differentials in rates of return) earned or realized on particular
predetermined investments or instruments. The gross returns to be
exchanged or swapped between the parties are calculated with
respect to a notional amount, i.e., the return on or increase in
value of a particular dollar amount invested at a particular
interest rate, or in a basket of securities representing a
particular index. The notional amount of the swap agreement is
only a fictive basis on which to calculate the obligations which
the parties to a swap agreement have agreed to exchange. The
Fund's obligations (or rights) under a swap agreement will
generally be equal only to the net amount to be paid or received
under the agreement based on the relative values of the positions
held by each party to the agreement (the "net amount"). The Fund's
obligations under a swap agreement will be accrued daily (offset
against any amounts owing to the Fund) and any accrued but unpaid
net amounts owed to a swap counterparty will be covered by the
maintenance of a segregated account consisting of cash, U.S.
Government sSecurities, or high grade debt obligations, to avoid
any potential leveraging of the Fund's portfolio.
The successful use of swap agreements will be successful in
will depend on the Manager's ability to correctly predict whether
certain types of investments are likely to produce greater returns
than other investments. Swap agreements may be considered to be
illiquid because they are two party contracts and because they may
have terms of greater than seven days. Moreover, the Fund bears
the risk of loss of the amount expected to be received under a
swap agreement in the event of the default or bankruptcy of a swap
agreement counterparty. The Fund will enter into swap agreements
only with counterparties that would be eligible for consideration
as repurchase agreement counterparties under the Fund's repurchase
agreement guidelines. Certain restrictions imposed on the Fund by
the Internal Revenue Code may limit the Fund's ability to use swap
agreements. The swaps market is a relatively new market and is
largely unregulated. It is possible that developments in the swaps
market, including potential government regulation, could adversely
affect the Fund's ability to terminate existing swap agreements or
to realize amounts to be received under such agreements.
Certain swap agreements are exempt from most provisions of
the Commodity Exchange Act (the "CEA") and, therefore, are not
regulated as futures or commodity option transactions under the
CEA, pursuant to regulations approved by the Commodity Futures
Trading Commission (the "CFTC") effective February 22, 1993. To
qualify for this exemption, a swap agreement must be entered into
by eligible participants, which includes the following, provided
the participant's total assets exceed established levels: a bank
or trust company, savings association or credit union, insurance
company, investment company subject to regulation under the
Investment Company Act of 1940, as amended (the "1940 Act"),
commodity pool, corporation, partnership, proprietorship,
organization, trust or other entity, employee benefit plan,
governmental entity, broker-dealer, futures commission merchant or
natural person. To be eligible, natural persons and most other
entities must have total assets exceeding $10 million; commodity
pools and employee benefit plans must have assets exceeding $5
million. In addition, an eligible swap transaction must meet three
conditions. First, the swap agreement may not be part of a
fungible class of agreements that are standardized as to their
material economic terms. Second, the creditworthiness of parties
with actual or potential obligations under the swap agreement must
be a material consideration in entering into or determining the
terms of the swap agreement, including pricing, cost or credit
enhancement terms. Third, swap agreements may not be entered into
and traded on or through a multilateral transaction execution
facility.
This exemption is not exclusive, and participants may
continue to rely on existing exclusions for swaps, such as the
Policy Statement issued in July 1989 which recognized a "safe
harbor" for swap transactions from regulation as futures or
commodity option transactions under the CEA or its regulations.
The Policy Statement applies to swap transactions settled in cash
that: (i) have individually tailored terms; (ii) lack exchange
style offset and the use of a clearing organization or margin
system; (iii) are undertaken in conjunction with a line of
business; and (iv) are not marketed to the public.
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. Ggovernment Oobligations 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.
Ginnie Mae Certificates. The Government National Mortgage
Association ("Ginnie Mae") is a wholly-owned corporate
instrumentality of the United States within the Department of
Housing and Urban Development. The National Housing Act of 1934,
as amended (the "Housing Act"), authorizes Ginnie Mae to guarantee
the timely payment of the principal of and interest on
certificates that are based on and backed by a pool of mortgage
loans insured by the Federal Housing Administration under the
Housing Act, or Title of the Housing Act of 1949 ("FHA Loans"), or
guaranteed by the Department of Veterans Affairs under the
Servicemen's Readjustment Act of 1944, as amended ("VA Loans"), or
by pools of other eligible mortgage loans. The Housing Act
provides that the full faith and credit of the U.S. government is
pledged to the payment of all amounts that may be required to be
paid under any Ginnie Mae guaranty. In order to meet its
obligations under such guaranty, Ginnie Mae is authorized to
borrow from the U.S. Treasury with no limitations as to amount.
The Ginnie Mae Certificates in which the Fund will invest
will represent a pro rata interest in one or more pools of the
following types of mortgage loans: (i) fixed-rate level payment
mortgage loans; (ii) fixed-rate graduated payment mortgage loans;
(iii) fixed-rate growing equity mortgage loans; (iv) fixed-rate
mortgage loans secured by manufactured (mobile) homes; (v)
mortgage loans on multifamily residential properties under
construction; (vi) mortgage loans on completed multifamily
projects; (vii) fixed-rate mortgage loans as to which escrowed
funds are used to reduce the borrower's monthly payments during
the early years of the mortgage loans ("buydown" mortgage loans);
(viii) mortgage loans that provide for adjustments in payments
based on periodic changes in interest rates or in other payment
terms of the mortgage loans; and (ix) mortgage-backed serial
notes. All of these mortgage loans will be FHA Loans or VA Loans
and, except as otherwise specified above, will be fully-amortizing
loans secured by first liens on one- to four-family housing units.
Fannie Mae Certificates. The Federal National Mortgage
Association (FNMA) ("Fannie Mae") is a federally chartered and
privately owned corporation organized and existing under the
Federal National Mortgage Association Charter Act of 1938. The
obligations of Fannie Mae are not backed by the full faith and
credit of the U.S. government.
Each Fannie Mae Certificate will represent a pro rata
interest in one or more pools of FHA Loans, VA Loans or
conventional mortgage loans (i.e., mortgage loans that are not
insured or guaranteed by any governmental agency) of the following
types: (i) fixed-rate level payment mortgage loans; (ii) fixed-
rate growing equity mortgage loans; (iii) fixed-rate graduated
payment mortgage loans; (iv) variable rate mortgage loans; (v)
other adjustable rate mortgage loans; and (vi) fixed-rate and
adjustable mortgage loans secured by multifamily projects.
Freddie Mac Certificates. The Federal Home Loan Mortgage
Corporation ("Freddie Mac") is a corporate instrumentality of the
United States created pursuant to the Emergency Home Finance Act
of 1970, as amended (the "FHLMC Act"). The obligations of Freddie
Mac are obligations solely of Freddie Mac and are not backed by
the full faith and credit of the U.S. government.
Freddie Mac Certificates represent a pro rata interest in a
group of mortgage loans (a "Freddie Mac Certificate group")
purchased by Freddie Mac. The mortgage loans underlying the
Freddie Mac Certificates will consist of fixed-rate or adjustable
rate mortgage loans with original terms to maturity of between ten
and thirty years, substantially all of which are secured by first
liens on one- to four-family residential properties or multifamily
projects. Each mortgage loan must meet the applicable standards
set forth in the FHLMC Act. A Freddie Mac Certificate group may
include whole loans, participating interests in whole loans and
undivided interests in whole loans and participations comprising
another Freddie Mac Certificate group.
Adjustable Rate Mortgages - Interest Rate Indices.
Adjustable rate mortgages in which the Fund invests may be
adjusted on the basis of one of several indices. The One Year
Treasury Index is the figure derived from the average weekly
quoted yield on U.S. Treasury Securities adjusted to a constant
maturity of one year. The Cost of Funds Index reflects the monthly
weighted average cost of funds of savings and loan associations
and savings banks whose home offices are located in Arizona,
California and Nevada (the "FHLB Eleventh District") that are
member institutions of the Federal Home Loan Bank of San Francisco
(the "FHLB of San Francisco"), as computed from statistics
tabulated and published by the FHLB of San Francisco. The FHLB of
San Francisco normally announces the Cost of Funds Index on the
last working day of the month following the month in which the
cost of funds was incurred.
A number of factors affect the performance of the Cost of
Funds Index and may cause the Cost of Funds Index to move in a
manner different from indices based upon specific interest rates,
such as the One Year Treasury Index. Because of the various
origination dates and maturities of the liabilities of members of
the FHLB Eleventh District upon which the Cost of Funds Index is
based, among other things, at any time the Cost of Funds Index may
not reflect the average prevailing market interest rates on new
liabilities of similar maturities. There can be no assurance that
the Cost of Funds Index will necessarily move in the same
direction or at the same rate as prevailing interest rates since
as longer term deposits or borrowings mature and are renewed at
market interest rates, the Cost of Funds Index will rise or fall
depending upon the differential between the prior and the new
rates on such deposits and borrowings. In addition, dislocations
in the thrift industry in recent years have caused and may
continue to cause the cost of funds of thrift institutions to
change for reasons unrelated to changes in general interest rate
levels. Furthermore, any movement in the Cost of Funds Index as
compared to other indices based upon specific interest rates may
be affected by changes instituted by the FHLB of San Francisco in
the method used to calculate the Cost of Funds Index. To the
extent that the Cost of Funds Index may reflect interest changes
on a more delayed basis than other indices, in a period of rising
interest rates, any increase may produce a higher yield later than
would be produced by such other indices, and in a period of
declining interest rates, the Cost of Funds Index may remain
higher than other market interest rates which may result in a
higher level of principal prepayments on mortgage loans which
adjust in accordance with the Cost of Funds Index than mortgage
loans which adjust in accordance with other indices.
LIBOR, the London interbank offered rate, is the interest
rate that the most creditworthy international banks dealing in
U.S. dollar-denominated deposits and loans charge each other for
large dollar-denominated loans. LIBOR is also usually the base
rate for large dollar-denominated loans in the international
market. LIBOR is generally quoted for loans having rate
adjustments at one, three, six or twelve month intervals.
Asset-Backed Securities. The asset-backed securities in
which the Fund may invest are limited to those which are readily
marketable, dollar-denominated and rated BBB or higher by S&P or
Baa or higher by Moody's. Asset-backed securities present certain
risks that are not presented by mortgage-backed securities.
Primarily, these securities do not have the benefit of the same
type of security interest in the related collateral. Credit card
receivables are generally unsecured and the debtors are entitled
to the protection of a number of state and federal consumer credit
laws, many of which give such debtors the right to avoid payment
of certain amounts owed on the credit cards, thereby reducing the
balance due. Most issuers of automobile receivables permit the
servicer to retain possession of the underlying obligations. If
the servicer were to sell these obligations to another party,
there is a risk that the purchaser would acquire an interest
superior to that of the holders of the related automobile
receivables. In addition, because of the large number of vehicles
involved in a typical issuance and technical requirements under
state laws, the trustee for the holders of the automobile
receivables may not have a proper security interest in all of the
obligations backing such receivables. Therefore, there is the
possibility that recoveries on repossessed collateral may not, in
some cases, be available to support payments on these securities.
Mortgage-Backed Securities and Asset-Backed Securities Types
of Credit Support. The mortgage-backed securities in which the
Fund may invest are limited to those relating to residential
mortgages. Mortgage-backed securities and asset-backed securities
are often backed by a pool of assets representing the obligations
of a number of different parties. To lessen the effect of failure
by obligors on underlying assets to make payments, such securities
may contain elements of credit support. Such credit support falls
into two categories: (i) liquidity protection and (ii) protection
against losses resulting from ultimate default by an obligor on
the underlying assets. Liquidity protection refers to the
provision of advances, generally by the entity administering the
pool of assets, to ensure that the pass-through of payments due on
the underlying pool occurs in a timely fashion. Protection against
losses resulting from ultimate default enhances the likelihood of
ultimate payment of the obligations on at least a portion of the
assets in the pool. Such protection may be provided through
guarantees, insurance policies or letters of credit obtained by
the issuer or sponsor from third parties, through various means of
structuring the transaction or through a combination of such
approaches. The Fund will not pay any additional fees for such
credit support, although the existence of credit support may
increase the price of a security.
The ratings of mortgage-backed securities and asset-backed
securities for which third-party credit enhancement provides
liquidity protection or protection against losses from default are
generally dependent upon the continued creditworthiness of the
provider of the credit enhancement. The ratings of such securities
could be subject to reduction in the event of deterioration in the
creditworthiness of the credit enhancement provider even in cases
where the delinquency and loss experience on the underlying pool
of assets is better than expected.
Examples of credit support arising out of the structure of
the transaction include "senior-subordinated securities," creation
of "reserve funds" (where cash or investments, sometimes funded
from a portion of the payments on the underlying assets, are held
in reserve against future losses) and "over-collateralization"
(where the scheduled payments on, or the principal amount of, the
underlying assets exceed those required to make payment of the
securities and pay any servicing or other fees). The degree of
credit support provided for each issue is generally based on
historical information with respect to the level of credit risk
associated with the underlying assets. Delinquency or loss in
excess of SAI is anticipated could adversely affect the return on
an investment in such a security.
Stripped Mortgage-Backed Securities. The cash flows and
yields on IO and PO classes are extremely sensitive to the rate of
principal payments (including prepayments) on the related
underlying mortgage assets. For example, a rapid or slow rate of
principal payments may have a material adverse effect on the yield
to maturity of IOs or POs, respectively. If the underlying
mortgage assets experience greater than anticipated prepayments of
principal, an investor may fail to recoup fully its initial
investment in an IO class of a stripped mortgage-backed security,
even if the IO class is rated AAA or Aaa. Conversely, if the
underlying mortgage assets experience slower than anticipated
prepayments of principal, the yield on a PO class will be affected
more severely than would be the case with a traditional mortgage-
backed security.
Futures Contracts and Options on Futures Contracts
General. The successful use of such instruments draws upon
the Manager's skill and experience with respect to such
instruments and usually depends on the Manager's ability to
forecast interest rate and currency exchange rate movements
correctly. Should interest or exchange rates move in an
unexpected manner, 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
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 fixed-income securities or
contracts based on financial indices including any index of U.S.
Government sSecurities or corporate debt securities. 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. The Fund may
enter into futures contracts which are based on debt securities
that are backed by the full faith and credit of the U.S.
government, such as long-term U.S. Treasury Bonds, Treasury Notes,
Ginnie Mae modified pass-through mortgage-backed securities and
three-month U.S. Treasury Bills. The Fund may also enter into
futures contracts which are based on bonds issued by entities
other than the U.S. government.
At the same time a futures contract is purchased or sold,
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.
At the time of delivery of securities pursuant to such a
contract, adjustments are made to recognize differences in value
arising from the delivery of securities with a different interest
rate from that specified in the contract. In some (but not many)
cases, securities called for by a futures contract may not have
been issued when the contract was written.
Although futures contracts by their terms call for the
actual delivery or acquisition of securities, in most cases the
contractual obligation is fulfilled before the date of the
contract without having to make or take delivery of the
securities. The offsetting of a contractual obligation is
accomplished by buying (or selling, as the case may be) on a
commodities exchange an identical futures contract calling for
delivery in the same month. Such a transaction, which is effected
through a member of an exchange, cancels the obligation to make or
take delivery of the securities. Since all transactions in the
futures market are made, offset or fulfilled through a
clearinghouse associated with the exchange on which the contracts
are traded, the Fund will incur brokerage fees when it purchases
or sells futures contracts.
The purpose of the acquisition or sale of a futures
contract, in the case of the Fund which holds or intends to
acquire fixed-income securities, is to attempt to protect the Fund
from fluctuations in interest rates without actually buying or
selling fixed-income securities. For example, if interest rates
were expected to increase, the Fund might enter into futures
contracts for the sale of debt securities. Such a sale would have
much the same effect as selling an equivalent value of the debt
securities owned by the Fund. If interest rates did increase, the
value of the debt security in the Fund would decline, but the
value of the futures contracts to the Fund would increase at
approximately the same rate, thereby keeping the net asset value
of the Fund from declining as much as it otherwise would have. The
Fund could accomplish similar results by selling debt securities
and investing in bonds with short maturities when interest rates
are expected to increase. However, since the futures market is
more liquid than the cash market, the use of futures contracts as
an investment technique allows the Fund to maintain a defensive
position without having to sell its portfolio securities.
Similarly, when it is expected that interest rates may
decline, futures contracts may be purchased to attempt to hedge
against anticipated purchases of debt securities at higher prices.
Since the fluctuations in the value of futures contracts should be
similar to those of debt securities, the Fund could take advantage
of the anticipated rise in the value of debt securities without
actually buying them until the market had stabilized. At that
time, the futures contracts could be liquidated and the Fund could
then buy debt securities on the cash market. To the extent the
Fund enters into futures contracts for this purpose, the assets in
the segregated asset account maintained to cover the Fund's
obligations with respect to such futures contracts will consist of
cash, cash equivalents or high quality liquid debt securities from
its portfolio in an amount equal to the difference between the
fluctuating market value of such futures contracts and the
aggregate value of the initial and variation margin payments made
by the Fund, with respect to such futures contracts.
The ordinary spreads between prices in the cash and futures
market, due to differences in the nature of those markets, are
subject to distortions. First, all participants in the futures
market are subject to initial deposit and variation margin
requirements. Rather than meeting additional variation margin
requirements, investors may close futures contracts through
offsetting transactions which could distort the normal
relationship between the cash and futures markets. Second, the
liquidity of the futures market depends on participants entering
into offsetting transactions rather than making or taking
delivery. To the extent participants decide to make or take
delivery, liquidity in the futures market could be reduced, thus
producing distortion. Third, from the point of view of
speculators, the margin deposit requirements in the futures market
are less onerous than margin requirements in the securities
market. Therefore, increased participation by speculators in the
futures market may cause temporary price distortions. Due to the
possibility of distortion, a correct forecast of general interest
rate trends by the Manager may still not result in a successful
transaction.
In addition, futures contracts entail risks. Although the
Manager believes that use of such contracts will benefit the Fund,
if the Manager's investment judgment about the general direction
of interest rates is incorrect, the Fund's overall performance
would be poorer than if it had not entered into any such contract.
For example, if the Fund has hedged against the possibility of an
increase in interest rates which would adversely affect the price
of debt securities held in its portfolio and interest rates
decrease instead, the Fund will lose part or all of the benefit of
the increased value of its debt securities which it has hedged
because it will have offsetting losses in its futures positions.
In addition, in such situations, if the Fund has insufficient
cash, it may have to sell debt securities from its portfolio to
meet daily variation margin requirements. Such sales of bonds may
be, but will not necessarily be, at increased prices which reflect
the rising market. The Fund may have to sell securities at a time
when it may be disadvantageous to do so.
Options on Futures Contracts. The Fund may purchase and
write options on futures contracts for hedging purposes. The
purchase of a call option on a futures contract is similar in some
respects to the purchase of a call option on an individual
security. Depending on the pricing of the option compared to
either the price of the futures contract upon which it is based or
the price of the underlying debt securities, it may or may not be
less risky than ownership of the futures contract or underlying
debt securities. As with the purchase of futures contracts, when a
the Fund is not fully invested it may purchase a call option on a
futures contract to hedge against a market advance due to
declining interest rates.
The writing of a call option on a futures contract
constitutes a partial hedge against declining prices of the
underlying security which is deliverable upon exercise of the
futures contract. If the futures price at expiration of the option
is below the exercise price, a the Fund will retain the full
amount of the option premium which provides a partial hedge
against any decline that may have occurred in the Fund's portfolio
holdings. The writing of a put option on a futures contract
constitutes a partial hedge against increasing prices of the
underlying security which is deliverable upon exercise of the
futures contract. If the futures price at expiration of the option
is higher than the exercise price, the Fund will retain the full
amount of the option premium which provides a partial hedge
against any increase in the price of securities which the Fund
intends to purchase. If a put or call option the Fund has written
is exercised, the Fund will incur a loss which will be reduced by
the amount of the premium it receives. Depending on the degree of
correlation between changes in the value of its portfolio
securities and changes in the value of its futures positions, the
Fund's losses from existing options on futures may to some extent
be reduced or increased by changes in the value of portfolio
securities.
The purchase of a put option on a futures contract is
similar in some respects to the purchase of protective put options
on portfolio securities. For example, the Fund may purchase a put
option on a futures contract to hedge its portfolio against the
risk of rising interest rates.
The amount of risk the Fund assumes when it purchases an
option on a futures contract is the premium paid for the option
plus related transaction costs. In addition to the correlation
risks discussed above, the purchase of an option also entails the
risk that changes in the value of the underlying futures contract
will not be fully reflected in the value of the option purchased.
The Board of Trustees of the Trust has adopted the
requirement that futures contracts and options on futures
contracts be used as a hedge and may also use stock index futures
on a continual basis to equitize cash so that the Fund may
maintain 100% equity exposure. In addition to this requirement,
the Board of Trustees of the Trust 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.
Options on Securities. The Fund may write (sell) covered
call and put options to a limited extent on its portfolio
securities ("covered options") in an attempt to increase income.
However, the Fund may forgo the benefits of appreciation on
securities sold or may pay more than the market price on
securities acquired pursuant to call and put options written by
the Fund.
When the Fund writes a covered call option, it gives the
purchaser of the option the right to buy the underlying security
at the price specified in the option (the "exercise price") by
exercising the option at any time during the option period. If the
option expires unexercised, the Fund will realize income in an
amount equal to the premium received for writing the option. If
the option is exercised, a decision over which the Fund has no
control, the Fund must sell the underlying security to the option
holder at the exercise price. By writing a covered call option,
the Fund forgoes, in exchange for the premium less the commission
("net premium"), the opportunity to profit during the option
period from an increase in the market value of the underlying
security above the exercise price.
When the Fund writes a covered put option, it gives the
purchaser of the option the right to sell the underlying security
to the Fund at the specified exercise price at any time during the
option period. If the option expires unexercised, the Fund will
realize income in the amount of the premium received for writing
the option. If the put option is exercised, a decision over which
the Fund has no control, the Fund must purchase the underlying
security from the option holder at the exercise price. By writing
a covered put option, the Fund, in exchange for the net premium
received, accepts the risk of a decline in the market value of the
underlying security below the exercise price. The Fund will only
write put options involving securities for which a determination
is made at the time the option is written that the Fund wishes to
acquire the securities at the exercise price.
The Fund may terminate its obligation as the writer of a
call or put option by purchasing an option with the same exercise
price and expiration date as the option previously written. This
transaction is called a "closing purchase transaction." The Fund
will realize a profit or loss for a closing purchase transaction
if the amount paid to purchase an option is less or more, as the
case may be, than the amount received from the sale thereof. To
close out a position as a purchaser of an option, the Fund, may
make a closing sale transaction which involves liquidating the
Fund's position by selling the option previously purchased. Where
the Fund cannot effect a closing purchase transaction, it may be
forced to incur brokerage commissions or dealer spreads in selling
securities it receives or it may be forced to hold underlying
securities until an option is exercised or expires.
When the Fund writes an option, an amount equal to the net
premium received by the Fund is included in the liability section
of the Fund's Statement of Assets and Liabilities as a deferred
credit. The amount of the deferred credit will be subsequently
marked to market to reflect the current market value of the option
written. The current market value of a traded option is the last
sale price or, in the absence of a sale, the mean between the
closing bid and asked price. If an option expires on its
stipulated expiration date or if the Fund enters into a closing
purchase transaction, the Fund will realize a gain (or loss if the
cost of a closing purchase transaction exceeds the premium
received when the option was sold), and the deferred credit
related to such option will be eliminated. If a call option is
exercised, the Fund will realize a gain or loss from the sale of
the underlying security and the proceeds of the sale will be
increased by the premium originally received. The writing of
covered call options may be deemed to involve the pledge of the
securities against which the option is being written. Securities
against which call options are written will be segregated on the
books of the custodian for the Fund.
The Fund may purchase call and put options on any securities
in which it may invest. The Fund would normally purchase a call
option in anticipation of an increase in the market value of such
securities. The purchase of a call option would entitle the Fund,
in exchange for the premium paid, to purchase a security at a
specified price during the option period. The Fund would
ordinarily have a gain if the value of the securities increased
above the exercise price sufficiently to cover the premium and
would have a loss if the value of the securities remained at or
below the exercise price during the option period.
The Fund would normally purchase put options in anticipation
of a decline in the market value of securities in its portfolio
("protective puts") or securities of the type in which it is
permitted to invest. The purchase of a put option would entitle
the Fund, in exchange for the premium paid, to sell a security,
which may or may not be held in the Fund's portfolio, at a
specified price during the option period. The purchase of
protective puts is designed merely to offset or hedge against a
decline in the market value of the Fund's portfolio securities.
Put options also may be purchased by the Fund for the purpose of
affirmatively benefiting from a decline in the price of securities
which the Fund does not own. The Fund would ordinarily recognize a
gain if the value of the securities decreased below the exercise
price sufficiently to cover the premium and would recognize a loss
if the value of the securities remained at or above the exercise
price. Gains and losses on the purchase of protective put options
would tend to be offset by countervailing changes in the value of
underlying portfolio securities.
The Fund has adopted certain other nonfundamental policies
concerning option transactions which are discussed below. The
Fund's activities in options may also be restricted by the
requirements of the Internal Revenue Code of 1986, as amended (the
"Code"), for qualification as a regulated investment company.
The hours of trading for options on securities may not
conform to the hours during which the underlying securities are
traded. To the extent that the option markets close before the
markets for the underlying securities, significant price and rate
movements can take place in the underlying securities markets that
cannot be reflected in the option markets. It is impossible to
predict the volume of trading that may exist in such options, and
there can be no assurance that viable exchange markets will
develop or continue.
The Fund may engage in over-the-counter options transactions
with broker-dealers who make markets in these options. At present,
approximately ten broker-dealers, including several of the largest
primary dealers in U.S. government securities, make these markets.
The ability to terminate over-the-counter option positions is more
limited than with exchange-traded option positions because the
predominant market is the issuing broker rather than an exchange,
and may involve the risk that broker-dealers participating in such
transactions will not fulfill their obligations. To reduce this
risk, the Fund will purchase such options only from broker-dealers
who are primary government securities dealers recognized by the
Federal Reserve Bank of New York and who agree to (and are
expected to be capable of) entering into closing transactions,
although there can be no guarantee that any such option will be
liquidated at a favorable price prior to expiration. The Manager
will monitor the creditworthiness of dealers with whom the Fund
enters into such options transactions under the general
supervision of the Funds' Trustees.
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 and except that assets may be pledged to secure
letters of credit solely for the purpose of participating in a
captive insurance company sponsored by the Investment Company
Institute; for additional related restrictions, see clause (i)
under the caption "Additional Restrictions" below (as an operating
policy, the Fund may not engage in dollar roll transactions);
(2) underwrite securities issued by other persons except
insofar as the Trust or the Fund may technically be deemed an
underwriter under the 1933 Act in selling a portfolio security;
(3) make loans to other persons except: (a) through the
lending of the Fund's portfolio securities and provided that any
such loans not exceed 30% of the Fund's total assets (taken at
market value); (b) through the use of repurchase agreements or the
purchase of short-term obligations; or (c) by purchasing a portion
of an issue of debt securities of types distributed publicly or
privately;
(4) purchase or sell real estate (including limited
partnership interests but excluding securities secured by real
estate or interests therein), interests in oil, gas or mineral
leases, commodities or commodity contracts (except futures and
option contracts) in the ordinary course of business (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 sSecurities), 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; and
(6) issue any senior security (as that term is defined in
the 1940 Act) if such issuance is specifically prohibited by the
1940 Act or the rules and regulations promulgated thereunder
(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;
(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) sell securities it does not own such that the dollar amount
of such short sales at any one time exceeds 25% of the net equity
of the Fund, and the value of securities of any one issuer in
which the Fund is short exceeds the lesser of 2.0% of the value of
the Fund's net assets or 2.0% of the securities of any class of
any U.S. issuer and, provided that short sales may be made only in
those securities which are fully listed on a national securities
exchange (This provision does not include the sale of securities
where the Fund contemporaneously owns or has the right to obtain
securities equivalent in kind and amount to those sold, i.e.,
short sales against the box.) (the Fund has no current intention
to engage in short selling);
(iii) invest for the purpose of exercising control or management;
(iv) purchase securities issued by any investment company except
by purchase in the open market where no commission or profit to a
sponsor or dealer results from such purchase other than the
customary broker's commission, or except when such purchase,
though not made in the open market, is part of a plan of merger or
consolidation; provided, however, that securities of any
investment company will not be purchased for the Fund if such
purchase at the time thereof would cause: (a) more than 10% of the
Fund's total assets (taken at the greater of cost or market value)
to be invested in the securities of such issuers; (b) more than 5%
of the Fund's total assets (taken at the greater of cost or market
value) to be invested in any one investment company; or (c) more
than 3% of the outstanding voting securities of any such issuer to
be held for the Fund; provided further that, except in the case of
a merger or consolidation, the Fund shall not purchase any
securities of any open-end investment company unless the Fund (1)
waives the investment advisory fee with respect to assets invested
in other open-end investment companies and (2) incurs no sales
charge in connection with the investment (as an operating policy,
the Fund will not invest in another open-end registered investment
company);
(v) invest more than 10% of the Fund's total assets (taken at
the greater of cost or market value) in securities that are
restricted as to resale under the 1933 Act (other than Rule 144A
securities deemed liquid by the Fund's Board of Trustees);
(vi) 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: (i) is not traded flat or in default as to
interest or principal;
(vii) invest in warrants (other than warrants acquired by the Fund
as part of a unit or attached to securities at the time of
purchase) if, as a result, the investments (valued at the lower of
cost or market) would exceed 5% of the value of the Fund's net
assets or if, as a result, more than 2% of the Fund's net assets
would be invested in warrants not listed on a recognized United
States stock exchange, to the extent permitted by applicable state
securities laws;
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:
Yield: Yields for a Fund used in advertising are computed
by dividing the Fund's interest and dividend income for a given
30-day or one-month period, net of expenses, by the average number
of shares entitled to receive distributions during the period,
dividing this figure by the Fund's net asset value per share at
the end of the period, and annualizing the result (assuming
compounding of income) in order to arrive at an annual percentage
rate. Income is calculated for purpose of yield quotations in
accordance with standardized methods applicable to all stock and
bond mutual funds. Dividends from equity investments are treated
as if they were accrued on a daily basis, solely for the purpose
of yield calculations. In general, interest income is reduced
with respect to bonds trading at a premium over their par value by
subtracting a portion of the premium from income on a daily basis,
and is increased with respect to bonds trading at a discount by
adding a portion of the discount to daily income. Capital gains
and losses generally are excluded from the calculation.
Total Return: The Fund's average annual total return is
calculated for certain periods by determining the average annual
compounded rates of return over those periods that would cause an
investment of $1,000 (made at the maximum public offering price
with all distributions reinvested) to reach the value of that
investment at the end of the periods. The Fund may also calculate
total return figures which represent aggregate performance over a
period or year-by-year performance.
Performance Results: Any total return quotation provided
for the Fund should not be considered as representative of the
performance of the Fund in the future since the net asset value
and public offering price of shares of the Fund will vary based
not only on the type, quality and maturities of the securities
held in the 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 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
Debt securities (other than short-term debt obligations
maturing in 60 days or less), including securities for which price
quotations are available, will normally be valued on the basis of
market valuations furnished by a pricing service. Short-term debt
obligations and money market securities maturing in 60 days or
less are valued at amortized cost, which approximates market
value.
Securities for which market quotations are not 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, has elected, however, to be
governed by Rule 18f-1 under the 1940 Act as a result of which the
Fund is obligated to redeem shares with respect to any one
investor during any 90-day period, solely in cash up to the lesser
of $250,000 or 1% of the net asset value of the Fund 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 During Past 5 Years
Robert R. Coby, 46
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, 53
2015 West Main Street
Stamford, CT 06902
Trustee
Chairman of North American Properties
Group since January 1987.
James S. Pasman, Jr., 66
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 FDDI 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 FDDI or any of its affiliates will receive any
compensation from the Trust for serving as an officer or Trustee
of the Trust.
As of ____________________, 1997 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, FDDI 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.
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 Ffederal 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 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 fFederal 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 Ffederal 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 Fund
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. Ffederal 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 a fFederal 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. governmentU.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 Ffederal, 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 Ffederal 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.
Ffederal tax status of distributions.
Backup Withholding
The Fund may be required to withhold U.S. fFederal 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. Ffederal 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 liable
for any income or franchise tax in the Commonwealth of
Massachusetts, provided that the Fund continues to qualify as a
regulated investment company under Subchapter M of the Code.
Fund shareholders may be subject to state and local taxes on
their fund distributions. Shareholders are advised to consult
their own tax advisers with respect to the particular tax
consequences to them of an investment in the Fund.
Investment Manager of the Fund
BANKERS TRUST COMPANY
Administrator
FIRST DATA INVESTOR SERVICES GROUP, INC.
Distributor
FIRST DATA 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 incorporated by reference to Post-
Effective Amendment No. 1 filed with the Securities and Exchange
Commission via EDGAR on November 22, 1996.
Exhibit
Number Description
(d) The form of Investment Management Agreement between U.S.
Bond 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.
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 will be filed by amendment.
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
incorporated by reference to Post-Effective Amendment No. 1 filed
with the Securities and Exchange Commission via EDGAR on November
22, 1996.
(d) The form of Purchase Agreement relating to the U.S. Bond
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. Director, Bankers Trust
Company; Retired senior vice president and Director, International
Business machines Corporation; Director, Computer Task Group;
Director, Phillips Petroleum Company; Director, Caliber Systems,
Inc. (formerly, Roadway Services Inc.); Director, Rohm and Haas
Company; Director, TIG Holdings; Chairman emeritus of Amherst
College; and Chairman of the Colonial Willimsburg Foundation.
Richard H. Daniel, Bankers Trust Company, 130 Liberty Street, New
York, New York 10006. Vice chairman and chief financial officer,
Bankers Trust Company and Bankers Trust New York Corporation;
Beneficial owner, general partner, Daniel Brothers, Daniel Lingo &
Assoc., Daniel Pelt & Assoc.; Beneficial owner, Rhea C. Daniel
Trust.
Philip A. Griffiths, Bankers Trust Company, 130 Liberty Street,
New York, New York 10006. Director, Institute for Advanced Study;
Director, Bankers Trust Company; Chairman, Committee on Science,
Engineering and Public Policy of the National Academies of
Sciences and Engineering & the Institute of Medicine; and Chairman
and member, Nominations Committee and Committee on Science and
Engineering Indicators, National Science Board; Trustee, North
Carolina School of Science and Mathematics and the Woodward
Academy.
William R. Howell, J.C. Penney Company, Inc., P.O. Box 10001,
Plano, TX 75301-0001. Chairman Emeritus, J.C. Penney Company,
Inc.; Director, Bankers Trust Company; Director, Exxon
Corporation; Director, Halliburton Company; Director, Warner-
Lambert Corporation; Director, The Williams Companies, Inc.; and
Director, National Retail Federation.
Vernon E. Jordan, Jr., Akin, Gump, Strauss, Hauer & Feld, LLP,
1333 New Hampshire Ave., N.W., Washington, DC 20036. Senior
Partner, Akin, Gump, Strauss, Hauer & Feld, LLP; Director,
Bankers Trust Company; Director, American Express Company;
Director, Dow-Jones, Inc.; Director, J.C. Penney Company, Inc.;
Director, Revlon Group Incorporated; Director, Ryder System, Inc.;
Director, Sara Lee Corporation; Director, Union Carbide
Corporation; Director, Xerox Corporation; Trustee, Brookings
Institution; Trustee, The Ford Foundation; and Trustee, Howard
University.
David Marshall, 130 Liberty Street, New York, New York 10006.
Chief Information Officer and Executive Vice President, Bankers
Trust New York Corporation; Senior Managing Director, Bankers
Trust Company.
Hamish Maxwell, Philip Morris Companies Inc., 120 Park Avenue, New
York, NY 10006. Retired Chairman and Chief Executive Officer,
Philip Morris Companies Inc.; Director, Bankers Trust Company;
Director, The News Corporation Limited; Director, Sola
International Inc.; and Chairman, WWP Group pic.
Frank N. Newman, Bankers Trust Company, 130 Liberty Street, New
York, New York 10006. Chairman of the Board, Chief Executive
Officer and President, Bankers Trust New York Corporation and
Bankers Trust Company; Director, Bankers Trust Company; Director,
Dow-Jones, Inc.; and Director, Carnegie Hall.
N.J. Nicholas Jr., 745 Fifth Avenue, New York, NY 10020.
Director, Bankers Trust Company; Director, Boston Scientific
Corporation; and Director, 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, Bankers Trust Company; Director,
Allied-Signal Inc.; Director, Federal Home Loan Mortgage
Corporation; Director, GTE Corporation; Director, The May
Department Stores Company; Director, Safeguard Scientifics, Inc.;
and Trustee, University of Pennsylvania.
Donald L. Staheli, Bankers Trust Company, 130 Liberty Street, New
York, New York 10006. Chairman of the Board and Chief Executive
Officer, Continental Grain Company; Director, Bankers Trust
Company; Director, ContiFinancial Corporation; Director,
Prudential Life Insurance Company of America; Director, Fresenius
Medical Care, A.g.; Director, America-China Society; Director,
National Committee on United States-China Relations; Director, New
York City Partnership; Chairman, U.S.-China Business Council;
Chairman, Council on Foreign Relations; Chairman, National Advisor
Council of Brigham Young Universitys Marriott School of
Management; Vice Chairman, The Points of Light Foundation; and
Trustee, American Graduate School of International Management.
Patricia Carry Stewart, c/o Office of the Secretary, 130 Liberty
Street, New York, NY 10006. Director, Bankers Trust Company;
Director, CVS Corporation; Director, Community Foundation for Palm
Beach and Martin Counties; Trustee Emerita, Cornell University.
George J. Vojta, Bankers Trust Company, 130 Liberty Street, New
York, NY 10006. Vice Chairman, Bankers Trust New York Corporation
and Bankers Trust Company; Director, bankers Trust Company;
Director; Alicorp S.A.; Director; Northwest Airlines; Director,
Private Export Funding Corp.; Director, New York State Banking
Board; Director, St. Lukes-Roosevelt Hospital Center; Partner, New
York City Partnership; and Chairman, Wharton Financial Services
Center.
Paul A. Volcker, Bankers Trust Company, 130 Liberty Street, New
York, New York 10006. Director, Bankers Trust Company; Director,
American Stock Exchange; Director, Nestle S.A.; Director,
Prudential Insurance Company; Director, UAL Corporation; Chairman,
Group of 30; North American Chairman, Trilateral Commission; Co-
Chairman, Bretton Woods Committee; Co-Chairman, U.S./Hong Kong
Economic Cooperation Committee; Director, American Council on
Germany; Director, Aspen Institute; Director, Council on Foreign
Relations; Director, The Japan Society; and Trustee, The American
Assembly.
Melvin A. Yellin, Bankers Trust Company, 130 Liberty Street, New
York, New York 10006. Senior Managing Director and General Counsel
of Bankers Trust New York Corporation and Bankers Trust Company;
Director, 1136 Tenants Corporation; and Director, ABA Securities
Association.
Item 29. Principal Underwriters
(a) In addition to BT Insurance Funds Trust, First Data
Distributors, Inc. (the "Distributor") currently acts as
distributor for The Galaxy Fund, The Galaxy VIP Fund, Galaxy Fund
II, Panorama Trust, CT&T 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 and is located at 4400
Computer Drive, Westborough, MA 01581.
(b) The information required by this Item 29 (b) with
respect to each director, officer, or partner of First Data
Distributors, Inc. is incorporated by reference to Schedule A of
Form BD filed by First Data 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) First Data 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(d) The form of Investment Management Agreement between the U.S.
Bond Index Fund.
13(d) The form of Purchase Agreement relating to the U.S. Bond
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 18th day of July, 1997.
BT INSURANCE FUNDS TRUST
JULIE A. TEDESCO
By: Julie A. Tedesco
Secretary
DRAFT
EXHIBIT 5D
FORM OF
INVESTMENT MANAGEMENT AGREEMENT
_____________, 1997
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 U.S. Bond Index Fund (the "Fund").
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
prospectus (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 Lehman
Brothers Aggregate Bond 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 0.15% based on the Funds' average daily net assets. The
fee 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 time 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: _________________________
EXHIBIT 13D
FORM OF
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 agrees to purchase 1 share (the "Share") at $10.00 per
share of the Trust's U.S. Bond Index Fund (the Portfolio), with
a par value of $.001 per share. The Share is the "initial share"
of the Portfolio. First Data hereby acknowledges receipt of a
purchase confirmation reflecting the purchase of 1 Share, and the
Trust hereby acknowledges receipt from First Data of funds in the
amount of $10.00 in full payment for the Share.
2. First Data represents and warrants to the Trust that
the Share is 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 a Share redeems the Share prior to the fifth
anniversary of the date that the Portfolio begins its investment
activities, the redemption proceeds payable to First Data or such
transferee will be reduced by an amount equal to the number
resulting from multiplying the Portfolio's total unamortized costs
by a fraction, the numerator of which is equal to the Share
redeemed by First Data or such transferee and the denominator of
which is equal to the number of shares of the Portfolio
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 the 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 the 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 ________, 1997.
Attest: BT INSURANCE FUNDS TRUST
By:
Name:
Title:
Attest: FIRST DATA INVESTOR SERVICES GROUP,
INC.
By:
Name:
Title:
