As filed with the Securities and Exchange Commission on August 20, 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. 3 X
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 5 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) 573-1529
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:
X 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) 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. Pursuant to Rule 24f-2(b)(2) the
Registrant did not file a Rule 24f-2 Notice for the fiscal year ended December
31, 1996 because it did not sell any securities pursuant to the Rule during that
period. Registrant will file a Rule 24f-2 Notice within 60 days after the close
of the Registrant's current fiscal year.
<PAGE>
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BT INSURANCE FUNDS TRUST
FORM N-1A
CROSS REFERENCE SHEET
FOR
(Small Cap Index Fund, EAFE(R) Equity Index Fund and Equity 500 Index Fund)
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
<PAGE>
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
<PAGE>
BT INSURANCE FUNDS TRUST
FORM N-1A
CROSS REFERENCE SHEET
FOR
(Small Cap Fund and International Equity Fund)
Part A.
Item No. Prospectus Caption
Item 1. Cover Page................................. Cover Page
Item 2. Synopsis................................... Not Applicable
Item 3. Condensed Financial Information............ Not Applicable
Item 4. General Description of Registrant.......... Investment
Objective, Policies
and Risks; Risk
Factors; Matching the
Fund to Your
Investment Needs;
Additional Information
Item 5. Management of the Fund..................... Management of the
Fund; Purchase of
Shares; Additional
Information
Item 5A. Management's Discussion of
Fund Performance........................... Not Applicable
Item 6. Capital Stock and Other Securities.......... Dividends,
Distributions and
Taxes; Additional
Information
Item 7. Purchase of Securities Being Offered........ Net Asset Value;
Purchase and
Redemption of Shares
Item 8. Redemption or Repurchase.................... Purchase and
Redemption of Shares
Item 9. Pending Legal Proceedings................... Not Applicable
<PAGE>
25
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N-1A Statement of Additional
Item No. Information Caption
Item 10. Cover Page.............................. Cover Page
Item 11. Table of Contents....................... Table of Contents
Item 12. General Information and History......... Not Applicable
Item 13. Investment Objectives and Policies...... Investment
Objectives, Policies
and Restrictions
Item 14. Management of the Fund.................. Management of the
Funds
Item 15. Control Persons and Principal
Holders of Securities...................... Management of the
Funds
Item 16. Investment Advisory and
Other Services............................. Management of the
Funds
Item 17. Brokerage Allocation and
Other Practices............................ Investment
Objectives, Policies
and Restrictions;
Valuation of
Securities;
Redemption in Kind
Item 18. Capital Stock and Other Securities....... Investment
Objectives, Policies
and Restrictions
Item 19. Purchase, Redemption and
Pricing of Securities Being Offered......... Valuation of
Securities;
Redemption in Kind
Item 20. Tax Status............................... Taxation
Item 21. Underwriters............................. Valuation of
Securities;
Redemption in Kind
Item 22. Calculation of Performance Data.......... Performance
Information
Item 23. Financial Statements...................... Not Applicable
Part C
Information required to be included in Part C is set forth under the
appropriate Item, so number, in Part C of this Registration Statement.
<PAGE>
The Prospectus and Statement of Additional Information for the U.S. Bond
Index Fund included in Post-Effective Amendment No. 2 are not included in this
filing.
<PAGE>
BT INSURANCE FUNDS TRUST
INTERNATIONAL EQUITY FUND
PROSPECTUS
AUGUST 20, 1997
Seeks long-term capital appreciation primarily from non-U.S. equities, or
other securities with equity characteristics.
This Prospectus offers shares of the International Equity Fund (the "Fund"), a
series of BT Insurance Funds Trust (the "Trust"), which is an open-end
management investment company having multiple series. Shares of the Fund are
available to the public only through the purchase of certain variable annuity
and variable life insurance contracts ("Contract(s)") issued by various
insurance companies (the "Companies").
Please read this Prospectus carefully before investing and retain it for future
reference. It contains important information about the Fund that you should know
and can refer to in deciding whether the Fund's goals match your own.
A Statement of Additional Information ("SAI") with the same date has been
filed with the Securities and Exchange Commission ("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
offering memorandum.
Shares of the Fund are not deposits or obligations of, or guaranteed or
endorsed by, Bankers Trust Company and the shares are not federally insured by
the Federal Deposit Insurance Corporation, the Federal Reserve Board or any
other agency.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
BANKERS TRUST GLOBAL INVESTMENT MANAGEMENT,
a unit of BANKERS TRUST COMPANY
Investment Manager of the Fund
First Data Distributors, Inc.
Distributor
4400 Computer Drive
Westborough, MA 01581
<PAGE>
TABLE OF CONTENTS
..................
Page
THE FUND............................................. 3
Who May Want to Invest
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
Additional Information
SHAREHOLDER AND ACCOUNT POLICIES..................... 14
Purchase and Redemption of Shares
Dividends, Distributions and Taxes
<PAGE>
THE FUND
The Fund seeks to achieve long-term capital appreciation from investments in
foreign equity securities (or other securities with equity characteristics); the
production of any current income is incidental to this objective. The Fund
invests primarily in established companies based in developed countries
outside the United States, but the Fund may also invest in emerging market
securities.
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 may be appropriate for investors who are willing to endure stock market
fluctuations in pursuit of potentially higher long-term returns. 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 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's investment objective is long-term capital appreciation from
investment in foreign equity securities (or other securities with equity
characteristics); the production of any current income is incidental to this
objective. There can be no assurance that the investment objective of the Fund
will be achieved. The Fund's investment objective is not a fundamental policy
and may be changed upon notice to, but without the approval of the Fund's
shareholders.
The Fund seeks to provide long-term capital appreciation by investing
primarily in the equity securities of foreign issuers, consisting of common
stock and other securities with equity characteristics. These issuers are
primarily established companies based in developed countries outside the United
States. However, the Fund may also invest in securities of issuers in
underdeveloped countries. Investments in these countries will be based on an
acceptable degree of risk in anticipation of superior returns. Under normal
circumstances, the Fund will invest at least 65% of the value of its total
assets in the equity securities of issuers based in at least three countries
other than the United States. For further discussion of the unique risks
associated with investing in foreign securities in both developed and
underdeveloped countries, see "Risk Factors and Certain Sercurities and
Investment Practices" and "Additional Information" herein and in the SAI.
The Fund's investments will generally be diversified among several geographic
regions and countries. Criteria for determining the appropriate distribution of
investments among various countries and regions include the prospects for
relative growth among foreign countries, expected levels of inflation,
government policies influencing business conditions, the outlook for currency
relationships and the range of alternative opportunities available to
international investors.
In countries and regions with well-developed capital markets where more
information is available, Bankers Trust Company ("Bankers Trust" or the
"Manager") will seek to select individual investments for the Fund. Criteria for
selection of individual securities include the issuer's competitive position,
prospects for growth, managerial strength, earnings quality, underlying asset
value, relative market value and overall marketability. The Fund may invest in
securities of companies having various levels of net worth, including smaller
companies whose securities may be more volatile than securities offered by
larger companies with higher levels of net worth.
In other countries and regions where capital markets are underdeveloped or
not easily accessed and information is difficult to obtain, the Fund may choose
to invest only at the market level. Here, the Fund may seek to achieve country
exposure through use of options or futures based on an established local index.
Similarly, country exposure may also be achieved through investments in other
registered investment companies. Restrictions on both these types of investments
are fully explained herein and in the SAI.
The remainder of the Fund's assets will be invested in dollar and
non-dollar denominated short-term instruments. These investments are subject to
the conditions described in "Short-term Instruments" below.
Equity Investments. The Fund invests primarily in common stock and other
securities with equity characteristics. For purposes of the Fund's policy of
investing at least 65% of the value of its total assets in the equity securities
of foreign issuers, "equity securities" are defined as common stock, preferred
stock, trust or limited partnership interests, rights and warrants, and
convertible securities (consisting of debt securities or preferred stock that
may be converted into common stock or that carry the right to purchase common
stock). The Fund invests in securities listed on foreign or domestic securities
exchanges and securities traded in foreign or domestic over-the-counter markets
and may invest in restricted or unlisted securities.
With respect to certain countries in which capital markets are either less
developed or not easily accessed, investments by the Fund may be made through
investment in other investment companies that in turn are authorized to invest
in the securities of such countries. Investment in other investment companies is
limited in amount by the Investment Company Act of 1940, as amended (the "1940
Act"), will involve the indirect payment of a portion of the expenses, including
advisory fees, of such other investment companies and may result in the
duplication of fees and expenses.
Short-term Instruments. The Fund intends to stay invested in the securities
described above to the extent practical in light of its objective and long-term
investment perspective. However, the Fund's assets may be invested in short-term
instruments with remaining maturities of 397 days or less to meet anticipated
redemptions and expenses or for day-to-day operating purposes and when, in
Bankers Trust's opinion, it is advisable to adopt a temporary defensive position
because of unusual or adverse conditions affecting the equity markets. In
addition, when the Fund experiences large cash inflows through the sale of
securities, and desirable equity securities that are consistent with the Fund's
investment objective are unavailable in sufficient quantities or at attractive
prices, the Fund may hold short-term investments for a limited time pending
availability of such equity securities. Short-term instruments consist of
foreign and domestic: (i) short-term obligations of sovereign governments, their
agencies, instrumentalities, authorities or political subdivisions; (ii) other
short-term debt securities rated Aa or higher by Moody's Investors Service, Inc.
("Moody's") or AA or higher by Standard & Poor's ("S&P") or, if unrated, of
comparable quality in the opinion of Bankers Trust; (iii) commercial paper; (iv)
bank obligations, including negotiable certificates of deposit, time deposits
and bankers' acceptances; and (v) repurchase agreements. At the time the Fund
invests in commercial paper, bank obligations or repurchase agreements, the
issuer or the issuer's parent must have outstanding debt rated Aa or higher by
Moody's or AA or higher by S&P, or outstanding commercial paper or bank
obligations rated Prime-1 by Moody's or A-1 by S&P; or, if no such ratings are
available, the instrument must be of comparable quality in the opinion of
Bankers Trust. These instruments may be denominated in U.S. dollars or in
foreign currencies that have been determined to be of high quality by a
nationally recognized statistical rating organization, or if unrated, by Bankers
Trust.
Additional Investment Techniques
The Fund may also utilize the following investments and investment techniques
and practices: American Depositary Receipts ("ADRs"), Global Depositary Receipts
("GDRs") and European Depositary Receipts ("EDRs"), options on stocks, options
on foreign stock indices, futures contracts on foreign stock indices, options on
futures contracts, Rule 144A securities, when-issued and delayed delivery
securities, securities lending, and repurchase agreements. See "Additional
Information" herein for further information.
Additional Investment Limitations
As a diversified fund, no more than 5% of the assets of the Fund may be
invested in the securities of one issuer (other than U.S. government
securities), except that up to 25% of the Fund's assets may be invested without
regard to this limitation. The Fund will not invest more than 25% of its assets
in the securities of issuers in any one industry. These are fundamental
investment policies of the Fund which may not be changed without investor
approval.
As a non-fundamental investment policy, no more than 15% of the Fund's net
assets may be invested in illiquid or not readily marketable securities
(including repurchase agreements and time deposits maturing in more than seven
days). Additional investment policies of the Fund are contained in the SAI.
RISK FACTORS AND CERTAIN SECURITIES AND INVESTMENT PRACTICES
By itself, the Fund does not constitute a balanced investment plan; the Fund
seeks long-term capital appreciation from investment primarily in the equity
securities (or other securities with equity characteristics) of foreign issuers.
Changes in domestic and foreign interest rates may affect the value of the
Fund's investments, and rising interest rates can be expected to reduce the
Fund's share value. A description of a number of investments and investment
techniques available to the Fund, including foreign investments and the use of
options and futures, and certain risks associated with these investments and
techniques is included under "Additional Information." The Fund's share price
and total return fluctuate and your investment may be worth more or less than
your original cost when you redeem your shares.
Risk of Investing in Foreign Securities
Investors should realize that investing in securities of foreign issuers
involves considerations not typically associated with investing in securities of
companies organized and operated in the United States. Although the Fund intends
to invest primarily in securities of established companies based in developed
countries, investors should realize that the value of the Fund's investments may
be adversely affected by changes in political or social conditions, diplomatic
relations, confiscatory taxation, expropriation, nationalization, limitation on
the removal of funds or assets, or imposition of (or change in) exchange control
or tax regulations in those foreign countries. In addition, changes in
government administrations or economic or monetary policies in the United States
or abroad could result in appreciation or depreciation of portfolio securities
and could favorably or unfavorably affect the Fund's operations. Furthermore,
the economies of individual foreign nations may differ from the U.S. economy,
whether favorably or unfavorably, in areas such as growth of gross national
product, rate of inflation, capital reinvestment, resource self-sufficiency and
balance of payments position; it may also be more difficult to obtain and
enforce a judgment against a foreign issuer. In general, less information is
publicly available with respect to foreign issuers than is available with
respect to U.S. companies. Most foreign companies are also not subject to the
uniform accounting and financial reporting requirements applicable to issuers in
the United States. Any foreign investments made by the Fund must be made in
compliance with U.S. and foreign currency restrictions and tax laws restricting
the amounts and types of foreign investments.
The Fund may invest in the securities of issuers based in underdeveloped
countries, including those in Eastern Europe. Investment in securities of
issuers based in underdeveloped countries entails all of the risks of investing
in securities of foreign issuers outlined in this section to a heightened
degree. These heightened risks include: (i) greater risks of expropriation,
confiscatory taxation, nationalization, and less social, political and economic
stability; (ii) lack of liquidity and greater price volatility due to the
smaller size of the market for such securities and a low or nonexistent volume
of trading; (iii) certain national policies which may restrict the Fund's
investment opportunities including restrictions on investing in issuers or
industries deemed sensitive to relevant national interests; and (iv) in the case
of Eastern Europe, the absence of developed capital markets and legal structures
governing private or foreign investment and private property and the possibility
that recent favorable economic and political developments could be slowed or
reversed by unanticipated events. The Fund will not invest more than 5% of the
value of its total assets in securities of issuers based in Eastern Europe.
Because foreign securities generally are denominated and pay dividends or
interest in foreign currencies, and the Fund holds various foreign currencies
from time to time, the value of the net assets of the Fund as measured in U.S.
dollars will be affected favorably or unfavorably by changes in exchange rates.
Generally, the Fund's currency exchange transactions will be conducted on a spot
(i.e., cash) basis at the spot rate prevailing in the currency exchange market.
The cost of the Fund's currency exchange transactions will generally be the
difference between the bid and offer spot rate of the currency being purchased
or sold. In order to protect against uncertainty in the level of future foreign
currency exchange rates, the Fund is authorized to enter into certain foreign
currency exchange transactions. See "Additional Information."
In addition, while the volume of transactions effected on foreign stock
exchanges has increased in recent years, in most cases it remains appreciably
below that of the New York Stock Exchange Inc. (the "NYSE"). Accordingly, the
Fund's foreign investments may be less liquid and their prices may be more
volatile than comparable investments in securities of U.S. companies. Moreover,
the settlement periods for foreign securities, which are often longer than those
for securities of U.S. issuers, may affect portfolio liquidity. In buying and
selling securities on foreign exchanges, the Fund normally pays fixed
commissions that are generally higher than the negotiated commissions charged in
the United States. In addition, there is generally less government supervision
and regulation of securities exchanges, brokers and issuers in foreign countries
than in the United States.
The Fund intends to manage its holdings actively to pursue its investment
objective. The Fund does not expect to trade in securities for short-term
profits but, when circumstances warrant, securities may be sold without regard
to the length of time held.
Derivatives
The Fund may invest in various instruments that are commonly known as
"derivatives". Generally, a derivative is a financial arrangement, the value of
which is based on, or "derived" from, a traditional security, asset, or market
index. Some derivatives such as mortgage-related and other asset-backed
securities are in many respects like any other investment, although they may be
more volatile or less liquid than more traditional debt securities. There are,
in fact, many different types of derivatives and many different ways to use
them. There are a range of risks associated with the use of derivatives. Futures
and options are commonly used for traditional hedging purposes in an attempt to
protect a fund from exposure to changing interest rates, securities prices, or
currency exchange rates and for cash management purposes as a low cost method of
gaining exposure to a particular securities market without investing directly in
those securities. However, some derivatives are used for leverage, which tends
to magnify the effects of an instrument's price changes as market conditions
change. Leverage involves the use of a small amount of money to control a large
amount of financial assets, and can in some circumstances, lead to significant
losses. Bankers Trust will use derivatives only in circumstances where Bankers
Trust believes they offer the most economic means of improving the risk/reward
profile of the Fund. Derivatives will not be used to increase portfolio risk
above the level that could be achieved using only traditional investment
securities or to acquire exposure to changes in the value of assets or Indices
that by themselves would not be purchased for the Fund. The use of derivatives
for non-hedging purposes may be considered speculative. A description of the
derivatives that the Fund may use and some of their associated risks is found
under "Additional Information."
Although a change in the Fund's investment objective does not require
shareholder approval, shareholders of the Fund will receive 30 days prior
written notice with respect to any such change. If there is a change in the
Fund's investment objective, the Fund's shareholders should consider whether the
Fund remains an appropriate investment in light of their then-current needs. See
"Investment Objectives and Policies" for a description of the fundamental
policies of the Fund that cannot be changed without approval by the holders of
"a majority of the outstanding voting securities" (as defined in the 1940 Act)
of the Fund.
For descriptions of the management of the Fund and expenses, see
"Management of the Trust" herein and "Management of the Funds" in the SAI.
NET ASSET VALUE
The net asset value per share of the Fund is calculated on each day on which
the NYSE is open (each such day being a "Valuation Day"). The NYSE is currently
open on each day, Monday through Friday, except: (a) January 1st, Martin Luther
King Day, Presidents' Day (the third Monday in February), Good Friday, Memorial
Day (the last Monday in May), July 4th, Labor Day (the first Monday in
September), Thanksgiving Day (the last Thursday in November) and December 25th;
and (b) the preceding Friday or the subsequent Monday when one of the
calendar-determined holidays falls on a Saturday or Sunday, respectively.
The net asset value per share of the Fund is calculated once on each Valuation
Day as of the close of regular trading on the NYSE, which under normal
circumstances is 4:00 p.m., New York time. The net asset value per share of the
Fund is computed by dividing the value of the Fund's assets, less all
liabilities, by the total number of its shares outstanding. The Fund's
securities and other assets are valued primarily on the basis of market
quotations or, if quotations are not readily available, by a method which the
Fund's Board of Trustees believes accurately reflects fair value.
Under procedures adopted by the Board, a net asset value for a Fund later
determined to have been inaccurate for any reason will be recalculated.
Purchases and redemptions made at a net asset value determined to have been
inaccurate will be adjusted if the difference between the original net asset
value and the recalculated net asset value divided by the recalculated net asset
value is 0.005 (1/2 of 1%) or greater and the difference between the net asset
value is equal to or greater than $0.01, unless the impact of the error to a
shareholder account was $10 or less.
PERFORMANCE INFORMATION AND REPORTS
The Fund's performance may be used from time to time in advertisements,
shareholder reports or other communications to existing or prospective owners of
the Companies' variable contracts. When performance information is provided in
advertisements, it will include the effect of all charges deducted under the
terms of the specified contract, as well as all recurring and non-recurring
charges incurred by the Fund. Performance information may include the Fund's
investment results and/or comparisons of its investment results to the MSCI GDP
weighted EAFE Index, MSCI EAFE Index, Lipper International Average or other
various unmanaged indices or results of other mutual funds or investment or
savings vehicles. The Fund's investment results as used in such communications
will be calculated on a total rate of return basis in the manner set forth
below. From time to time, fund rankings may be quoted from various sources, such
as Lipper Analytical Services, Inc., Value Line and Morningstar Inc.
The Trust may provide period and average annualized "total return" quotations
for the Fund. The Fund's "total return" refers to the change in the value of an
investment in the Fund over a stated period based on any change in net asset
value per share and including the value of any shares purchasable with any
dividends or capital gains distributed during such period. Period total return
may be annualized. An annualized total return is a compounded total return which
assumes that the period total return is generated over a one-year period, and
that all dividends and capital gain distributions are reinvested. An annualized
total return will be higher than a period total return if the period is shorter
than one year, because of the compounding effect.
Unlike some bank deposits or other investments which pay a fixed yield for a
stated period of time, the total return of the Fund will vary depending upon
interest rates, the current market value of the securities held by the Fund and
changes in the Fund's expenses. In addition, during certain periods for which
total return quotations may be provided, Bankers Trust may have voluntarily
agreed to waive portions of its fees on a month-to-month basis. Such waivers
will have the effect of increasing the Fund's net income (and therefore its
total return) during the period such waivers are in effect.
Shareholders will receive financial reports semi-annually that include
the Fund's financial statements, including listings of investment securities
held by the Fund at those dates. Annual reports are audited by independent
accountants.
MANAGEMENT OF THE TRUST
Board of Trustees
The affairs of the Fund are managed under the supervision of the Board of
Trustees of the Trust, of which the Fund is a series. By virtue of the
responsibilities assumed by Bankers Trust, neither the Trust nor the Fund
requires employees other than the Trust's officers. None of the Trust's officers
devotes full time to the affairs of the Trust or the Fund.
For more information with respect to the Trustees of the Trust, see
"Management of the Funds" in the SAI.
Investment Manager
The Fund has retained the services of Bankers Trust Global Investment
Management, a unit of Bankers Trust, as investment manager. Bankers Trust, a New
York banking corporation with executive offices at 130 Liberty Street (One
Bankers Trust Plaza), 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 wholesaler 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 $129
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 80 offices in more than 50 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
$240 billion in assets under management globally.
Bankers Trust, subject to the supervision and direction of the Board of
Trustees, manages the Fund in accordance with the Fund's investment objective
and stated investment policies, makes investment decisions for the Fund, places
orders to purchase and sell securities and other financial instruments on behalf
of the Fund, employs professional investment managers and securities analysts
who provide research services to the Fund, oversees the administration of all
aspects of the Trust's business and affairs and supervises the performance of
professional services provided by other vendors. Bankers Trust may utilize the
expertise of any of its world wide subsidiaries and affiliates to assist it in
its role as investment manager. All orders for investment transactions on behalf
of the Fund are placed by Bankers Trust with broker-dealers and other financial
intermediaries that it selects, including those affiliated with Bankers Trust. A
Bankers Trust affiliate will be used in connection with a purchase or sale of an
investment for the Fund only if Bankers Trust believes that the affiliate's
charge for the transaction does not exceed usual and customary levels. The Fund
will not invest in obligations for which Bankers Trust or any of its affiliates
is the ultimate obligor or accepting bank. The Fund may, however, invest in the
obligations of correspondents and customers of Bankers Trust.
Bankers Trust has been advised by its counsel that, in counsel's opinion,
Bankers Trust currently may perform the services for the Trust and the Fund
described in this Prospectus and the SAI without violation of the Glass-Steagall
Act or other applicable banking laws or regulations. State laws on this issue
may differ from the interpretations of relevant federal law and banks and
financial institutions may be required to register as dealers pursuant to state
securities law.
Mr. Michael Levy, Manager Director of Bankers Trust Global Investment
Management, has been the Fund's primary manager since its inception. He also
heads the international equity team, which is responsible for the day to day
management of the Fund. Since joining Bankers Trust, Mr. Levy has been the head
of this team and International Equity Strategist. The international equity team
has provided input into the management of the Fund. Prior to joining Bankers
Trust, Mr. Levy was an investment banker and an equity analyst with Oppenheimer
& Company. He has twenty-six years of business experience, of which fifteen
years have been in the investment industry. Robert Reiner, Vice
President of Bankers Trust Global Investment Management, has been a co-manager
of the Fund since its inception. At Bankers Trust, he has been responsible for
managing global portfolios and developing analytical and investment tools for
the group's global equity team. His primary focus has been on Japanese and
European markets. Prior to joining Bankers Trust, he was an equity analyst and
also provided macroeconomic coverage for Scudder, Stevens & Clark. He previously
served as Senior Analyst at Sanford C. Bernstein & Co. and was instrumental in
the development of Bernstein's International Value Fund. Mr. Reiner spent more
than nine years at Standard & Poor's Corporation, where he was a member of its
international ratings group. His tenure included managing the day to day
operations of Standard & Poor's Corporation Tokyo office for three years.
Julie Wang, Vice President of Global Investment Management, is a Fund
co-manager with primary focus on the Asia-Pacific region. She is part of the
International Equity Fund portfolio management team. Before joining Bankers
Trust in 1994, Julie was an investment manager at American International Group,
where she advised in the management of $7 billion of assets in Southeast Asia,
including private and listed equities, bonds, loans and structured products. She
was also an associate at Donaldson, Lufkin & Jenrette, where she worked on all
phases of merger and LBO analyses and advised clients on shareholder value
maximization and tender defense strategies. Julie received her B.A. (economics)
from Yale University and her MBA from the Wharton School. As compensation
for its services to the Fund, Bankers Trust receives a fee from the Fund
computed daily and paid monthly at the annual rate of 1.00% of the average daily
net assets of the Fund.
Expenses
In addition to the fees of Bankers Trust, the Fund is responsible for the
payment of all its other expenses incurred in the operation of the Fund, which
include, among other things, expenses for legal and independent auditor's
services, charges of the Fund's custodian and transfer agent, SEC fees, a pro
rata portion of the fees of the Trust's unaffiliated trustees, accounting costs
for reports sent to Contractowners, the Fund's pro rata portion of membership
fees in trade organizations, a pro rata portion of the fidelity bond coverage
for the Trust's officers, interest, brokerage and other trading costs, taxes,
all expenses of computing the Fund's net asset value per share, expenses
involved in registering and maintaining the registration of the Fund's shares
with the SEC and qualifying the Fund for sale in various jurisdictions and
maintaining such qualification, litigation and other extraordinary or
non-recurring expenses. 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. ("Investor Services Group"), 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,
Investor Services Group 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, the Trust has agreed to pay Investor Services Group 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 $5 billion; and
0.0075% of the Trust's monthly average net assets exceeding $5 billion, in
addition to a flat fee of $70,000 per year for each portfolio of the Trust and a
one-time start-up fee for each portfolio of the Trust. Distributor
First Data Distributors, Inc. serves as distributor of the Fund's shares to
separate accounts of the Companies, for which it receives no separate fee from
the Fund. The principal business address of the Distributor is 4400 Computer
Drive, Westborough, Massachusetts 01581. Custodian and Transfer Agent
Bankers Trust acts as custodian of the assets of the Fund and Investor Services
Group serves as the transfer agent for the Fund. Organization of the
Trust The Trust was organized on January 19, 1996, under the laws of the
Commonwealth of Massachusetts. The Fund is a separate series of the Trust. The
Trust offers shares of beneficial interest of the Fund and the Trust's other
series, par value $0.001 per share. The shares of the other series of the Trust
are offered through a separate Prospectus. No series of shares has any
preference over any other series. All shares, when issued, will be fully paid
and nonassessable. The Trust's Board of Trustees has the authority to create
additional series without obtaining shareholder approval.
The Trust is an entity of the type commonly known as a "Massachusetts business
trust." Under Massachusetts law, shareholders of such a business trust may,
under certain circumstances, be held personally liable as partners for its
obligations. However, the risk of a shareholder incurring financial loss on
account of shareholder liability is limited to circumstances in which both
inadequate insurance existed and the Trust itself was unable to meet its
obligations.
Through its separate accounts, the Companies are the Fund's sole stockholders of
record, so under the 1940 Act, the Companies are deemed to be in control of the
Fund. Nevertheless, when a shareholders' meeting occurs, each Company solicits
and accepts voting instructions from its Contractowners who have allocated or
transferred monies for an investment in the Fund as of the record date of the
meeting. Each Company then votes the Fund's shares that are attributable to its
Contractowners' interests in the Fund in proportion to the voting instructions
received. Each Company will vote any share that it is entitled to vote directly
due to amounts it has contributed or accumulated in its separate accounts in the
manner described in the prospectuses for its variable annuities and variable
life insurance policies.
Each share of the Fund is entitled to one vote, and fractional shares are
entitled to fractional votes. Fund shares have non-cumulative voting rights, so
the vote of more than 50% of the shares can elect 100% of the Trustees.
The Trust is not required, and does not intend, to hold regular annual
shareholder meetings, but may hold special meetings for consideration of
proposals requiring shareholder approval.
The Fund is only available to owners of variable annuities or variable life
insurance policies issued by the Companies through their respective separate
accounts. The Fund does not currently foresee any disadvantages to
Contractowners arising from offering its shares to variable annuity and variable
life insurance policy separate accounts simultaneously, and the Board of
Trustees monitors events for the existence of any material irreconcilable
conflict between or among Contractowners. If a material irreconcilable conflict
arises, one or more separate accounts may withdraw their investments in the
Fund. This could force the Fund to sell portfolio securities at disadvantageous
prices. Each Company will bear the expenses of establishing separate portfolios
for its variable annuity and variable life insurance separate accounts if such
action becomes necessary; however, ongoing expenses that are ultimately borne by
Contractowners will likely increase due to the loss of economies of scale
benefits that can be provided to mutual funds with substantial assets.
ADDITIONAL INFORMATION
American Depositary Receipts, Global Depositary Receipts and European Depositary
Receipts. ADRs, GDRs and EDRs are certificates evidencing ownership of shares of
a foreign-based issuer held in trust by a bank or similar financial institution.
Designed for use in U.S., international and European securities markets,
respectively, ADRs, GDRs and EDRs are alternatives to the purchase of the
underlying securities in their national markets and currencies. ADRs, GDRs and
EDRs are subject to the same risks as the foreign securities to which they
relate.
When-Issued and Delayed Delivery Securities. The Fund may purchase securities on
a when-issued or delayed delivery basis. Delivery of and payment for these
securities may take place as long as a month or more after the date of the
purchase commitment. The value of these securities is subject to market
fluctuation during this period and no income accrues to the Fund until
settlement takes place. The Fund maintains with the Custodian a segregated
account containing high grade liquid securities in an amount at least equal to
these commitments. When entering into a when-issued or delayed delivery
transaction, the Fund will rely on the other party to consummate the
transaction; if the other party fails to do so, the Fund may be disadvantaged.
Rule 144A Securities. The Fund may purchase securities in the United States that
are not registered for sale under federal securities laws but which can be
resold to institutions under SEC Rule 144A. Provided that a dealer or
institutional trading market in such securities exists, these restricted
securities are treated as exempt from the Fund's 15% limit on illiquid
securities. Under the supervision of the Board of Trustees of the Fund, Bankers
Trust determines the liquidity of restricted securities and, through reports
from Bankers Trust, the Board will monitor trading activity in restricted
securities. If institutional trading in restricted securities were to decline,
the liquidity of the Fund could be adversely affected.
Securities Lending. The Fund is permitted to lend up to 30% of the total value
of its securities. These loans must be secured continuously by cash or
equivalent collateral or by a letter of credit at least equal to the market
value of the securities loaned plus accrued income. By lending its securities,
the Fund can increase its income by continuing to receive income on the loaned
securities as well as by the opportunity to receive interest on the collateral.
During the term of the loan, the Fund continues to bear the risk of fluctuations
in the price of the loaned securities. In lending securities to brokers, dealers
and other organizations, the Fund is subject to risk which, like those
associated with other extensions of credit, include delays in recovery and
possible loss of rights in the collateral should the borrower fail financially.
Repurchase Agreements. In a repurchase agreement the Fund buys a security and
simultaneously agrees to sell it back at a higher price at a future date. In the
event of the bankruptcy of the other party to either a repurchase agreement or a
securities loan, the Fund could experience delays in recovering either its cash
or the securities it lent. To the extent that, in the meantime, the value of the
securities repurchased had decreased or the value of the securities lent had
increased, the Fund could experience a loss. In all cases, Bankers Trust must
find the creditworthiness of the other party to the transaction satisfactory. A
repurchase agreement is considered a collateralized loan under the 1940 Act.
Foreign Currency Exchange Transactions. Because the Fund buys and sells
securities denominated in currencies other than the U.S. dollar and receives
interest, dividends and sale proceeds in currencies other than the U.S. dollar,
the Fund from time to time may enter into foreign currency exchange transactions
to convert to and from different foreign currencies and to convert foreign
currencies to and from the U.S. dollar. The Fund either enters into these
transactions on a spot (i.e., cash) basis at the spot rate prevailing in the
foreign currency exchange market or uses forward contracts to purchase or sell
foreign currencies.
A forward foreign currency exchange contract is an obligation by the Fund to
purchase or sell a specific currency at a future date, which may be any fixed
number of days from the date of the contract. Forward foreign currency exchange
contracts establish an exchange rate at a future date. These contracts are
transferable in the interbank market conducted directly between currency traders
(usually large commercial banks) and their customers. A forward foreign currency
exchange contract generally has no deposit requirement and is traded at a net
price without commission. The Fund maintains with its custodian a segregated
account of high grade liquid assets in an amount at least equal to its
obligations under each forward foreign currency exchange contract. Neither spot
transactions nor forward foreign currency exchange contracts eliminate
fluctuations in the prices of the Fund's securities or in foreign exchange
rates, or prevent loss if the prices of these securities should decline.
The Fund may enter into foreign currency hedging transactions in an attempt to
protect against changes in foreign currency exchange rates between the trade and
settlement dates of specific securities transactions or changes in foreign
currency exchange rates that would adversely affect a portfolio position or an
anticipated investment position. Since consideration of the prospect for
currency parities will be incorporated into Bankers Trust's long-term investment
decisions, the Fund will not routinely enter into foreign currency hedging
transactions with respect to security transactions; however, Bankers Trust
believes that it is important to have the flexibility to enter into foreign
currency hedging transactions when it determines that the transactions would be
in the Fund's best interest. Although these transactions tend to minimize the
risk of loss due to a decline in the value of the hedged currency, at the same
time they tend to limit any potential gain that might be realized should the
value of the hedged currency increase. The precise matching of the forward
contract amounts and the value of the securities involved will not generally be
possible because the future value of such securities in foreign currencies will
change as a consequence of market movements in the value of such securities
between the date the forward contract is entered into and the date it matures.
The projection of currency market movements is extremely difficult, and the
successful execution of a hedging strategy is highly uncertain.
Options on Foreign Currencies. The Fund may write covered put and call options
and purchase put and call options on foreign currencies for the purpose of
protecting against declines in the dollar value of portfolio securities and
against increases in the dollar cost of securities to be acquired. The Fund may
use options on a foreign currency to cross-hedge, which involves writing or
purchasing options on one currency to hedge against changes in exchange rates
for a different, but related currency. As with other types of options, however,
the writing of an option on a foreign currency will constitute only a partial
hedge up to the amount of the premium received, and the Fund could be required
to purchase or sell a foreign currency at disadvantageous exchange rates,
thereby incurring losses. The purchase of an option on foreign currency may be
used to hedge against fluctuations in exchange rates although, in the event of
exchange rate movements adverse to the Fund's position, it may forfeit the
entire amount of the premium plus related transaction costs. In addition, the
Fund may purchase call options on a foreign currency when the Adviser
anticipates that the currency will appreciate in value.
There is no assurance that a liquid secondary market will exist for any
particular option, or at any particular time. If the Fund is unable to effect a
closing purchase transaction with respect to covered options it has written, the
Fund will not be able to sell the underlying currency or dispose of assets held
in a segregated account until the options expire or are exercised. Similarly, if
the Fund is unable to effect a closing sale transaction with respect to options
it has purchased, it would have to exercise the options in order to realize any
profit and will incur transaction costs upon the purchase or sale of the
underlying currency. The Fund pays brokerage commissions or spreads in
connection with its options transactions.
As in the case of forward contracts, certain options on foreign currencies are
traded over-the-counter and involve liquidity and credit risks which may not be
present in the case of exchange-traded currency options. In some circumstances,
the Fund's ability to terminate over-the-counter options ("OTC Options") may be
more limited than with exchange-traded options. It is also possible that
broker-dealers participating in OTC Options transactions will not fulfill their
obligations. Provided that a dealer or institutional trading market in such
securities exists, these restricted securities are not covered by the Fund's 15%
limit on illiquid securities. Under the supervision of the Board of Trustees of
the Fund, Bankers Trust determines the liquidity of restricted securities and,
through reports from Bankers Trust, the Board will monitor trading activity in
restricted securities. With respect to options written with primary dealers in
U.S. government securities pursuant to an agreement requiring a closing purchase
transaction at a formula price, the amount of illiquid securities may be
calculated with reference to the repurchase formula.
Options on Stocks. The Fund may write and purchase put and call options on
stocks. A call option gives the purchaser of the option the right to buy, and
obligates the writer to sell, the underlying stock at the exercise price at any
time during the option period. Similarly, a put option gives the purchaser of
the option the right to sell, and obligates the writer to buy, the underlying
stock at the exercise price at any time during the option period. A covered call
option, which is a call option with respect to the underlying Fund stock, is
sold by exposing the Fund during the term of the option to possible loss of
opportunity to realize appreciation in the market price of the underlying stock
or to possible continued holding of a stock which might otherwise have been sold
to protect against depreciation in the market price of the stock. A covered put
option sold by the Fund exposes the Fund during the term of the option to a
decline in price of the underlying stock. A put option sold by the Fund is
covered when, among other things, cash or liquid securities are placed in a
segregated account to fulfill the obligations undertaken.
To close out a position when writing covered options, the Fund may make a
"closing purchase transaction," which involves purchasing an option on the same
stock with the same exercise price and expiration date as the option which it
has previously written on the stock. The Fund will realize a profit or loss for
a closing purchase transaction if the amount paid to purchase an option is less
or more, as the case may be, than the amount received from the sale thereof. To
close out a position as a purchaser of an option, the Fund may make a "closing
sale transaction," which involves liquidating the Fund's position by selling the
option previously purchased.
The Fund intends to treat OTC Options purchased and the assets used to "cover"
OTC Options written as not readily marketable and therefore subject to the
limitations described in "Investment Restrictions" in the SAI.
Options on Foreign Stock Indices. The Fund may purchase and write put and call
options on foreign stock indices listed on domestic and foreign stock exchanges.
The portfolio may also purchase and write OTC Options on foreign stock indices.
These OTC Options would be subject to the same liquidity and credit risks noted
above with respect to OTC Options on foreign currencies. A stock index
fluctuates with changes in the market values of the stocks included in the
index.
OTC Options are purchased from or sold to securities dealers, financial
institutions or other parties (collectively referred to as "Counterparties" and
individually referred to as a "Counterparty") through direct bilateral agreement
with the Counterparty. In contrast to exchange listed options, which generally
have standardized terms and performance mechanics, all of the terms of an OTC
Option, including such terms as method of settlement, term exercise price,
premium, guaranties and security, are set by negotiation of the parties.
Unless the parties provide for it, no central clearing or guaranty function is
involved in an OTC Option. As a result, if a Counterparty fails to make or take
delivery of the security, currency or other instrument underlying an OTC Option
it has entered into with the Fund or fails to make a cash settlement payment due
in accordance with the terms of that option, the Fund will lose any premium it
paid for the option as well as any anticipated benefit of the transaction. Thus,
the Investment Manager must assess the creditworthiness of each such
Counterparty or any guarantor or credit enhancement of the Counterparty's credit
to determine the likelihood that the terms of the OTC Option will be met.
Options on stock indices are generally similar to options on stock except that
the delivery requirements are different. Instead of giving the right to take or
make delivery of stock at a specified price, an option on a stock index gives
the holder the right to receive a cash "exercise settlement amount" equal to (a)
the amount, if any, by which the fixed exercise price of the option exceeds (in
the case of a put) or is less than (in the case of a call) the closing value of
the underlying index on the date of exercise, multiplied by (b) a fixed "index
multiplier." Receipt of this cash amount will depend upon the closing level of
the stock index upon which the option is based being greater than, in the case
of a call, or less than, in the case of a put, the exercise price of the option.
The amount of cash received will be equal to such difference between the closing
price of the index and the exercise price of the option expressed in dollars or
a foreign currency, as the case may be, times a specified multiple. The writer
of the option is obligated, in return for the premium received, to make delivery
of this amount. The writer may offset its position in stock index options prior
to expiration by entering into a closing transaction on an exchange or the
option may expire unexercised.
To the extent permitted by U.S. federal or state securities laws, the Fund may
invest in options on foreign stock indices in lieu of direct investment in
foreign securities. The Fund may also use foreign stock index options for
hedging purposes.
Because the value of an index option depends upon movements in the level of the
index rather than the price of a particular stock, whether the Fund will realize
a gain or loss from the purchase or writing of options on an index depends upon
movements in the level of stock prices in the stock market generally or, in the
case of certain indices, in an industry or market segment, rather than movements
in the price of a particular stock. Accordingly, successful use by the Fund of
options on stock indices will be subject to Bankers Trust's ability to predict
correctly movements in the direction of the stock market generally or of a
particular industry. This requires different skills and techniques than
predicting changes in the price of individual stocks.
Futures Contracts on Foreign Stock Indices. The Fund may enter into contracts
providing for the making and acceptance of a cash settlement based upon changes
in the value of an index of foreign securities ("Futures Contracts"). This
investment technique is designed only to hedge against anticipated future change
in general market prices which otherwise might either adversely affect the value
of securities held by the Fund or adversely affect the prices of securities
which are intended to be purchased at a later date for the Fund. A Futures
Contract may also be entered into to close out or offset an existing futures
position.
In general, each transaction in Futures Contracts involves the establishment of
a position which will move in a direction opposite to that of the investment
being hedged. If these hedging transactions are successful, the futures
positions taken for the Fund will rise in value by an amount which approximately
offsets the decline in value of the portion of the Fund's investments that are
being hedged. Should general market prices move in an unexpected manner, the
full anticipated benefits of Futures Contracts may not be achieved or a loss may
be realized.
Although Futures Contracts would be entered into for hedging purposes only, such
transactions do involve certain risks. These risks could include a lack of
correlation between the Futures Contract and the foreign equity market being
hedged, a potential lack of liquidity in the secondary market and incorrect
assessments of market trends which may result in poorer overall performance than
if a Futures Contract had not been entered into.
Brokerage costs will be incurred and "margin" will be required to be posted and
maintained as a good-faith deposit against performance of obligations under
Futures Contracts written for the Fund. The Fund may not purchase or sell a
Futures Contract if immediately thereafter its margin deposits on its
outstanding Futures Contracts would exceed 5% of the market value of the Fund's
total assets.
Options on Futures Contracts. The Fund may invest in options on such
futures contracts for similar purposes.
All options that the Fund writes will be covered under applicable requirements
of the SEC. The Fund will write and purchase options only to the extent
permitted by the policies of state securities authorities in states where shares
of the Fund are qualified for offer and sale.
There can be no assurance that the use of these portfolio strategies will be
successful.
Asset Coverage. To assure that the Fund's use of futures and related options, as
well as when-issued and delayed-delivery securities and foreign currency
exchange transactions, are not used to achieve investment leverage, the Fund
will cover such transactions, as required under applicable interpretations of
the SEC, either by owning the underlying securities or by establishing a
segregated (e.g., "earmarked") account with the Fund's Custodian containing high
grade liquid debt securities in an amount
<PAGE>
SHAREHOLDER AND ACCOUNT POLICIES
PURCHASE AND REDEMPTION OF SHARES
Shares of the Fund are continuously offered to each Company's separate accounts
at the net asset value per share next determined after a completed and signed
purchase request has been received by the Company. The Company then offers to
owners of the Contracts, which provide for investment in the Fund
("Contractowner(s)"), units in its separate accounts which directly correspond
to shares in the Fund. Each Company will process a purchase order from a
prospective Contractowner within two business days of its receipt or its
completion. If an initial purchase request remains incomplete after five
business days, the prospective Contractowner will be informed by the Company as
to the reasons for delay and the initial purchase payment will be returned,
unless the prospective Contractowner consents to the Company's retaining the
purchase payment until the purchase request is completed.
Each Company submits purchase and redemption orders to the Fund based on
allocation instructions for premium payments, transfer instructions and
surrender or partial withdrawal requests which are furnished to the Company by
such Contractowners. Contractowners can send such instructions and requests to
the Companies by first class mail, overnight mail or express mail sent to the
address set forth in the relevant Company's offering memorandum included with
this prospectus. The Fund and First Data Distributors, Inc., the Fund's
distributor ("FDDI" or the "Distributor"), reserve the right to reject any
purchase order.
Payment for redeemed shares will ordinarily be made within three (3) business
days after the Fund receives a redemption order from the relevant Company. The
redemption price will be the net asset value per share next determined after the
Company receives the Contractowner's completed and signed redemption order.
The Fund may suspend the right of redemption or postpone the date of payment
during any period when trading on the NYSE is restricted, or the NYSE is closed
for other than weekends and holidays; when an emergency makes it not reasonably
practicable for the Fund to dispose of assets or calculate its net asset value;
or as permitted by the SEC.
The accompanying offering memorandum for a Company's variable annuity or
variable life insurance policy describes the allocation, transfer and withdrawal
provisions of such annuity or policy.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Fund distributes substantially all of its net investment income and capital
gains each year. All dividends and capital gains distributions paid by the Fund
will be automatically reinvested, at net asset value, by the Companies' separate
accounts in additional shares of the Fund, unless an election is made by a
Contractowner to receive distributions in cash. Contractowners who own units in
a separate account which corresponds to shares in the Fund will be notified when
distributions are made.
The Fund will be treated as a separate entity for federal income tax purposes.
The Fund intends to qualify as a "regulated investment company" under the
Internal Revenue Code of 1986, as amended (the "Code"), in order to be relieved
of federal income tax on that part of its net investment income and realized
capital gains which it distributes to the Companies' separate accounts. The
Code and Treasury Department regulations promulgated thereunder require that
mutual funds that are offered through insurance company separate accounts must
meet certain diversification requirements to preserve the tax-deferral benefits
provided by the variable contracts which are offered in connection with such
separate accounts. Bankers Trust intends to diversify the Fund's investments in
accordance with those requirements. The enclosed offering memorandum for a
Company's variable annuity or variable life insurance policies describes the
federal income tax treatment of distributions from such contracts to
Contractowners. The foregoing is only a brief summary of important tax law
provisions that affect the Fund. Other federal, state or local tax law
provisions may also affect the Fund and its operations. Anyone who is
considering allocating, transferring or withdrawing monies held under a variable
contract to or from the Fund should consult a qualified tax adviser.
<PAGE>
Investment Manager of the Fund
BANKERS TRUST GLOBAL INVESTMENT MANAGEMENT
a unit of
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 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.
.........................................
<PAGE>
BT INSURANCE FUNDS TRUST
SMALL CAP FUND
PROSPECTUS
AUGUST 20, 1997
Seeks long-term capital growth through investment in smaller sized growth
companies.
This Prospectus offers shares of the Small Cap Fund (the "Fund"), a series of BT
Insurance Funds Trust (the "Trust"), which is an open-end management investment
company having multiple series. Shares of the Fund are available to the public
only through the purchase of certain variable annuity and variable life
insurance contracts ("Contract(s)") issued by various insurance companies (the
"Companies").
Please read this Prospectus carefully before investing and retain it for future
reference. It contains important information about the Fund that you should know
and can refer to in deciding whether the Fund's goals match your own.
A Statement of Additional Information ("SAI") with the same date has been
filed with the Securities and Exchange Commission ("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
offering memorandum.
Shares of the Fund are not deposits or obligations of, or guaranteed or
endorsed by, Bankers Trust Company and the shares are not federally insured by
the Federal Deposit Insurance Corporation, the Federal Reserve Board or any
other agency.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
BANKERS TRUST GLOBAL INVESTMENT MANAGEMENT,
a unit of BANKERS TRUST COMPANY
Investment Manager of the Fund
First Data Distributors, Inc.
Distributor
4400 Computer Drive
Westborough, MA 01581
<PAGE>
42
g:\shared\bankers\itsmcpf.doc
TABLE OF CONTENTS
.........
Page
THE FUND.............................................. 3
Who May Want to Invest
THE FUND IN DETAIL.................................... 3
Investment Objectives and Policies
Risk Factors and Certain Securities and Investment
Practices
Net Asset Value
Performance Information and Reports
Management of the Trust
Additional Information
SHAREHOLDER AND ACCOUNT POLICIES...................... 16
Purchase and Redemption of Shares
Dividends, Distributions and Taxes
<PAGE>
THE FUND
The Fund's investment objective is long-term capital growth; the production of
any current income is secondary to this objective. The Fund seeks to provide
long-term capital growth by investing primarily in equity securities of
smaller-sized growth companies. 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 designed for investors who are willing to accept short-term domestic
and/or foreign stock market fluctuations in pursuit of potentially higher
long-term returns. The Fund invests for growth and does not pursue income.
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.
THE FUND IN DETAIL
INVESTMENT OBJECTIVES AND POLICIES
The Fund's investment objective is long-term capital growth; the production of
any current income is secondary to this objective. There can be no assurance
that the investment objective of the Fund will be achieved. The Fund's
investment objective is not a fundamental policy and may be changed upon notice
to, but without the approval of, the Fund's shareholders.
The Fund seeks to provide long term capital growth by investing primarily in
equity securities of smaller companies that Bankers Trust Global Investment
Management, a unit of Bankers Trust Company, as the Fund's investment manager
(the "Manager" or "Bankers Trust"), believes are in an early stage or
transitional point in their development and have demonstrated or have the
potential for above average capital growth. Bankers Trust will select companies
which have the potential to gain market share in their industry, achieve and
maintain high and consistent profitability or produce increases in earnings.
Bankers Trust also seeks to invest in companies with strong company management
and superior fundamental strength.
Bankers Trust employs a flexible investment program in pursuit of the Fund's
investment objective. Bankers Trust takes advantage of its market access and the
research available to it to select investments in promising growth companies
that are involved in new technologies, new products, foreign markets, and
special developments, such as research discoveries, acquisitions,
recapitalizations, liquidations or management changes, and companies whose stock
may be undervalued by the market. These situations are only illustrative of the
types of investment, the Fund may make. The Fund is free to invest in any common
stock which, in the Manager's judgment, provides above average potential for
long-term growth of capital and income.
Under normal market conditions, the Fund will invest at least 65% of its assets
in smaller companies (with market capitalizations less than $750 million at time
of purchase that offer strong potential for capital growth). Small
capitalization companies have the potential to show earnings growth over time
that is well above the growth rate of the overall economy. The Fund may also
invest in larger, more established companies that Bankers Trust believes may
offer the potential for strong capital growth due to their relative market
position, anticipated earnings growth, changes in management or other similar
opportunities. The Fund will follow a disciplined selling process to lessen
market risks.
For temporary defensive purposes, when in the opinion of Bankers Trust market
conditions so warrant, the Fund may invest all or a portion of its assets in
common stocks of larger, more established companies or in fixed-income
securities or short-term money market securities. To the extent the Fund is
engaged in temporary defensive investments, the Fund will not be pursuing its
investment objective.
The Fund may also invest up to 25% of its assets in similar securities of
foreign issuers. For further information on foreign investments and related
hedging techniques, see "Risk Factors and Certain Securities and Investment
Practices" and "Additional Information" herein and in the SAI.
Equity Investments. The Fund invests primarily in common stock and other
securities with equity characteristics, such as trust or limited partnership
interests, rights and warrants. These investments may or may not pay dividends
and may or may not carry voting rights. The Fund may also invest in convertible
securities when, due to market conditions, it is more advantageous to obtain a
position in an attractive company by purchase of its convertible securities than
by purchase of its common stock. The convertible securities in which the Fund
invests may include any debt securities or preferred stock which may be
converted into common stock or which carry the right to purchase common stock.
Convertible securities entitle the holder to exchange the securities for a
specified number of shares of common stock, usually of the same company, at
specified prices within a certain period of time and to receive interest or
dividends until the holder elects to exercise the conversion privilege. Since
the Fund invests in both common stock and convertible securities, the risks of
the general equity markets may be tempered to a degree by the Fund's investments
in convertible securities which are often not as volatile as equity securities.
Short-Term Instruments. The Fund intends to stay invested in the securities
described above to the extent practical in light of its objective and long-term
investment perspective. However, the Fund's assets may be invested in short-term
instruments with remaining maturities of 397 days or less to meet anticipated
redemptions and expenses or for day-to-day operating purposes and when, in
Bankers Trust's opinion, it is advisable to adopt a temporary defensive position
because of unusual or adverse conditions affecting the equity markets. In
addition, when the Fund experiences large cash inflows through the sale of
securities, and desirable equity securities that are consistent with the Fund's
investment objective are unavailable in sufficient quantities or at attractive
prices, the Fund may hold short-term investments for a limited time pending
availability of such equity securities. Short-term instruments consist of
foreign and domestic: (i) short-term obligations of sovereign governments, their
agencies, instrumentalities, authorities or political subdivisions; (ii) other
short-term debt securities rated Aa or higher by Moody's Investors Service, Inc.
("Moody's") or AA or higher by Standard & Poor's ("S&P") or, if unrated, of
comparable quality in the opinion of Bankers Trust; (iii) commercial paper; (iv)
bank obligations, including negotiable certificates of deposit, time deposits
and bankers' acceptances; and (v) repurchase agreements. At the time the Fund
invests in commercial paper, bank obligations or repurchase agreements, the
issuer or the issuer's parent must have outstanding debt rated Aa or higher by
Moody's or AA or higher by S&P, or outstanding commercial paper or bank
obligations rated Prime-1 by Moody's or A-1 by S&P; or, if no such ratings are
available, the instrument must be of comparable quality in the opinion of
Bankers Trust. These instruments may be denominated in U.S. dollars or in
foreign currencies.
Additional Investment Techniques
The Fund may also utilize the following investments and investment techniques
and practices: foreign investments, options on stocks, options on stock indices,
futures contracts on stock indices, options on futures contracts, foreign
currency exchange transactions, options on foreign currencies, Rule 144A
securities, when-issued and delayed delivery securities, securities lending, and
repurchase agreements. See "Additional Information" for further information.
Additional Investment Limitations
As a diversified fund, no more than 5% of the assets of the Fund may be
invested in the securities of one issuer (other than U.S. government
securities), except that up to 25% of the Fund's assets may be invested without
regard to this limitation. The Fund will not invest more than 25% of its assets
in the securities of issuers in any one industry. These are fundamental
investment policies of the Fund which may not be changed without investor
approval.
As a non-fundamental investment policy, no more than 15% of the Fund's net
assets may be invested in illiquid or not readily marketable securities
(including repurchase agreements and time deposits maturing in more than seven
days). Additional investment policies of the Fund are contained in the SAI.
RISK FACTORS AND CERTAIN SECURITIES AND INVESTMENT PRACTICES
By itself, the Fund does not constitute a balanced investment plan; the Fund
seeks to provide long-term capital growth, with the production of any current
income being incidental to this objective, by investments primarily in
growth-oriented common stocks of domestic corporations and, to a limited extent,
foreign corporations. The Fund is designed for those investors primarily
interested in capital growth from investments in smaller-sized growth companies.
In view of the long-term capital growth objective of the Fund and the smaller
size of the companies, the risks of investment in the Fund may be greater than
the general equity markets, and changes in domestic and foreign interest rates
may also affect the value of the Fund's investments, and rising interest rates
can be expected to reduce the Fund's share value. A description of a number of
investments and investment techniques available to the Fund, including foreign
investments and the use of options and futures, and certain risks associated
with these investments and techniques is included under "Additional
Information." The Fund's share price, yield and total return fluctuate and your
investment may be worth more or less than your original cost when you redeem
your shares.
<PAGE>
Risks of Investing in Foreign Securities
In seeking to achieve its investment objective, the Fund may invest in
securities of foreign issuers. Foreign securities may involve a higher degree of
risk and may be less liquid or more volatile than domestic investments. Foreign
securities usually are denominated in foreign currencies, which means their
value will be affected by changes in the strength of foreign currencies relative
to the U.S. dollar as well as the other factors that affect security prices.
Foreign companies may not be subject to accounting standards or governmental
supervision comparable to U.S. companies, and there often is less publicly
available information about their operations. Generally, there is less
governmental regulation of foreign securities markets, and security trading
practices abroad may offer less protection to investors. The value of such
investments may be adversely affected by changes in political or social
conditions, diplomatic relations, confiscatory taxation, expropriation,
nationalization, limitation on the removal of funds or assets, or imposition of
(or change in) exchange control or tax regulations in those foreign countries.
Additional risks of foreign securities include settlement delays and costs,
difficulties in obtaining and enforcing judgments, and taxation of dividends at
the source of payment. The Fund will not invest more than 5% of the value of its
total assets in the securities of issuers based in developing countries,
including Eastern Europe.
The Fund intends to manage its holdings actively to pursue its investment
objective. Since the Fund has a long-term investment perspective, it does not
intend to respond to short-term market fluctuations or to acquire securities for
the purpose of short-term trading; however, it may take advantage of short-term
trading opportunities that are consistent with its objective.
Derivatives
The Fund may invest in various instruments that are commonly known as
"derivatives". Generally, a derivative is a financial arrangement, the value of
which is based on, or "derived" from, a traditional security, asset, or market
index. Some derivatives such as mortgage-related and other asset-backed
securities are in many respects like any other investment, although they may be
more volatile or less liquid than more traditional debt securities. There are,
in fact, many different types of derivatives and many different ways to use
them. There are a range of risks associated with the use of derivatives. Futures
and options are commonly used for traditional hedging purposes in an attempt to
protect a fund from exposure to changing interest rates, securities prices, or
currency exchange rates and for cash management purposes as a low cost method of
gaining exposure to a particular securities market without investing directly in
those securities. However, some derivatives are used for leverage, which tends
to magnify the effects of an instrument's price changes as market conditions
change. Leverage involves the use of a small amount of money to control a large
amount of financial assets, and can in some circumstances, lead to significant
losses. Bankers Trust will use derivatives only in circumstances where Bankers
Trust believes they offer the most economic means of improving the risk/reward
profile of the Fund. Derivatives will not be used to increase portfolio risk
above the level that could be achieved using only traditional investment
securities or to acquire exposure to changes in the value of assets or Indices
that by themselves would not be purchased for the Fund. The use of derivatives
for non-hedging purposes may be considered speculative. A description of the
derivatives that the Fund may use and some of their associated risks is found
under "Additional Information."
Although a change in the Fund's investment objective does not require
shareholder approval, shareholders of the Fund will receive 30 days prior
written notice with respect to any such change. If there is a change in the
Fund's investment objective, the Fund's shareholders should consider whether the
Fund remains an appropriate investment in light of their then-current needs. See
"Investment Objectives and Policies" for a description of the fundamental
policies of the Fund that cannot be changed without approval by the holders of
"a majority of the outstanding voting securities" (as defined in the Investment
Company Act of 1940, as amended (the "1940 Act")) of the Fund.
For descriptions of the management of the Fund and expenses, see
"Management of the Trust" herein and "Management of the Funds" in the SAI.
NET ASSET VALUE
The net asset value per share of the Fund is calculated on each day on which the
New York Stock Exchange Inc. (the "NYSE") is open (each such day being a
"Valuation Day"). The NYSE is currently open on each day, Monday through Friday,
except: (a) January 1st, Martin Luther King Day, Presidents' Day (the third
Monday in February), Good Friday, Memorial Day (the last Monday in May), July
4th, Labor Day (the first Monday in September), Thanksgiving Day (the last
Thursday in November) and December 25th; and (b) the preceding Friday or the
subsequent Monday when one of the calendar-determined holidays falls on a
Saturday or Sunday, respectively.
The net asset value per share of the Fund is calculated once on each Valuation
Day as of the close of regular trading on the NYSE, which under normal
circumstances is 4:00 p.m., New York time. The net asset value per share of the
Fund is computed by dividing the value of the Fund's assets, less all
liabilities, by the total number of its shares outstanding. The Fund's
securities and other assets are valued primarily on the basis of market
quotations or, if quotations are not readily available, by a method which the
Fund's Board of Trustees believes accurately reflects fair value.
Under procedures adopted by the Board, a net asset value for a Fund later
determined to have been inaccurate for any reason will be recalculated.
Purchases and redemptions made at a net asset value determined to have been
inaccurate will be adjusted if the difference between the original net asset
value and the recalculated net asset value divided by the recalculated net asset
value is 0.005 (1/2 of 1%) or greater and the difference between the net asset
value is equal to or greater than $0.01, unless the impact of the error to a
shareholder account was $10 or less.
PERFORMANCE INFORMATION AND REPORTS
The Fund's performance may be used from time to time in advertisements,
shareholder reports or other communications to existing or prospective owners of
the Companies' variable contracts. When performance information is provided in
advertisements, it will include the effect of all charges deducted under the
terms of the specified contract, as well as all recurring and non-recurring
charges incurred by the Fund. Performance information may include the Fund's
investment results and/or comparisons of its investment results to various
unmanaged indices such as the Russell 2000 Index or Lipper Small Company Growth
Funds Average or results of other mutual funds or investment or savings
vehicles. The Fund's investment results as used in such communications will be
calculated on a total rate of return basis in the manner set forth below. From
time to time, fund rankings may be quoted from various sources, such as Lipper
Analytical Services, Inc., Value Line and Morningstar Inc.
The Trust may provide period and average annualized "total return" quotations
for the Fund. The Fund's "total return" refers to the change in the value of an
investment in the Fund over a stated period based on any change in net asset
value per share and including the value of any shares purchasable with any
dividends or capital gains distributed during such period. Period total return
may be annualized. An annualized total return is a compounded total return which
assumes that the period total return is generated over a one-year period, and
that all dividends and capital gain distributions are reinvested. An annualized
total return will be higher than a period total return if the period is shorter
than one year, because of the compounding effect.
Unlike some bank deposits or other investments which pay a fixed yield for a
stated period of time, the total return of the Fund will vary depending upon
interest rates, the current market value of the securities held by the Fund and
changes in the Fund's expenses. In addition, during certain periods for which
total return quotations may be provided, Bankers Trust may have voluntarily
agreed to waive portions of their fees on a month-to-month basis. Such waivers
will have the effect of increasing the Fund's net income (and therefore its
total return) during the period such waivers are in effect.
Shareholders will receive financial reports semi-annually that include the
Fund's financial statements, including listings of investment securities held by
the Fund at those dates. Annual reports are audited by independent accountants.
MANAGEMENT OF THE TRUST Board of Trustees The affairs of the
Fund are managed under the supervision of the Board of Trustees of the Trust, of
which the Fund is a series. By virtue of the responsibilities assumed by Bankers
Trust, neither the Trust nor the Fund requires employees other than the Trust's
officers. None of the Trust's officers devotes their full time to the affairs of
the Trust or the Fund.
For more information with respect to the Trustees of the Trust, see
"Management of the Funds" in the SAI.
Investment Manager
The Fund has retained the services of Bankers Trust Global Investment
Management, a unit of Bankers Trust, as investment manager. Bankers Trust, a New
York banking corporation with executive offices at 130 Liberty Street (One
Bankers Trust Plaza), 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 wholesaler 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 $129 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 80 offices in more than 50
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 $240 billion in assets under management globally.
Bankers Trust, subject to the supervision and direction of the Board of
Trustees, manages the Fund in accordance with the Fund's investment objective
and stated investment policies, makes investment decisions for the Fund, places
orders to purchase and sell securities and other financial instruments on behalf
of the Fund, employs professional investment managers and securities analysts
who provide research services to the Fund, oversees the administration of all
aspects of the Trust's business and supervises the performance of professional
services provided by other vendors. Bankers Trust may utilize the expertise of
any of its world wide subsidiaries and affiliates to assist it in its role as
investment manager. All orders for investment transactions on behalf of the Fund
are placed by Bankers Trust with broker-dealers and other financial
intermediaries that it selects, including those affiliated with Bankers Trust. A
Bankers Trust affiliate will be used in connection with the purchase or sale of
an investment for the Fund only if Bankers Trust believes that the affiliate's
charge for the transaction does not exceed usual and customary levels. The Fund
will not invest in obligations for which Bankers Trust or any of its affiliates
is the ultimate obligor or accepting bank. The Fund may, however, invest in the
obligations of correspondents and customers of Bankers Trust.
Bankers Trust has been advised by its counsel that, in counsel's opinion,
Bankers Trust currently may perform the services for the Trust and the Fund
described in this Prospectus and the SAI without violation of the Glass-Steagall
Act or other applicable banking laws or regulations. State laws on this issue
may differ from the interpretations of relevant federal law and banks and
financial institutions may be required to register as dealers pursuant to state
securities law.
Ms. Mary P. Dugan (CFA), Vice President of Bankers Trust, and Mr.
Timothy Woods (CFA), Vice President of Bankers Trust, share senior portfolio
management responsibilities of the Small Cap Fund. Ms. Dugan joined Bankers
Trust in 1994. She has 13 years of investment analysis experience. Previously,
she worked at Fred Alger Management, Dean Witter, Integrated Resources and
Equitable Investment Management Corporation. Mr. Woods joined Bankers Trust in
1992. He has 12 years of investment and financial experience. Previously, he
worked at Prudential Securities, Chase Manhattan Bank and Bank of Boston.
As compensation for its services to the Fund, Bankers Trust receives a fee from
the Fund computed daily and paid monthly at the annual rate of 0.80% of the
average daily net assets of the Fund.
<PAGE>
Expenses
In addition to the fees of Bankers Trust, the Fund is responsible for the
payment of all its other expenses incurred in the operation of the Fund, which
include, among other things, expenses for legal and independent auditor's
services, charges of the Fund's custodian and transfer agent, SEC fees, a pro
rata portion of the fees of the Trust's unaffiliated trustees, accounting costs
for reports sent to Contractowners, the Fund's pro rata portion of membership
fees in trade organizations, a pro rata portion of the fidelity bond coverage
for the Trust's officers, interest, brokerage and other trading costs, taxes,
all expenses of computing the Fund's net asset value per share, expenses
involved in registering and maintaining the registration of the Fund's shares
with the SEC and qualifying the Fund for sale in various jurisdictions and
maintaining such qualification, litigation and other extraordinary or
non-recurring expenses. 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. ("Investor Services Group"),
a subsidiary of First
Data Corporation, One Exchange Place, Boston, Massachusetts 02109, serves as
each Fund's administrator pursuant to an Administration Agreement with the
Trust. Under the terms of the Administration Agreement, Investor Services Group
generally assists in all aspects of a Fund's operations, other than providing
investment advice, subject to the overall authority of the Trust's Board of
Trustees. . Pursuant to the terms of the Administration Agreement, the Trust has
agreed to pay Investor Services Group 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 $5 billion; and 0.0075% of the Trust's monthly average net assets
exceeding $5 billion, in addition to a flat fee of $70,000 per year for each
portfolio of the Trust and a one-time start-up fee for each portfolio of the
Trust.
Distributor First Data Distributors, Inc. serves as distributor of
the Fund's shares to separate accounts of the Companies, for which it receives
no separate fee from the Fund. The principal business address of the Distributor
is 4400 Computer Drive, Westborough, Massachusetts 01581.
Custodian and Transfer Agent
Bankers Trust acts as custodian of the assets of the Fund. Investor
Services Group serves as the transfer agent for the Fund.
Organization of the Trust
The Trust was organized on January 19, 1996, under the laws of the
Commonwealth of Massachusetts. The Fund is a separate series of the Trust. The
Trust offers shares of beneficial interest of the Fund and the Trust's other
series, par value $0.001 per share. The shares of the other series of the Trust
are offered through a separate Prospectus. No series of shares has any
preference over any other series. All shares, when issued, will be fully paid
and nonassessable. The Trust's Board of Trustees has the authority to create
additional series without obtaining shareholder approval.
The Trust is an entity of the type commonly known as a "Massachusetts business
trust." Under Massachusetts law, shareholders of such a business trust may,
under certain circumstances, be held personally liable as partners for its
obligations. However, the risk of a shareholder incurring financial loss on
account of shareholder liability is limited to circumstances in which both
inadequate insurance existed and the Trust itself was unable to meet its
obligations.
Through its separate accounts, the Companies are the Fund's sole stockholders of
record, so under the 1940 Act, the Companies are deemed to be in control of the
Fund. Nevertheless, when a shareholders' meeting occurs, each Company solicits
and accepts voting instructions from its Contractowners who have allocated or
transferred monies for an investment in the Fund as of the record date of the
meeting. Each Company then votes the Fund's shares that are attributable to its
Contractowners' interests in the Fund in proportion to the voting instructions
received. Each Company will vote any share that it is entitled to vote directly
due to amounts it has contributed or accumulated in its separate accounts in the
manner described in the prospectuses for its variable annuities and variable
life insurance policies.
Each share of the Fund is entitled to one vote, and fractional shares are
entitled to fractional votes. Fund shares have non-cumulative voting rights, so
the vote of more than 50% of the shares can elect 100% of the Trustees.
The Trust is not required, and does not intend, to hold regular annual
shareholder meetings, but may hold special meetings for consideration of
proposals requiring shareholder approval.
The Fund is only available to owners of variable annuities or variable life
insurance policies issued by the Companies through their respective separate
accounts. The Fund does not currently foresee any disadvantages to
Contractowners arising from offering its shares to variable annuity and variable
life insurance policy separate accounts simultaneously, and the Board of
Trustees monitors events for the existence of any material irreconcilable
conflict between or among Contractowners. If a material irreconcilable conflict
arises, one or more separate accounts may withdraw their investments in the
Fund. This could force the Fund to sell portfolio securities at disadvantageous
prices. Each Company will bear the expenses of establishing separate portfolios
for its variable annuity and variable life insurance separate accounts if such
action becomes necessary; however, ongoing expenses that are ultimately borne by
Contractowners will likely increase due to the loss of economies of scale
benefits that can be provided to mutual funds with substantial assets.
ADDITIONAL INFORMATION
Rule 144A Securities. The Fund may purchase securities in the United States that
are not registered for sale under federal securities laws but which can be
resold to institutions under SEC Rule 144A. Provided that a dealer or
institutional trading market in such securities exists, these restricted
securities are treated as exempt from the Fund's 15% limit on illiquid
securities. Under the supervision of the Board of Trustees of the Fund, Bankers
Trust determines the liquidity of restricted securities and, through reports
from Bankers Trust, the Board will monitor trading activity in restricted
securities. If institutional trading in restricted securities were to decline,
the liquidity of the Fund could be adversely affected.
When-Issued and Delayed Delivery Securities. The Fund may purchase securities on
a when-issued or delayed delivery basis. Delivery of and payment for these
securities may take place as long as a month or more after the date of the
purchase commitment. The value of these securities is subject to market
fluctuation during this period and no income accrues to the Fund until
settlement takes place. The Fund maintains with the custodian a segregated
account containing high grade liquid securities in an amount at least equal to
these commitments. When entering into a when-issued or delayed delivery
transaction, the Fund will rely on the other party to consummate the
transaction; if the other party fails to do so, the Fund may be disadvantaged.
Securities Lending. The Fund is permitted to lend up to 30% of the total value
of its securities. These loans must be secured continuously by cash or
equivalent collateral or by a letter of credit at least equal to the market
value of the securities loaned plus accrued income. By lending its securities,
the Fund can increase its income by continuing to receive income on the loaned
securities as well as by the opportunity to receive interest on the collateral.
Any gain or loss in the market price of the borrowed securities which occurs
during the term of the loan inures to the Fund and its investors.
Foreign Investments. The Fund may invest in securities of foreign issuers
directly or in the form of American Depositary Receipts ("ADRs"), Global
Depositary Receipts ("GDRs") and European Depositary Receipts ("EDRs") or other
similar securities representing securities of foreign issuers. These securities
may not necessarily be denominated in the same currency as the securities they
represent. ADRs and GDRs are receipts typically issued by a U.S. bank or trust
company evidencing ownership of the underlying securities. EDRs are receipts
issued by a European financial institution evidencing a similar arrangement.
Generally, ADRs and GDRs, in registered form, are designed for use in the U.S.
securities markets, and EDRs, in bearer form, are designed for use in European
securities markets.
With respect to certain countries in which capital markets are either less
developed or not easily accessed, investments by the Fund may be made through
investment in other investment companies that in turn are authorized to invest
in the securities of such countries. Investment in other investment companies is
limited in amount by the 1940 Act, will involve the indirect payment of a
portion of the expenses, including advisory fees, of such other investment
companies and may result in a duplication of fees and expenses.
Options on Stocks. The Fund may write and purchase put and call options on
stocks. A call option gives the purchaser of the option the right to buy, and
obligates the writer to sell, the underlying stock at the exercise price at any
time during the option period. Similarly, a put option gives the purchaser of
the option the right to sell, and obligates the writer to buy, the underlying
stock at the exercise price at any time during the option period. A covered call
option, which is a call option with respect to which the Fund owns the
underlying stock, sold by the Fund exposes the Fund during the term of the
option to possible loss of opportunity to realize appreciation in the market
price of the underlying stock or to possible continued holding of a stock which
might otherwise have been sold to protect against depreciation in the market
price of the stock. A covered put option sold by the Fund exposes the Fund
during the term of the option to a decline in price of the underlying stock. A
put option sold by the Fund is covered when, among other things, cash or liquid
securities are placed in a segregated account to fulfill the obligations
undertaken.
To close out a position when writing covered options, the Fund may make a
"closing purchase transaction," which involves purchasing an option on the same
stock with the same exercise price and expiration date as the option which it
has previously written on the stock. The Fund will realize a profit or loss for
a closing purchase transaction if the amount paid to purchase an option is less
or more, as the case may be, than the amount received from the sale thereof. To
close out a position as a purchaser of an option, the Fund may make a "closing
sale transaction," which involves liquidating the Fund's position by selling the
option previously purchased.
The Fund intends to treat OTC Options purchased and the assets used to "cover"
OTC Options written as not readily marketable and therefore subject to the
limitations described in "Investment Restrictions" in the SAI.
Options on Stock Indices. The Fund may purchase and write put and call options
on stock indices listed on stock exchanges. A stock index fluctuates with
changes in the market values of the stocks included in the index.
Options on stock indices are generally similar to options on stock except that
the delivery requirements are different. Instead of giving the right to take or
make delivery of stock at a specified price, an option on a stock index gives
the holder the right to receive a cash "exercise settlement amount" equal to (a)
the amount, if any, by which the fixed exercise price of the option exceeds (in
the case of a put) or is less than (in the case of a call) the closing value of
the underlying index on the date of exercise, multiplied by (b) a fixed "index
multiplier." Receipt of this cash amount will depend upon the closing level of
the stock index upon which the option is based being greater than, in the case
of a call, or less than, in the case of a put, the exercise price of the option.
The amount of cash received will be equal to such difference between the closing
price of the index and the exercise price of the option expressed in dollars
times a specified multiple. The writer of the option is obligated, in return for
the premium received, to make delivery of this amount. The writer may offset its
position in stock index options prior to expiration by entering into a closing
transaction on an exchange or the option may expire unexercised.
Because the value of an index option depends upon movements in the level of the
index rather than the price of a particular stock, whether the Fund will realize
a gain or loss from the purchase or writing of options on an index depends upon
movements in the level of stock prices in the stock market generally or, in the
case of certain indices, in an industry or market segment, rather than movements
in the price of a particular stock. Accordingly, successful use by the Fund of
options on stock indices will be subject to the Manager's ability to predict
correctly movements in the direction of the stock market generally or of a
particular industry. This requires different skills and techniques than
predicting changes in the price of individual stocks.
Futures Contracts on Stock Indices. The Fund may enter into contracts providing
for the making and acceptance of a cash settlement based upon changes in the
value of an index of securities ("futures contracts"). This investment technique
is designed only to hedge against anticipated future change in general market
prices which otherwise might either adversely affect the value of securities
held by the Fund or adversely affect the prices of securities which are intended
to be purchased at a later date for the Fund. A futures contract may also be
entered into to close out or offset an existing futures position.
In general, each transaction in futures contracts involves the establishment of
a position which will move in a direction opposite to that of the investment
being hedged. If these hedging transactions are successful, the futures
positions taken for the Fund will rise in value by an amount which approximately
offsets the decline in value of the portion of the Fund's investments that are
being hedged. Should general market prices move in an unexpected manner, the
full anticipated benefits of futures contracts may not be achieved or a loss may
be realized.
Although futures contracts would be entered into for hedging purposes only, such
transactions do involve certain risks. These risks could include a lack of
correlation between the futures contract and the equity market being hedged, a
potential lack of liquidity in the secondary market and incorrect assessments of
market trends which may result in poorer overall performance than if a futures
contract had not been entered into.
Brokerage costs will be incurred and "margin" will be required to be posted and
maintained as a good-faith deposit against performance of obligations under
futures contracts written for the Fund. The Fund may not purchase or sell a
futures contract if immediately thereafter its margin deposits on its
outstanding futures contracts would exceed 5% of the market value of the Fund's
total assets.
Options on Futures Contracts. The Fund may invest in options on such
futures contracts for similar purposes.
Foreign Currency Exchange Transactions. Because the Fund buys and sells
securities denominated in currencies other than the U.S. dollar and receives
interest, dividends and sale proceeds in currencies other than the U.S. dollar,
the Fund from time to time may enter into foreign currency exchange transactions
to convert to and from different foreign currencies and to convert foreign
currencies to and from the U.S. dollar. The Fund either enters into these
transactions on a spot (i.e., cash) basis at the spot rate prevailing in the
foreign currency exchange market or uses forward contracts to purchase or sell
foreign currencies.
A forward foreign currency exchange contract is an obligation by the Fund to
purchase or sell a specific currency at a future date, which may be any fixed
number of days from the date of the contract. Forward foreign currency exchange
contracts establish an exchange rate at a future date. These contracts are
transferable in the interbank market conducted directly between currency traders
(usually large commercial banks) and their customers. A forward foreign currency
exchange contract generally has no deposit requirement and is traded at a net
price without commission. The Fund maintains with its custodian a segregated
account of high grade liquid assets in an amount at least equal to its
obligations under each forward foreign currency exchange contract. Neither spot
transactions nor forward foreign currency exchange contracts eliminate
fluctuations in the prices of the Fund's securities or in foreign exchange
rates, or prevent loss if the prices of these securities should decline.
The Fund may enter into foreign currency hedging transactions in an attempt to
protect against changes in foreign currency exchange rates between the trade and
settlement dates of specific securities transactions or changes in foreign
currency exchange rates that would adversely affect a portfolio position or an
anticipated investment position. Since consideration of the prospect for
currency parities will be incorporated into the Manager's long-term investment
decisions, the Fund will not routinely enter into foreign currency hedging
transactions with respect to security transactions; however, the Manager
believes that it is important to have the flexibility to enter into foreign
currency hedging transactions when it determines that the transactions would be
in the Fund's best interest. Although these transactions tend to minimize the
risk of loss due to a decline in the value of the hedged currency, at the same
time they tend to limit any potential gain that might be realized should the
value of the hedged currency increase. The precise matching of the forward
contract amounts and the value of the securities involved will not generally be
possible because the future value of such securities in foreign currencies will
change as a consequence of market movements in the value of such securities
between the date the forward contract is entered into and the date it matures.
The projection of currency market movements is extremely difficult, and the
successful execution of a hedging strategy is highly uncertain.
Options on Foreign Currencies. The Fund may write covered put and call options
and purchase put and call options on foreign currencies for the purpose of
protecting against declines in the dollar value of portfolio securities and
against increases in the dollar cost of securities to be acquired. The Fund may
use options on currency to cross-hedge, which involves writing or purchasing
options on one currency to hedge against changes in exchange rates for a
different, but related currency. As with other types of options, however, the
writing of an option on foreign currency will constitute only a partial hedge up
to the amount of the premium received, and the Fund could be required to
purchase or sell foreign currencies at disadvantageous exchange rates, thereby
incurring losses. The purchase of an option on foreign currency may be used to
hedge against fluctuations in exchange rates although, in the event of exchange
rate movements adverse to the Fund's position, it may forfeit the entire amount
of the premium plus related transaction costs. In addition, the Fund may
purchase call options on currency when the Manager anticipates that the currency
will appreciate in value.
There is no assurance that a liquid secondary market on an options exchange will
exist for any particular option, or at any particular time. If the Fund is
unable to effect a closing purchase transaction with respect to covered options
it has written, the Fund will not be able to sell the underlying currency or
dispose of assets held in a segregated account until the options expire or are
exercised. Similarly, if the Fund is unable to effect a closing sale transaction
with respect to options it has purchased, it would have to exercise the options
in order to realize any profit and will incur transaction costs upon the
purchase or sale of underlying currency. The Fund pays brokerage commissions or
spreads in connection with its options transactions.
As in the case of forward contracts, certain options on foreign currencies are
traded over-the-counter and involve liquidity and credit risks which may not be
present in the case of exchange-traded currency options. The Fund's ability to
terminate OTC Options will be more limited than with exchange-traded options. It
is also possible that broker-dealers participating in OTC Options transactions
will not fulfill their obligations. Until such time as the staff of the SEC
changes its position, the Fund will treat purchased OTC Options and assets used
to cover written OTC Options as illiquid securities. With respect to options
written with primary dealers in U.S. government securities pursuant to an
agreement requiring a closing purchase transaction at a formula price, the
amount of illiquid securities may be calculated with reference to the repurchase
formula.
The Fund will write and purchase options only to the extent permitted by the
policies of state securities authorities in states where shares of the Fund are
qualified for offer and sale.
There can be no assurance that the use of these Fund strategies will be
successful.
Repurchase Agreements. In a repurchase agreement the Fund buys a security and
simultaneously agrees to sell it back at a higher price. In the event of the
bankruptcy of the other party to either a repurchase agreement or a securities
loan, the Fund could experience delays in recovering either its cash or the
securities it lent. To the extent that, in the meantime, the value of the
securities repurchased had decreased or the value of the securities lent had
increased, the Fund could experience a loss. In all cases, the Manager must find
the creditworthiness of the other party to the transaction satisfactory. A
repurchase agreement is considered a collateralized loan under the 1940 Act.
Asset Coverage. To assure that the Fund's use of futures and related options, as
well as when-issued and delayed-delivery securities and foreign currency
exchange transactions, are not used to achieve investment leverage, the Fund
will cover such transactions, as required under applicable interpretations of
the SEC, either by owning the underlying securities or by establishing a
segregated account with the Fund's custodian containing high grade liquid debt
securities in an amount at all times equal to or exceeding the Fund's commitment
with respect to these instruments or contracts.
SHAREHOLDER AND ACCOUNT POLICIES
PURCHASE AND REDEMPTION OF SHARES
Fund shares are continuously offered to each Company's separate accounts at the
net asset value per share next determined after a completed and signed purchase
request has been received by the Company. The Company then offers to owners of
the Contracts, which provide for investment in the Fund ("Contractowner(s)"),
units in its separate accounts which directly correspond to shares in the Fund.
Each Company will process a purchase order from a prospective Contractowner
within two business days of its receipt or its completion. If an initial
purchase request remains incomplete after five business days, the prospective
Contractowner will be informed by the Company as to the reasons for delay and
the initial purchase payment will be returned, unless the prospective
Contractowner consents to the Company's retaining the purchase payment until the
purchase request is completed.
Each Company submits purchase and redemption orders to the Fund based on
allocation instructions for premium payments, transfer instructions and
surrender or partial withdrawal requests which are furnished to the Company by
such Contractowners. Contractowners can send such instructions and requests to
the Companies by first class mail, overnight mail or express mail sent to the
address set forth in the relevant Company's offering memorandum included with
this prospectus. The Fund and First Data Distributors, Inc. the Fund's
distributor ("FDDI" or the "Distributor"), reserve the right to reject any
purchase order.
Payment for redeemed shares will ordinarily be made within three (3) business
days after the Fund receives a redemption order from the relevant Company. The
redemption price will be the net asset value per share next determined after the
Company receives the Contractowner's completed and signed redemption order.
The Fund may suspend the right of redemption or postpone the date of payment
during any period when trading on the NYSE is restricted, or the NYSE is closed
for other than weekends and holidays; when an emergency makes it not reasonably
practicable for the Fund to dispose of assets or calculate its net asset value;
or as permitted by the SEC.
The accompanying offering memorandum for a Company's variable annuity or
variable life insurance policy describes the allocation, transfer and withdrawal
provisions of such annuity or policy.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Fund distributes substantially all of its net investment income and capital
gains each year. All dividends and capital gains distributions paid by the Fund
will be automatically reinvested, at net asset value, by the Companies' separate
accounts in additional shares of the Fund, unless an election is made by a
Contractowner to receive distributions in cash. Contractowners who own units in
a separate account which corresponds to shares in the Fund will be notified when
distributions are made.
The Fund will be treated as a separate entity for federal income tax purposes.
The Fund intends to qualify as a "regulated investment company" under the
Internal Revenue Code of 1986, as amended (the "Code"), in order to be relieved
of federal income tax on that part of its net investment income and realized
capital gains which it distributes to the Companies' separate accounts. The
Code and Treasury Department regulations promulgated thereunder require that
mutual funds that are offered through insurance company separate accounts must
meet certain diversification requirements to preserve the tax-deferral benefits
provided by the variable contracts which are offered in connection with such
separate accounts. Bankers Trust intends to diversify the Fund's investments in
accordance with those requirements. The enclosed offering memorandum for a
Company's variable annuity or variable life insurance policies describes the
federal income tax treatment of distributions from such contracts to
Contractowners. The foregoing is only a brief summary of important tax law
provisions that affect the Fund. Other federal, state or local tax law
provisions may also affect the Fund and its operations. Anyone who is
considering allocating, transferring or withdrawing monies held under a variable
contract to or from the Fund should consult a qualified tax adviser.
<PAGE>
44
Investment Manager of the Fund
BANKERS TRUST GLOBAL INVESTMENT MANAGEMENT
a unit of
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 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
.........................................
<PAGE>
STATEMENT OF
ADDITIONAL INFORMATION
BT INSURANCE FUNDS TRUST
SMALL CAP FUND
INTERNATIONAL EQUITY FUND
AUGUST 20, 1997
BT Insurance Funds Trust (the "Trust") is comprised of the Small Cap Fund and
the International Equity Fund (each, a "Fund" and together "Funds"). The shares
of these two funds are described herein.
Table of Contents
Investment Objectives, Policies and Restrictions.............2
Performance Information......................................21
Valuation of Securities; Redemption in Kind .................23
Management of the Funds .....................................24
Organization of the Trust....................................28
Taxation.....................................................29
Shares of the Funds are available to the public only through the purchase of
certain variable annuity and variable life insurance contracts ("Contract(s)")
issued by various insurance companies (the "Companies"). The investment manager
of each Fund is Bankers Trust Global Investment Management, a unit of Bankers
Trust Company (the "Manager" or "Bankers Trust"). The distributor of each Fund's
shares is First Data Distributors, Inc. (the "Distributor" or "FDDI").
The Prospectus for each Fund is dated August 20, 1997. Each Prospectus provides
the basic information investors should know before investing and may be obtained
without charge by calling the telephone number listed below. This Statement of
Additional Information ("SAI"), which is not a Prospectus, is intended to
provide additional information regarding the activities and operations of each
Fund and should be read in conjunction with that Fund's Prospectus. This SAI is
not an offer of any Fund for which an investor has not received a Prospectus.
Capitalized terms not otherwise defined in this SAI have the meanings accorded
to them in each Fund's Prospectus.
BANKERS TRUST GLOBAL INVESTMENT MANAGEMENT, a unit of
BANKERS TRUST COMPANY
Investment Manager of each Fund
FIRST DATA DISTRIBUTORS, INC.
Distributor
4400 Computer Drive
Westborough, MA 01581
<PAGE>
83
g:\shared\bankers\prospect\619smcp.doc
INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
Investment Objectives
The investment objective of each Fund is described in that Fund's Prospectus.
There can, of course, be no assurance that any Fund will achieve its investment
objective.
Investment Policies
The following is a discussion of the various investments of and techniques
employed by each Fund.
Certificates of Deposit and Bankers' Acceptances. Certificates of deposit are
receipts issued by a depository institution in exchange for the deposit of
funds. The issuer agrees to pay the amount deposited plus interest to the bearer
of the receipt on the date specified on the certificate. The certificate usually
can be traded in the secondary market prior to maturity. Bankers' acceptances
typically arise from short-term credit arrangements designed to enable
businesses to obtain funds to finance commercial transactions. Generally, an
acceptance is a time draft drawn on a bank by an exporter or an importer to
obtain a stated amount of funds to pay for specific merchandise. The draft is
then "accepted" by a bank that, in effect, unconditionally guarantees to pay the
face value of the instrument on its maturity date. The acceptance may then be
held by the accepting bank as an earning asset or it may be sold in the
secondary market at the going rate of discount for a specific maturity. Although
maturities for acceptances can be as long as 270 days, most acceptances have
maturities of six months or less.
Commercial Paper. Commercial paper consists of short-term (usually from 1 to 270
days) unsecured promissory notes issued by corporations in order to finance
their current operations. A variable amount master demand note (which is a type
of commercial paper) represents a direct borrowing arrangement involving
periodically fluctuating rates of interest under a letter agreement between a
commercial paper issuer and an institutional lender pursuant to which the lender
may determine to invest varying amounts.
Illiquid Securities. Historically, illiquid securities have included securities
subject to contractual or legal restrictions on resale because they have not
been registered under the Securities Act of 1933, as amended (the "1933 Act"),
securities which are otherwise not readily marketable and repurchase agreements
having a maturity of longer than seven days. Securities which have not been
registered under the 1933 Act are referred to as private placements or
restricted securities and are purchased directly from the issuer or in the
secondary market. Mutual funds do not typically hold a significant amount of
these restricted or other illiquid securities because of the potential for
delays on resale and uncertainty in valuation. Limitations on resale may have an
adverse effect on the marketability of portfolio securities and a mutual fund
might be unable to dispose of restricted or other illiquid securities promptly
or at reasonable prices and might thereby experience difficulty satisfying
redemptions within seven days. A mutual fund might also have to register such
restricted securities in order to dispose of them, resulting in additional
expense and delay. Adverse market conditions could impede such a public offering
of securities.
In recent years, however, a large institutional market has developed for certain
securities that are not registered under the 1933 Act, including repurchase
agreements, commercial paper, foreign securities, municipal securities and
corporate bonds and notes. Institutional investors depend on an efficient
institutional market in which the unregistered security can be readily resold or
on an issuer's ability to honor a demand for repayment. The fact that there are
contractual or legal restrictions on resale of such investments to the general
public or to certain institutions may not be indicative of their liquidity.
The Securities and Exchange Commission (the "SEC") has adopted Rule 144A, which
allows a broader institutional trading market for securities otherwise subject
to restriction on their resale to the general public. Rule 144A establishes a
"safe harbor" from the registration requirements of the 1933 Act of resales of
certain securities to qualified institutional buyers. The Manager anticipates
that the market for certain restricted securities such as institutional
commercial paper will expand further as a result of this regulation and the
development of automated systems for the trading, clearance and settlement of
unregistered securities of domestic and foreign issuers, such as the PORTAL
System sponsored by the National Association of Securities Dealers, Inc.
The Manager will monitor the liquidity of Rule 144A securities in each Fund's
portfolio under the supervision of the Fund's Board of Trustees. In reaching
liquidity decisions, the Manager will consider, among other things, the
following factors: (1) the frequency of trades and quotes for the security; (2)
the number of dealers and other potential purchasers wishing to purchase or sell
the security; (3) dealer undertakings to make a market in the security; and (4)
the nature of the security and of the marketplace trades (e.g., the time needed
to dispose of the security, the method of soliciting offers and the mechanics of
the transfer). Short-Term Instruments. When a 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, each Fund may invest in
short-term instruments for a limited time pending availability of such portfolio
securities. Short-term instruments consist of foreign or domestic: (i)
short-term obligations of sovereign governments, their agencies,
instrumentalities, authorities or political subdivisions; (ii) other short-term
debt securities rated AA or higher by Standard & Poor's ("S&P") or Aa or higher
by Moody's Investors Services, Inc. ("Moody's") or, if unrated, of comparable
quality in the opinion of Bankers Trust; (iii) commercial paper; (iv) bank
obligations, including negotiable certificates of deposit, time deposits and
banker's acceptances; and (v) repurchase agreements. At the time the Fund
invests in commercial paper, bank obligations or repurchase agreements, the
issuer of the issuer's parent must have outstanding debt rated AA or higher by
S&P or Aa or higher by Moody's or outstanding commercial paper or bank
obligations rated A-1 by S&P or Prime-1 by Moody's; or, if no such ratings are
available, the instrument must be of comparable quality in the opinion of
Bankers Trust. These instruments may be denominated in U.S. dollars or in
foreign currencies.
Lending of Portfolio Securities. Each Fund has the
authority to lend portfolio securities to brokers, dealers and other financial
organizations. The Funds will not lend securities to Bankers Trust, FDDI or
their affiliates. By lending its securities, a Fund can increase its income by
continuing to receive interest on the loaned securities as well as by either
investing the cash collateral in short-term securities or obtaining yield in the
form of interest paid by the borrower when U.S. Government obligations are used
as collateral. There may be risks of delay in receiving additional collateral or
risks of delay in recovery of the securities or even loss of rights in the
collateral should the borrower of the securities fail financially. Each Fund
will adhere to the following conditions whenever its securities are loaned: (i)
the Fund must receive at least 100 percent cash collateral or equivalent
securities from the borrower; (ii) the borrower must increase this collateral
whenever the market value of the securities including accrued interest rises
above the level of the collateral; (iii) the Fund must be able to terminate the
loan at any time; (iv) the Fund must received reasonable interest on the loan,
as well as any dividends, interest or other distributions on the loaned
securities, and any increase in market value; (v) the Fund may pay only
reasonable custodian fees in connection with the loan; and (vi) voting rights on
the loaned securities, may pass to the borrower; provided, however, that if a
material event adversely affecting the investment occurs, the Board of Trustees
must terminate the loan and regain the right to vote the securities.
Futures Contracts and Options on Futures Contracts
General. The successful use of such instruments draws upon the Manager's skill
and experience with respect to such instruments and usually depends on the
Manager's ability to forecast interest rate and currency exchange rate movements
correctly. Should interest or exchange rates move in an unexpected manner, a
Fund may not achieve the anticipated benefits of futures contracts or options on
futures contracts or may realize losses and thus will be in a worse position
than if such strategies had not been used. In addition, the correlation between
movements in the price of futures contracts or options on futures contracts and
movements in the price of the securities and currencies hedged or used for cover
will not be perfect and could produce unanticipated losses.
Futures Contracts. A Fund may enter into contracts for the purchase or sale for
future delivery of fixed-income securities or foreign currencies, or contracts
based on financial indices including any index of U.S. Government securities,
foreign government securities or corporate debt securities. U.S. futures
contracts have been designed by exchanges which have been designated "contracts
markets" by the Commodity Futures Trading Commission (the "CFTC"), and must be
executed through a futures commission merchant, or brokerage firm, which is a
member of the relevant contract market. Futures contracts trade on a number of
exchange markets, and, through their clearing corporations, the exchanges
guarantee performance of the contracts as between the clearing members of the
exchange. A Fund may enter into futures contracts which are based on debt
securities that are backed by the full faith and credit of the U.S. Government,
such as long-term U.S. Treasury Bonds, Treasury Notes, GNMA modified
pass-through mortgage-backed securities and three-month U.S. Treasury Bills. A
Fund may also enter into futures contracts which are based on bonds issued by
entities other than the U.S. Government.
At the same time a futures contract is purchased or sold, a Fund must allocate
cash or securities as a deposit payment ("initial deposit"). It is expected that
the initial deposit would be approximately 1 1/2% to 5% of a contract's face
value. Daily thereafter, the futures contract is valued and the payment of
"variation margin" may be required, since each day the Fund would provide or
receive cash that reflects any decline or increase in the contract's value.
At the time of delivery of securities pursuant to such a contract, adjustments
are made to recognize differences in value arising from the delivery of
securities with a different interest rate from that specified in the contract.
In some (but not many) cases, securities called for by a futures contract may
not have been issued when the contract was written.
Although futures contracts by their terms call for the actual delivery or
acquisition of securities, in most cases the contractual obligation is fulfilled
before the date of the contract without having to make or take delivery of the
securities. The offsetting of a contractual obligation is accomplished by buying
(or selling, as the case may be) on a commodities exchange an identical futures
contract calling for delivery in the same month. Such a transaction, which is
effected through a member of an exchange, cancels the obligation to make or take
delivery of the securities. Since all transactions in the futures market are
made, offset or fulfilled through a clearinghouse associated with the exchange
on which the contracts are traded, a Fund will incur brokerage fees when it
purchases or sells futures contracts.
The purpose of the acquisition or sale of a futures contract, in the case of a
Fund which holds or intends to acquire fixed-income securities, is to attempt to
protect the Fund from fluctuations in interest or foreign exchange rates without
actually buying or selling fixed-income securities or foreign currencies. For
example, if interest rates were expected to increase, the Fund might enter into
futures contracts for the sale of debt securities. Such a sale would have much
the same effect as selling an equivalent value of the debt securities owned by
the Fund. If interest rates did increase, the value of the debt security in the
Fund's portfolio would decline, but the value of the futures contracts to the
Fund would increase at approximately the same rate, thereby keeping the net
asset value of the Fund from declining as much as it otherwise would have. The
Fund could accomplish similar results by selling debt securities and investing
in bonds with short maturities when interest rates are expected to increase.
However, since the futures market is more liquid than the cash market, the use
of futures contracts as an investment technique allows the Fund to maintain a
defensive position without having to sell its portfolio securities.
Similarly, when it is expected that interest rates may decline, futures
contracts may be purchased to attempt to hedge against anticipated purchases of
debt securities at higher prices. Since the fluctuations in the value of futures
contracts should be similar to those of debt securities, a Fund could take
advantage of the anticipated rise in the value of debt securities without
actually buying them until the market had stabilized. At that time, the futures
contract could be liquidated and the Fund could then buy debt securities on the
cash market. To the extent a Fund enters into futures contracts for this
purpose, the assets in the segregated asset account maintained to cover the
Fund's obligations with respect to such futures contracts will consist of cash,
cash equivalents or high quality liquid debt securities from its portfolio in an
amount equal to the difference between the fluctuating market value of such
futures contracts and the aggregate value of the initial and variation margin
payments made by the Fund with respect to such futures contracts.
The ordinary spreads between prices in the cash and futures market, due to
differences in the nature of those markets, are subject to distortions. First,
all participants in the futures market are subject to initial deposit and
variation margin requirements. Rather than meeting additional variation margin
requirements, investors may close futures contracts through offsetting
transactions which could distort the normal relationship between the cash and
futures markets. Second, the liquidity of the futures market depends on
participants entering into offsetting transactions rather than making or taking
delivery. To the extent participants decide to make or take delivery, liquidity
in the futures market could be reduced, thus producing distortion. Third, from
the point of view of speculators, the margin deposit requirements in the futures
market are less onerous than margin requirements in the securities market.
Therefore, increased participation by speculators in the futures market may
cause temporary price distortions. Due to the possibility of distortion, a
correct forecast of general interest rate trends by the Manager may still not
result in a successful transaction.
In addition, futures contracts entail risks. Although the Manager believes that
use of such contracts will benefit the Funds, if the Manager's investment
judgment about the general direction of interest rates is incorrect, a Fund's
overall performance would be poorer than if it had not entered into any such
contract. For example, if a Fund has hedged against the possibility of an
increase in interest rates which would adversely affect the price of debt
securities held in its portfolio and interest rates decrease instead, the Fund
will lose part or all of the benefit of the increased value of its debt
securities which it has hedged because it will have offsetting losses in its
futures positions. In addition, in such situations, if a Fund has insufficient
cash, it may have to sell debt securities from its portfolio to meet daily
variation margin requirements. Such sales of bonds may be, but will not
necessarily be, at increased prices which reflect the rising market. A Fund may
have to sell securities at a time when it may be disadvantageous to do so.
Options on Futures Contracts. Each Fund may purchase and write options on
futures contracts for hedging purposes. The purchase of a call option on a
futures contract is similar in some respects to the purchase of a call option on
an individual security. Depending on the pricing of the option compared to
either the price of the futures contract upon which it is based or the price of
the underlying debt securities, it may or may not be less risky than ownership
of the futures contract or underlying debt securities. As with the purchase of
futures contracts, when a Fund is not fully invested it may purchase a call
option on a futures contract to hedge against a market advance due to declining
interest rates.
The writing of a call option on a futures contract constitutes a partial hedge
against declining prices of the security or foreign currency which is
deliverable upon exercise of the futures contract. If the futures price at
expiration of the option is below the exercise price, a Fund will retain the
full amount of the option premium which provides a partial hedge against any
decline that may have occurred in the Fund's portfolio holdings. The writing of
a put option on a futures contract constitutes a partial hedge against
increasing prices of the security or foreign currency which is deliverable upon
exercise of the futures contract. If the futures price at expiration of the
option is higher than the exercise price, the Fund will retain the full amount
of the option premium which provides a partial hedge against any increase in the
price of securities which the Fund intends to purchase. If a put or call option
the Fund has written is exercised, the Fund will incur a loss which will be
reduced by the amount of the premium it receives. Depending on the degree of
correlation between changes in the value of its portfolio securities and changes
in the value of its futures positions, the Fund's losses from existing options
on futures may to some extent be reduced or increased by changes in the value of
portfolio securities.
The purchase of a put option on a futures contract is similar in some respects
to the purchase of protective put options on portfolio securities. For example,
a Fund may purchase a put option on a futures contract to hedge its portfolio
against the risk of rising interest rates.
The amount of risk a Fund assumes when it purchases an option on a futures
contract is the premium paid for the option plus related transaction costs. In
addition to the correlation risks discussed above, the purchase of an option
also entails the risk that changes in the value of the underlying futures
contract will not be fully reflected in the value of the option purchased.
The Board of Trustees has adopted the requirement with respect to each Fund that
futures contracts and options on futures contracts be used only as a hedge and
not for speculation. In addition to this requirement, the Board of Trustees has
also adopted a restriction with respect to each Fund that the Fund will not
enter into any futures contracts or options on futures contracts if immediately
thereafter the amount of margin deposits on all the futures contracts of the
Fund and premiums paid on outstanding options on futures contracts owned by the
Fund would exceed 5% of the market value of the total assets of the Fund.
Options on Foreign Currencies. Each Fund may purchase and write options on
foreign currencies for hedging purposes in a manner similar to that in which
futures contracts on foreign currencies, or forward contracts, will be utilized.
For example, a decline in the dollar value of a foreign currency in which
portfolio securities are denominated will reduce the dollar value of such
securities, even if their value in the foreign currency remains constant. In
order to protect against such diminutions in the value of portfolio securities,
the Fund may purchase put options on the foreign currency. If the value of the
currency does decline, a Fund will have the right to sell such currency for a
fixed amount in dollars and will thereby offset, in whole or in part, the
adverse effect on its portfolio which otherwise would have resulted.
Conversely, where a rise in the dollar value of a currency in which securities
to be acquired are denominated is projected, thereby increasing the cost of such
securities, a Fund may purchase call options thereon. The purchase of such
options could offset, at least partially, the effects of the adverse movements
in exchange rates. As in the case of other types of options, however, the
benefit to the Fund deriving from purchases of foreign currency options will be
reduced by the amount of the premium and related transaction costs. In addition,
where currency exchange rates do not move in the direction or to the extent
anticipated, the Fund could sustain losses on transactions in foreign currency
options which would require it to forego a portion or all of the benefits of
advantageous changes in such rates.
Each Fund may write options on foreign currencies for the same types of hedging
purposes. For example, where a Fund anticipates a decline in the dollar value of
foreign currency denominated securities due to adverse fluctuations in exchange
rates it could, instead of purchasing a put option, write a call option on the
relevant currency. If the expected decline occurs, the option will most likely
not be exercised, and the diminution in value of portfolio securities will be
offset by the amount of the premium received.
Similarly, instead of purchasing a call option to hedge against an anticipated
increase in the dollar cost of securities to be acquired, a Fund could write a
put option on the relevant currency which, if rates move in the manner
projected, will expire unexercised and allow the Fund to hedge such increased
cost up to the amount of the premium. As in the case of other types of options,
however, the writing of a foreign currency option will constitute only a partial
hedge up to the amount of the premium, and only if rates move in the expected
direction. If this does not occur, the option may be exercised and the Fund
would be required to purchase or sell the underlying currency at a loss which
may not be offset by the amount of the premium. Through the writing of options
on foreign currencies, the Fund also may be required to forego all or a portion
of the benefits which might otherwise have been obtained from favorable
movements in exchange rates.
Each Fund intends to write covered call options on foreign currencies. A call
option written on a foreign currency by a Fund is "covered" if the Fund owns the
underlying foreign currency covered by the call or has an absolute and immediate
right to acquire that foreign currency without additional cash consideration (or
for additional cash consideration held in a segregated account by its custodian)
upon conversion or exchange of other foreign currency held in its portfolio. A
call option is also covered if the Fund has a call on the same foreign currency
and in the same principal amount as the call written where the exercise price of
the call held (a) is equal to or less than the exercise price of the call
written or (b) is greater than the exercise price of the call written if the
difference is maintained by the Fund in cash, U.S. Government securities and
other high quality liquid debt securities in a segregated account with its
custodian.
Each Fund also intends to write call options on foreign currencies that are not
covered for cross-hedging purposes. A call option on a foreign currency is for
cross-hedging purposes if it is not covered, but is designed to provide a hedge
against a decline in the U.S. dollar value of a security which the Fund owns or
has the right to acquire and which is denominated in the currency underlying the
option due to an adverse change in the exchange rate. In such circumstances, the
Fund collateralizes the option by maintaining in a segregated account with its
custodian, cash or U.S. Government securities or other high quality liquid debt
securities in an amount not less than the value of the underlying foreign
currency in U.S. dollars marked to market daily.
Additional Risks of Options on Futures Contracts, Forward Contracts and Options
on Foreign Currencies. Unlike transactions entered into by a Fund in futures
contracts, options on foreign currencies and forward contracts are not traded on
contract markets regulated by the CFTC or (with the exception of certain foreign
currency options) by the SEC. To the contrary, such instruments are traded
through financial institutions acting as market-makers, although foreign
currency options are also traded on certain national securities exchanges such
as the Philadelphia Stock Exchange and the Chicago Board Options Exchange,
subject to SEC regulation. Similarly, options on currencies may be traded
over-the-counter. In an over-the-counter trading environment, many of the
protections afforded to exchange participants will not be available. For
example, there are no daily price fluctuation limits, and adverse market
movements could therefore continue to an unlimited extent over a period of time.
Although the purchaser of an option cannot lose more than the amount of the
premium plus related transaction costs, this entire amount could be lost.
Moreover, the option writer and a trader of forward contracts could lose amounts
substantially in excess of their initial investments, due to the margin and
collateral requirements associated with such positions.
Options on foreign currencies traded on national securities exchanges are within
the jurisdiction of the SEC, as are other securities traded on such exchanges.
As a result, many of the protections provided to traders on organized exchanges
will be available with respect to such transactions. In particular, all foreign
currency option positions entered into on a national securities exchange are
cleared and guaranteed by the Options Clearing Corporation ("OCC"), thereby
reducing the risk of counterparty default. Further, a liquid secondary market in
options traded on a national securities exchange may be more readily available
than in the over-the-counter market, potentially permitting a Fund to liquidate
open positions at a profit prior to exercise or expiration, or to limit losses
in the event of adverse market movements.
The purchase and sale of exchange-traded foreign currency options, however, is
subject to the risks of the availability of a liquid secondary market described
above, as well as the risks regarding adverse market movements, margining of
options written, the nature of the foreign currency market, possible
intervention by governmental authorities and the effects of other political and
economic events. In addition, exchange-traded options on foreign currencies
involve certain risks not presented by the over-the-counter market. For example,
exercise and settlement of such options must be made exclusively through the
OCC, which has established banking relationships in applicable foreign countries
for this purpose. As a result, the OCC may, if it determines that foreign
governmental restrictions or taxes would prevent the orderly settlement of
foreign currency option exercises, or would result in undue burdens on the OCC
or its clearing member, impose special procedures on exercise and settlement,
such as technical changes in the mechanics of delivery of currency, the fixing
of dollar settlement prices or prohibitions on exercise.
As in the case of forward contracts, certain options on foreign currencies are
traded over-the-counter and involve liquidity and credit risks which may not be
present in the case of exchange-traded currency options. A Fund's ability to
terminate over-the-counter options will be more limited than with
exchange-traded options. It is also possible that broker-dealers participating
in over-the-counter options transactions will not fulfill their obligations.
Until such time as the staff of the SEC changes its position, each Fund will
treat purchased over-the-counter options and assets used to cover written
over-the-counter options as illiquid securities. With respect to options written
with primary dealers in U.S. Government securities pursuant to an agreement
requiring a closing purchase transaction at a formula price, the amount of
illiquid securities may be calculated with reference to the repurchase formula.
In addition, futures contracts, options on futures contracts, forward contracts
and options on foreign currencies may be traded on foreign exchanges. Such
transactions are subject to the risk of governmental actions affecting trading
in or the prices of foreign currencies or securities. The value of such
positions also could be adversely affected by: (i) other complex foreign
political and economic factors; (ii) lesser availability than in the United
States of data on which to make trading decisions; (iii) delays in a Fund's
ability to act upon economic events occurring in foreign markets during
nonbusiness hours in the United States; (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
United States; and (v) lesser trading volume.
Options on Securities. Each Fund may write (sell) covered call and put options
("covered options") to a limited extent on its portfolio securities in an
attempt to increase income. However, the Fund may forgo the benefits of
appreciation on securities sold or may pay more than the market price on
securities acquired pursuant to call and put options written by the Fund.
When a Fund writes a covered call option, it gives the purchaser of the option
the right to buy the underlying security at the price specified in the option
(the "exercise price") by exercising the option at any time during the option
period. If the option expires unexercised, the Fund will realize income in an
amount equal to the premium received for writing the option. If the option is
exercised, a decision over which the Fund has no control, the Fund must sell the
underlying security to the option holder at the exercise price. By writing a
covered call option, the Fund forgoes, in exchange for the premium less the
commission ("net premium"), the opportunity to profit during the option period
from an increase in the market value of the underlying security above the
exercise price.
When a Fund writes a covered put option, it gives the purchaser of the option
the right to sell the underlying security to the Fund at the specified exercise
price at any time during the option period. If the option expires unexercised,
the Fund will realize income in the amount of the premium received for writing
the option. If the put option is exercised, a decision over which the Fund has
no control, the Fund must purchase the underlying security from the option
holder at the exercise price. By writing a covered put option, the Fund, in
exchange for the net premium received, accepts the risk of a decline in the
market value of the underlying security below the exercise price. The Fund will
only write put options involving securities for which a determination is made at
the time the option is written that the Fund wishes to acquire the securities at
the exercise price.
A Fund may terminate its obligation as the writer of a call or put option by
purchasing an option with the same exercise price and expiration date as the
option previously written. This transaction is called a "closing purchase
transaction." Where the Fund cannot effect a closing purchase transaction, it
may be forced to incur brokerage commissions or dealer spreads in selling
securities it receives or it may be forced to hold underlying securities until
an option is exercised or expires.
When a Fund writes an option, an amount equal to the net premium received by the
Fund is included in the liability section of the Fund's Statement of Assets and
Liabilities as a deferred credit. The amount of the deferred credit will be
subsequently marked to market to reflect the current market value of the option
written. The current market value of a traded option is the last sale price or,
in the absence of a sale, the mean between the closing bid and asked price. If
an option expires on its stipulated expiration date or if the Fund enters into a
closing purchase transaction, the Fund will realize a gain (or loss if the cost
of a closing purchase transaction exceeds the premium received when the option
was sold), and the deferred credit related to such option will be eliminated. If
a call option is exercised, the Fund will realize a gain or loss from the sale
of the underlying security and the proceeds of the sale will be increased by the
premium originally received. The writing of covered call options may be deemed
to involve the pledge of the securities against which the option is being
written. Securities against which call options are written will be segregated on
the books of the custodian for the Fund.
A Fund may purchase call and put options on any securities in which it may
invest. A Fund would normally purchase a call option in anticipation of an
increase in the market value of such securities. The purchase of a call option
would entitle the Fund, in exchange for the premium paid, to purchase a security
at a specified price during the option period. The Fund would ordinarily have a
gain if the value of the securities increased above the exercise price
sufficiently to cover the premium and would have a loss if the value of the
securities remained at or below the exercise price during the option period.
A Fund would normally purchase put options in anticipation of a decline in the
market value of securities in its portfolio ("protective puts") or securities of
the type in which it is permitted to invest. The purchase of a put option would
entitle the Fund, in exchange for the premium paid, to sell a security, which
may or may not be held in the Fund's portfolio, at a specified price during the
option period. The purchase of protective puts is designed merely to offset or
hedge against a decline in the market value of the Fund's portfolio securities.
Put options also may be purchased by the Fund for the purpose of affirmatively
benefiting from a decline in the price of securities which the Fund does not
own. The Fund would ordinarily recognize a gain if the value of the securities
decreased below the exercise price sufficiently to cover the premium and would
recognize a loss if the value of the securities remained at or above the
exercise price. Gains and losses on the purchase of protective put options would
tend to be offset by countervailing changes in the value of underlying portfolio
securities.
Each Fund has adopted certain other nonfundamental policies concerning option
transactions which are discussed below. The Fund's activities in options may
also be restricted by the requirements of the Internal Revenue Code of 1986, as
amended (the "Code"), for qualification as a regulated investment company.
The hours of trading for options on securities may not conform to the hours
during which the underlying securities are traded. To the extent that the option
markets close before the markets for the underlying securities, significant
price and rate movements can take place in the underlying securities markets
that cannot be reflected in the option markets. It is impossible to predict the
volume of trading that may exist in such options, and there can be no assurance
that viable exchange markets will develop or continue.
A Fund may engage in over-the-counter options transactions with broker-dealers
who make markets in these options. At present, approximately 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 Funds enter into such options transactions under the general
supervision of the Funds' Trustees.
Options on Securities Indices. In addition to options on securities, each Fund
may also purchase and write (sell) call and put options on securities indices.
Such options give the holder the right to receive a cash settlement during the
term of the option based upon the difference between the exercise price and the
value of the index. Such options will be used for the purposes described above
under "Options on Securities." The International Equity Fund may, to the
extent allowed by federal and state securities laws, invest in securities
indices instead of investing directly in individual foreign securities.
Options on securities indices entail risks in addition to the risks of options
on securities. The absence of a liquid secondary market to close out options
positions on securities indices is more likely to occur, although a Fund
generally will only purchase or write such an option if the Manager believes the
option can be closed out.
Use of options on securities indices also entails the risk that trading in such
options may be interrupted if trading in certain securities included in the
index is interrupted. A Fund will not purchase such options unless the Manager
believes the market is sufficiently developed such that the risk of trading in
such options is no greater than the risk of trading in options on securities.
Price movements in a Fund's portfolio may not correlate precisely with movements
in the level of an index and, therefore, the use of options on indices cannot
serve as a complete hedge. Because options on securities indices require
settlement in cash, the Manager may be forced to liquidate portfolio securities
to meet settlement obligations.
Forward Foreign Currency Exchange Contracts. Because each Fund buys and sells
securities denominated in currencies other than the U.S. dollar and receives
interest, dividends and sale proceeds in currencies other than the U.S. dollar,
each Fund from time to time may enter into foreign currency exchange
transactions to convert to and from different foreign currencies and to convert
foreign currencies to and from the U.S. dollar. A Fund either enters into these
transactions on a spot (i.e., cash) basis at the spot rate prevailing in the
foreign currency exchange market or uses forward contracts to purchase or sell
foreign currencies.
A forward foreign currency exchange contract is an obligation by a Fund to
purchase or sell a specific currency at a future date, which may be any fixed
number of days from the date of the contract. Forward foreign currency exchange
contracts establish an exchange rate at a future date. These contracts are
transferable in the interbank market conducted directly between currency traders
(usually large commercial banks) and their customers. A forward foreign currency
exchange contract generally has no deposit requirement and is traded at a net
price without commission. Each Fund maintains with its custodian a segregated
account of high grade liquid assets in an amount at least equal to its
obligations under each forward foreign currency exchange contract. Neither spot
transactions nor forward foreign currency exchange contracts eliminate
fluctuations in the prices of the Fund's securities or in foreign exchange
rates, or prevent loss if the prices of these securities should decline.
Each Fund may enter into foreign currency hedging transactions in an attempt to
protect against changes in foreign currency exchange rates between the trade and
settlement dates of specific securities transactions or changes in foreign
currency exchange rates that would adversely affect a portfolio position or an
anticipated investment position. Since consideration of the prospect for
currency parities will be incorporated into Bankers Trust's long-term investment
decisions, a Fund will not routinely enter into foreign currency hedging
transactions with respect to security transactions; however, Bankers Trust
believes that it is important to have the flexibility to enter into foreign
currency hedging transactions when it determines that the transactions would be
in the Fund's best interest. Although these transactions tend to minimize the
risk of loss due to a decline in the value of the hedged currency, at the time
they tend to limit any potential gain that might be realized should the value of
the hedged currency increase. The precise matching of the forward contract
amounts and the value of the securities involved will not generally be possible
because the future value of such securities in foreign currencies will change as
a consequence of market movements in the value of such securities between the
date the forward contract is entered into and the date it matures. The
projection of currency market movements is extremely difficult, and the
successful execution of a hedging strategy is highly uncertain.
While these contracts are not presently regulated by the CFTC, the CFTC may in
the future assert authority to regulate forward contracts. In such event, a
Fund's ability to utilize forward contracts in the manner set forth in the
Prospectus may be restricted. Forward contracts may reduce the potential gain
from a positive change in the relationship between the U.S. dollar and foreign
currencies. Unanticipated changes in currency prices may result in poorer
overall performance for the Fund than if it had not entered into such contracts.
The use of foreign currency forward contracts may not eliminate fluctuations in
the underlying U.S. dollar equivalent value of the prices of or rates of return
on a Fund's foreign currency denominated portfolio securities and the use of
such techniques will subject a Fund to certain risks.
The matching of the increase in value of a forward contract and the decline in
the U.S. dollar equivalent value of the foreign currency denominated asset that
is the subject of the hedge generally will not be precise. In addition, a Fund
may not always be able to enter into foreign currency forward contracts at
attractive prices and this will limit the Fund's ability to use such contract to
hedge or cross-hedge its assets. Also, with regard to a Fund's use of
cross-hedges, there can be no assurance that historical correlations between the
movement of certain foreign currencies relative to the U.S. dollar will
continue. Thus, at any time poor correlation may exist between movements in the
exchange rates of the foreign currencies underlying a Fund's cross-hedges and
the movements in the exchange rates of the foreign currencies in which the
Fund's assets that are the subject of such cross-hedges are denominated.
WEBS. World Equity Benchmark Shares ("WEBS") are shares of common stock of
separate series (each, an "Index Series") of Foreign Fund, Inc. ("Foreign
Fund"), an open-end management company registered under the 1940 Act. Each Index
Series invests primarily in common stocks in an effort to track the performance
of a specified foreign equity market index compiled by Morgan Stanley Capital
International ("MSCI"). The investment objective of each of the initial
seventeen Index Series is to seek to provide investment results that correspond
generally to the price and yield performance of publicly traded securities in
the aggregate in particular markets, as represented by a particular foreign
equity securities index. Each MSCI Index is a market capital weighted index of
equity securities traded on the principal securities exchange(s) and, in some
cases, the over-the-counter market, of the respective country. An Index Series
generally will not hold all of the issues that comprise the subject MSCI Index,
due in part to the costs involved and, in certain instances, the potential
illiquidity of certain securities. Instead, each Index Series will attempt to
hold a representative sample of the securities in the Index, which will be
selected by the adviser utilizing quantitative analytical models in a technique
known as "portfolio sampling". Under this technique, each stock is considered
for inclusion in the Index Series based on its contribution to certain
capitalization, industry and fundamental investment characteristics.
Foreign Fund will issue and redeem WEBS of each Index Series only in
aggregations of a specified number of shares (each, a "Creation Unit") at net
asset value. Except when aggregated in Creation Units, WEBS are not redeemable
securities of the Foreign Fund. The WEBS have been listed for trading on the
American Stock Exchange, Inc. (the "AMEX"). It is expected that the
non-redeemable WEBS will trade on the AMEX during the day at prices that differ
to some degree from their net asset value.
There can be no assurance that the investment objective of any Index Series will
be achieved. In this regard, it should be noted that the benchmark indices are
unmanaged and bear no management, administration, distribution, transaction or
other expenses or taxes, while each Index Series must bear these expenses and
are also subject to a number of limitations on their investment flexibility. In
addition, certain Index Series are subject to foreign tax withholding at rates
different than those assumed by the relevant benchmark index. Investing in WEBS
of an Index Series involves special risks of investing in securities of the
relevant foreign country.
Because each Index Series' assets will generally be invested in non-U.S.
securities, and because a substantial portion of the revenues and income of each
Index Series will be received in a foreign currency, while Index Series
dividends and other distributions are paid in US dollars, the dollar value of an
Index Series' net assets will be adversely affected by reductions in the value
of subject foreign currency relative to the dollar and would be positively
affected by increases in the value of such currency relative to the dollar. Any
such currency fluctuations will affect the net asset value of an Index Series
irrespective of the performance of its underlying portfolio.
Foreign Fund is a newly organized investment company with no previous operating
history. As indicated above, the WEBS have been listed for trading on the AMEX.
There can be no assurance that active trading markets for the WEBS will develop.
The stocks of particular issuers, or of issuers in particular industries, may
dominate the benchmark indices of certain Index Series and, consequently, the
investment portfolios of such Index Series, which may adversely affect the
performance of such Index Series or subject such Index Series to greater price
volatility than that experienced by more diversified investment companies. The
WEBS of an Index Series may be more susceptible to any single economic,
political or regulatory occurrence than the portfolio securities of an
investment company that is more broadly invested than the subject Index Series
in the equity securities of the relevant market.
Foreign Securities: Special Considerations Concerning Eastern Europe. The Funds
may invest in foreign securities issued by Eastern European countries.
Investments in companies domiciled in Eastern European countries may be subject
to potentially greater risks than those of other foreign issuers. These risks
include: (i) potentially less social, political and economic stability; (ii) the
small current size of the markets for such securities and the low volume of
trading, which result in less liquidity and in greater price volatility; (iii)
certain national policies which may restrict a Fund's investment opportunities,
including restrictions on investment in issuers or industries deemed sensitive
to national interests; (iv) foreign taxation; (v) the absence of developed legal
structures governing private or foreign investment or allowing for judicial
redress for injury to private property; (vi) the absence, until recently in
certain Eastern European countries, of a capital market structure or
market-oriented economy; and (vii) the possibility that recent favorable
economic developments in Eastern Europe may be slowed or reversed by
unanticipated political or social events in such countries, or in the
Commonwealth of Independent States (formerly the Union of Soviet Socialist
Republics).
The economic situation remains difficult for Eastern European countries in
transition from central planning, following what has already been a sizable
decline in output. The contraction now appears to be bottoming out in parts of
Eastern Europe. Following three successive years of output declines, there are
preliminary indications of a turnaround in the former Czech and Slovak Federal
Republic, Hungary and Poland; growth in private sector activity and strong
exports now appear to have contained the fall in output. A number of their
governments, including those of Hungary and Poland, are currently implementing
or considering reforms directed at political and economic liberalization,
including efforts to foster multi-party political systems, decentralize economic
planning, and a move toward free-market economies. But key aspects of the reform
and stabilization efforts have not yet been fully implemented, and there remain
risks of policy slippage. At present, no Eastern European country has a
developed stock market, but Poland, Hungary and the Czech Republic have small
securities markets in operation.
In many other countries of the region, output losses have been even larger.
These declines reflect the adjustment difficulties during the early stages of
the transition, high rates of inflation, the compression of imports, disruption
in trade among the countries of the former Soviet Union, and uncertainties about
the reform process itself. Large-scale subsidies are delaying industrial
restructuring and are exacerbating the fiscal situation. A reversal of these
adverse factors is not anticipated in the near term, and output is expected to
decline further in most of these countries. In the Russian Federation and most
other countries of the former Soviet Union, economic conditions are of
particular concern because of economic instability due to political unrest and
armed conflicts in many regions. Further, no accounting standards exist in
Eastern European countries. Although certain Eastern European currencies may be
convertible into U.S. dollars, the conversion rates may be artificial to the
actual market values and may be adverse to a Fund's shareholders.
Rating Services
The ratings of rating services represent their opinions as to the quality of the
securities that they undertake to rate. It should be emphasized, however, that
ratings are relative and subjective and are not absolute standards of quality.
Although these ratings are an initial criterion for selection of portfolio
investments, Bankers Trust also makes its own evaluation of these securities,
subject to review by the Board of Trustees. After purchase by a Fund, an
obligation may cease to be rated or its rating may be reduced below the minimum
required for purchase by the Fund. Neither event would require a Fund to
eliminate the obligation from its portfolio, but Bankers Trust will consider
such an event in its determination of whether a Fund should continue to hold the
obligation.
Investment Restrictions
The following investment restrictions are "fundamental policies" of each Fund
and may not be changed with respect to the Fund without the approval of a
"majority of the outstanding voting securities" of the Fund. "Majority of the
outstanding voting securities" under the Investment Company Act of 1940, as
amended (the "1940 Act"), and as used in this SAI and the Prospectuses, means,
with respect to a Fund, the lesser of (i) 67% or more of the outstanding voting
securities of the Fund present at a meeting, if the holders of more than 50% of
the outstanding voting securities of the Fund are present or represented by
proxy or (ii) more than 50% of the outstanding voting securities of the Fund.
As a matter of fundamental policy, neither Fund may:
(1) borrow money or mortgage or hypothecate assets of the Fund,
except that in an amount not to exceed 1/3 of the current value
of the Fund's net assets, it may borrow money, but only as a
temporary measure for extraordinary or emergency purposes, and
enter into reverse repurchase agreements or dollar roll
transactions, and except that it may pledge, mortgage or
hypothecate not more than 1/3 of such assets to secure such
borrowings (it is intended that money would be borrowed only
from banks and only either to accommodate requests for the
redemption of shares while effecting an orderly liquidation of
portfolio securities or to maintain liquidity in the event of an
unanticipated failure to complete a portfolio security
transaction or other similar situations) or reverse repurchase
agreements, provided that collateral arrangements with respect
to options and futures, including deposits of initial deposit
and variation margin, are not considered a pledge of assets for
purposes of this restriction and except that assets may be
pledged to secure letters of credit solely for the purpose of
participating in a captive insurance company sponsored by the
Investment Company Institute;
(2) underwrite securities issued by other persons except insofar as
the Funds may technically be deemed an underwriter under the
1933 Act in selling a portfolio security;
(3) make loans to other persons except: (a) through the lending of
the Fund's portfolio securities and provided that any such loans
not exceed 30% of the Fund's total assets (taken at market
value); (b) through the use of repurchase agreements or the
purchase of short-term obligations; or (c) by purchasing a
portion of an issue of debt securities of types distributed
publicly or privately;
(4) purchase or sell real estate (including limited partnership
interests but excluding securities secured by real estate or
interests therein), interests in oil, gas or mineral leases,
commodities or commodity contracts (except futures and option
contracts) in the ordinary course of business (the Fund may hold
and sell, for the Fund's portfolio, real estate acquired as a
result of the Fund's ownership of securities);
(5) concentrate its investments in any particular industry (excluding U.S.
Government securities), but if it is deemed appropriate for the achievement of a
Fund's investment objective(s), up to 25% of its total assets may be invested in
any one industry; and
(6) issue any senior security (as that term is defined in the 1940
Act) if such issuance is specifically prohibited by the 1940 Act
or the rules and regulations promulgated thereunder, provided
that collateral arrangements with respect to options and
futures, including deposits of initial deposit and variation
margin, are not considered to be the issuance of a senior
security for purposes of this restriction.
Statutory Restrictions. In order to comply with certain statutes and
regulatory policies, neither Fund will, as a matter of operating policy:
(i) sell any security which it does not own unless by virtue of its
ownership of other securities it has at the time of sale a right
to obtain securities, without payment of further consideration,
equivalent in kind and amount to the securities sold and
provided that if such right is conditional the sale is made upon
the same conditions;
(ii) invest for the purpose of exercising control or management;
(iii) purchase securities issued by any investment company except by
purchase in the open market where no commission or profit to a sponsor or dealer
results from such purchase other than the customary broker's commission, or
except when such purchase, though not made in the open market, is part of a plan
of merger or consolidation; provided, however, that securities of any investment
company will not be purchased for the Fund if such purchase at the time thereof
would cause: (a) more than 10% of the Fund's total assets (taken at the greater
of cost or market value) to be invested in the securities of such issuers; (b)
more than 5% of the Fund's total assets (taken at the greater of cost or market
value) (except the Portfolio may exceed the applicable percentage limits to the
extent permitted by an exemptive order of the SEC) to be invested in any one
investment company; or (c) more than 3% of the outstanding voting securities of
any such issuer to be held for the Fund; provided further that, except in the
case of a merger or consolidation, the Fund shall not purchase any securities of
any open-end investment company;
(iv) invest more than 15% of the Fund's net assets (taken at the
greater of cost or market value) in securities that are illiquid
or not readily marketable (excluding Rule 144A securities deemed
by the Board of Trustees to be liquid);
(v) purchase securities of any issuer if such purchase at the time
thereof would cause the Fund to hold more than 10% of any class
of securities of such issuer, for which purposes all
indebtedness of an issuer shall be deemed a single class and all
preferred stock of an issuer shall be deemed a single class,
except that futures or option contracts shall not be subject to
this restriction;
(vi) with respect to 75% of its assets, invest more than 5% of its total
assets in the securities (excluding U.S. Government securities) of any one
issuer; and
(vii) invest more than 5% of the Fund's net assets in warrants (valued
at the lower of cost or market), but not more than 2% of the
Fund's net assets may be invested in warrants not listed on the
New York Stock Exchange Inc. ("NYSE") or the AMEX.
Portfolio Transactions and Brokerage Commissions
The Manager is responsible for decisions to buy and sell securities, futures
contracts and options on such securities and futures for each Fund, the
selection of brokers, dealers and futures commission merchants to effect
transactions and the negotiation of brokerage commissions, if any.
Broker-dealers may receive brokerage commissions on portfolio transactions,
including options, futures and options on futures transactions and the purchase
and sale of underlying securities upon the exercise of options. Orders may be
directed to any broker-dealer or futures commission merchant, including to the
extent and in the manner permitted by applicable law, Bankers Trust or its
subsidiaries or affiliates. Purchases and sales of certain portfolio securities
on behalf of a Fund are frequently placed by the Manager with the issuer or a
primary or secondary market-maker for these securities on a net basis, without
any brokerage commission being paid by the Fund. Trading does, however, involve
transaction costs. Transactions with dealers serving as market-makers reflect
the spread between the bid and asked prices. Transaction costs may also include
fees paid to third parties for information as to potential purchasers or sellers
of securities. Purchases of underwritten issues may be made which will include
an underwriting fee paid to the underwriter.
The Manager seeks to evaluate the overall reasonableness of the brokerage
commissions paid (to the extent applicable) in placing orders for the purchase
and sale of securities for a Fund, taking into account such factors as price,
commission (negotiable in the case of national securities exchange
transactions), if any, size of order, difficulty of execution and skill required
of the executing broker-dealer through familiarity with commissions charged on
comparable transactions, as well as by comparing commissions paid by the Fund to
reported commissions paid by others. The Manager reviews on a routine basis
commission rates, execution and settlement services performed, making internal
and external comparisons.
The Manager is authorized, consistent with Section 28(e) of the Securities
Exchange Act of 1934, as amended, when placing portfolio transactions for a Fund
with a broker to pay a brokerage commission (to the extent applicable) in excess
of that which another broker might have charged for effecting the same
transaction on account of the receipt of research, market or statistical
information. The term "research, market or statistical information" includes
advice as to the value of securities; the advisability of investing in,
purchasing or selling securities; the availability of securities or purchasers
or sellers of securities; and furnishing analyses and reports concerning
issuers, industries, securities, economic factors and trends, portfolio strategy
and the performance of accounts.
Consistent with the policy stated above, the Rules of Fair Practice of the
National Association of Securities Dealers, Inc. and such other policies as the
Trustees of the Funds may determine, the Manager may consider sales of shares of
the Funds and of other investment company clients of Bankers Trust as a factor
in the selection of broker-dealers to execute portfolio transactions. Bankers
Trust will make such allocations if commissions are comparable to those charged
by nonaffiliated, qualified broker-dealers for similar services.
Higher commissions may be paid to firms that provide research services to the
extent permitted by law. Bankers Trust may use this research information in
managing each Fund's assets, as well as the assets of other clients.
Except for implementing the policies stated above, there is no intention to
place portfolio transactions with particular brokers or dealers or groups
thereof. In effecting transactions in over-the-counter securities, orders are
placed with the principal market-makers for the security being traded unless,
after exercising care, it appears that more favorable results are available
otherwise.
Although certain research, market and statistical information from brokers and
dealers can be useful to a Fund and to the Manager, it is the opinion of the
management of the Funds that such information is only supplementary to the
Manager's own research effort, since the information must still be analyzed,
weighed and reviewed by the Manager's staff. Such information may be useful to
the Manager in providing services to clients other than the Funds, and not all
such information is used by the Manager in connection with the Funds.
Conversely, such information provided to the Manager by brokers and dealers
through whom other clients of the Manager effect securities transactions may be
useful to the Manager in providing services to the Funds.
In certain instances there may be securities which are suitable for a Fund as
well as for one or more of the Manager's other clients. Investment decisions for
a Fund and for the Manager's other clients are made with a view to achieving
their respective investment objectives. It may develop that a particular
security is bought or sold for only one client even though it might be held by,
or bought or sold for, other clients. Likewise, a particular security may be
bought for one or more clients when one or more clients are selling that same
security. Some simultaneous transactions are inevitable when several clients
receive investment advice from the same investment manager, particularly when
the same security is suitable for the investment objectives of more than one
client. When two or more clients are simultaneously engaged in the purchase or
sale of the same security, the securities are allocated among clients in a
manner believed to be equitable to each. It is recognized that in some cases
this system could have a detrimental effect on the price or volume of the
security as far as a Fund is concerned. However, it is believed that the ability
of a Fund to participate in volume transactions will produce better executions
for the Fund.
PERFORMANCE INFORMATION
Standard Performance Information
From time to time, quotations of a Fund's performance may be included in
advertisements, sales literature or shareholder reports. These performance
figures are calculated in the following manner:
Total return. A Fund's average annual total return is calculated for
certain periods by determining the average annual compounded rates of
return over those periods that would cause an investment of $1,000
(made at the maximum public offering price with all distributions
reinvested) to reach the value of that investment at the end of the
periods. A Fund may also calculate total return figures which represent
aggregate performance over a period or year-by-year performance.
Performance Results. Any total return quotation provided for a Fund
should not be considered as representative of the performance of the
Fund in the future since the net asset value and public offering price
of shares of the Fund will vary based not only on the type, quality and
maturities of the securities held in the Fund, but also on changes in
the current value of such securities and on changes in the expenses of
the Fund. These factors and possible differences in the methods used to
calculate total return should be considered when comparing the total
return of a Fund to total returns published for other investment
companies or other investment vehicles. Total return reflects the
performance of both principal and income.
Comparison of Fund Performance
Comparison of the quoted nonstandardized performance of various investments is
valid only if performance is calculated in the same manner. Since there are
different methods of calculating performance, investors should consider the
effect of the methods used to calculate performance when comparing performance
of a Fund with performance quoted with respect to other investment companies or
types of investments. In connection with communicating its performance to
current or prospective shareholders, a Fund also may compare these figures to
the performance of other mutual funds tracked by mutual fund rating services or
to unmanaged indices which may assume reinvestment of dividends but generally do
not reflect deductions for administrative and management costs. Evaluations of a
Fund's performance made by independent sources may also be used in
advertisements concerning the Fund. Sources for a Fund's performance information
could include the following: 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
Equity and debt securities (other than short-term debt obligations maturing in
60 days or less), including listed securities and securities for which price
quotations are available, will normally be valued on the basis of market
valuations furnished by a pricing service. Short-term debt obligations and money
market securities maturing in 60 days or less are valued at amortized cost,
which approximates market. Securities for which market quotations are
not available are valued by Bankers Trust pursuant to procedures adopted by the
Trust's Board of Trustees. It is generally agreed that securities for which
market quotations are not readily available should not be valued at the same
value as that carried by an equivalent security which is readily marketable.
The problems inherent in making a good faith determination of value are
recognized in the codification effected by SEC Financial Reporting Release No. 1
("FRR 1" (formerly Accounting Series Release No. 113)), which concludes that
there is "no automatic formula" for calculating the value of restricted
securities. It recommends that the best method simply is to consider all
relevant factors before making any calculation. According to FRR 1, such factors
would include consideration of the:
type of security involved, financial statements, cost at date of
purchase, size of holding, discount from market value of unrestricted
securities of the same class at the time of purchase, special reports
prepared by analysts, information as to any transactions or offers with
respect to the security, existence of merger proposals or tender offers
affecting the security, price and extent of public trading in similar
securities of the issuer or comparable companies, and other relevant
matters.
To the extent that a Fund purchases securities which are restricted as to resale
or for which current market quotations are not available, the Manager of the
Fund will value such securities based upon all relevant factors as outlined in
FRR 1.
The Trust, on behalf of each Fund, reserves the right, if conditions exist which
make cash payments undesirable, to honor any request for redemption or
repurchase order by making payment in whole or in part in readily marketable
securities chosen by the Trust, and valued as they are for purposes of computing
the Fund's net asset value (a redemption in kind). If payment is made to a Fund
shareholder in securities, the shareholder may incur transaction expenses in
converting these securities into cash. The Trust, on behalf of each Fund, has
elected, however, to be governed by Rule 18f-1 under the 1940 Act as a result of
which each Fund is obligated to redeem shares with respect to any one investor
during any 90-day period, solely in cash up to the lesser of $250,000 or 1% of
the net asset value of the Fund at the beginning of the period.
MANAGEMENT OF THE FUNDS
The 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.
<TABLE>
Trustees and Officers
<CAPTION>
Position Held Principal Occupations
Name, Address and Age with the Trust During Past 5 Years
- --------------------- -------------- - -------------------
<S> <C> <C>
Robert R. Coby, 46 Trustee President of Leadership Capital Inc. since
118 North Drive 1995; Chief Operating Officer of CS First
North Massapequa, NY 11758 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 Trustee Chairman of North American Properties Group
2015 West Main Street since January 1987.
Stamford, CT 06902
James S. Pasman, Jr., 66 Trustee Retired; President and Chief Operations
29 The Trillium Officer of National Intergroup Inc.
Pittsburgh, PA 15238 (1989-1991).
*William E. Small, 55 Trustee and President Independent Consultant (1994-present);
Formerly 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, 38 Vice President Vice President of First Data since May 1994;
and Treasurer Vice President of The Boston Company
Advisors Inc. prior to May 1994.
Julie A. Tedesco, 39 Vice President Counsel of First Data since May 1994;
and Secretary Counsel of The Boston Company Advisors Inc.
(1992-1994); associate at Hutchins, Wheeler
& Dittmar prior to July 1992.
</TABLE>
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 August 1, 1997, the Trustees and officers of the Trust owned in
the aggregate less than 1% of the shares of any Fund or the Trust (both series
taken together).
Investment Manager
Under the terms of each Fund's investment management agreement with Bankers
Trust (the "Management Agreement"), Bankers Trust manages the Fund subject to
the supervision and direction of the Board of Trustees of the Trust, of which
each Fund is a series. Bankers Trust will: (i) act in strict conformity with the
Trust's Declaration of Trust, the 1940 Act and the Investment Advisers Act of
1940, as the same may from time to time be amended; (ii) manage each Fund in
accordance with the Fund's investment objectives, restrictions and policies;
(iii) make investment decisions for each Fund; (iv) place purchase and sale
orders for securities and other financial instruments on behalf of each Fund;
(v) oversee the administration of all aspects of the Trust's business and
affairs; and (vi) supervise the performance of professional services provided by
others. Bankers Trust bears all expenses in connection with the performance
of services under each Management Agreement. Each Fund bears certain other
expenses incurred in its operation, including: taxes, interest, brokerage fees
and commissions, if any; fees of Trustees of the Trust who are not officers,
directors or employees of Bankers Trust, 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; costs of maintenance of corporate existence; costs attributable
to investor services, including, without limitation, telephone and personnel
expenses; costs of preparing and printing prospectuses and statements of
additional information for regulatory purposes and for distribution to existing
shareholders; costs of shareholders' reports and meetings of shareholders,
officers and Trustees of the Trust; and any extraordinary expenses. Bankers
Trust may have deposit, loan and other commercial banking relationships with the
issuers of obligations which may be purchased on behalf of the Funds, including
outstanding loans to such issuers which could be repaid in whole or in part with
the proceeds of securities so purchased. Such affiliates deal, trade and invest
for their own accounts in such obligations and are among the leading dealers of
various types of such obligations. Bankers Trust, in making its investment
decisions, does not obtain or use material inside information in its possession
or in the possession of any of its affiliates. In making investment
recommendations for the Funds, Bankers Trust will not inquire or take into
consideration whether an issuer of securities proposed for purchase or sale by a
Fund is a customer of Bankers Trust, its parent or its subsidiaries or
affiliates and, in dealing with its customers, Bankers Trust, its parent,
subsidiaries and affiliates will not inquire or take into consideration whether
securities of such customers are held by any fund managed by Bankers Trust or
any such affiliate.
Bankers Trust has agreed that if in any fiscal year the aggregate expenses of
any Fund (including fees pursuant to the Management Agreement, but excluding
interest, taxes, brokerage and, if permitted by the relevant state securities
commissions, extraordinary expenses) exceed the expense limitation of any state
having jurisdiction over a Fund, Bankers Trust will reimburse the Fund for the
excess expense to the extent required by state law.
Administrator and Transfer Agent
First Data, One Exchange Place, Boston, Massachusetts 02109, serves as
administrator of each Fund. As administrator, First Data is obligated on a
continuous basis to provide such administrative services as the Board of
Trustees of the Trust reasonably deems necessary for the proper administration
of each Fund. First Data will generally assist in all aspects of the Funds'
operations; supply and maintain office facilities (which may be in First Data's
own offices), statistical and research data, data processing services, clerical,
accounting, bookkeeping and recordkeeping services (including without limitation
the maintenance of such books and records as are required under the 1940 Act and
the rules thereunder, except as maintained by other agents), internal auditing,
executive and administrative services, and stationery and office supplies;
prepare reports to shareholders or investors; prepare and file tax returns;
supply financial information and supporting data for reports to and filings with
the SEC and various state Blue Sky authorities; supply supporting documentation
for meetings of the Board of Trustees; provide monitoring reports and assistance
regarding compliance with the Declaration of Trust; by-laws, investment
objectives and policies and with federal and state securities laws; arrange for
appropriate insurance coverage; calculate net asset values, net income and
realized capital gains or losses, and negotiate arrangements with, and supervise
and coordinate the activities of, agents and others to supply services.
Custodian and Transfer Agent
Bankers Trust, 130 Liberty Street (One Bankers Trust Plaza), New York, New
York 10006, serves as custodian for each Fund. As custodian, it holds the Funds'
assets. Bankers Trust will comply with the self-custodian provisions of Rule
17f-2 under the 1940 Act.
First Data serves as transfer agent of the Trust and of each Fund. Under its
transfer agency agreement with the Trust, First Data maintains the shareholder
account records for each Fund, handles certain communications between
shareholders and the Fund and causes to be distributed any dividends and
distributions payable by a Fund.
Bankers Trust and First Data may be reimbursed by the Funds for
out-of-pocket expenses.
Use of Name
The Trust and Bankers Trust have agreed that the Trust may use "BT" as part of
its name for so long as Bankers Trust serves as investment manager to the Funds.
The Trust has acknowledged that the term "BT" is used by and is a property right
of certain subsidiaries of Bankers Trust and that those subsidiaries and/or
Bankers Trust may at any time permit others to use that term.
The Trust may be required, on 60 days' notice from Bankers Trust at any time, to
abandon use of the acronym "BT" as part of its name. If this were to occur, the
Trustees would select an appropriate new name for the Trust, but there would be
no other material effect on the Trust, its shareholders or activities.
Banking Regulatory Matters
Bankers Trust has been advised by its counsel that in its opinion Bankers Trust
may perform the services for the Funds contemplated by the Management Agreements
and other activities for the Funds described in the Prospectuses and this SAI
without violation of the Glass-Steagall Act or other applicable banking laws or
regulations. However, counsel has pointed out that future changes in either
federal or state statutes and regulations concerning the permissible activities
of banks or trust companies, as well as future judicial or administrative
decisions or interpretations of present and future statutes and regulations,
might prevent Bankers Trust from continuing to perform those services for the
Funds. State laws on this issue may differ from the interpretations of relevant
federal law and banks and financial institutions may be required to register as
dealers pursuant to state securities law. If the circumstances described above
should change, the Board of Trustees would review the relationships with Bankers
Trust and consider taking all actions necessary in the circumstances.
Counsel and Independent Accountants
Willkie Farr & Gallagher, One Citicorp Center, 153 East 53rd Street, New York,
New York 10022-4669, serves as Counsel to the Trust and each Fund. Ernst & Young
LLP, 787 Seventh Avenue, New York, New York 10019, acts as independent
accountants of the Trust and each Fund.
ORGANIZATION OF THE TRUST
Shares of the Trust do not have cumulative voting rights, which means that
holders of more than 50% of the shares voting for the election of Trustees can
elect all Trustees. Shares are transferable but have no preemptive, conversion
or subscription rights. Shareholders generally vote by Fund, except with respect
to the election of Trustees and the ratification of the selection of independent
accountants.
Through its separate accounts the Companies are each Fund's sole stockholders of
record, so under the 1940 Act, the Companies are deemed to be in control of the
Funds. Nevertheless, when a shareholders' meeting occurs, each Company solicits
and accepts voting instructions from its Contractowners who have allocated or
transferred monies for an investment in a Fund as of the record date of the
meeting. Each Company then votes the Fund's shares that are attributable to its
Contractowners' interest in the Fund in proportion to the voting instructions
received. Each Company will vote any share that it is entitled to vote directly
due to amounts it has contributed or accumulated in its separate accounts in the
manner described in the offering memoranda for its variable annuities and
variable life insurance policies.
Massachusetts law provides that shareholders could under certain circumstances
be held personally liable for the obligations of the Trust. However, the Trust's
Declaration of Trust disclaims shareholder liability for acts or obligations of
the Trust and requires that notice of this disclaimer be given in each
agreement, obligation or instrument entered into or executed by the Trust or a
Trustee. The Declaration of Trust provides for indemnification from the Trust's
property for all losses and expenses of any shareholder held personally liable
for the obligations of the Trust. Thus, the risk of a shareholder's incurring
financial loss on account of shareholder liability is limited to circumstances
in which the Trust itself would be unable to meet its obligations, a possibility
that the Trust believes is remote. Upon payment of any liability incurred by the
Trust, the shareholder paying the liability will be entitled to reimbursement
from the general assets of the Trust. The Trustees intend to conduct the
operations of the Trust in a manner so as to avoid, as far as possible, ultimate
liability of the shareholders for liabilities of the Trust.
The Trust was organized on January 19, 1996.
TAXATION
Taxation of the Funds
It is the intention of the Trust that each Fund elect to be treated as a
regulated investment company and qualify annually under Subchapter M of the
Code.
As a regulated investment company, each Fund will not be subject to U.S. federal
income tax on its investment company taxable income and net capital gains (the
excess of net long-term capital gains over net short-term capital losses), if
any, that it distributes to its shareholders, that is, the Companies' separate
accounts. Each Fund intends to distribute to its shareholders, at least
annually, substantially all of its investment company taxable income and net
capital gains, and therefore, does not anticipate incurring a federal income tax
liability. The Code and Treasury Department regulations promulgated
thereunder require that mutual funds that are offered through insurance company
separate accounts must meet certain diversification requirements to preserve the
tax-deferred benefits provided by the variable contracts which are offered in
connection with such separate accounts. The Manager intends to diversify each
Fund's investments in accordance with those requirements. The offering memoranda
for each Company's variable annuities and variable life insurance policies
describe the federal income tax treatment of distributions from such contracts.
To comply with regulations under Section 817(h) of the Code, each Fund will be
required to diversify its investments so that on the last day of each calendar
quarter no more than 55% of the value of its assets is represented by any one
investment, no more than 70% is represented by any two investments, no more than
80% is represented by any three investments and no more than 90% is represented
by any four investments. Generally, all securities of the same issuer are
treated as a single investment. For the purposes of Section 817(h) of the Code,
obligations of the U.S. Treasury and each U.S. Government instrumentality are
treated as securities of separate issuers. The Treasury Department has indicated
that it may issue future pronouncements addressing the circumstances in which a
variable annuity contractowner's control of the investments of a separate
account may cause the variable contractowner, rather than the separate account's
sponsoring insurance company, to be treated as the owner of the assets held by
the separate account. If the variable annuity contractowner is considered the
owner of the securities underlying the separate account, income and gains
produced by those securities would be included currently in the variable annuity
contractowner's gross income. It is not known what standards will be set forth
in such pronouncements or when, if at all, these pronouncements may be issued.
In the event that rules or regulations are adopted, there can be no assurance
that a Fund will be able to operate as described currently in the Prospectus or
that the Fund will not have to change its investment policies or goals. The
foregoing is only a brief summary of important tax law provisions that affect
the Funds. Other federal, state or local tax law provisions may also affect the
Funds and their operations. Anyone who is considering allocating, transferring
or withdrawing monies held under a variable contract to or from a Fund should
consult a qualified tax adviser.
Distributions
All dividends and capital gains distributions paid by a Fund will be
automatically reinvested, at net asset value, by the Companies' separate
accounts in additional shares of the Fund. There is no fixed dividend rate, and
there can be no assurance that either Fund will pay any dividends or realize any
capital gains. However, each Fund currently intends to pay dividends and capital
gains distributions, if any, on an annual basis. The offering memorandum for a
Company's variable annuity or variable life insurance policies describes the
frequency of distributions to Contractowners and the federal income tax
treatment of distributions from such contracts to Contractowners.
Sale of Shares
Any gain or loss realized by a shareholder upon the sale or other disposition of
shares of the Fund, or upon receipt of a distribution in complete liquidation of
a Fund, generally will be a capital gain or loss which will be long-term or
short-term, generally depending upon the shareholder's holding period for the
shares. Any loss realized on a sale or exchange will be disallowed to the extent
the shares disposed of are replaced (including shares acquired pursuant to a
dividend reinvestment plan) within a period of 61 days beginning 30 days before
and ending 30 days after disposition of the shares. In such a case, the basis of
the shares acquired will be adjusted to reflect the disallowed loss. Any loss
realized by a shareholder on a disposition of Fund shares held by the
shareholder for six months or less will be treated as a long-term capital loss
to the extent of any distributions of net capital gains received by the
shareholder with respect to such shares. Shareholders will be notified
annually as to the U.S. federal tax status of distributions.
Foreign Withholding Taxes
Income received by a Fund from sources within foreign countries may be subject
to withholding and other taxes imposed by such countries.
Backup Withholding
A Fund may be required to withhold U.S. federal income tax at the rate of 31% of
all taxable distributions payable to shareholders who fail to provide the Fund
with their correct taxpayer identification number or to make required
certifications, or who have been notified by the Internal Revenue Service that
they are subject to backup withholding. Corporate shareholders and certain other
shareholders specified in the Code generally are exempt from such backup
withholding. Backup withholding is not an additional tax. Any amounts withheld
may be credited against the shareholder's U.S. federal income tax liability.
Foreign Shareholders
The tax consequences to a foreign shareholder of an investment in a Fund may be
different from those described herein. Foreign shareholders are advised to
consult their own tax advisers with respect to the particular tax consequences
to them of an investment in a Fund.
Other Taxation
The Trust is organized as a Massachusetts business trust and, under current law,
neither the Trust nor any Fund is liable for any income or franchise tax in the
Commonwealth of Massachusetts, provided that the Fund continues to qualify as a
regulated investment company under Subchapter M of the Code.
Fund shareholders may be subject to state and local taxes on their Fund
distributions. Shareholders are advised to consult their own tax advisers with
respect to the particular tax consequences to them of an investment in a Fund.
<PAGE>
BT INSURANCE FUNDS TRUST
Small Cap Fund
International Equity Fund
Investment Manager of each Fund
Bankers Trust Global Investment Management
a unit of
Bankers Trust Company
130 Liberty Street
(One Bankers Trust Plaza)
New York, NY 10006
Distributor
First Data Distributors, Inc.
4400 Computer Drive
Westborough, MA 01581
Custodian
Bankers Trust Company STATEMENT OF 130 Liberty Street ADDITIONAL INFORMATION
(One Bankers Trust Plaza) AUGUST 20, 1997 New York, NY 10017
Administrator and Transfer Agent
First Data Investor Services Group, Inc.
Exchange Place
Boston, MA 02109
Independent Accountants
Ernst & Young LLP
787 Seventh Avenue
New York, NY 10019
Legal Counsel
Willkie Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, NY 10022-4669
<PAGE>
BT INSURANCE FUND TRUST
SMALL CAP INDEX FUND
PROSPECTUS
AUGUST 20, 1997
This Prospectus offers shares of the Small Cap Index Fund (the "Fund"), a series
of BT Insurance Funds Trust (the "Trust"), which is an open-end management
investment company currently having six series. Shares of the Fund are available
to the public only through the purchase of certain variable annuity and variable
life insurance contracts ("Contract(s)") issued by various insurance companies
(the "Companies").
The Fund seeks to replicate as closely as possible the performance of the
Russell 2000 Index before the deduction of Fund expenses (the "Expenses"). There
is no assurance, however, that the Fund will achieve its stated objective.
Bankers Trust Company ("Bankers Trust") is the investment manager (the
"Manager") of the Fund.
Please read this Prospectus carefully before investing and retain it for future
reference. It contains important information about the Fund that you should know
and can refer to in deciding whether the Fund's goals match your own.
A Statement of Additional Information ("SAI") with the same date has been
filed with the Securities and Exchange Commission ("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
offering memorandum.
Fund shares are not deposits or obligations of, or guaranteed by, Bankers Trust
or any depository institution. Shares are not insured by the Federal Deposit
Insurance Corporation, the Federal Reserve Board or any other agency.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
BANKERS TRUST GLOBAL INVESTMENT MANAGEMENT,
a unit of BANKERS TRUST COMPANY
Investment Manager of the Fund
FIRST DATA DISTRIBUTORS, INC.
Distributor
4400 Computer Drive
Westborough, MA 01581
<PAGE>
TABLE OF CONTENTS
Page
THE FUND.............................................. 3
Who May Want to Invest
Investment Principles and Risks
THE FUND IN DETAIL.................................... 4
Investment Objectives and Policies
Risk Factors and Certain Securities and Investment
Practices
Net Asset Value
Performance Information and Reports
Management of the Trust
SHAREHOLDER AND ACCOUNT POLICIES...................... 13
Purchase and Redemption of Shares
Dividends, Distributions and Taxes
<PAGE>
THE FUND
The Fund seeks to replicate as closely as possible (before deduction of
Expenses) the total return of the Russell 2000 Small Stock Index (the "Russell
2000"), an index consisting of 2,000 small-capitalization common stocks. The
Fund will include the common stock of companies included in the Russell 2000, on
the basis of computer-generated statistical data, that are deemed representative
of the industry diversification of the entire Russell 2000.
WHO MAY WANT TO INVEST
Shares of the Fund are available to the public only through the purchase of
Contracts issued by the Companies.
The Fund is not managed according to traditional methods of "active" investment
management, which involve the buying and selling of securities based upon
economic, financial and market analysis and investment judgment. Instead, the
Fund utilizes a "passive" or "indexing" investment approach and attempts to
replicate the investment performance of the Russell 2000 through statistical
procedures.
The Fund may be appropriate for investors who are willing to endure stock market
fluctuations in pursuit of potentially higher long-term returns. The Fund
invests for growth and does not pursue income as a primary objective. Over time,
stocks, although more volatile, have shown greater growth potential than other
types of securities. In the shorter term, however, stock prices can fluctuate
dramatically in response to market factors.
The Fund is intended to be a long-term investment vehicle and is not designated
to provide investors with a means of speculating on short-term market movements.
The Fund is not in itself a balanced investment plan. Investors should consider
their investment objective and tolerance for risk when making an investment
decision. When an investor sells his or her Fund shares, they may be worth more
or less than what the investor paid for them.
INVESTMENT PRINCIPLES AND RISKS
The value of the Fund's investments varies based on many factors. Stock values
fluctuate, sometimes dramatically, in response to the activities of individual
companies and general market and economic conditions. Over time, however, stocks
have shown greater long-term growth potential than other types of securities.
Lower quality securities offer higher yields, but also carry more risk.
General economic factors in the various world markets can also impact the value
of an investor's investment. When investors sell Fund shares, they may be worth
more or less than what the investors paid for them. See "Risk Factors and
Certain Securities and Investment Practices" for more information.
<PAGE>
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 objectives of the Fund will be achieved.
The Fund seeks to replicate as closely as possible (before deduction of Fund
expenses) the total return of the Russell 2000. The Russell 2000 is composed of
approximately 2,000 small-capitalization common stocks. A company's stock market
capitalization is the total market value of its floating outstanding shares. As
of June 30, 1997, the average stock market capitalization of the Russell 2000
was $500 million and the weighted average stock market capitalization of the
Russell 2000 was $650 million. The Fund is neither sponsored by nor
affiliated with the Frank Russell Company. Frank Russell's only relationship to
the Fund is the licensing of the use of the Russell 2000. Frank Russell Company
is the owner of the trademarks and copyrights relating to the Russell indices.
The Fund invests in a statistically selected sample of the 2,000 stocks included
in the Russell 2000. The stocks of the Russell 2000 to be included in the Fund
will be selected utilizing a statistical sampling technique known as
"optimization." This process selects stocks for the Fund so that various
industry weightings, market capitalizations and fundamental characteristics
(e.g., price-to-book, price-to-earnings and debt-to-asset ratios and dividend
yields) closely approximate those of the Russell 2000. For instance, if 10% of
the capitalization of the Russell 2000 consists of utility companies with
relatively small capitalizations, then the Fund is constructed so that
approximately 10% of the Fund's assets are invested in the stocks of utility
companies with relatively small capitalizations. The stocks held by the Fund are
weighted to make the Fund's aggregate investment characteristics similar to
those of the Russell 2000 as a whole.
General
Over time, the correlation between the performance of the Fund and the Russell
2000 is expected to be 0.95 or higher before deduction of Fund expenses. A
correlation of 1.00 would indicate perfect correlation, which would be achieved
when the net asset value of the Fund, including the value of its dividend and
any capital gain distributions, increases or decreases in exact proportion to
changes in the Russell 2000. The Fund's ability to track the Russell 2000 may be
affected by, among other things, transaction costs, administration and other
expenses incurred by the Fund, changes in either the composition of the Russell
2000 or the assets of the Fund, and the timing and amount of Fund investor
contributions and withdrawals, if any. In the unlikely event that a high
correlation is not achieved, the Trust's Board of Trustees will consider
alternatives. Because the Fund seeks to track the Russell 2000, Bankers Trust
generally will not attempt to judge the merits of any particular stock as an
investment. Under normal circumstances, the Fund will invest at least 80%
of its assets in the securities of the Russell 2000.
As a diversified fund, no more than 5% of the assets of the Fund may be invested
in the securities of one issuer (other than U.S. Government Securities), except
that up to 25% of the Fund's assets may be invested without regard to this
limitation. The Fund will not invest more than 25% of its assets in the
securities of issuers in any one industry. In the unlikely event that the
Russell 2000 should concentrate to an extent greater than that amount, the
Fund's ability to achieve its objective may be impaired. These are fundamental
investment policies of the Fund which may not be changed without shareholder
approval. No more than 15% of the Fund's net assets may be invested in illiquid
or not readily marketable securities (including repurchase agreements and time
deposits with maturities of more than seven days). Additional investment
policies of the Fund are contained in the SAI.
The Fund may maintain up to 25% of its assets in short-term debt securities and
money market instruments to meet redemption requests or to facilitate investment
in the securities of the Russell 2000. Securities index futures contracts and
related options, warrants and convertible securities may be used for several
reasons: to simulate full investment in the Russell 2000 while retaining a cash
balance for fund management purposes, to facilitate trading, to reduce
transaction costs or to seek higher investment returns when a futures contract,
option, warrant or convertible security is priced more attractively than the
underlying equity security or the Russell 2000. These instruments may be
considered derivatives. See "Risk Factors and Certain Securities and Investment
Practices -- Derivatives."
The use of derivatives for non-hedging purposes may be considered speculative.
While each of these securities can be used as leveraged investments, the Fund
may not use them to leverage its net assets. The Fund will not invest in such
instruments as part of a temporary defensive strategy (in anticipation of
declining stock prices) to protect the Fund against potential market declines.
The Fund may lend its investment securities and purchase securities on a
when-issued and a delayed delivery basis. See "Risk Factors and Certain
Securities and Investment Practices" for more information about the investment
practices of the Fund.
RISK FACTORS AND CERTAIN SECURITIES AND INVESTMENT PRACTICES
The following pages contain more detailed information about types of instruments
in which the Fund may invest and strategies Bankers Trust may employ in pursuit
of the Fund's investment objective. A summary of risks and restrictions
associated with these instrument types and investment practices is included as
well.
Bankers Trust may not buy all of these instruments or use all of these
techniques to the full extent permitted unless it believes that doing so will
help the Fund achieve its goal. Holdings and recent investment strategies are
described in the financial reports of the Fund, which are sent to Fund
shareholders on a semi-annual and annual basis.
Market Risk
As a mutual fund investing primarily in common stocks, the Fund is subject to
market risk --- i.e., the possibility that common stock prices will decline over
short or even extended periods. The U.S. stock market tends to be cyclical, with
periods when stock prices generally rise and periods when prices generally
decline.
Risks of Investing in Medium- and Small-Capitalization Stocks
Historically, medium- and small-capitalization stocks have been more volatile in
price than the larger-capitalization stocks included in the Standard & Poor's
500 Composite Stock Price Index. Among the reasons for the greater price
volatility of these securities are: the less certain growth prospects of smaller
firms, the lower degree of liquidity in the markets for such stocks, and the
greater sensitivity of medium- and small-size companies to changing economic
conditions. In addition to exhibiting greater volatility, medium- and small-size
company stocks may fluctuate independently of larger company stocks. Medium- and
small-size company stocks may decline in price as large company stocks rise, or
rise in price as large company stocks decline.
The Fund's investment objective is not a fundamental policy and may be changed
upon notice to, but without the approval of, the Fund's shareholders. If there
is a change in the Fund's investment objective, the Fund's shareholders should
consider whether the Fund remains an appropriate investment in light of their
then-current needs. Shareholders of the Fund will receive 30 days prior written
notice with respect to any change in the investment objective of the Fund. See
"Risk Factors and Certain Securities and Investment Practices" in the SAI for a
description of the fundamental policies of the Fund that cannot be changed
without approval by "the vote of a majority of the outstanding voting
securities" (as defined in the Investment Company Act of 1940, as amended (the
"1940 Act")) of the Fund.
For descriptions of the investment objectives, policies and restrictions of the
Fund, see "The Fund in Detail" herein and "Risk Factors and Certain Securities
and Investment Practices" herein and in the SAI. For descriptions of the
management and expenses of the Fund, see "Management of the Trust" herein and in
the SAI.
Short-Term Investments. The Fund may invest in certain short-term fixed income
securities. Such securities may be used to invest uncommitted cash balances, to
maintain liquidity to meet shareholder redemptions or to serve as collateral for
the obligations underlying the Fund's investment in securities index futures or
related options or warrants. These securities include: obligations issued or
guaranteed by the U.S. Government or any of its agencies or instrumentalities or
by any of the states, repurchase agreements, time deposits, certificates of
deposit, bankers' acceptances and commercial paper.
U.S. Government Securities are obligations of, or guaranteed by, the U.S.
Government, its agencies or instrumentalities. Some U.S. Government securities,
such as Treasury bills, notes and bonds, are supported by the full faith and
credit of the United States; others, such as those of the Federal Home Loan
Banks, are supported by the right of the issuer to borrow from the Treasury;
others, such as those of the Federal National Mortgage Association, are
supported by the discretionary authority of the U.S. Government to purchase the
agency's obligations; and still others, such as those of the Student Loan
Marketing Association, are supported only by the credit of the instrumentality.
Securities Lending. The Fund may lend its investment securities to qualified
institutional investors for either short-term or long-term purposes of realizing
additional income. Loans of securities by the Fund will be collateralized by
cash, letters of credit, or securities issued or guaranteed by the U.S.
Government or its agencies. The collateral will equal at least 100% of the
current market value of the loaned securities, and such loans may not exceed 30%
of the value of the Fund's net assets. The risks in lending portfolio
securities, as with other extensions of credit, consist of possible loss of
rights in the collateral should the borrower fail financially. In determining
whether to lend securities, Bankers Trust will consider all relevant facts and
circumstances, including the creditworthiness of the borrower.
When Issued and Delayed Delivery Securities. The Fund may purchase securities on
a when-issued or delayed delivery basis. Delivery of and payment for these
securities may take place as long as a month or more after the date of the
purchase commitment. The value of these securities is subject to market
fluctuation during this period and no income accrues to the Fund until
settlement takes place. The Fund maintains with its custodian a segregated
account containing cash or liquid portfolio securities in an amount at least
equal to these commitments.
Derivatives
The Fund may invest in various instruments that are commonly known as
"derivatives." Generally, a derivative is a financial arrangement, the value of
which is based on, or "derived" from, a traditional security, asset, or market
index. Some derivatives such as mortgage-related and other asset-backed
securities are in many respects like any other investment, although they may be
more volatile or less liquid than more traditional debt securities. There are,
in fact, many different types of derivatives and many different ways to use
them. There are a range of risks associated with those uses. Futures and options
are commonly used for traditional hedging purposes to attempt to protect the
Fund from exposure to changing interest rates, securities prices or currency
exchange rates and as a low cost method of gaining exposure to a particular
securities market without investing directly in those securities. Bankers Trust
will only use derivatives for cash management purposes. Derivatives will not be
used to increase portfolio risk above the level that would be achieved using
only traditional investment securities or to acquire exposure to changes in the
value of assets or indices that by themselves would not be purchased for the
Fund. Securities Index Futures and Related Options. The Fund may enter into
securities index futures contracts and related options provided that not more
than 5% of its assets are required as a margin deposit for futures contracts or
options and provided that not more than 20% of the Fund's assets are invested in
futures and options at any time. When the Fund has cash from new investments in
the Fund or holds a portion of its assets in money market instruments, it may
enter into index futures or options to attempt to increase its exposure to the
market. Strategies the Fund could use to accomplish this include purchasing
futures contracts, writing put options and purchasing call options. When the
Fund wishes to sell securities, because of shareholder redemptions or otherwise,
it may use index futures or options to hedge against market risk until the sale
can be completed. These strategies could include selling futures contracts,
writing call options and purchasing put options.
Warrants. Warrants are instruments which entitle the holder to buy underlying
equity securities at a specific price for a specific period of time. A warrant
tends to be more volatile than its underlying securities and ceases to have
value if it is not exercised prior to its expiration date. In addition, changes
in the value of a warrant do not necessarily correspond to changes in the value
of its underlying securities.
Convertible Securities. The Fund may invest in convertible securities which are
a bond or preferred stock which may be converted at a stated price within a
specific period of time into a specified number of shares of common stock of the
same or different issuer. Convertible securities are senior to common stock in a
corporation's capital structure, but usually are subordinated to non-convertible
debt securities. While providing a fixed income stream -- generally higher in
yield than the income derived from a common stock but lower than that afforded
by a non-convertible debt security -- a convertible security also affords an
investor the opportunity, through its conversion feature, to participate in the
capital appreciation of common stock into which it is convertible.
In general, the market value of a convertible security is the higher of its
investment value (its value as a fixed income security) or its conversion value
(the value of the underlying shares of common stock if the security is
converted). As a fixed income security, the market value of a convertible
security generally increases when interest rates decline and generally decreases
when interest rates rise; however, the price of a convertible security generally
increases as the market value of the underlying stock increases, and generally
decreases as the market value of the underlying stock declines. Investments in
convertible securities generally entail less risk than investments in the common
stock of the same issuer.
Further risks associated with the use of futures contracts, options, warrants
and convertible securities. The risk of loss associated with futures contracts
in some strategies can be substantial due to both the low margin deposits
required and the extremely high degree of leverage involved in futures pricing.
As a result, a relatively small price movement in a futures contract may result
in an immediate and substantial loss or gain. However, the Fund will not use
futures contracts, options, warrants and convertible securities for speculative
purposes or to leverage their net assets. Accordingly, the primary risks
associated with the use of futures contracts, options, warrants and convertible
securities by the Fund are: (i) imperfect correlation between the change in
market value of the securities held by the Fund and the prices of futures
contracts, options, warrants and convertible securities; and (ii) possible lack
of a liquid secondary market for a futures contract and the resulting inability
to close a futures position prior to its maturity date. The risk of imperfect
correlation will be minimized by investing only in those contracts whose
behavior is expected to resemble that of the Fund's underlying securities. The
risk that the Fund will be unable to close out a futures position will be
minimized by entering into stock transactions on an exchange with an active and
liquid secondary market. However, options, warrants and convertible securities
purchased or sold over-the-counter may be less liquid than exchange-traded
securities. Illiquid securities, in general, may not represent more than 15% of
the net assets of the Fund.
Asset Coverage. To assure that futures and related options, as well as
when-issued and delayed-delivery securities, are not used by the Fund to achieve
excessive investment leverage, the Fund will cover such transactions, as
required under applicable interpretations of the Securities and Exchange
Commission, 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%.
<PAGE>
NET ASSET VALUE
The Fund is open for business each day the New York Stock Exchange ("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, Martin Luther King Day,
Presidents' Day (the third Monday in February), Good Friday, Memorial Day (the
last Monday in May), July 4th, Labor Day (the first Monday in September),
Thanksgiving Day (the last Thursday in November) and December 25th; and (b) the
preceding Friday or the subsequent Monday when one of the calendar-determined
holidays falls on a Saturday or Sunday, respectively.
The net asset value per share of the Fund is calculated once on each Valuation
Day as of the close of regular trading on the NYSE, which under normal
circumstances is 4:00 p.m., New York time. The net asset value per share of the
Fund is computed by dividing the value of the Fund's assets, less all
liabilities, by the total number of its shares outstanding. The Fund's
securities and other assets are valued primarily on the basis of market
quotations or, if quotations are not readily available, by a method which the
Fund's Board of Trustees believes accurately reflects fair value.
PERFORMANCE INFORMATION AND REPORTS
The Fund's performance may be used from time to time in advertisements,
shareholder reports or other communications to existing or prospective owners of
the Companies' variable contracts. When performance information is provided in
advertisements, it will include the effect of all charges deducted under the
terms of the specified contract, as well as all recurring and non-recurring
charges incurred by the Fund. Performance information may include the Fund's
investment results and/or comparisons of its investment results to the Lipper
International Average or other various unmanaged indices or results of other
mutual funds or investment or savings vehicles. The Fund's investment results as
used in such communications will be calculated on a total rate of return basis
in the manner set forth below. From time to time, fund rankings may be quoted
from various sources, such as Lipper Analytical Services, Inc., Value Line and
Morningstar Inc.
The Trust may provide period and average annualized "total return" quotations
for the Fund. The Fund's "total return" refers to the change in the value of an
investment in the Fund over a stated period based on any change in net asset
value per share and including the value of any shares purchasable with any
dividends or capital gains distributed during such period. Period total return
may be annualized. An annualized total return is a compounded total return which
assumes that the period total return is generated over a one-year period, and
that all dividends and capital gain distributions are reinvested. An annualized
total return will be higher than a period total return if the period is shorter
than one year, because of the compounding effect.
Unlike some bank deposits or other investments which pay a fixed yield for a
stated period of time, the total return of the Fund will vary depending upon
interest rates, the current market value of the securities held by the Fund and
changes in the Fund's expenses. In addition, during certain periods for which
total return quotations may be provided, Bankers Trust and/or the Trust's other
service providers may have voluntarily agreed to waive portions of their
respective fees, or reimburse certain operating expenses of the Fund, on a
month-to-month basis. Such waivers will have the effect of increasing the Fund's
net income (and therefore its total return) during the period such waivers are
in effect.
Total returns are based on past results and are not an indication of future
performance. Shareholders will receive unaudited financial reports
semi-annually that include the Fund's financial statements, including listings
of investment securities held by the Fund at those dates. Annual reports
are audited by independent accountants.
MANAGEMENT OF THE TRUST
Board of Trustees
The affairs of the Fund are managed under the supervision of the Board of
Trustees of the Trust, of which the Fund is a series. By virtue of the
responsibilities assumed by Bankers Trust, neither the Trust nor the Fund
require employees other than the Trust's officers. None of the Trust's officers
devotes full time to the affairs of the Trust or the Fund.
For more information with respect to the Trustees of the Trust, see "Management
of the Trust" in the Statement of Additional Information.
Investment Manager
The Fund has retained the services of Bankers Trust Global Investment
Management, a unit of Bankers Trust, as investment manager. Bankers Trust, a New
York banking corporation with executive offices at 130 Liberty Street (One
Bankers Trust Plaza), 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 wholesaler 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 $129
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 80 offices in more than 50 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
$240 billion in assets under management globally. 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 0.35% of
the average daily net assets of the Fund for its then-current fiscal year.
Bankers Trust has been advised by its counsel that, in counsel's opinion,
Bankers Trust currently may perform the services for the Trust and the Fund
described in this Prospectus and the SAI without violation of the Glass-Steagall
Act or other applicable banking laws or regulations. State laws on this issue
may differ from the interpretations of relevant Federal law, and banks and
financial institutions may be required to register as dealers pursuant to state
securities law.
Fund Manager
Frank Salerno, Managing Director of Bankers Trust, is responsible for the
day-to-day management of the Fund. Mr. Salerno oversees administration,
management and trading of international and domestic equity index strategies. He
has been employed by Bankers Trust since 1981.
Expenses
In addition to the fees of Bankers Trust, 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. ("Investor Services Group"), 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,
Investor Services Group 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, the Trust has agreed to pay Investor Services Group 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 $5 billion; and
0.0075% of the Trust's monthly average net assets exceeding $5 billion, in
addition to a flat fee of $70,000 per year for each portfolio of the Trust and a
one-time start-up fee for each portfolio of the Trust.
<PAGE>
Distributor
First Data Distributors, Inc. (the "Distributor") serves as distributor of the
Fund's shares to separate accounts of the Companies, for which it receives no
separate fee from the Fund. The principal business address of the Distributor is
4400 Computer Drive, Westborough, Massachusetts 01581.
Custodian and Transfer Agent
Bankers Trust acts as custodian of the assets of the Fund and Investor Services
Group 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. Federal income tax on
its investment company taxable income and net capital gains (the excess of net
long-term capital gains over net short-term capital losses), if any, that it
distributes to shareholders. The Fund intends to distribute to its shareholders,
at least annually, substantially all of its investment company taxable income
and net capital gains, and therefore does not anticipate incurring a Federal
income tax liability. The Code and Treasury Department regulations
promulgated thereunder require that mutual funds that are offered through
insurance company separate accounts must meet certain diversification
requirements to preserve the tax-deferral benefits provided by the variable
contracts which are offered in connection with such separate accounts. Bankers
Trust intends to diversify the Fund's investments in accordance with those
requirements. The enclosed offering memorandum for a Company's variable annuity
or variable life insurance policies describes the federal income tax treatment
of distributions from such contracts to Contractowners. The foregoing is
only a brief summary of important tax law provisions that affect the Fund. Other
Federal, state or local tax law provisions may also affect the Fund and its
operations. Anyone who is considering allocating, transferring or withdrawing
monies held under a variable contract to or from the Fund should consult a
qualified tax adviser.
<PAGE>
99
G:\SHARED\BANKERS\SAI\619SMCP.DOC
Investment Manager of the Fund
BANKERS TRUST GLOBAL INVESTMENT MANAGEMENT
a unit of
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 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.
........................................................
<PAGE>
STATEMENT OF
ADDITIONAL INFORMATION
BT INSURANCE FUNDS TRUST
SMALL CAP INDEX FUND
AUGUST 20, 1997
BT Insurance Funds Trust (the "Trust") is currently comprised of six
series: the Small Cap Index Fund (the "Fund") and five other series. The shares
of the Fund are described herein. Capitalized terms not otherwise defined herein
shall have the same meaning as in the Prospectus.
Table of Contents
Risk Factors and Certain Securities and Investment Practices...... 2
Performance Information........................................... 12
Valuation of Securities; Redemption in Kind....................... 13
Management of the Trust........................................... 14
Organization of the Trust......................................... 17
Taxation.......................................................... 18
Shares of the Fund are available to the public only through the purchase of
certain variable annuity and variable life insurance contracts ("Contract(s)")
issued by various insurance companies (the "Companies"). The investment adviser
of the Fund is Bankers Trust Global Investment Management, a unit of Bankers
Trust Company (the "Manager" or "Bankers Trust"). The distributor of the Fund
shares is First Data Distributors, Inc. (the "Distributor" or "First Data
Distributors").
The Prospectus for the Fund is dated August 20, 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 GLOBAL INVESTMENT MANAGEMENT, a unit of BANKERS TRUST COMPANY
Investment Manager of the Fund
The Trust's distributor is FIRST DATA DISTRIBUTORS, INC., 4400 Computer Drive,
Westborough, MA 01581.
<PAGE>
RISK FACTORS AND CERTAIN SECURITIES AND INVESTMENT PRACTICES
Investment Objective
The investment objective of the Fund is described in the Fund's
Prospectus. There can, of course, be no assurance that the Fund will achieve its
investment objective.
Investment Practices
The following is a discussion of the various investments of and
techniques employed by the Fund:
Certificates of Deposit and Bankers' Acceptances. Certificates of
deposit are receipts issued by a depository institution in exchange for the
deposit of funds. The issuer agrees to pay the amount deposited plus interest to
the bearer of the receipt on the date specified on the certificate. The
certificate usually can be traded in the secondary market prior to maturity.
Bankers' acceptances typically arise from short-term credit arrangements
designed to enable businesses to obtain funds to finance commercial
transactions. Generally, an acceptance is a time draft drawn on a bank by an
exporter or an importer to obtain a stated amount of funds to pay for specific
merchandise. The draft is then "accepted" by a bank that, in effect,
unconditionally guarantees to pay the face value of the instrument on its
maturity date. The acceptance may then be held by the accepting bank as an
earning asset or it may be sold in the secondary market at the going rate of
discount for a specific maturity. Although maturities for acceptances can be as
long as 270 days, most acceptances have maturities of six months or less.
Commercial Paper. Commercial paper consists of short-term (usually from
1 to 270 days) unsecured promissory notes issued by corporations in order to
finance their current operations. A variable amount master demand note (which is
a type of commercial paper) represents a direct borrowing arrangement involving
periodically fluctuating rates of interest under a letter agreement between a
commercial paper issuer and an institutional lender pursuant to which the lender
may determine to invest varying amounts.
Illiquid Securities. Historically, illiquid securities have included
securities subject to contractual or legal restrictions on resale because they
have not been registered under the Securities Act of 1933, as amended (the "1933
Act"), securities which are otherwise not readily marketable and repurchase
agreements having a maturity of longer than seven days. Securities which have
not been registered under the 1933 Act are referred to as private placements or
restricted securities and are purchased directly from the issuer or in the
secondary market. Mutual funds do not typically hold a significant amount of
these restricted or other illiquid securities because of the potential for
delays on resale and uncertainty in valuation. Limitations on resale may have an
adverse effect on the marketability of portfolio securities and a mutual fund
might be unable to dispose of restricted or other illiquid securities promptly
or at reasonable prices and might thereby experience difficulty satisfying
redemptions within seven days. A mutual fund might also have to register such
restricted securities in order to dispose of them resulting in additional
expense and delay. Adverse market conditions could impede such a public offering
of securities.
In recent years, however, a large institutional market has developed
for certain securities that are not registered under the 1933 Act, including
repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be readily
resold or on an issuer's ability to honor a demand for repayment. The fact that
there are contractual or legal restrictions on resale of such investments to the
general public or to certain institutions may not be indicative of their
liquidity.
The Securities and Exchange Commission (the "SEC") has adopted Rule
144A, which allows a broader institutional trading market for securities
otherwise subject to restriction on their resale to the general public. Rule
144A establishes a "safe harbor" from the registration requirements of the 1933
Act of resales of certain securities to qualified institutional buyers. The
Manager anticipates that the market for certain restricted securities such as
institutional commercial paper will expand further as a result of this
regulation and the development of automated systems for the trading, clearance
and settlement of unregistered securities of domestic and foreign issuers, such
as the PORTAL System sponsored by the National Association of Securities
Dealers, Inc.
The Manager will monitor the liquidity of Rule 144A securities in the
Fund's portfolio under the supervision of the Trust's Board of Trustees. In
reaching liquidity decisions, the Manager will consider, among other things, the
following factors: (i) the frequency of trades and quotes for the security; (ii)
the number of dealers and other potential purchasers wishing to purchase or sell
the security; (iii) dealer undertakings to make a market in the security and
(iv) the nature of the security and of the marketplace trades (e.g., the time
needed to dispose of the security, the method of soliciting offers and the
mechanics of the transfer).
Lending of Portfolio Securities. The Fund has the authority to lend
portfolio securities to brokers, dealers and other financial organizations. The
Fund will not lend securities to Bankers Trust, the Distributor or their
affiliates. By lending its securities, the Fund can increase its income by
continuing to receive interest on the loaned securities as well as by either
investing the cash collateral in short-term securities or obtaining yield in the
form of interest paid by the borrower when U.S. Government obligations are used
as collateral. There may be risks of delay in receiving additional collateral or
risks of delay in recovery of the securities or even loss of rights in the
collateral should the borrower of the securities fail financially. The Fund will
adhere to the following conditions whenever its securities are loaned: (i) the
Fund must receive at least 100 percent cash collateral or equivalent securities
from the borrower; (ii) the borrower must increase this collateral whenever the
market value of the securities including accrued interest rises above the level
of the collateral; (iii) the Fund must be able to terminate the loan at any
time; (iv) the Fund must receive reasonable interest on the loan, as well as any
dividends, interest or other distributions on the loaned securities, and any
increase in market value; (v) the Fund may pay only reasonable custodian fees in
connection with the loan; and (vi) voting rights on the loaned securities may
pass to the borrower; provided, however, that if a material event adversely
affecting the investment occurs, the Trust's Board of Trustees must terminate
the loan and regain the right to vote the securities.
Short-Term Instruments. When the Fund experiences large cash inflows
through the sale of securities and desirable equity securities, that are
consistent with the Fund's investment objective, which are unavailable in
sufficient quantities or at attractive prices, the Fund may hold short-term
investments for a limited time pending availability of such equity securities.
Short-term instruments consist of: (i) short-term obligations issued or
guaranteed by the U.S. government or any of its agencies or instrumentalities or
by any of the states; (ii) other short-term debt securities rated AA or higher
by S&P or Aa or higher by Moody's or, if unrated, of comparable quality in the
opinion of Bankers Trust; (iii) commercial paper; (iv) bank obligations,
including negotiable certificates of deposit, time deposits and bankers'
acceptances; and (v) repurchase agreements. At the time the Fund invests in
commercial paper, bank obligations or repurchase agreements, the issuer of the
issuer's parent must have outstanding debt rated AA or higher by S&P or Aa or
higher by Moody's or outstanding commercial paper or bank obligations rated A-1
by S&P or Prime-1 by Moody's; or, if no such ratings are available, the
instrument must be of comparable quality in the opinion of Bankers Trust.
When-Issued and Delayed Delivery Securities. The Fund may purchase
securities on a when-issued or delayed delivery basis. For example, delivery of
and payment for these securities can take place a month or more after the date
of the purchase commitment. The purchase price and the interest rate payable, if
any, on the securities are fixed on the purchase commitment date or at the time
the settlement date is fixed. The value of such securities is subject to market
fluctuation and no interest accrues to the Fund until settlement takes place. At
the time the Fund makes the commitment to purchase securities on a when-issued
or delayed delivery basis, it will record the transaction, reflect the value
each day of such securities in determining its net asset value and, if
applicable, calculate the maturity for the purposes of average maturity from
that date. At the time of settlement a when-issued security may be valued at
less than the purchase price. To facilitate such acquisitions, the Fund will
maintain with the Fund's custodian a segregated account with liquid assets,
consisting of cash, U.S. Government securities or other appropriate securities,
in an amount at least equal to such commitments. On delivery dates for such
transactions, the Fund will meet its obligations from maturities or sales of the
securities held in the segregated account and/or from cash flow. If the Fund
chooses to dispose of the right to acquire a when-issued security prior to its
acquisition, it could, as with the disposition of any other Fund obligation,
incur a gain or loss due to market fluctuation. It is the current policy of the
Fund not to enter into when-issued commitments exceeding in the aggregate 15% of
the market value of the Fund's total assets, less liabilities other than the
obligations created by when-issued commitments.
Additional U.S. Government Obligations. The Fund may invest in
obligations issued or guaranteed by U.S. Government agencies or
instrumentalities. These obligations may or may not be backed by the "full faith
and credit" of the United States. In the case of securities not backed by the
full faith and credit of the United States, the Fund must look principally to
the federal agency issuing or guaranteeing the obligation for ultimate
repayment, and may not be able to assert a claim against the United States
itself in the event the agency or instrumentality does not meet its commitments.
Securities in which the Fund may invest that are not backed by the full faith
and credit of the United States include, but are not limited to, obligations of
the Tennessee Valley Authority, the Federal Home Loan Mortgage Corporation and
the U.S. Postal Service, each of which has the right to borrow from the U.S.
Treasury to meet its obligations, and obligations of the Federal Farm Credit
System and the Federal Home Loan Banks, both of whose obligations may be
satisfied only by the individual credits of each issuing agency. Securities
which are backed by the full faith and credit of the United States include
obligations of the Government National Mortgage Association, the Farmers Home
Administration, and the export-import Bank.
Equity Investments. The Fund may invest in equity securities listed on
any domestic securities exchange or traded in the over-the-counter market as
well as certain restricted or unlisted securities. They may or may not pay
dividends or carry voting rights. Common stock occupies the most junior position
in a company's capital structure.
Reverse Repurchase Agreements. The Fund may borrow funds for temporary
or emergency purposes, such as meeting larger than anticipated redemption
requests, and not for leverage, by among other things, agreeing to sell
portfolio securities to financial institutions such as banks and broker-dealers
and to repurchase them at a mutually agreed date and price (a "reverse
repurchase agreement"). At the time the Fund enters into a reverse repurchase
agreement it will place in a segregated custodial cash account, U.S. Government
Obligations or high-grade debt obligations having a value equal to the
repurchase price, including accrued interest. Reverse repurchase agreements
involve the risk that the market value of the securities sold by the Fund may
decline below the repurchase price of those securities. Reverse repurchase
agreements are considered to be borrowings by the Fund.
Warrants. Warrants entitle the holder to buy common stock from the
issuer at a specific price (the strike price) for a specific period of time. The
strike price of warrants sometimes is much lower than the current market price
of the underlying securities, yet warrants are subject to similar price
fluctuations. As a result, warrants may be more volatile investments than the
underlying securities.
Warrants do not entitle the holder to dividends or voting rights with
respect to the underlying securities and do not represent any rights in the
assets of the issuing company. Also, the value of the warrant does not
necessarily change with the value of the underlying securities and a warrant
ceases to have value if it is not exercised prior to the expiration date.
Convertible Securities. Convertible securities may be a debt security
or preferred stock which may be converted into common stock or carries the right
to purchase common stock. Convertible securities entitle the holder to exchange
the securities for a specified number of shares of common stock, usually of the
same company, at specified prices within a certain period of time.
The terms of any convertible security determine its ranking in a
company's capital structure. In the case of subordinated convertible debentures,
the holders' claims on assets and earnings are subordinated to the claims of
other creditors, and are senior to the claims of preferred and common
shareholders. In the case of convertible preferred stock, the holders' claims on
assets and earnings are subordinated to the claims of all creditors and are
senior to the claims of common shareholders.
Futures Contracts and Options on Futures Contracts
General. The successful use of such instruments draws upon the
Manager's skill and experience with respect to such instruments. When futures
are purchased to hedge against a possible increase in the price of securities
before the Fund is able to invest its cash (or cash equivalents) in an orderly
fashion, it is possible that the market may decline instead; if the Fund then
concludes not to invest its cash at that time because of concern as to possible
further market decline or for other reasons, the Fund will realize a loss on the
futures contract that is not offset by a reduction in the price of the
instruments that were to be purchased. In addition, the correlation between
movements in the price of futures contracts or options on futures contracts and
movements in the price of the securities hedged will not be perfect and could
produce unanticipated losses.
Successful use of the futures contract and related options are subject
to special risk considerations. A liquid secondary market for any futures or
options contract may not be available when a futures or options position is
sought to be closed. In addition, there may be an imperfect correlation between
movements in the securities in the Fund. Successful use of futures or options
contracts is further dependent on Bankers Trust's ability to correctly predict
movements in the securities markets and no assurance can be given that its
judgment will be correct. Successful use of options on securities or stock
indices are subject to similar risk considerations. In addition, by writing
covered call options, the Fund gives up the opportunity, while the option is in
effect, to profit from any price increase in the underlying securities above the
options exercise price.
Futures Contracts. The Fund may enter into securities index futures
contracts. U.S. futures contracts have been designed by exchanges which have
been designated "contracts markets" by the CFTC, and must be executed through a
futures commission merchant, or brokerage firm, which is a member of the
relevant contract market. Futures contracts trade on a number of exchange
markets, and, through their clearing corporations, the exchanges guarantee
performance of the contracts as between the clearing members of the exchange.
These investments will be made by the Fund solely for cash management
purposes. Such investments will only be made if they are economically
appropriate to the reduction of risks involved in the management of the Fund. In
this regard, the Fund may enter into futures contracts or options on futures
related to the Russell 2000 Index.
At the same time a futures contract is purchased or sold, the Fund must
allocate cash or securities as a deposit payment ("initial deposit"). It is
expected that the initial deposit would be approximately 1 1/2% to 5% of a
contract's face value. Daily thereafter, the futures contract is valued and the
payment of "variation margin" may be required, since each day the Fund would
provide or receive cash that reflects any decline or increase in the contract's
value.
Although futures contracts by their terms call for the actual delivery
or acquisition of securities, in most cases the contractual obligation is
fulfilled before the date of the contract without having to make or take
delivery of the securities. The offsetting of a contractual obligation is
accomplished by buying (or selling, as the case may be) on a commodities
exchange an identical futures contract calling for delivery in the same month.
Such a transaction, which is effected through a member of an exchange, cancels
the obligation to make or take delivery of the securities. Since all
transactions in the futures market are made, offset or fulfilled through a
clearinghouse associated with the exchange on which the contracts are traded,
the Fund will incur brokerage fees when it purchases or sells futures contracts.
The ordinary spreads between prices in the cash and futures market, due
to differences in the nature of those markets, are subject to distortions.
First, all participants in the futures market are subject to initial deposit and
variation margin requirements. Rather than meeting additional variation margin
requirements, investors may close futures contracts through offsetting
transactions which could distort the normal relationship between the cash and
futures markets. Second, the liquidity of the futures market depends on
participants entering into offsetting transactions rather than making or taking
delivery. To the extent participants decide to make or take delivery, liquidity
in the futures market could be reduced, thus producing distortion. Third, from
the point of view of speculators, the margin deposit requirements in the futures
market are less onerous than margin requirements in the securities market.
Therefore, increased participation by speculators in the futures market may
cause temporary price distortions.
In addition, futures contracts entail risks. The Manager believes that
use of such contracts will benefit the Fund. The successful use of futures
contracts, however, depends on the degree of correlation between the futures and
securities markets.
Options on Futures Contracts. The Fund may use stock index futures on a
continual basis to equitize cash so that the Fund may maintain 100% equity
exposure. The Board of Trustees has adopted a restriction that the Fund will not
enter into any futures contracts or options on futures contracts if immediately
thereafter the amount of margin deposits on all the futures contracts of the
Fund and premiums paid on outstanding options on futures contracts owned by the
Fund (other than those entered into for bona fide hedging purposes) would exceed
5% of the market value of the total assets of the Fund.
The Fund may purchase and write options on the futures contract
described above. A futures option gives the holder, in return for the premium
paid, the right to buy (call) from or sell (put) to the writer of the option a
futures contract at a specified price at any time during the period of the
option. Upon exercise, the writer of the option is obligated to pay the
difference between the cash value of the futures contract and the exercise
price. Like the buyer or seller of a futures contract, the holder, or writer, of
an option has the right to terminate its position prior to the scheduled
expiration of the option by selling, or purchasing an option of the same series,
at which time the person entering into the closing transaction will realize a
gain or loss. The Fund will be required to deposit initial margin and variation
margin with respect to put and call options on futures contracts written by it
pursuant to brokers' requirements similar to those described above. Net option
premiums received will be included as initial margin deposits. In anticipation
of a decline in interest rates, the Fund may purchase call options on futures
contracts as a substitute for the purchase of futures contracts to hedge against
a possible increase in the price of securities which the Fund intends to
purchase. Similarly, if the value of the securities held by the Fund is expected
to decline as a result of an increase in interest rates, the Fund might purchase
put options or sell call options on futures contracts rather than sell futures
contracts.
Investments in futures options involve some of the same considerations
that are involved in connection with investments in futures contracts (for
example, the existence of a liquid secondary market). In addition, the purchase
or sale of an option also entails the risk that changes in the value of the
underlying futures contract will not correspond to changes in the value of the
option purchased. Depending on the pricing of the option compared to either the
futures contract upon which it is based, or upon the price of the securities
being hedged, an option may or may not be less risky than ownership of the
futures contract or such securities. In general, the market prices of options
can be expected to be more volatile than the market prices on the underlying
futures contracts. Compared to the purchase or sale of futures contracts,
however, the purchase of call or put options on futures contracts may frequently
involve less potential risk to the Fund because the maximum amount at risk is
the premium paid for the options (plus transaction costs). The writing of an
option on a futures contract involves risks similar to those risks relating to
the sale of futures contracts.
The Fund's ability to terminate over-the-counter options will be more
limited than with exchange-traded options. It is also possible that
broker-dealers participating in over-the-counter options transactions will not
fulfill their obligations. Until such time as the staff of the SEC changes its
position, the Fund will treat purchased over-the-counter options and assets used
to cover written over-the-counter options as illiquid securities. With respect
to options written with primary dealers in U.S. Government securities pursuant
to an agreement requiring a closing purchase transaction at a formula price, the
amount of illiquid securities may be calculated with reference to the repurchase
formula.
Options on Securities Indices. The Fund may purchase and write (sell)
call and put options on securities indices. Such options give the holder the
right to receive a cash settlement during the term of the option based upon the
difference between the exercise price and the value of the index.
Options on securities indices entail certain risks. The absence of a
liquid secondary market to close out options positions on securities indices may
occur, although the Fund generally will only purchase or write such an option if
the Manager believes the option can be closed out.
Use of options on securities indices also entails the risk that trading
in such options may be interrupted if trading in certain securities included in
the index is interrupted. The Fund will not purchase such options unless the
Manager believes the market is sufficiently developed such that the risk of
trading in such options is no greater than the risk of trading in options on
securities.
Price movements in the Fund's portfolio may not correlate precisely
with movements in the level of an index and, therefore, the use of options on
indices cannot serve as a complete hedge. Because options on securities indices
require settlement in cash, the Manager may be forced to liquidate portfolio
securities to meet settlement obligations.
Investment Restrictions
The following investment restrictions are "fundamental policies" of the
Fund and may not be changed without the approval of a "majority of the
outstanding voting securities" of the Fund. "Majority of the outstanding voting
securities" under the 1940 Act, and as used in this Statement of Additional
Information and the Prospectus, means, with respect to the Fund, the lesser of
(i) 67% or more of the outstanding voting securities of the Fund present at a
meeting, if the holders of more than 50% of the outstanding voting securities of
the Fund are present or represented by proxy or (ii) more than 50% of the
outstanding voting securities of the Fund.
As a matter of fundamental policy, the Fund may not:
(1) borrow money or mortgage or hypothecate assets of the Fund, except
that in an amount not to exceed 1/3 of the current value of the
Fund's assets, it may borrow money as a temporary measure for
extraordinary or emergency purposes and enter into reverse
repurchase agreements or dollar roll transactions, and except that
it may pledge, mortgage or hypothecate not more than 1/3 of such
assets to secure such borrowings (it is intended that money would
be borrowed only from banks and only either to accommodate
requests for the withdrawal of beneficial interests (redemption of
shares) while effecting an orderly liquidation of portfolio
securities or to maintain liquidity in the event of an
unanticipated failure to complete a portfolio security transaction
or other similar situations) or reverse repurchase agreements,
provided that collateral arrangements with respect to options and
futures, including deposits of initial deposit and variation
margin, are not considered a pledge of assets for purposes of this
restriction (as an operating policy, the Funds may not engage in
dollar roll transactions);
(2) underwrite securities issued by other persons except insofar as
the Trust or the 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); or
(b) through the use of repurchase agreements or the purchase of
short-term obligations;
(4) purchase or sell real estate (including limited partnership
interests but excluding securities secured by real estate or
interests therein), in the ordinary course of business (except
that the Trust may hold and sell, for the Fund's portfolio, real
estate acquired as a result of the Fund's ownership of
securities);
(5) concentrate its investments in any particular industry (excluding U.S.
Government securities), but if it is deemed appropriate for the achievement of
the Fund's investment objective(s), up to 25% of its total assets may be
invested in any one industry;
(6) issue any senior security (as that term is defined in the 1940
Act) if such issuance is specifically prohibited by the 1940 Act
or the rules and regulations promulgated thereunder (except to the
extent permitted in investment restriction No. 1), provided that
collateral arrangements with respect to options and futures,
including deposits of initial deposit and variation margin, are
not considered to be the issuance of a senior security for
purposes of this restriction; and
(7) purchase the securities of any one issuer if as a result more than
5% of the value of its total assets would be invested in the
securities of such issuer or the Fund would own more than 10% of
the outstanding voting securities of such issuer, except that up
to 25% of the value of its total assets may be invested without
regard to these 5% limitation and provided that there is no
limitation with respect to investments in U.S. Government
securities.
Additional investment restrictions adopted by the Fund, which may be
changed by the Board of Trustees, provide that the Fund may not:
(i) purchase any security or evidence of interest therein on
margin, except that such short-term credit as may be necessary
for the clearance of purchases and sales of securities may be
obtained and except that deposits of initial deposit and
variation margin may be made in connection with the purchase,
ownership, holding or sale of futures;
(ii) invest for the purpose of exercising control or management;
(iii) purchase for the Fund securities of any investment company if such
purchase at the time thereof would cause: (a) more than 10% of the Fund's total
assets (taken at the greater of cost or market value) to be invested in the
securities of such issuers; (b) more than 5% of the Fund's total assets (taken
at the greater of cost or market value) to be invested in any one investment
company; or (c) more than 3% of the outstanding voting securities of any such
issuer to be held for the Fund (as an operating policy, the Fund will not invest
in another open-end registered investment company); or
(iv) invest more than 15% of the Fund's net assets (taken at the
greater of cost or market value) in securities that are
illiquid or not readily marketable not including (a) Rule 144A
securities that have been determined to be liquid by the Board
of Trustees; and (b) commercial paper that is sold under
section 4(2) of the 1933 Act which is not traded flat or in
default as to interest or principal.
There will be no violation of any investment restriction if that
restriction is complied with at the time the relevant action is taken
notwithstanding a later change in market value of an investment, in net or total
assets, in the securities rating of the investment, or any other later change.
The Fund will comply with the state securities laws and regulations of
all states in which it is registered.
Portfolio Transactions and Brokerage Commissions
The Manager is responsible for decisions to buy and sell securities,
futures contracts and options on such securities and futures for the Fund, the
selection of brokers, dealers and futures commission merchants to effect
transactions and the negotiation of brokerage commissions, if any.
Broker-dealers may receive brokerage commissions on fund transactions, including
options, futures and options on futures transactions and the purchase and sale
of underlying securities upon the exercise of options. Orders may be directed to
any broker-dealer or futures commission merchant, including to the extent and in
the manner permitted by applicable law, Bankers Trust or its subsidiaries or
affiliates. Purchases and sales of certain fund securities on behalf of the Fund
are frequently placed by the Manager with the issuer or a primary or secondary
market-maker for these securities on a net basis, without any brokerage
commission being paid by the Fund. Trading does, however, involve transaction
costs. Transactions with dealers serving as market-makers reflect the spread
between the bid and asked prices. Transaction costs may also include fees paid
to third parties for information as to potential purchasers or sellers of
securities. Purchases of underwritten issues may be made which will include an
underwriting fee paid to the underwriter.
The Manager seeks to evaluate the overall reasonableness of the
brokerage commissions paid (to the extent applicable) in placing orders for the
purchase and sale of securities for the Fund taking into account such factors as
price, commission (negotiable in the case of national securities exchange
transactions), if any, size of order, difficulty of execution and skill required
of the executing broker-dealer through familiarity with commissions charged on
comparable transactions, as well as by comparing commissions paid by the Fund to
reported commissions paid by others. The Manager reviews on a routine basis
commission rates, execution and settlement services performed, making internal
and external comparisons.
The Manager is authorized, consistent with Section 28(e) of the
Securities Exchange Act of 1934, as amended, when placing portfolio transactions
for the Fund with a broker to pay a brokerage commission (to the extent
applicable) in excess of that which another broker might have charged for
effecting the same transaction on account of the receipt of research, market or
statistical information. The term "research, market or statistical information"
includes advice as to the value of securities; the advisability of investing in,
purchasing or selling securities; the availability of securities or purchasers
or sellers of securities; and furnishing analyses and reports concerning
issuers, industries, securities, economic factors and trends, portfolio strategy
and the performance of accounts.
Consistent with the policy stated above, the Rules of Fair Practice of
the National Association of Securities Dealers, Inc. and such other policies as
the Trustees of the Trust may determine, the Manager may consider sales of
shares of a Fund as a factor in the selection of broker-dealers to execute
portfolio transactions. Bankers Trust will make such allocations if commissions
are comparable to those charged by nonaffiliated, qualified broker-dealers for
similar services.
Higher commissions may be paid to firms that provide research services
to the extent permitted by law. Bankers Trust may use this research information
in managing the Fund's assets, as well as the assets of other clients.
Except for implementing the policies stated above, there is no
intention to place portfolio transactions with particular brokers or dealers or
groups thereof. In effecting transactions in over-the-counter securities, orders
are placed with the principal market-makers for the security being traded
unless, after exercising care, it appears that more favorable results are
available otherwise.
Although certain research, market and statistical information from
brokers and dealers can be useful to the Fund and to the Manager, it is the
opinion of the management of the Trust that such information is only
supplementary to the Manager's own research effort, since the information must
still be analyzed, weighed and reviewed by the Manager's staff. Such information
may be useful to the Manager in providing services to clients other than the
Fund, and not all such information is used by the Manager in connection with the
Fund. Conversely, such information provided to the Manager by brokers and
dealers through whom other clients of the Manager effect securities transactions
may be useful to the Manager in providing services to the Fund.
In certain instances there may be securities which are suitable for the
Fund as well as for one or more of the Manager's other clients. Investment
decisions for the Fund and for the Manager's other clients are made with a view
to achieving their respective investment objectives. It may develop that a
particular security is bought or sold for only one client even though it might
be held by, or bought or sold for, other clients. Likewise, a particular
security may be bought for one or more clients when one or more clients are
selling that same security. Some simultaneous transactions are inevitable when
several clients receive investment advice from the same investment adviser,
particularly when the same security is suitable for the investment objectives of
more than one client. When two or more clients are simultaneously engaged in the
purchase or sale of the same security, the securities are allocated among
clients in a manner believed to be equitable to each. It is recognized that in
some cases this system could have a detrimental effect on the price or volume of
the security as far as the Fund is concerned. However, it is believed that the
ability of the Fund to participate in volume transactions will produce better
executions for the Fund.
PERFORMANCE INFORMATION
Standard Performance Information
From time to time, quotations of the Fund's performance may be included
in advertisements, sales literature or shareholder reports. These performance
figures are calculated in the following manner:
Total Return: The Fund's average annual total return is calculated for
certain periods by determining the average annual compounded rates of
return over those periods that would cause an investment of $1,000
(made at the maximum public offering price with all distributions
reinvested) to reach the value of that investment at the end of the
periods. The Fund may also calculate total return figures which
represent aggregate performance over a period or year-by-year
performance.
Performance Results: Any total return quotation provided for the Fund
should not be considered as representative of the performance of the
Fund in the future since the net asset value and offering price of
shares of the Fund will vary based not only on the type, quality and
maturities of the securities held in the Fund, but also on changes in
the current value of such securities and on changes in the expenses of
the Fund. These factors and possible differences in the methods used to
calculate total return should be considered when comparing the total
return of the Fund to total returns published for other investment
companies or other investment vehicles. Total return reflects the
performance of both principal and income.
Comparison of Fund Performance
Comparison of the quoted nonstandardized performance of various
investments is valid only if performance is calculated in the same manner. Since
there are different methods of calculating performance, investors should
consider the effect of the methods used to calculate performance when comparing
performance of the Fund with performance quoted with respect to other investment
companies or types of investments.
In connection with communicating its performance to current or
prospective shareholders, the Fund also may compare these figures to the
performance of other mutual funds tracked by mutual fund rating services or to
unmanaged indices which may assume reinvestment of dividends but generally do
not reflect deductions for administrative and management costs.
Evaluations of the Fund's performance made by independent sources may
also be used in advertisements concerning the Fund. Sources for the Fund's
performance information could include the following: Barron's, Business Week,
Changing Times, The Kiplinger's Magazine, Consumer Digest, Financial Times,
Financial World, Forbes, Fortune, Investor's Daily, Lipper Analytical Services,
Inc.'s Mutual Fund Performance Analysis, Money, Morningstar Inc., New York
Times, Personal Investing News, Personal Investor, Success, U.S. News and World
Report, Value Line, Wall Street Journal, Weisenberger Investment Companies
Services and Working Women.
VALUATION OF SECURITIES; REDEMPTION IN KIND
Equity and debt securities (other than short-term debt obligations
maturing in 60 days or less), including listed securities and securities for
which price quotations are available, will normally be valued on the basis of
market valuations furnished by a pricing service. Short-term debt obligations
and money market securities maturing in 60 days or less are valued at amortized
cost, which approximates market.
Securities for which market quotations are not available are valued by
Bankers Trust pursuant to procedures adopted by the Trust's Board of Trustees.
It is generally agreed that securities for which market quotations are not
readily available should not be valued at the same value as that carried by an
equivalent security which is readily marketable.
The problems inherent in making a good faith determination of value are
recognized in the codification effected by SEC Financial Reporting Release No. 1
("FRR 1" (formerly Accounting Series Release No. 113)) which concludes that
there is "no automatic formula" for calculating the value of restricted
securities. It recommends that the best method simply is to consider all
relevant factors before making any calculation. According to FRR 1 such factors
would include consideration of the:
type of security involved, financial statements, cost at date
of purchase, size of holding, discount from market value of
unrestricted securities of the same class at the time of
purchase, special reports prepared by analysts, information as
to any transactions or offers with respect to the security,
existence of merger proposals or tender offers affecting the
security, price and extent of public trading in similar
securities of the issuer or comparable companies, and other
relevant matters.
To the extent that the Fund purchases securities which are restricted
as to resale or for which current market quotations are not available, the
Manager of the Fund will value such securities based upon all relevant factors
as outlined in FRR 1.
The Trust, on behalf of the Fund, reserves the right, if conditions
exist which make cash payments undesirable, to honor any request for redemption
or repurchase order by making payment in whole or in part in readily marketable
securities chosen by the Trust, and valued as they are for purposes of computing
the Fund's net asset value (a redemption in kind). If payment is made to a Fund
shareholder in securities, the shareholder may incur transaction expenses in
converting these securities into cash. The Trust, on behalf of the Fund, and the
Fund have elected, however, to be governed by Rule 18f-1 under the 1940 Act as a
result of which the Fund is obligated to redeem shares with respect to any one
investor during any 90-day period, solely in cash up to the lesser of $250,000
or 1% of the net asset value of the Fund at the beginning of the period.
MANAGEMENT OF THE TRUST
The Board of Trustees of the Trust is composed of persons experienced
in financial matters who meet throughout the year to oversee the activities of
the Fund. In addition, the Trustees review contractual arrangements with
companies that provide services to the Fund and review the Fund's performance.
The Trustees and officers of the Trust and their principal occupations
during the past five years are set forth below. Their titles may have varied
during that period. Asterisks indicate those Trustees who are "interested
persons" (as defined in the 1940 Act) of the Trust. Unless otherwise indicated,
the address of each Trustee and officer is One Exchange Place, Boston,
Massachusetts.
<TABLE>
Trustees and Officers
<CAPTION>
Principal Occupations During
Name, Address and Age Position Held with the Trust Past 5 Years
- --------------------- ---------------------------- ------------
<S> <C> <C>
Robert R. Coby, 46 Trustee President of Leadership Capital Inc.
118 North Drive since 1995; Chief Operating Officer of
North Massapequa, NY 11758 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 Trustee Chairman of North American Properties
2015 West Main Street Group since January 1987.
Stamford, CT 06902
James S. Pasman, Jr., 66 Trustee Retired; President and Chief Operations
29 The Trillium Officer of National Intergroup Inc.
Pittsburgh, PA 15238 (1989-1991).
*William E. Small, 55 Trustee and President Independent Consultant (1996-present);
Formerly Executive Vice President of
First Data Investor Services Group Inc.
("First Data") (1994-1996); Senior Vice
President of The Shareholder Services
Group, Inc. (1993-1994); independent
consultant (1990-1993).
Principal Occupations During
Name, Address and Age Position Held with the Trust Past 5 Years
- --------------------- ---------------------------- ------------
Michael Kardok, 38 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.
</TABLE>
Mr. Kardok and Ms. Tedesco also hold similar positions for other investment
companies for which First Data Distributors or an affiliate serves as the
principal underwriter.
No person who is an officer or director of Bankers Trust is an officer
or Trustee of the Trust. No director, officer or employee of First Data
Distributors or any of its affiliates will receive any compensation from the
Trust for serving as an officer or Trustee of the Trust.
As of August 1, 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, First Data Distributors or any of their
affiliates; SEC fees and state Blue Sky qualification fees; charges of
custodians and transfer and dividend disbursing agents; certain insurance
premiums; outside auditing and legal expenses; cost of maintenance of corporate
existence; costs attributable to investor services, including, without
limitation, telephone and personnel expenses; costs of preparing and printing
prospectuses and statements of additional information for regulatory purposes
and for distribution to existing shareholders; costs of shareholders' reports
and meetings of shareholders, officers and Trustees of the Trust; and any
extraordinary expenses.
Bankers Trust may have deposit, loan and other commercial banking
relationships with the issuers of obligations which may be purchased on behalf
of the Fund, including outstanding loans to such issuers which could be repaid
in whole or in part with the proceeds of securities so purchased. Such
affiliates deal, trade and invest for their own accounts in such obligations and
are among the leading dealers of various types of such obligations. Bankers
Trust, in making its investment decisions, does not obtain or use material
inside information in its possession or in the possession of any of its
affiliates. In making investment recommendations for the Fund, Bankers Trust
will not inquire or take into consideration whether an issuer of securities
proposed for purchase or sale by the Fund is a customer of Bankers Trust, its
parent or its subsidiaries or affiliates and in dealing with its customers,
Bankers Trust, its parent, subsidiaries and affiliates will not inquire or take
into consideration whether securities of such customers are held by any fund
managed by Bankers Trust or any such affiliate.
The Fund's prospectus contains disclosure as to the amount of Bankers
Trust's investment advisory and administration and services fees.
Bankers Trust has agreed that if in any fiscal year the aggregate
expenses of the Fund (including fees pursuant to the Management Agreement, but
excluding interest, taxes, brokerage and, if permitted by the relevant state
securities commissions, extraordinary expenses) exceed the expense limitation of
any state having jurisdiction over the Fund, Bankers Trust will reimburse the
Fund for the excess expense to the extent required by state law.
Administrator
First Data, One Exchange Place, Boston, Massachusetts 02109, serves as
administrator of the Fund. As administrator, First Data is obligated on a
continuous basis to provide such administrative services as the Board of
Trustees of the Trust reasonably deems necessary for the proper administration
of the Fund. First Data will generally assist in all aspects of the Fund's
operations; supply and maintain office facilities (which may be in First Data's
own offices), statistical and research data, data processing services, clerical,
accounting, bookkeeping and recordkeeping services (including without limitation
the maintenance of such books and records as are required under the 1940 Act and
the rules thereunder, except as maintained by other agents), internal auditing,
executive and administrative services, and stationery and office supplies;
prepare reports to shareholders or investors; prepare and file tax returns;
supply financial information and supporting data for reports to and filings with
the SEC and various state Blue Sky authorities; supply supporting documentation
for meetings of the Board of Trustees; provide monitoring reports and assistance
regarding compliance with the Declaration of Trust, by-laws, investment
objectives and policies and with Federal and state securities laws; arrange for
appropriate insurance coverage; calculate net asset values, net income and
realized capital gains or losses, and negotiate arrangements with, and supervise
and coordinate the activities of, agents and others to supply services.
Custodian and Transfer Agent
Bankers Trust, 130 Liberty Stree (One Bankers Trust Plaza), New York,
New York 10006, serves as custodian for the Fund. As custodian, it holds the
Fund's assets. Bankers Trust will comply with the self-custodian provisions of
Rule 17f-2 under the 1940 Act.
First Data serves as transfer agent of the Trust. Under its transfer
agency agreement with the Trust, First Data maintains the shareholder account
records for the Fund, handles certain communications between shareholders and
the Fund and causes to be distributed any dividends and distributions payable by
the Fund.
Bankers Trust and First Data may be reimbursed by the Fund for
out-of-pocket expenses.
Use of Name
The Trust and Bankers Trust have agreed that the Trust may use "BT" as
part of its name for so long as Bankers Trust serves as investment manager to
the Fund. The Trust has acknowledged that the term "BT" is used by and is a
property right of certain subsidiaries of Bankers Trust and that those
subsidiaries and/or Bankers Trust may at any time permit others to use that
term.
The Trust may be required, on 60 days' notice from Bankers Trust at any
time, to abandon use of the acronym "BT" as part of its name. If this were to
occur, the Trustees would select an appropriate new name for the Trust, but
there would be no other material effect on the Trust, its shareholders or
activities.
Banking Regulatory Matters
Bankers Trust has been advised by its counsel that in its opinion
Bankers Trust may perform the services for the Fund contemplated by the
Management Agreement and other activities for the Fund described in the
Prospectus and this Statement of Additional Information without violation of the
Glass-Steagall Act or other applicable banking laws or regulations. However,
counsel has pointed out that future changes in either Federal or state statutes
and regulations concerning the permissible activities of banks or trust
companies, as well as future judicial or administrative decisions or
interpretations of present and future statutes and regulations, might prevent
Bankers Trust from continuing to perform those services for the Trust and the
Fund. State laws on this issue may differ from the interpretations of relevant
Federal law and banks and financial institutions may be required to register as
dealers pursuant to state securities law. If the circumstances described above
should change, the Boards of Trustees would review the relationships with
Bankers Trust and consider taking all actions necessary in the circumstances.
Counsel and Independent Accountants
Willkie Farr & Gallagher, One Citicorp Center, 153 East 53rd Street,
New York, New York 10022-4669, serves as Counsel to the Trust and the Fund.
Ernst & Young LLP, 787 Seventh Avenue, New York, New York 10019, acts as
independent accountants of the Trust and the Fund.
ORGANIZATION OF THE TRUST
Shares of the Trust do not have cumulative voting rights, which means
that holders of more than 50% of the shares voting for the election of Trustees
can elect all Trustees. Shares are transferable but have no preemptive,
conversion or subscription rights. Shareholders generally vote by Fund, except
with respect to the election of Trustees and the ratification of the selection
of independent accountants.
Through its separate accounts the Companies are the Fund's sole
stockholders of record, so under the 1940 Act, the Companies are deemed to be in
control of the Fund. Nevertheless, when a shareholders' meeting occurs, each
Company solicits and accepts voting instructions from its Contractowners who
have allocated or transferred monies for a investment in the Fund as of the
record date of the meeting. Each Company then votes the Fund's shares that are
attributable to its Contractowners' interests in the Fund in proportion to the
voting instructions received. Each Company will vote any share that it is
entitled to vote directly due to amounts it has contributed or accumulated in
its separate accounts in the manner described in the offering memoranda for its
variable annuities and variable life insurance policies.
Massachusetts law provides that shareholders could under certain
circumstances be held personally liable for the obligations of the Trust.
However, the Trust's Declaration of Trust disclaims shareholder liability for
acts or obligations of the Trust and requires that notice of this disclaimer be
given in each agreement, obligation or instrument entered into or executed by
the Trust or a Trustee. The Declaration of Trust provides for indemnification
from the Trust's property for all losses and expenses of any shareholder held
personally liable for the obligations of the Trust. Thus, the risk of a
shareholder's incurring financial loss on account of shareholder liability is
limited to circumstances in which the Trust itself would be unable to meet its
obligations, a possibility that the Trust believes is remote. Upon payment of
any liability incurred by a Trust, the shareholder paying the liability will be
entitled to reimbursement from the general assets of the Trust. The Trustees
intend to conduct the operations of the Trust in a manner so as to avoid, as far
as possible, ultimate liability of the shareholders for liabilities of the
Trust.
The Trust was organized on January 19, 1996.
TAXATION
Taxation of the Funds
The Trust intends to qualify annually and to elect the Fund to be
treated as a regulated investment company under the Code.
As a regulated investment company, the Fund will not be subject to U.S.
Federal income tax on its investment company taxable income and net capital
gains (the excess of net long-term capital gains over net short-term capital
losses), if any, that it distributes to its shareholders, that is, the
Companies' separate accounts. The Fund intends to distribute to its
shareholders, at least annually, substantially all of its investment company
taxable income and net capital gains and, therefore, does not anticipate
incurring Federal income tax liability.
The Code and Treasury Department regulations promulgated thereunder
require that mutual funds that are offered through insurance company separate
accounts must meet certain diversification requirements to preserve the
tax-deferred benefits provided by the variable contracts which are offered in
connection with such separate accounts. The Manager intends to diversify the
Fund's investments in accordance with those requirements. The offering memoranda
for each Company's variable annuities and variable life insurance policies
describe the federal income tax treatment of distributions from such contracts.
To comply with regulations under Section 817(h) of the Code, the Fund
will be required to diversify its investments so that on the last day of each
calendar quarter no more than 55% of the value of its assets is represented by
any one investment, no more than 70% is represented by any two investments, no
more than 80% is represented by any three investments and no more than 90% is
represented by any four investments. Generally, all securities of the same
issuer are treated as a single investment. For the purposes of Section 817(h) of
the Code, obligations of the U.S. Treasury and each U.S. Government
instrumentality are treated as securities of separate issuers. The Treasury
Department has indicated that it may issue future pronouncements addressing the
circumstances in which a variable annuity contract owner's control of the
investments of a separate account may cause the variable contract owner, rather
than the separate account's sponsoring insurance company, to be treated as the
owner of the assets held by the separate account. If the variable annuity
contract owner is considered the owner of the securities underlying the separate
account, income and gains produced by those securities would be included
currently in the variable annuity contract owner's gross income. It is not known
what standards will be set forth in such pronouncements or when, if at all,
these pronouncements may be issued. In the event that rules or regulations are
adopted, there can be no assurance that the Fund will be able to operate as
described currently in the Prospectus or that the Fund will not have to change
its investment policies or goals.
The foregoing is only a brief summary of important tax law provisions
that affect the Fund. Other Federal, state or local tax law provisions may also
affect the Fund and its operations. Anyone who is considering allocating,
transferring or withdrawing monies held under a variable contract to or from the
Fund should consult a qualified tax adviser.
Distributions
All dividends and capital gains distributions paid by the Fund will be
automatically reinvested, at net asset value, by the Companies' separate
accounts in additional shares of the Fund. There is no fixed dividend rate, and
there can be no assurance that the Fund will pay any dividends or realize any
capital gains. However, the Fund currently intends to pay dividends and capital
gains distributions, if any, on an annual basis. The offering memorandum for a
Company's variable annuity or variable life insurance policies describes the
frequency of distributions to Contractowners and the Federal income tax
treatment of distributions from such contracts to Contractowners.
Sale of Shares
Any gain or loss realized by a shareholder upon the sale or other
disposition of shares of the Fund, or upon receipt of a distribution in complete
liquidation of the Fund, generally will be a capital gain or loss which will be
long-term or short-term, generally depending upon the shareholder's holding
period for the shares. Any loss realized on a sale or exchange will be
disallowed to the extent the shares disposed of are replaced (including shares
acquired pursuant to a dividend reinvestment plan) within a period of 61 days
beginning 30 days before and ending 30 days after disposition of the shares. In
such a case, the basis of the shares acquired will be adjusted to reflect the
disallowed loss. Any loss realized by a shareholder on a disposition of fund
shares held by the shareholder for six months or less will be treated as a
long-term capital loss to the extent of any distributions of net capital gains
received by the shareholder with respect to such shares.
Shareholders will be notified annually as to the U.S. Federal tax
status of distributions.
Backup Withholding
The Fund may be required to withhold U.S. Federal income tax at the
rate of 31% of all taxable distributions payable to shareholders who fail to
provide the Fund with their correct taxpayer identification number or to make
required certifications, or who have been notified by the Internal Revenue
Service that they are subject to backup withholding. Corporate shareholders and
certain other shareholders specified in the Code generally are exempt from such
backup withholding. Backup withholding is not an additional tax. Any amounts
withheld may be credited against the shareholder's U.S. Federal income tax
liability.
Other Taxation
The Trust is organized as a Massachusetts business trust and, under
current law, neither the Trust nor the Fund is viable for any income or
franchise tax in the Commonwealth of Massachusetts, provided that the Fund
continues to qualify as a regulated investment company under Subchapter M of the
Code.
Fund shareholders may be subject to state and local taxes on their fund
distributions. Shareholders are advised to consult their own tax advisers with
respect to the particular tax consequences to them of an investment in the Fund.
<PAGE>
119
g:\shared\bankers\prospect\619eafe.doc
Investment Manager of the Fund
BANKERS TRUST GLOBAL INVESTMENT MANAGEMENT
a unit of
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.
<PAGE>
BT INSURANCE FUNDS TRUST
EAFEAE EQUITY INDEX FUND
PROSPECTUS
AUGUST 20, 1997
This Prospectus offers shares of the EAFEAE Equity Index Fund (the "Fund"). The
Fund is a series of BT Insurance Funds Trust (the "Trust"), which is an open-end
management investment company currently having six series. Shares of the Fund
are available to the public only through the purchase of certain variable
annuity and variable life insurance contracts ("Contract(s)") issued by various
insurance companies (the "Companies").
The Fund seeks to replicate as closely as possible the performance of the Morgan
Stanley Capital International Europe, Australia, Far East (EAFE) Index (the
"EAFE Index") before the deduction of Fund expenses (the "Expenses"). There is
no assurance, however, that the Fund will achieve its stated objective.
Bankers Trust Company ("Bankers Trust") is the investment manager (the
"Manager") of the Fund.
Please read this Prospectus carefully before investing and retain it for future
reference. It contains important information about the Fund that you should know
and can refer to in deciding whether the Fund's goals match your own. A
Statement of Additional Information ("SAI") with the same date has been filed
with the Securities and Exchange Commission ("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
offering memorandum. Fund shares are not deposits or obligations of, or
guaranteed by, Bankers Trust or any depository institution. Shares are not
insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board
or any other agency.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The EAFE Index is the exclusive property of Morgan Stanley. Morgan Stanley
Capital International is a service mark of Morgan Stanley and has been licensed
for use by Bankers Trust Company.
BANKERS TRUST GLOBAL INVESTMENT MANAGEMENT,
a unit of BANKERS TRUST COMPANY
Investment Manager of the Fund
FIRST DATA DISTRIBUTORS, INC.
Distributor
4400 Computer Drive
Westborough, MA 01581
<PAGE>
TABLE OF CONTENTS
Page
THE FUND................................................... 3
Who May Want to Invest
Investment Principles and Risks
THE FUND IN DETAIL......................................... 4
Investment Objectives and Policies
Risk Factors and Certain Securities and Investment
Practices
Net Asset Value
Performance Information and Reports
Management of the Trust
SHAREHOLDER AND ACCOUNT POLICIES........................... 13
Purchase and Redemption of Shares
Dividends, Distributions and Taxes
<PAGE>
THE FUND
The Fund seeks to replicate as closely as possible (before deduction of
Expenses) the total return of the Europe, Australia, Far East Index (the "EAFE
Index"), a capitalization-weighted index containing approximately 1,100 equity
securities of companies located outside the United States. The Fund will be
invested primarily in equity securities of business enterprises organized and
domiciled outside of the United States or for which the principal trading market
is outside the United States. Statistical methods will be employed to replicate
the EAFE Index by buying most of the EAFE Index securities. Securities purchased
for the Fund will generally, but not necessarily, be traded on a foreign
securities exchange. WHO MAY WANT TO INVEST
Shares of the Fund are available to the public only through the purchase of
Contracts issued by the Companies.
The Fund is not managed according to traditional methods of "active" investment
management, which involve the buying and selling of securities based upon
economic, financial and market analysis and investment judgment. Instead, the
Fund utilizes a "passive" or "indexing" investment approach and attempts to
replicate the investment performance of the EAFE Index through statistical
procedures.
The Fund may be appropriate for investors who are willing to endure stock market
fluctuations in pursuit of potentially higher long-term returns. The Fund
invests for growth and does not pursue income. Over time, stocks, although more
volatile, have shown greater growth potential than other types of securities. In
the shorter term, however, stock prices can fluctuate dramatically in response
to market factors.
The Fund may be appropriate for investors who want to pursue their investment
goals in markets outside of the United States. By including international
investments in their portfolio, investors can achieve an extra level of
diversification and also participate in opportunities around the world. However,
there are additional risks involved with international investing. The
performance of international funds depends upon currency values, the political
and regulatory environment, and overall economic factors in the countries in
which the Fund invests.
The Fund is intended to be a long-term investment vehicle and is not designated
to provide investors with a means of speculating on short-term market movements.
The Fund is not in itself a balanced investment plan. Investors should consider
their investment objective and tolerance for risk when making an investment
decision. When an investor sells his or her Fund shares, they may be worth more
or less than what the investor paid for them.
INVESTMENT PRINCIPLES AND RISKS
The value of the Fund's investments varies based on many factors. Stock values
fluctuate, sometimes dramatically, in response to the activities of individual
companies and general market and economic conditions. Over time, however, stocks
have shown greater long-term growth potential than other types of securities.
Lower quality securities offer higher yields, but also carry more risk.
Because many foreign investments are denominated in foreign currencies, changes
in the value of these currencies can significantly affect the Fund's share
price. General economic factors in the various world markets can also impact the
value of an investor's investment. When investors sell Fund shares, they may be
worth more or less than what the investors paid for them. See "Risk Factors and
Certain Securities and Investment Practices" for more information.
THE FUND IN DETAIL
INVESTMENT OBJECTIVES AND POLICIES
The following is a discussion of the various investments of and techniques
employed by the Fund. Additional information about the investment policies of
the Fund appears in "Risk Factors and Certain Securities and Investment
Practices" in this Prospectus and in the Fund's SAI. There can be no assurance
that the investment objective of the Fund will be achieved.
The Fund seeks to replicate as closely as possible (before deduction of
Expenses) the total return of the EAFE Index. The Fund attempts to achieve this
objective by investing in a statistically selected sample of the equity
securities included in the EAFE Index.
The EAFE Index is a capitalization-weighted index containing approximately 1,100
equity securities of companies located in countries outside the United States.
The countries currently included in the EAFE Index are Australia, Austria,
Belgium, Denmark, Finland, France, Germany, Hong Kong, Ireland, Italy, Japan,
Malaysia, The Netherlands, New Zealand, Norway, Singapore, Spain, Sweden,
Switzerland and The United Kingdom.
The Fund is constructed to have aggregate investment characteristics similar to
those of the EAFE Index. The Fund invests in a statistically selected sample of
the securities of companies included in the EAFE Index, although not all
companies within a country will be represented in the Fund at the same time.
Stocks are selected for inclusion in the Fund based on country of origin, market
capitalization, yield, volatility and industry sector. Bankers Trust will manage
the Fund using advanced statistical techniques to determine which stocks are to
be purchased or sold to replicate the EAFE Index. From time to time, adjustments
may be made in the Fund because of changes in the composition of the EAFE Index,
but such changes should be infrequent.
The Fund is not sponsored, endorsed, sold or promoted by Morgan Stanley. Morgan
Stanley makes no representation or warranty, express or implied, to the owners
of the Fund or any member of the public regarding the advisability of investing
in securities generally or in the Fund particularly or the ability of the EAFE
Index to track general stock market performance. Morgan Stanley is the licenser
of certain trademarks, service marks and trade names of Morgan Stanley and of
the EAFE Index which is determined, composed and calculated by Morgan Stanley
without regard to the issuer of the Fund or the Fund itself. Morgan Stanley has
no obligation to take the needs of the issuer of the Fund or the owners of the
Fund into consideration in determining, composing or calculating the EAFE Index.
Inclusion of a security in the EAFE Index in no way implies an opinion by Morgan
Stanley as to its attractiveness as an investment. Morgan Stanley is not
responsible for and has not participated in the determination of the timing of,
prices at, or quantities of the Fund to be issued or in the determination or
calculation of the equation by which the Fund is redeemable for cash. Morgan
Stanley has no obligation or liability to owners of the Fund in connection with
the administration, marketing or trading of the Fund. The Fund is neither
sponsored by nor affiliated with Morgan Stanley.
ALTHOUGH MORGAN STANLEY SHALL OBTAIN INFORMATION FOR INCLUSION IN OR FOR USE IN
THE CALCULATION OF THE INDICES FROM SOURCES WHICH MORGAN STANLEY CONSIDERS
RELIABLE, MORGAN STANLEY DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS
OF THE INDICES OR ANY DATA INCLUDED THEREIN. MORGAN STANLEY MAKES NO WARRANTY,
EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY LICENSEE, LICENSEE'S
CUSTOMERS AND COUNTERPARTIES, OWNERS OF THE PRODUCTS, OR ANY OTHER PERSON OR
ENTITY FROM THE USE OF THE INDICES OR ANY DATA INCLUDED THEREIN IN CONNECTION
WITH THE RIGHTS LICENSED HEREUNDER OR FOR ANY OTHER USE. MORGAN STANLEY MAKES NO
EXPRESS OR IMPLIED WARRANTIES, AND HEREBY EXPRESSLY DISCLAIMS ALL WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO THE INDICES
OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT
SHALL MORGAN STANLEY HAVE ANY LIABILITY FOR ANY DIRECT, INDIRECT, SPECIAL,
PUNITIVE, CONSEQUENTIAL OR ANY OTHER DAMAGES (INCLUDING LOST PROFITS) EVEN IF
NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
General
Over time, the correlation between the performance of the Fund and the EAFE
Index is expected to be 0.95 or higher before deduction of Fund expenses. A
correlation of 1.00 would indicate perfect correlation, which would be achieved
when the net asset value of the Fund, including the value of its dividend and
any capital gain distributions, increases or decreases in exact proportion to
changes in the EAFE Index. The Fund's ability to track the EAFE Index may be
affected by, among other things, transaction costs, administration and other
expenses incurred by the Fund, changes in either the composition of the EAFE
Index or the assets of the Fund, and the timing and amount of Fund investor
contributions and withdrawals, if any. In the unlikely event that a high
correlation is not achieved, the Trust's Board of Trustees will consider
alternatives. Because the Fund seeks to track the EAFE Index, Bankers Trust
generally will not attempt to judge the merits of any particular stock as an
investment.
Under normal circumstances, the Fund will invest at least 80% of its assets in
the securities of the EAFE Index.
As a diversified fund, no more than 5% of the assets of the Fund may be invested
in the securities of one issuer (other than U.S. Government Securities), except
that up to 25% of the Fund's assets may be invested without regard to this
limitation. The Fund will not invest more than 25% of its assets in the
securities of issuers in any one industry. In the unlikely event that the EAFE
Index should concentrate to an extent greater than that amount, the Fund's
ability to achieve its objective may be impaired. No more than 15% of the Fund's
net assets may be invested in illiquid or not readily marketable securities
(including repurchase agreements and time deposits with maturities of more than
seven days). These are fundamental investment policies of the Fund which may not
be changed without shareholder approval.
Additional investment policies of the Fund are contained in the SAI.
The Fund may maintain up to 25% of its assets in short-term debt securities and
money market instruments to meet redemption requests or to facilitate investment
in the securities of the EAFE Index. Securities index futures contracts and
related options, warrants and convertible securities may be used for several
reasons: to simulate full investment in the EAFE Index while retaining a cash
balance for fund management purposes, to facilitate trading, to reduce
transaction costs or to seek higher investment returns when a futures contract,
option, warrant or convertible security is priced more attractively than the
underlying equity security or EAFE Index. These instruments may be considered
derivatives. See "Risk Factors and Certain Securities and Investment Practices
- -- Derivatives."
The use of derivatives for non-hedging purposes may be considered speculative.
While each of these securities can be used as leveraged investments, the Fund
may not use them to leverage its net assets. The Fund will not invest in such
instruments as part of a temporary defensive strategy (in anticipation of
declining stock prices) to protect the Fund against potential market declines.
The Fund may lend its investment securities and purchase securities on a
when-issued and a delayed delivery basis. The Fund may engage in foreign
currency forward and futures transactions for the purpose of enhancing Fund
returns or hedging against foreign exchange risk arising from the Fund's
investment or anticipated investment in securities denominated in foreign
currencies. See "Risk Factors and Certain Securities and Investment Practices"
for more information about the investment practices of the Fund.
RISK FACTORS AND CERTAIN SECURITIES AND INVESTMENT PRACTICES
The following pages contain more detailed information about types of instruments
in which the Fund may invest and strategies Bankers Trust may employ in pursuit
of the Fund's investment objective. A summary of risks and restrictions
associated with these instrument types and investment practices is included as
well.
Bankers Trust may not buy all of these instruments or use all of these
techniques to the full extent permitted unless it believes that doing so will
help the Fund achieve its goal. Holdings and recent investment strategies are
described in the financial reports of the Fund, which are sent to Fund
shareholders on a semi-annual and annual basis.
Market Risk
As a mutual fund investing primarily in common stocks, the Fund is subject to
market risk --- i.e., the possibility that common stock prices will decline over
short or even extended periods. The U.S. and foreign stock markets tend to be
cyclical, with periods when stock prices generally rise and periods when prices
generally decline.
Risks of Investing in Foreign Securities
Investors should realize that investing in securities of foreign issuers
involves considerations not typically associated with investing in securities of
companies organized and operated in the United States. Investors should realize
that the value of the Fund's foreign investments may be adversely affected by
changes in political or social conditions, diplomatic relations, confiscatory
taxation, expropriation, nationalization, limitation on the removal of funds or
assets, or imposition of (or change in) exchange control or tax regulations in
foreign countries. In addition, changes in government administrations or
economic or monetary policies in the United States or abroad could result in
appreciation or depreciation of portfolio securities and could favorably or
unfavorably affect the Fund's operations. Furthermore, the economies of
individual foreign nations may differ from the U.S. economy, whether favorably
or unfavorably, in areas such as growth of gross national product, rate of
inflation, capital reinvestment, resource self-sufficiency and balance of
payments position; it may also be more difficult to obtain and enforce a
judgment against a foreign issuer. In general, less information is publicly
available with respect to foreign issuers than is available with respect to U.S.
companies. Most foreign companies are also not subject to the uniform accounting
and financial reporting requirements applicable to issuers in the United States.
Any foreign investments made by the Fund must be made in compliance with U.S.
and foreign currency restrictions and tax laws restricting the amounts and types
of foreign investments.
Because foreign securities generally are denominated and pay dividends or
interest in foreign currencies, the value of the net assets of the Fund as
measured in U.S. dollars will be affected favorably or unfavorably by changes in
exchange rates. In order to protect against uncertainty in the level of future
foreign currency exchange rates, the Fund is also authorized to enter into
certain foreign currency exchange transactions. Furthermore, the Fund's foreign
investments may be less liquid and their prices may be more volatile than
comparable investments in securities of U.S. companies. The settlement periods
for foreign securities, which are often longer than those for securities of U.S.
issuers, may affect Fund liquidity. Finally, there may be less government
supervision and regulation of securities exchanges, brokers and issuers in
foreign countries than in the United States.
The Fund's investment objective is not a fundamental policy and may be changed
upon notice to, but without the approval of, the Fund's shareholders. If there
is a change in the Fund's investment objective, the Fund's shareholders should
consider whether the Fund remains an appropriate investment in light of their
then-current needs. Shareholders of the Fund will receive 30 days prior written
notice with respect to any change in the investment objective of the Fund. See
"Risk Factors and Certain Securities and Investment Practices" in the SAI for a
description of the fundamental policies of the Fund that cannot be changed
without approval by "the vote of a majority of the outstanding voting
securities" (as defined in the Investment Company Act of 1940, as amended (the
"1940 Act")) of the Fund.
For descriptions of the investment objective, policies and restrictions of the
Fund, see "The Fund in Detail" herein and "Risk Factors and Certain Securities
and Investment Practices" herein and in the SAI. For a description of the
management and expenses of the Fund, see "Management of the Trust" herein and in
the SAI.
Short-Term Investments. The Fund may invest in certain short-term fixed income
securities. Such securities may be used to invest uncommitted cash balances, to
maintain liquidity to meet shareholder redemptions or to serve as collateral for
the obligations underlying the Fund's investment in securities index futures or
related options or warrants. These securities include: obligations issued or
guaranteed by the U.S. Government or any of its agencies or instrumentalities or
by any of the states, repurchase agreements, time deposits, certificates of
deposit, bankers' acceptances and commercial paper.
U.S. Government Securities are obligations of, or guaranteed by, the U.S.
Government, its agencies or instrumentalities. Some U.S. Government securities,
such as Treasury bills, notes and bonds, are supported by the full faith and
credit of the United States; others, such as those of the Federal Home Loan
Banks, are supported by the right of the issuer to borrow from the Treasury;
others, such as those of the Federal National Mortgage Association, are
supported by the discretionary authority of the U.S. Government to purchase the
agency's obligations; and still others, such as those of the Student Loan
Marketing Association, are supported only by the credit of the instrumentality.
Securities Lending. The Fund may lend its investment securities to qualified
institutional investors for either short-term or long-term purposes of realizing
additional income. Loans of securities by the Fund will be collateralized by
cash, letters of credit, or securities issued or guaranteed by the U.S.
Government or its agencies. The collateral will equal at least 100% of the
current market value of the loaned securities, and such loans may not exceed 30%
of the value of the Fund's net assets. The risks in lending portfolio
securities, as with other extensions of credit, consist of possible loss of
rights in the collateral should the borrower fail financially. In determining
whether to lend securities, Bankers Trust will consider all relevant facts and
circumstances, including the creditworthiness of the borrower.
When Issued and Delayed Delivery Securities. The Fund may purchase securities on
a when-issued or delayed delivery basis. Delivery of and payment for these
securities may take place as long as a month or more after the date of the
purchase commitment. The value of these securities is subject to market
fluctuation during this period and no income accrues to the Fund until
settlement takes place. The Fund maintains with its custodian a segregated
account containing cash or liquid portfolio securities in an amount at least
equal to these commitments.
Derivatives
The Fund may invest in various instruments that are commonly known as
"derivatives." Generally, a derivative is a financial arrangement, the value of
which is based on, or "derived" from, a traditional security, asset, or market
index. Some derivatives such as mortgage-related and other asset-backed
securities are in many respects like any other investment, although they may be
more volatile or less liquid than more traditional debt securities. There are,
in fact, many different types of derivatives and many different ways to use
them. There are a range of risks associated with those uses. Futures and options
are commonly used for traditional hedging purposes to attempt to protect the
Fund from exposure to changing interest rates, securities prices or currency
exchange rates and as a low cost method of gaining exposure to a particular
securities market without investing directly in those securities. Bankers Trust
will only use derivatives for cash management purposes. Derivatives will not be
used to increase portfolio risk above the level that would be achieved using
only traditional investment securities or to acquire exposure to changes in the
value of assets or indices that by themselves would not be purchased for the
Fund. Securities Index Futures and Related Options. The Fund may enter into
securities index futures contracts and related options provided that not more
than 5% of its assets are required as a margin deposit for futures contracts or
options and provided that not more than 20% of the Fund's assets are invested in
futures and options at any time. When the Fund has cash from new investments in
the Fund or holds a portion of its assets in money market instruments, it may
enter into index futures or options to attempt to increase its exposure to the
market. Strategies the Fund could use to accomplish this include purchasing
futures contracts, writing put options and purchasing call options. When the
Fund wishes to sell securities, because of shareholder redemptions or otherwise,
it may use index futures or options to hedge against market risk until the sale
can be completed. These strategies could include selling futures contracts,
writing call options and purchasing put options.
Warrants. Warrants are instruments which entitle the holder to buy underlying
equity securities at a specific price for a specific period of time. A warrant
tends to be more volatile than its underlying securities and ceases to have
value if it is not exercised prior to its expiration date. In addition, changes
in the value of a warrant do not necessarily correspond to changes in the value
of its underlying securities.
Convertible Securities. The Fund may invest in convertible securities which are
a bond or preferred stock which may be converted at a stated price within a
specific period of time into a specified number of shares of common stock of the
same or different issuer. Convertible securities are senior to common stock in a
corporation's capital structure, but usually are subordinated to non-convertible
debt securities. While providing a fixed income stream -- generally higher in
yield than the income derived from a common stock but lower than that afforded
by a non-convertible debt security -- a convertible security also affords an
investor the opportunity, through its conversion feature, to participate in the
capital appreciation of common stock into which it is convertible.
In general, the market value of a convertible security is the higher of its
investment value (its value as a fixed income security) or its conversion value
(the value of the underlying shares of common stock if the security is
converted). As a fixed income security, the market value of a convertible
security generally increases when interest rates decline and generally decreases
when interest rates rise; however, the price of a convertible security generally
increases as the market value of the underlying stock increases, and generally
decreases as the market value of the underlying stock declines. Investments in
convertible securities generally entail less risk than investments in the common
stock of the same issuer.
Further risks associated with the use of futures contracts, options, warrants
and convertible securities. The risk of loss associated with futures contracts
in some strategies can be substantial due to both the low margin deposits
required and the extremely high degree of leverage involved in futures pricing.
As a result, a relatively small price movement in a futures contract may result
in an immediate and substantial loss or gain. However, the Fund will not use
futures contracts, options, warrants and convertible securities for speculative
purposes or to leverage their net assets. Accordingly, the primary risks
associated with the use of futures contracts, options, warrants and convertible
securities by the Fund are: (i) imperfect correlation between the change in
market value of the securities held by the Fund and the prices of futures
contracts, options, warrants and convertible securities; and (ii) possible lack
of a liquid secondary market for a futures contract and the resulting inability
to close a futures position prior to its maturity date. The risk of imperfect
correlation will be minimized by investing only in those contracts whose
behavior is expected to resemble that of the Fund's underlying securities. The
risk that the Fund will be unable to close out a futures position will be
minimized by entering into stock transactions on an exchange with an active and
liquid secondary market. However, options, warrants and convertible securities
purchased or sold over-the-counter may be less liquid than exchange-traded
securities. Illiquid securities, in general, may not represent more than 15% of
the net assets of the Fund.
Foreign Currency Forward, Futures and Related Options Transactions. The Fund may
enter into foreign currency forward and foreign currency futures contracts in
order to maintain the same currency exposure as the EAFE Index. The Fund may not
enter into such contracts as a way of protecting against anticipated adverse
changes in exchange rates between foreign currencies and the U.S. dollar. A
foreign currency forward contract is an obligation to purchase or sell a
specific currency at a future date, which may be any fixed number of days from
the date of the contract agreed upon by the parties, at a price set at the time
of the contract. Such contracts do not eliminate fluctuations in the underlying
prices of securities held by the Fund. Although such contracts tend to minimize
the risk of loss due to a decline in the value of a currency that has been sold
forward, and the risk of loss due to an increase in the value of a currency that
has been purchased forward, at the same time they tend to limit any potential
gain that might be realized should the value of such currency increase.
Asset Coverage. To assure that futures and related options, as well as
when-issued and delayed-delivery securities, are not used by the Fund to achieve
excessive investment leverage, the Fund will cover such transactions, as
required under applicable interpretations of the SEC, either by owning the
underlying securities, entering into an off-setting transaction, or by
establishing a segregated account with the Fund's custodian containing cash or
liquid portfolio securities in an amount at all times equal to or exceeding the
Fund's commitment with respect to these instruments or contracts.
Portfolio Turnover
The frequency of Fund transactions - the Fund's turnover rate - will vary from
year to year depending on market conditions and the Fund's cash flows. The
Fund's annual portfolio turnover rate is not expected to exceed 100%.
NET ASSET VALUE
The Fund is open for business on each day when both the New York Stock Exchange
("NYSE") and the Tokyo Stock Exchange are open (each such day being a "Valuation
Day"). The NYSE is currently open on each day, Monday through Friday, except:
(a) January 1st, Martin Luther King Day, 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 Fund
will not process orders on any day when either the NYSE or the Tokyo Stock
Exchange is closed. Orders received on such days will be priced on the next day
the Fund computes its net asset value. As such, investors may experience a delay
in purchasing or redeeming shares of the Fund. Some of the Fund's securities are
listed on foreign exchanges which trade on Saturdays or other days when the NYSE
and Tokyo Stock Exchange are closed. Since the Fund does not price on these
days, the Fund's net asset value may by significantly affected on days when an
investor has no access to the Fund's assets. The net asset value per share of
the Fund is computed by dividing the value of the Fund's assets, less all
liabilities, by the total number of its shares outstanding. The Fund's
securities and other assets are valued primarily on the basis of market
quotations or, if quotations are not readily available, by a method which the
Fund's Board of Trustees believes accurately reflects fair value.
PERFORMANCE INFORMATION AND REPORTS The Fund's performance may be used from
time to time in advertisements, shareholder reports or other communications to
existing or prospective owners of the Companies' variable contracts. When
performance information is provided in advertisements, it will include the
effect of all charges deducted under the terms of the specified contract, as
well as all recurring and non-recurring charges incurred by the Fund.
Performance information may include the Fund's investment results and/or
comparisons of its investment results to the Morgan EAFE Index, and the Lipper
International Average or other various unmanaged indices or results of other
mutual funds or investment or savings vehicles. The Fund's investment results as
used in such communications will be calculated on a total rate of return basis
in the manner set forth below. From time to time, fund rankings may be quoted
from various sources, such as Lipper Analytical Services, Inc., Value Line and
Morningstar Inc. The Trust may provide period and average annualized "total
return" quotations for the Fund. The Fund's "total return" refers to the change
in the value of an investment in the Fund over a stated period based on any
change in net asset value per share and including the value of any shares
purchasable with any dividends or capital gains distributed during such period.
Period total return may be annualized. An annualized total return is a
compounded total return which assumes that the period total return is generated
over a one-year period, and that all dividends and capital gain distributions
are reinvested. An annualized total return will be higher than a period total
return if the period is shorter than one year, because of the compounding
effect.
Unlike some bank deposits or other investments which pay a fixed yield for a
stated period of time, the total return of the Fund will vary depending upon
interest rates, the current market value of the securities held by the Fund and
changes in the Fund's expenses. In addition, during certain periods for which
total return quotations may be provided, Bankers Trust and/or the Trust's other
service providers may have voluntarily agreed to waive portions of their
respective fees, or reimburse certain operating expenses of the Fund, on a
month-to-month basis. Such waivers will have the effect of increasing the Fund's
net income (and therefore its total return) during the period such waivers are
in effect.
Total returns are based on past results and are not an indication of future
performance. Shareholders will receive unaudited financial reports
semi-annually that include the Fund's financial statements, including listings
of investment securities held by the Fund at those dates. Annual reports
are audited by independent accountants.
MANAGEMENT OF THE TRUST
Board of Trustees
The affairs of the Fund are managed under the supervision of the Board of
Trustees of the Trust, of which the Fund is a series. By virtue of the
responsibilities assumed by Bankers Trust, neither the Trust nor the Fund
requires employees other than the Trust's officers. None of the Trust's officers
devotes full time to the affairs of the Trust or the Fund.
For more information with respect to the Trustees of the Trust, see "Management
of the Trust" in the SAI.
Investment Manager
The Fund has retained the services of Bankers Trust Global Investment
Management, a unit of Bankers Trust, as investment manager. Bankers Trust, a New
York banking corporation with executive offices at 130 Liberty Street (One
Bankers Trust Plaza), 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 wholesaler 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 $129
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 80 offices in more than 50 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
$240 billion in assets under management globally. 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 0.45% of
the average daily net assets of the Fund for its then-current fiscal year.
Bankers Trust has been advised by its counsel that, in counsel's opinion,
Bankers Trust currently may perform the services for the Trust and the Fund
described in this Prospectus and the SAI without violation of the Glass-Steagall
Act or other applicable banking laws or regulations. State laws on this issue
may differ from the interpretations of relevant Federal law, and banks and
financial institutions may be required to register as dealers pursuant to state
securities law.
Fund Manager
Richard J. Vella, Managing Director of Bankers Trust, is responsible for
the day-to-day management of the Fund. Mr. Vella has been employed by Bankers
Trust since 1985 and has ten years of trading and investment experience.
Expenses
In addition to the fees of Bankers Trust, 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. ("Investor Services Group"), 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,
Investor Services Group 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, the Trust has agreed to pay Investor Services Group 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 $5 billion and 0.0075%
of the Trust's monthly average net assets exceeding $5 billion, in addition to a
flat fee of $70,000 per year for each portfolio of the Trust and a one-time
start-up fee for each portfolio of the Trust. Distributor First Data
Distributors, Inc. (the "Distributor") serves as distributor of the Fund's
shares to separate accounts of the Companies, for which it receives no separate
fee from the Fund. The principal business address of the Distributor is 4400
Computer Drive, Westborough, Massachusetts 01581. Custodian and Transfer
Agent Bankers Trust acts as custodian of the assets of the Fund and Investor
Services Group serves as the transfer agent for the Fund. Organization of
the Trust
The Trust was organized on January 19, 1996, under the laws of the Commonwealth
of Massachusetts. The Fund is a separate series of the Trust. The Trust offers
shares of beneficial interest of the Fund and the Trust's other series, par
value $0.001 per share. The shares of the other series of the Trust are offered
through separate Prospectuses. No series of shares has any preference over any
other series. All shares, when issued, will be fully paid and nonassessable. The
Trust's Board of Trustees has the authority to create additional series without
obtaining shareholder approval.
The Trust is an entity of the type commonly known as a "Massachusetts business
trust." Under Massachusetts law, shareholders of such a business trust may,
under certain circumstances, be held personally liable as partners for its
obligations. However, the risk of a shareholder incurring financial loss on
account of shareholder liability is limited to circumstances in which both
inadequate insurance existed and the Trust itself was unable to meet its
obligations.
Through its separate accounts, the Companies are the Fund's sole stockholders of
record, so under the 1940 Act, such Companies are deemed to be in control of the
Fund. Nevertheless, when a shareholders' meeting occurs, each Company solicits
and accepts voting instructions from its Contractowners who have allocated or
transferred monies for an investment in the Fund as of the record date of the
meeting. Each Company then votes the Fund's shares that are attributable to its
Contractowners' interests in the Fund in proportion to the voting instructions
received. Each Company will vote any share that it is entitled to vote directly
due to amounts it has contributed or accumulated in its separate accounts in the
manner described in the prospectuses for its variable annuities and variable
life insurance policies.
Each share of the Fund is entitled to one vote, and fractional shares are
entitled to fractional votes. Fund shares have non-cumulative voting rights, so
the vote of more than 50% of the shares can elect 100% of the Trustees.
The Trust is not required, and does not intend, to hold regular annual
shareholder meetings, but may hold special meetings for consideration of
proposals requiring shareholder approval.
The Fund is only available to owners of variable annuities or variable life
insurance policies issued by the Companies through their respective separate
accounts. The Fund does not currently foresee any disadvantages to
Contractowners arising from offering its shares to variable annuity and variable
life insurance policy separate accounts simultaneously, and the Board of
Trustees monitors events for the existence of any material irreconcilable
conflict between or among Contractowners. If a material irreconcilable conflict
arises, one or more separate accounts may withdraw their investment in the Fund.
This could possibly force the Fund to sell portfolio securities at
disadvantageous prices. Each Company will bear the expenses of establishing
separate portfolios for its variable annuity and variable life insurance
separate accounts if such action becomes necessary; however, ongoing expenses
that are ultimately borne by Contractowners will likely increase due to the loss
of economies of scale benefits that can be provided to mutual funds with
substantial assets.
SHAREHOLDER AND ACCOUNT POLICIES
PURCHASE AND REDEMPTION OF SHARES
Shares of the Fund will be continuously offered to each Company's separate
accounts at the net asset value per share next determined after a proper
purchase request has been received by the Company. The Company then offers to
Contractowners units in its separate accounts which directly correspond to
shares in the Fund. Each Company submits purchase and redemption orders to the
Fund based on allocation instructions for premium payments, transfer
instructions and surrender or partial withdrawal requests which are furnished to
the Company by such Contractowners. Contractowners can send such instructions
and requests to the Companies by first class mail, overnight mail or express
mail sent to the address set forth in the relevant Company's offering memorandum
included with this prospectus. The Fund and the Distributor reserve the right to
reject any purchase order for shares of the Fund.
Payment for redeemed shares will ordinarily be made within seven (7) business
days after the Fund receives a redemption order from the relevant Company. The
redemption price will be the net asset value per share next determined after the
Company receives the Contractowner's request in proper form.
The Fund may suspend the right of redemption or postpone the date of payment
during any period when trading on the NYSE is restricted, or the NYSE is closed
for other than weekends and holidays; when an emergency makes it not reasonably
practicable for the Fund to dispose of assets or calculate its net asset value;
or as permitted by the SEC.
The accompanying offering memorandum for the Company's variable annuity or
variable life insurance policy describes the allocation, transfer and withdrawal
provisions of such annuity or policy.
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Fund distributes substantially all of its net income and capital gains to
shareholders each year. The Fund distributes capital gains and income dividends
annually. All dividends and capital gains distributions paid by the Fund will be
automatically reinvested, at net asset value, by the Companies' separate
accounts in additional shares of the Fund, unless an election is made by a
Contractowner to receive distributions in cash.
The Fund will be treated as a separate entity for federal income tax purposes.
The Fund intends to qualify as a "regulated investment company" under the
Internal Revenue Code of 1986, as amended (the "Code"). As a regulated
investment company the Fund will not be subject to U.S. Federal income tax on
its investment company taxable income and net capital gains (the excess of net
long-term capital gains over net short-term capital losses), if any, that it
distributes to shareholders. The Fund intends to distribute to its shareholders,
at least annually, substantially all of its investment company taxable income
and net capital gains, and therefore does not anticipate incurring a Federal
income tax liability.
The Code and Treasury Department regulations promulgated thereunder require
that mutual funds that are offered through insurance company separate accounts
must meet certain diversification requirements to preserve the tax-deferral
benefits provided by the variable contracts which are offered in connection with
such separate accounts. Bankers Trust intends to diversify the Fund's
investments in accordance with those requirements. The enclosed offering
memorandum for a Company's variable annuity or variable life insurance policies
describes the federal income tax treatment of distributions from such contracts
to Contractowners. The foregoing is only a brief summary of important tax
law provisions that affect the Fund. Other Federal, state and local tax law
provisions may also affect the Fund and its operations. Anyone who is
considering allocating, transferring or withdrawing monies held under a variable
contract to or from the Fund should consult a qualified tax adviser.
<PAGE>
140
G:\SHARED\BANKERS\SAI\619EAFE.DOC
Investment Manager of the Fund
BANKERS TRUST GLOBAL INVESTMENT MANAGEMENT
a unit of
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 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.
.......................................................
<PAGE>
STATEMENT OF
ADDITIONAL INFORMATION
BT INSURANCE FUNDS TRUST
EAFEAE EQUITY INDEX FUND
AUGUST 20, 1997
BT Insurance Funds Trust (the "Trust") is currently comprised of six
series: the EAFEAE Equity Index Fund (the "Fund") and five other series. The
shares of the Fund are described herein. Capitalized terms not otherwise defined
herein shall have the same meaning as in the Prospectus.
Table of Contents
Risk Factors and Certain Securities and Investment Practices...... 2
Performance Information........................................... 16
Valuation of Securities; Redemption in Kind....................... 17
Management of the Trust........................................... 18
Organization of the Trust......................................... 22
Taxation.......................................................... 22
Shares of the Fund are available to the public only through the purchase of
certain variable annuity and variable life insurance contracts ("Contract(s)")
issued by various insurance companies (the "Companies"). The investment adviser
of the Fund is Bankers Trust Global Investment Management, a unit of Bankers
Trust Company (the "Manager" or "Bankers Trust"). The distributor of the Fund
shares is First Data Distributors, Inc. (the "Distributor" or "First Data
Distributors").
The Prospectus for the Fund is dated August 20, 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 GLOBAL INVESTMENT MANAGEMENT, a unit of BANKERS TRUST COMPANY
Investment Manager of the Fund
The Trust's distributor is FIRST DATA DISTRIBUTORS, INC., 4400 Computer Drive,
Westborough, MA 01581.
<PAGE>
RISK FACTORS AND CERTAIN SECURITIES AND INVESTMENT PRACTICES
Investment Objective
The investment objective of the Fund is described in the Fund's
Prospectus. There can, of course, be no assurance that the Fund will achieve its
investment objective.
Investment Practices
The following is a discussion of the various investments of and
techniques employed by the Fund:
Certificates of Deposit and Bankers' Acceptances. Certificates of
deposit are receipts issued by a depository institution in exchange for the
deposit of funds. The issuer agrees to pay the amount deposited plus interest to
the bearer of the receipt on the date specified on the certificate. The
certificate usually can be traded in the secondary market prior to maturity.
Bankers' acceptances typically arise from short-term credit arrangements
designed to enable businesses to obtain funds to finance commercial
transactions. Generally, an acceptance is a time draft drawn on a bank by an
exporter or an importer to obtain a stated amount of funds to pay for specific
merchandise. The draft is then "accepted" by a bank that, in effect,
unconditionally guarantees to pay the face value of the instrument on its
maturity date. The acceptance may then be held by the accepting bank as an
earning asset or it may be sold in the secondary market at the going rate of
discount for a specific maturity. Although maturities for acceptances can be as
long as 270 days, most acceptances have maturities of six months or less.
Commercial Paper. Commercial paper consists of short-term (usually from
1 to 270 days) unsecured promissory notes issued by corporations in order to
finance their current operations. A variable amount master demand note (which is
a type of commercial paper) represents a direct borrowing arrangement involving
periodically fluctuating rates of interest under a letter agreement between a
commercial paper issuer and an institutional lender pursuant to which the lender
may determine to invest varying amounts.
Illiquid Securities. Historically, illiquid securities have included
securities subject to contractual or legal restrictions on resale because they
have not been registered under the Securities Act of 1933, as amended (the "1933
Act"), securities which are otherwise not readily marketable and repurchase
agreements having a maturity of longer than seven days. Securities which have
not been registered under the 1933 Act are referred to as private placements or
restricted securities and are purchased directly from the issuer or in the
secondary market. Mutual funds do not typically hold a significant amount of
these restricted or other illiquid securities because of the potential for
delays on resale and uncertainty in valuation. Limitations on resale may have an
adverse effect on the marketability of portfolio securities and a mutual fund
might be unable to dispose of restricted or other illiquid securities promptly
or at reasonable prices and might thereby experience difficulty satisfying
redemptions within seven days. A mutual fund might also have to register such
restricted securities in order to dispose of them resulting in additional
expense and delay. Adverse market conditions could impede such a public offering
of securities.
In recent years, however, a large institutional market has developed
for certain securities that are not registered under the 1933 Act, including
repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be readily
resold or on an issuer's ability to honor a demand for repayment. The fact that
there are contractual or legal restrictions on resale of such investments to the
general public or to certain institutions may not be indicative of their
liquidity.
The Securities and Exchange Commission (the "SEC") has adopted Rule
144A, which allows a broader institutional trading market for securities
otherwise subject to restriction on their resale to the general public. Rule
144A establishes a "safe harbor" from the registration requirements of the 1933
Act of resales of certain securities to qualified institutional buyers. The
Manager anticipates that the market for certain restricted securities such as
institutional commercial paper will expand further as a result of this
regulation and the development of automated systems for the trading, clearance
and settlement of unregistered securities of domestic and foreign issuers, such
as the PORTAL System sponsored by the National Association of Securities
Dealers, Inc.
The Manager will monitor the liquidity of Rule 144A securities in the
Fund's portfolio under the supervision of the Trust's Board of Trustees. In
reaching liquidity decisions, the Manager will consider, among other things, the
following factors: (i) the frequency of trades and quotes for the security; (ii)
the number of dealers and other potential purchasers wishing to purchase or sell
the security; (iii) dealer undertakings to make a market in the security and
(iv) the nature of the security and of the marketplace trades (e.g., the time
needed to dispose of the security, the method of soliciting offers and the
mechanics of the transfer).
Lending of Portfolio Securities. The Fund has the authority to lend
portfolio securities to brokers, dealers and other financial organizations. The
Fund will not lend securities to Bankers Trust, the Distributor or their
affiliates. By lending its securities, the Fund can increase its income by
continuing to receive interest on the loaned securities as well as by either
investing the cash collateral in short-term securities or obtaining yield in the
form of interest paid by the borrower when U.S. Government obligations are used
as collateral. There may be risks of delay in receiving additional collateral or
risks of delay in recovery of the securities or even loss of rights in the
collateral should the borrower of the securities fail financially. The Fund will
adhere to the following conditions whenever its securities are loaned: (i) the
Fund must receive at least 100 percent cash collateral or equivalent securities
from the borrower; (ii) the borrower must increase this collateral whenever the
market value of the securities including accrued interest rises above the level
of the collateral; (iii) the Fund must be able to terminate the loan at any
time; (iv) the Fund must receive reasonable interest on the loan, as well as any
dividends, interest or other distributions on the loaned securities, and any
increase in market value; (v) the Fund may pay only reasonable custodian fees in
connection with the loan; and (vi) voting rights on the loaned securities may
pass to the borrower; provided, however, that if a material event adversely
affecting the investment occurs, the Trust's Board of Trustees must terminate
the loan and regain the right to vote the securities.
Short-Term Instruments. When the Fund experiences large cash inflows
through the sale of securities and desirable equity securities, that are
consistent with the Fund's investment objective, which are unavailable in
sufficient quantities or at attractive prices, the Fund may hold short-term
investments for a limited time pending availability of such equity securities.
Short-term instruments consist of foreign and domestic: (i) short-term
obligations of sovereign governments, their agencies, instrumentalities,
authorities or political subdivisions; (ii) other short-term debt securities
rated AA or higher by S&P or Aa or higher by Moody's or, if unrated, of
comparable quality in the opinion of Bankers Trust; (iii) commercial paper; (iv)
bank obligations, including negotiable certificates of deposit, time deposits
and bankers' acceptances; and (v) repurchase agreements. At the time the Fund
invests in commercial paper, bank obligations or repurchase agreements, the
issuer of the issuer's parent must have outstanding debt rated AA or higher by
S&P or Aa or higher by Moody's or outstanding commercial paper or bank
obligations rated A-1 by S&P or Prime-1 by Moody's; or, if no such ratings are
available, the instrument must be of comparable quality in the opinion of
Bankers Trust. These instruments may be denominated in U.S dollars or in foreign
currencies.
When-Issued and Delayed Delivery Securities. The Fund may purchase
securities on a when-issued or delayed delivery basis. For example, delivery of
and payment for these securities can take place a month or more after the date
of the purchase commitment. The purchase price and the interest rate payable, if
any, on the securities are fixed on the purchase commitment date or at the time
the settlement date is fixed. The value of such securities is subject to market
fluctuation and no interest accrues to the Fund until settlement takes place. At
the time the Fund makes the commitment to purchase securities on a when-issued
or delayed delivery basis, it will record the transaction, reflect the value
each day of such securities in determining its net asset value and, if
applicable, calculate the maturity for the purposes of average maturity from
that date. At the time of settlement a when-issued security may be valued at
less than the purchase price. To facilitate such acquisitions, the Fund will
maintain with the Fund's custodian a segregated account with liquid assets,
consisting of cash, U.S. Government securities or other appropriate securities,
in an amount at least equal to such commitments. On delivery dates for such
transactions, the Fund will meet its obligations from maturities or sales of the
securities held in the segregated account and/or from cash flow. If the Fund
chooses to dispose of the right to acquire a when-issued security prior to its
acquisition, it could, as with the disposition of any other Fund obligation,
incur a gain or loss due to market fluctuation. It is the current policy of the
Fund not to enter into when-issued commitments exceeding in the aggregate 15% of
the market value of the Fund's total assets, less liabilities other than the
obligations created by when-issued commitments.
Additional U.S. Government Obligations. The Fund may invest in
obligations issued or guaranteed by U.S. Government agencies or
instrumentalities. These obligations may or may not be backed by the "full faith
and credit" of the United States. In the case of securities not backed by the
full faith and credit of the United States, the Fund must look principally to
the federal agency issuing or guaranteeing the obligation for ultimate
repayment, and may not be able to assert a claim against the United States
itself in the event the agency or instrumentality does not meet its commitments.
Securities in which the Fund may invest that are not backed by the full faith
and credit of the United States include, but are not limited to, obligations of
the Tennessee Valley Authority, the Federal Home Loan Mortgage Corporation and
the U.S. Postal Service, each of which has the right to borrow from the U.S.
Treasury to meet its obligations, and obligations of the Federal Farm Credit
System and the Federal Home Loan Banks, both of whose obligations may be
satisfied only by the individual credits of each issuing agency. Securities
which are backed by the full faith and credit of the United States include
obligations of the Government National Mortgage Association, the Farmers Home
Administration, and the export-import Bank.
Equity Investments. The Fund may invest in equity securities listed on
any domestic or foreign securities exchange or traded in the over-the-counter
market as well as certain restricted or unlisted securities. They may or may not
pay dividends or carry voting rights. Common stock occupies the most junior
position in a company's capital structure.
Reverse Repurchase Agreements. The Fund may borrow funds for temporary
or emergency purposes, such as meeting larger than anticipated redemption
requests, and not for leverage, by among other things, agreeing to sell
portfolio securities to financial institutions such as banks and broker-dealers
and to repurchase them at a mutually agreed date and price (a "reverse
repurchase agreement"). At the time the Fund enters into a reverse repurchase
agreement it will place in a segregated custodial cash account, U.S. Government
Obligations or high-grade debt obligations having a value equal to the
repurchase price, including accrued interest. Reverse repurchase agreements
involve the risk that the market value of the securities sold by the Fund may
decline below the repurchase price of those securities. Reverse repurchase
agreements are considered to be borrowings by the Fund.
Warrants. Warrants entitle the holder to buy common stock from the
issuer at a specific price (the strike price) for a specific period of time. The
strike price of warrants sometimes is much lower than the current market price
of the underlying securities, yet warrants are subject to similar price
fluctuations. As a result, warrants may be more volatile investments than the
underlying securities.
Warrants do not entitle the holder to dividends or voting rights with
respect to the underlying securities and do not represent any rights in the
assets of the issuing company. Also, the value of the warrant does not
necessarily change with the value of the underlying securities and a warrant
ceases to have value if it is not exercised prior to the expiration date.
Convertible Securities. Convertible securities may be a debt security
or preferred stock which may be converted into common stock or carries the right
to purchase common stock. Convertible securities entitle the holder to exchange
the securities for a specified number of shares of common stock, usually of the
same company, at specified prices within a certain period of time.
The terms of any convertible security determine its ranking in a
company's capital structure. In the case of subordinated convertible debentures,
the holders' claims on assets and earnings are subordinated to the claims of
other creditors, and are senior to the claims of preferred and common
shareholders. In the case of convertible preferred stock, the holders' claims on
assets and earnings are subordinated to the claims of all creditors and are
senior to the claims of common shareholders.
Foreign Securities: Special Considerations Concerning Hong Kong,
Malaysia, Singapore and Japan. Many Asian countries may be subject to a greater
degree of social, political and economic instability than is the case in the
United States and European countries. Such instability may result from (i)
authoritarian governments or military involvement in political and economic
decision-making; (ii) popular unrest associated with demands for improved
political, economic and social conditions; (iii) internal insurgencies; (iv)
hostile relations with neighboring countries; and (v) ethnic, religious and
racial disaffection.
The economies of most of the Asian countries are heavily dependent upon
international trade and are accordingly affected by protective trade barriers
and the economic conditions of their trading partners, principally, the United
States, Japan, China and the European Community. The enactment by the United
States or other principal trading partners of protectionist trade legislation,
reduction of foreign investment in the local economies and general declines in
the international securities markets could have a significant adverse effect
upon the securities markets of the Asian countries.
Hong Kong's impending return to Chinese dominion in 1997 has not
initially had a positive effect on its economic growth which was vigorous in the
1980s. However, authorities in Beijing have agreed to maintain a capitalist
system for 50 years that, along with Hong Kong's economic growth, continued to
further strong stock market returns. In preparation for 1997, Hong Kong has to
develop trade with China, where it is the largest foreign investor, while also
maintaining its long-standing export relationship with the United States.
Spending on infrastructure improvements is a significant priority of the
colonial government while the private sector continues to diversify abroad based
on its position as an established international trade center in the Far East.
The Hong Kong stock market is undergoing a period of growth and change
which may result in trading volatility and difficulties in the settlement and
recording of transactions, and in interpreting and applying the relevant law and
regulations.
The Malaysian economy continued to perform well, growing at an average
annual rate of 9% from 1987 through 1991. This placed Malaysia as one of the
fastest growing economies in the Asian-Pacific region. Malaysia has become the
world's third-largest producer of semiconductor devices (after the US and Japan)
and the world's largest exporter of semiconductor devices. More remarkable is
the country's ability to achieve rapid economic growth with relative price
stability (2% inflation over the past five years) as the government followed
prudent fiscal/monetary policies. Malaysia's high export dependence level leaves
it vulnerable to a recession in the Organization for Economic Cooperation and
Development countries or a fall in world commodity prices.
Singapore has an open entrepreneurial economy with strong service and
manufacturing sectors and excellent international trading links derived from its
history. During the 1970s and early 1980s, the economy expanded rapidly,
achieving an average annual growth rate of 9%. Per capita GDP is among the
highest in Asia. Singapore holds a position as a major oil refining and services
center.
Investing in Japanese securities may involve the risks associated with
investing in foreign securities generally. In addition, because it invests in
Japan, the Fund will be subject to the general economic and political conditions
in Japan.
Share prices of companies listed on Japanese stock exchanges and on the
Japanese OTC market reached historical peaks (which were later referred to as
the "bubble") as well as historically high trading volumes in 1989 and 1990.
Since then, stock prices in both markets decreased significantly, with listed
stock prices reaching their lowest levels in the third quarter of 1992 and OTC
stock prices reaching their lowest levels in the fourth quarter of 1992. During
the period from January 1, 1989 through December 31, 1994, the highest Nikkei
stock average and Nikkei OTC average were 38,915.87 and 4,149.20, respectively,
and the lowest for each were 14,309.41 and 1,099.32, respectively. There can be
no assurance that additional market corrections will not occur.
The common stocks of many Japanese companies continue to trade at high
price earnings ratios in comparison with those in the United States, even after
the recent market decline. Differences in accounting methods make it difficult
to compare the earnings of Japanese companies with those of companies in other
countries, especially the United States.
Since the Fund invests in securities denominated in yen, changes in
exchange rates between the U.S. dollar and the yen affect the U.S. dollar value
of the Fund's assets. Such rate of exchange is determined by forces of supply
and demand on the foreign exchange markets. These forces are in turn affected by
the international balance of payments and other economic, political and
financial conditions, government intervention, speculation and other factors.
Japanese securities held by the Fund are not registered with the SEC
nor are the issuers thereof subject to its reporting requirements. There may be
less publicly available information about issuers of Japanese securities than
about U.S. companies and such issuers may not be subject to accounting, auditing
and financial reporting standards and requirements comparable to those to which
U.S. companies are subject.
Although the Japanese economy has grown substantially over the past
four decades, recently the rate of growth had slowed substantially. During 1991,
1992 and 1993, the Japanese economy grew at rates of 4.3%, 1.1% and 0.1%,
respectively, as measured by real gross domestic product.
Japan's success in exporting its products has generated a sizable trade
surplus. Such trade surplus has caused tensions at times between Japan and some
of its trading partners. In particular, Japan's trade relations with the United
States have recently been the subject of discussion and negotiation between the
two nations. The United States has imposed certain measures designed to address
trade issues in specific industries. These measures and similar measures in the
future may adversely affect the performance of the Fund.
Japan's economy has typically exhibited low inflation and low interest
rates. There can be no assurance that low inflation and low interest rates will
continue, and it is likely that a reversal of such factors would adversely
affect the Japanese economy. Moreover, the Japanese economy may differ,
favorably or unfavorably, from the U.S. economy in such respects as growth of
gross national product, rate of inflation, capital reinvestment, resources,
self-sufficiency and balance of payments position.
Japan has a parliamentary form of government. In 1993 a coalition
government was formed which, for the first time since 1955, did not include the
Liberal Democratic Party. Since mid-1993, there have been several changes in
leadership in Japan. What, if any, effect the current political situation will
have on prospective regulatory reforms of the economy in Japan cannot be
predicted. Recent and future developments in Japan and neighboring Asian
countries may lead to changes in policy that might adversely affect the Fund.
Futures Contracts and Options on Futures Contracts
General. The successful use of such instruments draws upon the
Manager's skill and experience with respect to such instruments. When futures
are purchased to hedge against a possible increase in the price of securities
before the Fund is able to invest its cash (or cash equivalents) in an orderly
fashion, it is possible that the market may decline instead; if the Fund then
concludes not to invest its cash at that time because of concern as to possible
further market decline or for other reasons, the Fund will realize a loss on the
futures contract that is not offset by a reduction in the price of the
instruments that were to be purchased. Successful use of futures to hedge
against foreign exchange risk depends on the Manager's ability to forecast
currency exchange rate movements correctly. Should exchange rates move in an
unexpected manner, the Fund may not achieve the anticipated benefits of futures
contracts or options on futures contracts or may realize losses and thus will be
in a worse position than if such strategies had not been used. In addition, the
correlation between movements in the price of futures contracts or options on
futures contracts and movements in the price of the securities and currencies
hedged or used for cover will not be perfect and could produce unanticipated
losses.
Successful use of the futures contract and related options are subject
to special risk considerations. A liquid secondary market for any futures or
options contract may not be available when a futures or options position is
sought to be closed. In addition, there may be an imperfect correlation between
movements in the securities or currency in the Fund. Successful use of futures
or options contracts is further dependent on Bankers Trust's ability to
correctly predict movements in the securities or foreign currency markets and no
assurance can be given that its judgment will be correct. Successful use of
options on securities or stock indices are subject to similar risk
considerations. In addition, by writing covered call options, the Fund gives up
the opportunity, while the option is in effect, to profit from any price
increase in the underlying securities above the options exercise price.
Futures Contracts. The Fund may enter into contracts for the purchase
or sale for future delivery of foreign currencies or contracts based on the EAFE
Index. U.S. futures contracts have been designed by exchanges which have been
designated "contracts markets" by the CFTC, and must be executed through a
futures commission merchant, or brokerage firm, which is a member of the
relevant contract market. Futures contracts trade on a number of exchange
markets, and, through their clearing corporations, the exchanges guarantee
performance of the contracts as between the clearing members of the exchange.
At the same time a futures contract is purchased or sold, the Fund must
allocate cash or securities as a deposit payment ("initial deposit"). It is
expected that the initial deposit would be approximately 1 1/2% to 5% of a
contract's face value. Daily thereafter, the futures contract is valued and the
payment of "variation margin" may be required, since each day the Fund would
provide or receive cash that reflects any decline or increase in the contract's
value.
Although futures contracts by their terms call for the actual delivery
or acquisition of securities, in most cases the contractual obligation is
fulfilled before the date of the contract without having to make or take
delivery of the securities. The offsetting of a contractual obligation is
accomplished by buying (or selling, as the case may be) on a commodities
exchange an identical futures contract calling for delivery in the same month.
Such a transaction, which is effected through a member of an exchange, cancels
the obligation to make or take delivery of the securities. Since all
transactions in the futures market are made, offset or fulfilled through a
clearinghouse associated with the exchange on which the contracts are traded,
the Fund will incur brokerage fees when it purchases or sells futures contracts.
The ordinary spreads between prices in the cash and futures market, due
to differences in the nature of those markets, are subject to distortions.
First, all participants in the futures market are subject to initial deposit and
variation margin requirements. Rather than meeting additional variation margin
requirements, investors may close futures contracts through offsetting
transactions which could distort the normal relationship between the cash and
futures markets. Second, the liquidity of the futures market depends on
participants entering into offsetting transactions rather than making or taking
delivery. To the extent participants decide to make or take delivery, liquidity
in the futures market could be reduced, thus producing distortion. Third, from
the point of view of speculators, the margin deposit requirements in the futures
market are less onerous than margin requirements in the securities market.
Therefore, increased participation by speculators in the futures market may
cause temporary price distortions.
In addition, futures contracts entail risks. The Manager believes that
use of such contracts will benefit the Fund. The successful use of futures
contracts, however, depends on the degree of correlation between the futures and
securities markets.
Options on Futures Contracts. A futures option gives the holder, in
return for the premium paid, the right to buy (call) from or sell (put) to the
writer of the option a futures contract at a specified price at any time during
the period of the option. Upon exercise, the writer of the option is obligated
to pay the difference between the cash value of the futures contract the
exercise price. Like the buyer or seller of a futures contract, the holder, or
writer, of an option has the right to terminate its position prior to the
scheduled expiration of the option by selling, or purchasing an option of the
same series, at which time the person entering into the closing transaction will
realize a gain or loss. The Fund will be required to deposit initial margin and
variation margin with respect to put and call options on futures contracts
written by its pursuant to brokers' requirements similar to those described
above. Net option premiums received will be included as initial margin deposits.
In anticipation of a decline in interest rates, the Fund may purchase call
options on futures contracts as a substitute for the purchase of futures
contracts to hedge against a possible increase in the price of securities which
the Fund intends to purchase. Similarly, if the value of the securities held by
the Fund is expected to decline as a result of an increase in interest rates,
the Fund might purchase put options or sell call options on futures contracts
rather than sell futures contracts.
Investments in futures options involve some of the same considerations
that are involved in connection with investments in futures contracts (for
example, the existence of a liquid secondary market). In addition, the purchase
or sale of an option also entails the risk that changes in the value of the
underlying futures contract will not correspond to changes in the value of the
option purchased. Depending on the pricing of the option compared to either the
futures contract upon which it is based, or upon the price of the securities
being hedged, an option may or may not be less risky than ownership of the
futures contract or such securities. In general, the market prices of options
can be expected to be more volatile than the market prices on the underlying
futures contract. Compared to the purchase or sale of futures contracts,
however, the purchase of call or put options on futures contracts may frequently
involved less potential risk to the Fund because the maximum amount at risk is
the premium paid for the options (plus transaction costs). The writing of an
option on a futures contract involves risks similar to those risks relating to
the sale of futures contracts.
.........
The Board of Trustees has also adopted a restriction that the Fund will not
enter into any futures contracts or options on futures contracts if immediately
thereafter the amount of margin deposits on all the futures contracts of the
Fund and premiums paid on outstanding options on futures contracts owned by the
Fund (other than those entered into for bona fide hedging purposes) would exceed
5% of the market value of the total assets of the Fund.
Additional Risks of Options on Futures Contracts and Forward Contracts.
Unlike transactions entered into by the Fund in futures contracts, forward
contracts are not traded on contract markets regulated by the CFTC or (with the
exception of certain foreign currency options) by the SEC. To the contrary, such
instruments are traded through financial institutions acting as market-makers.
The Fund's ability to terminate over-the-counter options will be more
limited than with exchange-traded options. It is also possible that
broker-dealers participating in over-the-counter options transactions will not
fulfill their obligations. Until such time as the staff of the SEC changes its
position, the Fund will treat purchased over-the-counter options and assets used
to cover written over-the-counter options as illiquid securities. With respect
to options written with primary dealers in U.S. Government securities pursuant
to an agreement requiring a closing purchase transaction at a formula price, the
amount of illiquid securities may be calculated with reference to the repurchase
formula.
Futures contracts, options on futures contracts and forward contracts
may be traded on foreign exchanges. Such transactions are subject to the risk of
governmental actions affecting trading in or the prices of foreign currencies or
securities. The value of such positions also could be adversely affected by: (i)
other complex foreign political and economic factors; (ii) lesser availability
than in the United States of data on which to make trading decisions; (iii)
delays in the Fund's ability to act upon economic events occurring in foreign
markets during nonbusiness hours in the United States; (iv) the imposition of
different exercise and settlement terms and procedures and margin requirements
than in the United States; and (v) lesser trading volume.
Options on Securities Indices. The Fund may purchase and write (sell)
call and put options on securities indices. Such options give the holder the
right to receive a cash settlement during the term of the option based upon the
difference between the exercise price and the value of the index.
Options on securities indices entail certain risks. The absence of a
liquid secondary market to close out options positions on securities indices may
occur, although the Fund generally will only purchase or write such an option if
the Manager believes the option can be closed out.
Use of options on securities indices also entails the risk that trading
in such options may be interrupted if trading in certain securities included in
the index is interrupted. The Fund will not purchase such options unless the
Manager believes the market is sufficiently developed such that the risk of
trading in such options is no greater than the risk of trading in options on
securities.
Price movements in the Fund's portfolio may not correlate precisely
with movements in the level of an index and, therefore, the use of options on
indices cannot serve as a complete hedge. Because options on securities indices
require settlement in cash, the Manager may be forced to liquidate portfolio
securities to meet settlement obligations.
Forward Foreign Currency Exchange Contracts. Because the Fund may buy
and sell securities denominated in currencies other than the U.S. dollar and
receives interest, dividends and sale proceeds in currencies other than the U.S.
dollar, the Fund from time to time may enter into foreign currency exchange
transactions to convert to and from different foreign currencies and to convert
foreign currencies to and from the U.S. dollar. The Fund either enters into
these transactions on a spot (i.e., cash) basis at the spot rate prevailing in
the foreign currency exchange market or uses forward contracts to purchase or
sell foreign currencies.
A forward foreign currency exchange contract is an obligation by a fund
to purchase or sell a specific currency at a future date, which may be any fixed
number of days from the date of the contract. Forward foreign currency exchange
contracts establish an exchange rate at a future date. These contracts are
transferable in the interbank market conducted directly between currency traders
(usually large commercial banks) and their customers. A forward foreign currency
exchange contract generally has no deposit requirement and is traded at a net
price without commission. The Fund maintains with its custodian a segregated
account of cash and liquid portfolio assets in an amount at least equal to its
obligations under each forward foreign currency exchange contract. Neither spot
transactions nor forward foreign currency exchange contracts eliminate
fluctuations in the prices of the Fund's securities or in foreign exchange
rates, or prevent loss if the prices of these securities should decline.
The Fund may enter into foreign currency hedging transactions in an
attempt to protect against changes in foreign currency exchange rates that would
adversely affect the portfolio position or an anticipated investment position.
Since consideration of the prospect for currency parities will be incorporated
into Bankers Trust's long-term investment decisions, the Fund will not routinely
enter into foreign currency hedging transactions with respect to security
transactions; however, Bankers Trust believes that it is important to have the
flexibility to enter into foreign currency hedging transactions when it
determines that the transactions would be in the Fund's best interest. Although
these transactions tend to minimize the risk of loss due to a decline in the
value of the hedged currency, at the same time they tend to limit any potential
gain that might be realized should the value of the hedged currency increase.
The precise matching of the forward contract amounts and the value of the
securities involved will not generally be possible because the future value of
such securities in foreign currencies will change as a consequence of market
movements in the value of such securities between the date the forward contract
is entered into and the date it matures. The projection of currency market
movements is extremely difficult, and the successful execution of a hedging
strategy is highly uncertain.
While these contracts are not presently regulated by the CFTC, the CFTC
may in the future assert authority to regulate forward contracts. In such event
the Fund's ability to utilize forward contracts in the manner set forth in the
Prospectus may be restricted. Forward contracts may reduce the potential gain
from a positive change in the relationship between the U.S. dollar and foreign
currencies. Unanticipated changes in currency prices may result in poorer
overall performance for the Fund than if it had not entered into such contracts.
The use of foreign currency forward contracts may not eliminate fluctuations in
the underlying U.S. dollar equivalent value of the prices of or rates of return
on the Fund's foreign currency denominated portfolio securities and the use of
such techniques will subject the Fund to certain risks.
The matching of the increase in value of a forward contract and the
decline in the U.S. dollar equivalent value of the foreign currency denominated
asset that is the subject of the hedge generally will not be precise. In
addition, the Fund may not always be able to enter into foreign currency forward
contracts at attractive prices and this will limit the Fund's ability to use
such contracts to hedge its assets.
Investment Restrictions
The following investment restrictions are "fundamental policies" of the
Fund and may not be changed without the approval of a "majority of the
outstanding voting securities" of the Fund. "Majority of the outstanding voting
securities" under the 1940 Act, and as used in this Statement of Additional
Information and the Prospectus, means, with respect to the Fund, the lesser of
(i) 67% or more of the outstanding voting securities of the Fund present at a
meeting, if the holders of more than 50% of the outstanding voting securities of
the Fund are present or represented by proxy or (ii) more than 50% of the
outstanding voting securities of the Fund.
As a matter of fundamental policy, the Fund may not:
(1) borrow money or mortgage or hypothecate assets of the Fund, except
that in an amount not to exceed 1/3 of the current value of the
Fund's assets, it may borrow money as a temporary measure for
extraordinary or emergency purposes and enter into reverse
repurchase agreements or dollar roll transactions, and except that
it may pledge, mortgage or hypothecate not more than 1/3 of such
assets to secure such borrowings (it is intended that money would
be borrowed only from banks and only either to accommodate
requests for the withdrawal of beneficial interests (redemption of
shares) while effecting an orderly liquidation of portfolio
securities or to maintain liquidity in the event of an
unanticipated failure to complete a portfolio security transaction
or other similar situations) or reverse repurchase agreements,
provided that collateral arrangements with respect to options and
futures, including deposits of initial deposit and variation
margin, are not considered a pledge of assets for purposes of this
restriction (as an operating policy, the Funds may not engage in
dollar roll transactions);
(2) underwrite securities issued by other persons except insofar as
the Trust or the 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); or
(b) through the use of repurchase agreements or the purchase of
short-term obligations;
(4) purchase or sell real estate (including limited partnership
interests but excluding securities secured by real estate or
interests therein), in the ordinary course of business (except
that the Trust may hold and sell, for the Fund's portfolio, real
estate acquired as a result of the Fund's ownership of
securities);
(5) concentrate its investments in any particular industry (excluding U.S.
Government securities), but if it is deemed appropriate for the achievement of
the Fund's investment objective(s), up to 25% of its total assets may be
invested in any one industry;
(6) issue any senior security (as that term is defined in the 1940
Act) if such issuance is specifically prohibited by the 1940 Act
or the rules and regulations promulgated thereunder, (except to
the extent permitted in investment restriction No. 1), the
provided that collateral arrangements with respect to options and
futures, including deposits of initial deposit and variation
margin, are not considered to be the issuance of a senior security
for purposes of this restriction; and
(7) purchase the securities of any one issuer if as a result more than
5% of the value of its total assets would be invested in the
securities of such issuer or the Fund would own more than 10% of
the outstanding voting securities of such issuer, except that up
to 25% of the value of its total assets may be invested without
regard to these 5% limitation and provided that there is no
limitation with respect to investments in U.S. Government
securities.
Additional investment restrictions adopted by the Fund, which may be
changed by the Board of Trustees, provide that the Fund may not:
(i) purchase any security or evidence of interest therein on
margin, except that such short-term credit as may be necessary
for the clearance of purchases and sales of securities may be
obtained and except that deposits of initial deposit and
variation margin may be made in connection with the purchase,
ownership, holding or sale of futures;
(ii) invest for the purpose of exercising control or management;
(iii) purchase for the Fund securities of any investment company if such
purchase at the time thereof would cause: (a) more than 10% of the Fund's total
assets (taken at the greater of cost or market value) to be invested in the
securities of such issuers; (b) more than 5% of the Fund's total assets (taken
at the greater of cost or market value) to be invested in any one investment
company; or (c) more than 3% of the outstanding voting securities of any such
issuer to be held for the Fund (as an operating policy, the Fund will not invest
in another open-end registered investment company); or
(iv) invest more than 15% of the Fund's net assets (taken at the
greater of cost or market value) in securities that are
illiquid or not readily marketable not including (a) Rule 144A
securities that have been determined to be liquid by the Board
of Trustees; and (b) commercial paper that is sold under
section 4(2) of the 1933 Act which is not traded flat or in
default as to interest or principal.
There will be no violation of any investment restriction if that
restriction is complied with at the time the relevant action is taken
notwithstanding a later change in market value of an investment, in net or total
assets, in the securities rating of the investment, or any other later change.
The Fund will comply with the state securities laws and regulations of
all states in which it is registered.
Portfolio Transactions and Brokerage Commissions
The Manager is responsible for decisions to buy and sell securities,
futures contracts and options on such securities and futures for the Fund, the
selection of brokers, dealers and futures commission merchants to effect
transactions and the negotiation of brokerage commissions, if any.
Broker-dealers may receive brokerage commissions on fund transactions, including
options, futures and options on futures transactions and the purchase and sale
of underlying securities upon the exercise of options. Orders may be directed to
any broker-dealer or futures commission merchant, including to the extent and in
the manner permitted by applicable law, Bankers Trust or its subsidiaries or
affiliates. Purchases and sales of certain fund securities on behalf of the Fund
are frequently placed by the Manager with the issuer or a primary or secondary
market-maker for these securities on a net basis, without any brokerage
commission being paid by the Fund. Trading does, however, involve transaction
costs. Transactions with dealers serving as market-makers reflect the spread
between the bid and asked prices. Transaction costs may also include fees paid
to third parties for information as to potential purchasers or sellers of
securities. Purchases of underwritten issues may be made which will include an
underwriting fee paid to the underwriter.
The Manager seeks to evaluate the overall reasonableness of the
brokerage commissions paid (to the extent applicable) in placing orders for the
purchase and sale of securities for the Fund taking into account such factors as
price, commission (negotiable in the case of national securities exchange
transactions), if any, size of order, difficulty of execution and skill required
of the executing broker-dealer through familiarity with commissions charged on
comparable transactions, as well as by comparing commissions paid by the Fund to
reported commissions paid by others. The Manager reviews on a routine basis
commission rates, execution and settlement services performed, making internal
and external comparisons.
The Manager is authorized, consistent with Section 28(e) of the
Securities Exchange Act of 1934, as amended, when placing portfolio transactions
for the Fund with a broker to pay a brokerage commission (to the extent
applicable) in excess of that which another broker might have charged for
effecting the same transaction on account of the receipt of research, market or
statistical information. The term "research, market or statistical information"
includes advice as to the value of securities; the advisability of investing in,
purchasing or selling securities; the availability of securities or purchasers
or sellers of securities; and furnishing analyses and reports concerning
issuers, industries, securities, economic factors and trends, portfolio strategy
and the performance of accounts.
Consistent with the policy stated above, the Rules of Fair Practice of
the National Association of Securities Dealers, Inc. and such other policies as
the Trustees of the Trust may determine, the Manager may consider sales of
shares of a Fund as a factor in the selection of broker-dealers to execute
portfolio transactions. Bankers Trust will make such allocations if commissions
are comparable to those charged by nonaffiliated, qualified broker-dealers for
similar services.
Higher commissions may be paid to firms that provide research services
to the extent permitted by law. Bankers Trust may use this research information
in managing the Fund's assets, as well as the assets of other clients.
Except for implementing the policies stated above, there is no
intention to place portfolio transactions with particular brokers or dealers or
groups thereof. In effecting transactions in over-the-counter securities, orders
are placed with the principal market-makers for the security being traded
unless, after exercising care, it appears that more favorable results are
available otherwise.
Although certain research, market and statistical information from
brokers and dealers can be useful to the Fund and to the Manager, it is the
opinion of the management of the Trust that such information is only
supplementary to the Manager's own research effort, since the information must
still be analyzed, weighed and reviewed by the Manager's staff. Such information
may be useful to the Manager in providing services to clients other than the
Fund, and not all such information is used by the Manager in connection with the
Fund. Conversely, such information provided to the Manager by brokers and
dealers through whom other clients of the Manager effect securities transactions
may be useful to the Manager in providing services to the Fund.
In certain instances there may be securities which are suitable for the
Fund as well as for one or more of the Manager's other clients. Investment
decisions for the Fund and for the Manager's other clients are made with a view
to achieving their respective investment objectives. It may develop that a
particular security is bought or sold for only one client even though it might
be held by, or bought or sold for, other clients. Likewise, a particular
security may be bought for one or more clients when one or more clients are
selling that same security. Some simultaneous transactions are inevitable when
several clients receive investment advice from the same investment adviser,
particularly when the same security is suitable for the investment objectives of
more than one client. When two or more clients are simultaneously engaged in the
purchase or sale of the same security, the securities are allocated among
clients in a manner believed to be equitable to each. It is recognized that in
some cases this system could have a detrimental effect on the price or volume of
the security as far as the Fund is concerned. However, it is believed that the
ability of the Fund to participate in volume transactions will produce better
executions for the Fund.
PERFORMANCE INFORMATION
Standard Performance Information
From time to time, quotations of the Fund's performance may be included
in advertisements, sales literature or shareholder reports. These performance
figures are calculated in the following manner:
Total Return: The Fund's average annual total return is calculated for
certain periods by determining the average annual compounded rates of
return over those periods that would cause an investment of $1,000
(made at the maximum public offering price with all distributions
reinvested) to reach the value of that investment at the end of the
periods. The Fund may also calculate total return figures which
represent aggregate performance over a period or year-by-year
performance.
Performance Results: Any total return quotation provided for the Fund
should not be considered as representative of the performance of the
Fund in the future since the net asset value and offering price of
shares of the Fund will vary based not only on the type, quality and
maturities of the securities held in the Fund, but also on changes in
the current value of such securities and on changes in the expenses of
the Fund. These factors and possible differences in the methods used to
calculate total return should be considered when comparing the total
return of the Fund to total returns published for other investment
companies or other investment vehicles. Total return reflects the
performance of both principal and income.
Comparison of Fund Performance
Comparison of the quoted nonstandardized performance of various
investments is valid only if performance is calculated in the same manner. Since
there are different methods of calculating performance, investors should
consider the effect of the methods used to calculate performance when comparing
performance of the Fund with performance quoted with respect to other investment
companies or types of investments.
In connection with communicating its performance to current or
prospective shareholders, the Fund also may compare these figures to the
performance of other mutual funds tracked by mutual fund rating services or to
unmanaged indices which may assume reinvestment of dividends but generally do
not reflect deductions for administrative and management costs.
Evaluations of the Fund's performance made by independent sources may
also be used in advertisements concerning the Fund. Sources for the Fund's
performance information could include the following: Asian Wall Street Journal,
Barron's, Business Week, Changing Times, The Kiplinger Magazine, Consumer
Digest, Financial Times, Financial World, Forbes, Fortune, Global Investor,
Investor's Daily, Lipper Analytical Services, Inc.'s Mutual Fund Performance
Analysis, Money, Morningstar Inc., New York Times, Personal Investing News,
Personal Investor, Success, U.S. News and World Report, Value Line, Wall Street
Journal, Weisenberger Investment Companies Services and Working Women.
VALUATION OF SECURITIES; REDEMPTION IN KIND
Equity and debt securities (other than short-term debt obligations
maturing in 60 days or less), including listed securities and securities for
which price quotations are available, will normally be valued on the basis of
market valuations furnished by a pricing service. Short-term debt obligations
and money market securities maturing in 60 days or less are valued at amortized
cost, which approximates market.
Securities for which market quotations are not available are valued by
Bankers Trust pursuant to procedures adopted by the Trust's Board of Trustees.
It is generally agreed that securities for which market quotations are not
readily available should not be valued at the same value as that carried by an
equivalent security which is readily marketable.
The problems inherent in making a good faith determination of value are
recognized in the codification effected by SEC Financial Reporting Release No. 1
("FRR 1" (formerly Accounting Series Release No. 113)) which concludes that
there is "no automatic formula" for calculating the value of restricted
securities. It recommends that the best method simply is to consider all
relevant factors before making any calculation. According to FRR 1 such factors
would include consideration of the:
type of security involved, financial statements, cost at date
of purchase, size of holding, discount from market value of
unrestricted securities of the same class at the time of
purchase, special reports prepared by analysts, information as
to any transactions or offers with respect to the security,
existence of merger proposals or tender offers affecting the
security, price and extent of public trading in similar
securities of the issuer or comparable companies, and other
relevant matters.
To the extent that the Fund purchases securities which are restricted
as to resale or for which current market quotations are not available, the
Manager of the Fund will value such securities based upon all relevant factors
as outlined in FRR 1.
The Trust, on behalf of the Fund, reserves the right, if conditions
exist which make cash payments undesirable, to honor any request for redemption
or repurchase order by making payment in whole or in part in readily marketable
securities chosen by the Trust, and valued as they are for purposes of computing
the Fund's net asset value (a redemption in kind). If payment is made to a Fund
shareholder in securities, the shareholder may incur transaction expenses in
converting these securities into cash. The Trust, on behalf of the Fund, and the
Fund have elected, however, to be governed by Rule 18f-1 under the 1940 Act as a
result of which the Fund is obligated to redeem shares with respect to any one
investor during any 90-day period, solely in cash up to the lesser of $250,000
or 1% of the net asset value of the Fund at the beginning of the period.
<PAGE>
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.
<TABLE>
Trustees and Officers
<CAPTION>
Principal Occupations During
Name, Address and Age Position Held with the Trust Past 5 Years
- --------------------- ---------------------------- ------------
<S> <C> <C>
Robert R. Coby, 46 Trustee President of Leadership Capital Inc.
118 North Drive since 1995; Chief Operating Officer of
North Massapequa, NY 11758 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 Trustee Chairman of North American Properties
2015 West Main Street Group since January 1987.
Stamford, CT 06902
James S. Pasman, Jr., 66 Trustee Retired; President and Chief Operations
29 The Trillium Officer of National Intergroup Inc.
Pittsburgh, PA 15238 (1989-1991).
*William E. Small, 55 Trustee and President Independent Consultant (1996-present);
Formerly Executive Vice President of
First Data Investor Services Group Inc.
("First Data") (1994-1996); Senior Vice
President of The Shareholder Services
Group, Inc. (1993-1994); independent
consultant (1990-1993).
<PAGE>
Principal Occupations During
Name, Address and Age Position Held with the Trust Past 5 Years
- --------------------- ---------------------------- ------------
Michael Kardok, 38 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.
</TABLE>
Mr. Kardok and Ms. Tedesco also hold similar positions for other investment
companies for which First Data Distributors or an affiliate serves as the
principal underwriter.
No person who is an officer or director of Bankers Trust is an officer
or Trustee of the Trust. No director, officer or employee of First Data
Distributors or any of its affiliates will receive any compensation from the
Trust for serving as an officer or Trustee of the Trust.
As of August 1, 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, First Data Distributors or any of their
affiliates; SEC fees and state Blue Sky qualification fees; charges of
custodians and transfer and dividend disbursing agents; certain insurance
premiums; outside auditing and legal expenses; cost of maintenance of corporate
existence; costs attributable to investor services, including, without
limitation, telephone and personnel expenses; costs of preparing and printing
prospectuses and statements of additional information for regulatory purposes
and for distribution to existing shareholders; costs of shareholders' reports
and meetings of shareholders, officers and Trustees of the Trust; and any
extraordinary expenses.
Bankers Trust may have deposit, loan and other commercial banking
relationships with the issuers of obligations which may be purchased on behalf
of the Fund, including outstanding loans to such issuers which could be repaid
in whole or in part with the proceeds of securities so purchased. Such
affiliates deal, trade and invest for their own accounts in such obligations and
are among the leading dealers of various types of such obligations. Bankers
Trust, in making its investment decisions, does not obtain or use material
inside information in its possession or in the possession of any of its
affiliates. In making investment recommendations for the Fund, Bankers Trust
will not inquire or take into consideration whether an issuer of securities
proposed for purchase or sale by the Fund is a customer of Bankers Trust, its
parent or its subsidiaries or affiliates and in dealing with its customers,
Bankers Trust, its parent, subsidiaries and affiliates will not inquire or take
into consideration whether securities of such customers are held by any fund
managed by Bankers Trust or any such affiliate.
The Fund's prospectus contains disclosure as to the amount of Bankers
Trust's investment advisory and administration and services fees.
Bankers Trust has agreed that if in any fiscal year the aggregate
expenses of the Fund (including fees pursuant to the Management Agreement, but
excluding interest, taxes, brokerage and, if permitted by the relevant state
securities commissions, extraordinary expenses) exceed the expense limitation of
any state having jurisdiction over the Fund, Bankers Trust will reimburse the
Fund for the excess expense to the extent required by state law.
Administrator
First Data, One Exchange Place, Boston, Massachusetts 02109, serves as
administrator of the Fund. As administrator, First Data is obligated on a
continuous basis to provide such administrative services as the Board of
Trustees of the Trust reasonably deems necessary for the proper administration
of the Fund. First Data will generally assist in all aspects of the Fund's
operations; supply and maintain office facilities (which may be in First Data's
own offices), statistical and research data, data processing services, clerical,
accounting, bookkeeping and recordkeeping services (including without limitation
the maintenance of such books and records as are required under the 1940 Act and
the rules thereunder, except as maintained by other agents), internal auditing,
executive and administrative services, and stationery and office supplies;
prepare reports to shareholders or investors; prepare and file tax returns;
supply financial information and supporting data for reports to and filings with
the SEC and various state Blue Sky authorities; supply supporting documentation
for meetings of the Board of Trustees; provide monitoring reports and assistance
regarding compliance with the Declaration of Trust, by-laws, investment
objectives and policies and with Federal and state securities laws; arrange for
appropriate insurance coverage; calculate net asset values, net income and
realized capital gains or losses, and negotiate arrangements with, and supervise
and coordinate the activities of, agents and others to supply services.
Custodian and Transfer Agent
Bankers Trust, 130 Liberty Stree (One Bankers Trust Plaza), New York,
New York 10006, serves as custodian for the Fund. As custodian, it holds the
Fund's assets. Bankers Trust will comply with the self-custodian provisions of
Rule 17f-2 under the 1940 Act.
First Data serves as transfer agent of the Trust. Under its transfer
agency agreement with the Trust, First Data maintains the shareholder account
records for the Fund, handles certain communications between shareholders and
the Fund and causes to be distributed any dividends and distributions payable by
the Fund.
Bankers Trust and First Data may be reimbursed by the Fund for
out-of-pocket expenses.
Use of Name
The Trust and Bankers Trust have agreed that the Trust may use "BT" as
part of its name for so long as Bankers Trust serves as investment manager to
the Fund. The Trust has acknowledged that the term "BT" is used by and is a
property right of certain subsidiaries of Bankers Trust and that those
subsidiaries and/or Bankers Trust may at any time permit others to use that
term.
The Trust may be required, on 60 days' notice from Bankers Trust at any
time, to abandon use of the acronym "BT" as part of its name. If this were to
occur, the Trustees would select an appropriate new name for the Trust, but
there would be no other material effect on the Trust, its shareholders or
activities.
Banking Regulatory Matters
Bankers Trust has been advised by its counsel that in its opinion
Bankers Trust may perform the services for the Fund contemplated by the
Management Agreement and other activities for the Fund described in the
Prospectus and this Statement of Additional Information without violation of the
Glass-Steagall Act or other applicable banking laws or regulations. However,
counsel has pointed out that future changes in either Federal or state statutes
and regulations concerning the permissible activities of banks or trust
companies, as well as future judicial or administrative decisions or
interpretations of present and future statutes and regulations, might prevent
Bankers Trust from continuing to perform those services for the Trust and the
Fund. State laws on this issue may differ from the interpretations of relevant
Federal law and banks and financial institutions may be required to register as
dealers pursuant to state securities law. If the circumstances described above
should change, the Boards of Trustees would review the relationships with
Bankers Trust and consider taking all actions necessary in the circumstances.
Counsel and Independent Accountants
Willkie Farr & Gallagher, One Citicorp Center, 153 East 53rd Street,
New York, New York 10022-4669, serves as Counsel to the Trust and the Fund.
Ernst & Young LLP, 787 Seventh Avenue, New York, New York 10019, acts as
independent accountants of the Trust and the Fund.
ORGANIZATION OF THE TRUST
Shares of the Trust do not have cumulative voting rights, which means
that holders of more than 50% of the shares voting for the election of Trustees
can elect all Trustees. Shares are transferable but have no preemptive,
conversion or subscription rights. Shareholders generally vote by Fund, except
with respect to the election of Trustees and the ratification of the selection
of independent accountants.
Through its separate accounts the Companies are the Fund's sole
stockholders of record, so under the 1940 Act, the Companies are deemed to be in
control of the Fund. Nevertheless, when a shareholders' meeting occurs, each
Company solicits and accepts voting instructions from its Contractowners who
have allocated or transferred monies for a investment in the Fund as of the
record date of the meeting. Each Company then votes the Fund's shares that are
attributable to its Contractowners' interest in the Fund in proportion to the
voting instructions received. Each Company will vote any share that it is
entitled to vote directly due to amounts it has contributed or accumulated in
its separate accounts in the manner described in the offering memoranda for its
variable annuities and variable life insurance policies.
Massachusetts law provides that shareholders could under certain
circumstances be held personally liable for the obligations of the Trust.
However, the Trust's Declaration of Trust disclaims shareholder liability for
acts or obligations of the Trust and requires that notice of this disclaimer be
given in each agreement, obligation or instrument entered into or executed by
the Trust or a Trustee. The Declaration of Trust provides for indemnification
from the Trust's property for all losses and expenses of any shareholder held
personally liable for the obligations of the Trust. Thus, the risk of a
shareholder's incurring financial loss on account of shareholder liability is
limited to circumstances in which the Trust itself would be unable to meet its
obligations, a possibility that the Trust believes is remote. Upon payment of
any liability incurred by a Trust, the shareholder paying the liability will be
entitled to reimbursement from the general assets of the Trust. The Trustees
intend to conduct the operations of the Trust in a manner so as to avoid, as far
as possible, ultimate liability of the shareholders for liabilities of the
Trust.
The Trust was organized on January 19, 1996.
TAXATION
Taxation of the Funds
The Trust intends to qualify annually and to elect the Fund to be
treated as a regulated investment company under the Code.
As a regulated investment company, the Fund will not be subject to U.S.
Federal income tax on its investment company taxable income and net capital
gains (the excess of net long-term capital gains over net short-term capital
losses), if any, that it distributes to its shareholders, that is, the
Companies' separate accounts. The Fund intends to distribute to its
shareholders, at least annually, substantially all of its investment company
taxable income and net capital gains and, therefore, does not anticipate
incurring Federal income tax liability.
The Code and Treasury Department regulations promulgated thereunder
require that mutual funds that are offered through insurance company separate
accounts must meet certain diversification requirements to preserve the
tax-deferred benefits provided by the variable contracts which are offered in
connection with such separate accounts. The Manager intends to diversify the
Fund's investments in accordance with those requirements. The offering memoranda
for each Company's variable annuities and variable life insurance policies
describe the federal income tax treatment of distributions from such contracts.
To comply with regulations under Section 817(h) of the Code, the Fund
will be required to diversify its investments so that on the last day of each
calendar quarter no more than 55% of the value of its assets is represented by
any one investment, no more than 70% is represented by any two investments, no
more than 80% is represented by any three investments and no more than 90% is
represented by any four investments. Generally, all securities of the same
issuer are treated as a single investment. For the purposes of Section 817(h) of
the Code, obligations of the U.S. Treasury and each U.S. Government
instrumentality are treated as securities of separate issuers. The Treasury
Department has indicated that it may issue future pronouncements addressing the
circumstances in which a variable annuity contract owner's control of the
investments of a separate account may cause the variable contract owner, rather
than the separate account's sponsoring insurance company, to be treated as the
owner of the assets held by the separate account. If the variable annuity
contract owner is considered the owner of the securities underlying the separate
account, income and gains produced by those securities would be included
currently in the variable annuity contract owner's gross income. It is not known
what standards will be set forth in such pronouncements or when, if at all,
these pronouncements may be issued. In the event that rules or regulations are
adopted, there can be no assurance that the Fund will be able to operate as
described currently in the Prospectus or that the Fund will not have to change
its investment policies or goals.
The foregoing is only a brief summary of important tax law provisions
that affect the Fund. Other Federal, state or local tax law provisions may also
affect the Fund and its operations. Anyone who is considering allocating,
transferring or withdrawing monies held under a variable contract to or from the
Fund should consult a qualified tax adviser.
Distributions
All dividends and capital gains distributions paid by the Fund will be
automatically reinvested, at net asset value, by the Companies' separate
accounts in additional shares of the Fund. There is no fixed dividend rate, and
there can be no assurance that the Fund will pay any dividends to realize any
capital gains. However, the Fund currently intents to pay dividends and capital
gains distributions, if any, on an annual basis. The offering memorandum for a
Company's variable annuity or variable life insurance policies describes the
frequency of distributions to Contractowners and the Federal income tax
treatment of distributions from such contracts to Contractowners.
Sale of Shares
Any gain or loss realized by a shareholder upon the sale or other
disposition of shares of the Fund, or upon receipt of a distribution in complete
liquidation of the Fund, generally will be a capital gain or loss which will be
long-term or short-term, generally depending upon the shareholder's holding
period for the shares. Any loss realized on a sale or exchange will be
disallowed to the extent the shares disposed of are replaced (including shares
acquired pursuant to a dividend reinvestment plan) within a period of 61 days
beginning 30 days before and ending 30 days after disposition of the shares. In
such a case, the basis of the shares acquired will be adjusted to reflect the
disallowed loss. Any loss realized by a shareholder on a disposition of fund
shares held by the shareholder for six months or less will be treated as a
long-term capital loss to the extent of any distributions of net capital gains
received by the shareholder with respect to such shares.
Shareholders will be notified annually as to the U.S. Federal tax
status of distributions.
Foreign Withholding Taxes
Income received by the Fund from sources within foreign countries may
be subject to withholding and other taxes imposed by such countries.
Backup Withholding
The Fund may be required to withhold U.S. Federal income tax at the
rate of 31% of all taxable distributions payable to shareholders who fail to
provide the Fund with their correct taxpayer identification number or to make
required certifications, or who have been notified by the Internal Revenue
Service that they are subject to backup withholding. Corporate shareholders and
certain other shareholders specified in the Code generally are exempt from such
backup withholding. Backup withholding is not an additional tax. Any amounts
withheld may be credited against the shareholder's U.S. Federal income tax
liability.
Other Taxation
The Trust is organized as a Massachusetts business trust and, under
current law, neither the Trust nor the Fund is viable for any income or
franchise tax in the Commonwealth of Massachusetts, provided that the Fund
continues to qualify as a regulated investment company under Subchapter M of the
Code.
Fund shareholders may be subject to state and local taxes on their fund
distributions. Shareholders are advised to consult their own tax advisers with
respect to the particular tax consequences to them of an investment in the Fund.
<PAGE>
158
g:\shared\bankers\prospect\619500.doc
Investment Manager of the Fund
BANKERS TRUST GLOBAL INVESTMENT MANAGEMENT
a unit of
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.
<PAGE>
BT INSURANCE FUNDS TRUST
EQUITY 500 INDEX FUND
PROSPECTUS
AUGUST 20, 1997
This Prospectus offers shares of the Equity 500 Index Fund (the "Fund"). The
Fund is a series of BT Insurance Funds Trust (the "Trust"), which is an open-end
management investment company currently having six series. Shares of the Fund
are available to the public only through the purchase of certain variable
annuity and variable life insurance contracts ("Contract(s)") issued by various
insurance companies (the "Companies").
The Fund seeks to replicate as closely as possible the performance of the
Standard & Poor's 500 Composite Stock Price Index before the deduction of Fund
expenses (the "Expenses"). There is no assurance, however, that the Fund will
achieve its stated objective.
Bankers Trust Company ("Bankers Trust") is the investment manager (the
"Manager") of the Fund.
Please read this Prospectus carefully before investing and retain it for future
reference. It contains important information about the Fund that you should know
and can refer to in deciding whether the Fund's goals match your own.
A Statement of Additional Information ("SAI") with the same date has been
filed with the Securities and Exchange Commission ("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
offering memorandum.
Fund shares are not deposits or obligations of, or guaranteed by, Bankers Trust
or any depository institution. Shares are not insured by the Federal Deposit
Insurance Corporation, the Federal Reserve Board or any other agency.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
BANKERS TRUST GLOBAL INVESTMENT MANAGEMENT,
a unit of BANKERS TRUST COMPANY
Investment Manager of the Fund
FIRST DATA DISTRIBUTORS, INC.
Distributor
4400 Computer Drive
Westborough, MA 01581
<PAGE>
TABLE OF CONTENTS
Page
THE FUND.................................................. 3
Who May Want to Invest
Investment Principles and Risks
THE FUND IN DETAIL........................................ 4
Investment Objectives and Policies
Risk Factors and Certain Securities and Investment
Practices
Net Asset Value
Performance Information and Reports
Management of the Trust
SHAREHOLDER AND ACCOUNT POLICIES.......................... 13
Purchase and Redemption of Shares
Dividends, Distributions and Taxes
<PAGE>
THE FUND
The Fund seeks to replicate as closely as possible (before deduction of
Expenses) the total return of the Standard & Poor's 500 Composite Stock Price
Index (the "S&P 500"), an index emphasizing large-capitalization stocks. The
Fund will include the common stock of those companies included in the S&P 500,
other than Bankers Trust New York Corporation, selected on the basis of computer
generated statistical data, that are deemed representative of the industry
diversification of the entire S&P 500.
WHO MAY WANT TO INVEST
Shares of the Fund are available to the public only through the purchase of
Contracts issued by the Companies.
The Fund is not managed according to traditional methods of "active" investment
management, which involve the buying and selling of securities based upon
economic, financial and market analysis and investment judgment. Instead, the
Fund utilizes a "passive" or "indexing" investment approach and attempts to
replicate the investment performance of the S&P 500 through statistical
procedures.
The Fund may be appropriate for investors who are willing to endure stock market
fluctuations in pursuit of potentially higher long-term returns. The Fund
invests for growth and does not pursue income. Over time, stocks, although more
volatile, have shown greater growth potential than other types of securities. In
the shorter term, however, stock prices can fluctuate dramatically in response
to market factors.
The Fund is intended to be a long-term investment vehicle and is not designated
to provide investors with a means of speculating on short-term market movements.
The Fund is not in itself a balanced investment plan. Investors should consider
their investment objective and tolerance for risk when making an investment
decision. When an investor sells his or her Fund shares, they may be worth more
or less than what the investor paid for them.
INVESTMENT PRINCIPLES AND RISKS
The Fund's investments vary based on many factors. Stock values fluctuate,
sometimes dramatically, in response to the activities of individual companies
and general market and economic conditions. Over time, however, stocks have
shown greater long-term growth potential than other types of securities.
Lower quality securities offer higher yields, but also carry more risk.
General economic factors in the various world markets can also impact the value
of an investor's investment. When investors sell Fund shares, they may be worth
more or less than what the investors paid for them. See "Risk Factors and
Certain Securities and Investment Practices" for more information.
<PAGE>
THE FUND IN DETAIL
INVESTMENT OBJECTIVES AND POLICIES
The following is a discussion of the various investments of and techniques
employed by the Fund. Additional information about the investment policies of
the Fund appears in "Risk Factors and Certain Securities and Investment
Practices" herein and in the Fund's SAI. There can be no assurance that the
investment objective of the Fund will be achieved.
The Fund seeks to replicate as closely as possible (before deduction of
Expenses) the total return of the S&P 500.
The S&P 500 is an index of 500 common stocks, most of which trade on the New
York Stock Exchange Inc. (the "NYSE"). Bankers Trust believes that the S&P 500
is representative of the performance of publicly traded common stocks in the
U.S. in general.
In seeking to replicate the performance of the S&P 500, before deduction of
Expenses, Bankers Trust will attempt over time to allocate the Fund's investment
among common stocks in approximately the same proportions as they are
represented in the S&P 500, beginning with the heaviest weighted stocks that
make up a larger portion of the Index's value.
Bankers Trust utilizes a two-stage sampling approach in seeking to
obtain its objective. Stage one, which encompasses large capitalization stocks,
maintains the stock holdings at or near their benchmark weights. Large
capitalization stocks are defined as those securities which represent 0.10% or
more of the S&P 500. In stage two, smaller stocks are analyzed and selected
using risk characteristics and industry weights in order to match the sector and
risk characteristics of the smaller companies in the S&P 500. This approach
helps to maximize Fund liquidity while minimizing costs.
Bankers Trust generally will seek to match the composition of the S&P 500 but
usually will not invest the Fund's stock portfolio to mirror the S&P 500
exactly. Because of the difficulty and cost of executing relatively small stock
transactions, the Fund may not always be invested in the less heavily weighted
S&P 500 stocks, and may at times have its portfolio weighted differently than
the S&P 500, particularly if the Fund has a low level of assets. In addition,
the Fund may omit or remove any S&P 500 stock from the Fund if, following
objective criteria, Bankers Trust judges the stock to be insufficiently liquid
or believes the merit of the investment has been substantially impaired by
extraordinary events or financial conditions. Bankers Trust will not purchase
the stock of Bankers Trust New York Corporation, which is included in the S&P
500, and instead will overweight its holdings of companies engaged in similar
businesses.
About the S&P 500. The S&P 500 is a well-known stock market index that
includes common stocks of 500 companies from several industrial sectors
representing a significant portion of the market value of all common stocks
publicly traded in the United States, most of which are listed on the NYSE.
Stocks in the S&P 500 are weighted according to their market capitalization
(i.e., the number of shares outstanding multiplied by the stock's current
price). Bankers Trust believes that the performance of the S&P 500 is
representative of the performance of publicly traded common stocks in general.
The composition of the S&P 500 is determined by S&P and is based on such factors
as the market capitalization and trading activity of each stock and its adequacy
as a representation of stocks in a particular industry group, and may be changed
from time to time.
The Fund is not sponsored, endorsed, sold or promoted by S&P. S&P makes no
representation or warranty, express or implied, to the shareholders of the Fund
or any member of the public regarding the advisability of investing in
securities generally or in the Fund particularly or the ability of the S&P 500
to track general stock market performance.
S&P does not guarantee the accuracy and/or the completeness of the S&P 500 or
any data included therein.
S&P makes no warranty, express or implied, as to the results to be obtained by
the Fund, owners of the Fund, or any other person or entity from the use of the
S&P 500 or any data included therein. S&P makes no express or implied warranties
and hereby expressly disclaims all such warranties of merchantability or fitness
for a particular purpose or use with respect to the S&P 500 or any data included
therein.
For more information about the performance of the S&P 500, see the SAI.
General
Over time, the correlation between the performance of the Fund and the S&P 500
is expected to be 0.95 or higher before deduction of Fund expenses. A
correlation of 1.00 would indicate perfect correlation, which would be achieved
when the net asset value of the Fund, including the value of its dividend and
any capital gain distributions, increases or decreases in exact proportion to
changes in the S&P 500. The Fund's ability to track the S&P 500 may be affected
by, among other things, transaction costs, administration and other expenses
incurred by the Fund, changes in either the composition of the S&P 500 or the
assets of the Fund, and the timing and amount of Fund investor contributions and
withdrawals, if any. In the unlikely event that a high correlation is not
achieved, the Trust's Board of Trustees will consider alternatives. Because the
Fund seeks to track the S&P 500, Bankers Trust generally will not attempt to
judge the merits of any particular stock as an investment.
Under normal circumstances, the Fund will invest at least 80% of its assets
in the securities of the S&P 500.
As a diversified fund, no more than 5% of the assets of the Fund may be invested
in the securities of one issuer (other than U.S. Government Securities), except
that up to 25% of the Fund's assets may be invested without regard to this
limitation. The Fund will not invest more than 25% of its assets in the
securities of issuers in any one industry. In the unlikely event that the S&P
500 should concentrate to an extent greater than that amount, the Fund's ability
to achieve its objective may be impaired. These are fundamental investment
policies of the Fund which may not be changed without shareholder approval. No
more than 15% of the Fund's net assets may be invested in illiquid or not
readily marketable securities (including repurchase agreements and time deposits
with maturities of more than seven days).
Additional investment policies of the Fund are contained in the SAI.
The Fund may maintain up to 25% of its assets in short-term debt securities and
money market instruments to meet redemption requests or to facilitate investment
in the securities of the S&P 500. Securities index futures contracts and related
options, warrants and convertible securities may be used for several reasons: to
simulate full investment in the S&P 500 while retaining a cash balance for fund
management purposes, to facilitate trading, to reduce transaction costs or to
seek higher investment returns when a futures contract, option, warrant or
convertible security is priced more attractively than the underlying equity
security or S&P 500. These instruments may be considered derivatives. See "Risk
Factors and Certain Securities and Investment Practices -- Derivatives." The
use of derivatives for non-hedging purposes may be considered speculative. While
each of these securities can be used as leveraged investments, the Fund may not
use them to leverage its net assets. The Fund will not invest in such
instruments as part of a temporary defensive strategy (in anticipation of
declining stock prices) to protect the Fund against potential market declines.
The Fund may lend its investment securities and purchase securities on a
when-issued and a delayed delivery basis. See "Risk Factors and Certain
Securities and Investment Practices" for more information about the investment
practices of the Fund.
RISK FACTORS AND CERTAIN SECURITIES AND INVESTMENT PRACTICES
The following pages contain more detailed information about types of instruments
in which the Fund may invest and strategies Bankers Trust may employ in pursuit
of the Fund's investment objective. A summary of risks and restrictions
associated with these instrument types and investment practices is included as
well.
Bankers Trust may not buy all of these instruments or use all of these
techniques to the full extent permitted unless it believes that doing so will
help the Fund achieve its goal. Holdings and recent investment strategies are
described in the financial reports of the Fund, which are sent to Fund
shareholders on a semi-annual and annual basis.
Market Risk
As a mutual fund investing primarily in common stocks, the Fund is subject to
market risk --- i.e., the possibility that common stock prices will decline over
short or even extended periods. The U.S. stock market tends to be cyclical, with
periods when stock prices generally rise and periods when prices generally
decline.
The Fund's investment objective is not a fundamental policy and may be changed
upon notice to, but without the approval of, the Fund's shareholders. If there
is a change in the Fund's investment objective, the Fund's shareholders should
consider whether the Fund remains an appropriate investment in light of their
then-current needs. Shareholders of the Fund will receive 30 days prior written
notice with respect to any change in the investment objective of the Fund. See
"Risk Factors and Certain Securities and Investment Practices" in the SAI for a
description of the fundamental policies of the Fund that cannot be changed
without approval by "the vote of a majority of the outstanding voting
securities" (as defined in the Investment Company Act of 1940, as amended (the
"1940 Act")) of the Fund.
For descriptions of the investment objective, policies and restrictions of the
Fund, see "The Fund in Detail" herein and "Risk Factors and Certain Securities
and Investment Practices" herein and in the SAI. For descriptions of the
management and expenses of the Fund, see "Management of the Trust" herein and in
the SAI.
Short-Term Investments. The Fund may invest in certain short-term fixed income
securities. Such securities may be used to invest uncommitted cash balances, to
maintain liquidity to meet shareholder redemptions or to serve as collateral for
the obligations underlying the Fund's investment in securities index futures or
related options or warrants. These securities include: obligations issued or
guaranteed by the U.S. Government or any of its agencies or instrumentalities or
by any of the states, repurchase agreements, time deposits, certificates of
deposit, bankers' acceptances and commercial paper.
U.S. Government Securities are obligations of, or guaranteed by, the U.S.
Government, its agencies or instrumentalities. Some U.S. Government securities,
such as Treasury bills, notes and bonds, are supported by the full faith and
credit of the United States; others, such as those of the Federal Home Loan
Banks, are supported by the right of the issuer to borrow from the Treasury;
others, such as those of the Federal National Mortgage Association, are
supported by the discretionary authority of the U.S. Government to purchase the
agency's obligations; and still others, such as those of the Student Loan
Marketing Association, are supported only by the credit of the instrumentality.
Securities Lending. The Fund is permitted to lend up to 30% of the total value
of its securities. These loans must be secured continuously by cash or
equivalent collateral or by a letter of credit at least equal to the market
value of the securities loaned plus accrued income. By lending its securities,
the Fund can increase its income by continuing to receive income on the loaned
securities as well as by the opportunity to receive interest on the collateral.
Any gain or loss in the market price of the borrowed securities which occurs
during the term of the loan inures to the Fund and its investors. In lending
securities to brokers, dealers and other organizations, the Fund is subject to
risks which, like those associated with other extensions of credit, include
delays in recovery and possible loss of rights in the collateral should the
borrower fail financially.
When Issued and Delayed Delivery Securities. The Fund may purchase securities on
a when-issued or delayed delivery basis. Delivery of and payment for these
securities may take place as long as a month or more after the date of the
purchase commitment. The value of these securities is subject to market
fluctuation during this period and no income accrues to the Fund until
settlement takes place. The Fund maintains with its custodian a segregated
account containing cash or liquid portfolio securities in an amount at least
equal to these commitments.
Derivatives
The Fund may invest in various instruments that are commonly known as
"derivatives." Generally, a derivative is a financial arrangement, the value of
which is based on, or "derived" from, a traditional security, asset, or market
index. Some "derivatives" such as mortgage-related and other asset-backed
securities are in many respects like any other investment, although they may be
more volatile or less liquid than more traditional debt securities. There are,
in fact, many different types of derivatives and many different ways to use
them. There are a range of risks associated with those uses. Futures and options
are commonly used for traditional hedging purposes to attempt to protect a fund
from exposure to changing interest rates, securities prices or currency exchange
rates and as a low cost method of gaining exposure to a particular securities
market without investing directly in those securities. Bankers Trust will only
use derivatives for cash management purposes. Derivatives will not be used to
increase portfolio risk above the level that would be achieved using only
traditional investment securities or to acquire exposure to changes in the value
of assets or indices that by themselves would not be purchased for the Fund.
Securities Index Futures and Related Options. The Fund may enter into
securities index futures contracts and related options provided that not more
than 5% of its assets are required as a margin deposit for futures contracts or
options and provided that not more than 20% of the Fund's assets are invested in
futures and options at any time. When the Fund has cash from new investments in
the Fund or holds a portion of its assets in money market instruments, it may
enter into index futures or options to attempt to increase its exposure to the
market. Strategies the Fund could use to accomplish this include purchasing
futures contracts, writing put options and purchasing call options. When the
Fund wishes to sell securities, because of shareholder redemptions or otherwise,
it may use index futures or options to hedge against market risk until the sale
can be completed. These strategies could include selling futures contracts,
writing call options and purchasing put options.
Warrants. Warrants are instruments which entitle the holder to buy underlying
equity securities at a specific price for a specific period of time. A warrant
tends to be more volatile than its underlying securities and ceases to have
value if it is not exercised prior to its expiration date. In addition, changes
in the value of a warrant do not necessarily correspond to changes in the value
of its underlying securities.
Convertible Securities. The Fund may invest in convertible securities which are
a bond or preferred stock which may be converted at a stated price within a
specific period of time into a specified number of shares of common stock of the
same or different issuer. Convertible securities are senior to common stock in a
corporation's capital structure, but usually are subordinated to non-convertible
debt securities. While providing a fixed income stream -- generally higher in
yield than the income derived from a common stock but lower than that afforded
by a non-convertible debt security -- a convertible security also affords an
investor the opportunity, through its conversion feature, to participate in the
capital appreciation of common stock into which it is convertible.
In general, the market value of a convertible security is the higher of its
investment value (its value as a fixed income security) or its conversion value
(the value of the underlying shares of common stock if the security is
converted). As a fixed income security, the market value of a convertible
security generally increases when interest rates decline and generally decreases
when interest rates rise; however, the price of a convertible security generally
increases as the market value of the underlying stock increases, and generally
decreases as the market value of the underlying stock declines. Investments in
convertible securities generally entail less risk than investments in the common
stock of the same issuer.
Further risks associated with the use of futures contracts, options, warrants
and convertible securities. The risk of loss associated with futures contracts
in some strategies can be substantial due to both the low margin deposits
required and the extremely high degree of leverage involved in futures pricing.
As a result, a relatively small price movement in a futures contract may result
in an immediate and substantial loss or gain. However, the Fund will not use
futures contracts, options, warrants and convertible securities for speculative
purposes or to leverage their net assets. Accordingly, the primary risks
associated with the use of futures contracts, options, warrants and convertible
securities by the Fund are: (i) imperfect correlation between the change in
market value of the securities held by the Fund and the prices of futures
contracts, options, warrants and convertible securities; and (ii) possible lack
of a liquid secondary market for a futures contract and the resulting inability
to close a futures position prior to its maturity date. The risk of imperfect
correlation will be minimized by investing only in those contracts whose
behavior is expected to resemble that of the Fund's underlying securities. The
risk that the Fund will be unable to close out a futures position will be
minimized by entering into stock transactions on an exchange with an active and
liquid secondary market. However, options, warrants and convertible securities
purchased or sold over-the-counter may be less liquid than exchange-traded
securities. Illiquid securities, in general, may not represent more than 15% of
the net assets of the Fund.
Asset Coverage. To assure that futures and related options, as well as
when-issued and delayed-delivery securities, are not used by the Fund to achieve
excessive investment leverage, the Fund will cover such transactions, as
required under applicable interpretations of the 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, Martin Luther King Day, Presidents' Day (the third
Monday in February), Good Friday, Memorial Day (the last Monday in May), July
4th, Labor Day (the first Monday in September), Thanksgiving Day (the last
Thursday in November) and December 25th; and (b) the preceding Friday or the
subsequent Monday when one of the calendar-determined holidays falls on a
Saturday or Sunday, respectively. The net asset value per share of the Fund
is calculated once on each Valuation Day as of the close of regular trading on
the NYSE, which under normal circumstances is 4:00 p.m., New York time. The net
asset value per share of the Fund is computed by dividing the value of the
Fund's assets, less all liabilities, by the total number of its shares
outstanding. The Fund's securities and other assets are valued primarily on the
basis of market quotations or, if quotations are not readily available, by a
method which the Fund's Board of Trustees believes accurately reflects fair
value.
PERFORMANCE INFORMATION AND REPORTS
The Fund's performance may be used from time to time in advertisements,
shareholder reports or other communications to existing or prospective owners of
the Companies' variable contracts. When performance information is provided in
advertisements, it will include the effect of all charges deducted under the
terms of the specified contract, as well as all recurring and non-recurring
charges incurred by the Fund. Performance information may include the Fund's
investment results and/or comparisons of its investment results to various
unmanaged indices or results of other mutual funds or investment or savings
vehicles. The Fund's investment results as used in such communications will be
calculated on a total rate of return basis in the manner set forth below. From
time to time, fund rankings may be quoted from various sources, such as Lipper
Analytical Services, Inc., Value Line and Morningstar Inc.
The Trust may provide period and average annualized "total return" quotations
for the Fund. The Fund's "total return" refers to the change in the value of an
investment in the Fund over a stated period based on any change in net asset
value per share and including the value of any shares purchasable with any
dividends or capital gains distributed during such period. Period total return
may be annualized. An annualized total return is a compounded total return which
assumes that the period total return is generated over a one-year period, and
that all dividends and capital gain distributions are reinvested. An annualized
total return will be higher than a period total return if the period is shorter
than one year, because of the compounding effect.
Unlike some bank deposits or other investments which pay a fixed yield for a
stated period of time, the total return of the Fund will vary depending upon
interest rates, the current market value of the securities held by the Fund and
changes in the Fund's expenses. In addition, during certain periods for which
total return quotations may be provided, Bankers Trust and/or the Trust's other
service providers may have voluntarily agreed to waive portions of their
respective fees, or reimburse certain operating expenses of the Fund, on a
month-to-month basis. Such waivers will have the effect of increasing the Fund's
net income (and therefore its total return) during the period such waivers are
in effect.
Total returns are based on past results and are not an indication of future
performance. Shareholders will receive unaudited financial reports
semi-annually that include the Fund's financial statements, including listings
of investment securities held by the Fund at those dates. Annual reports
are audited by independent accountants.
MANAGEMENT OF THE TRUST
Board of Trustees
The affairs of the Fund are managed under the supervision of the Board of
Trustees of the Trust, of which the Fund is a series. By virtue of the
responsibilities assumed by Bankers Trust, neither the Trust nor the Fund
require employees other than the Trust's officers. None of the Trust's officers
devotes full time to the affairs of the Trust or the Fund.
For more information with respect to the Trustees of the Trust, see "Management
of the Trust" in the SAI.
Investment Manager
The Fund has retained the services of Bankers Trust Global Investment
Management, a unit of Bankers Trust, as investment manager. Bankers Trust, a New
York banking corporation with executive offices at 130 Liberty Street (One
Bankers Trust Plaza), 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 wholesaler 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 $129 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 80 offices in more than 50
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 $240 billion in assets under management globally.
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 0.20% of
the average daily net assets of the Fund for its then-current fiscal year.
Bankers Trust has been advised by its counsel that, in counsel's opinion,
Bankers Trust currently may perform the services for the Trust and the Fund
described in this Prospectus and the SAI without violation of the Glass-Steagall
Act or other applicable banking laws or regulations. State laws on this issue
may differ from the interpretations of relevant Federal law, and banks and
financial institutions may be required to register as dealers pursuant to state
securities law.
Fund Manager
Frank Salerno, Managing Director of Bankers Trust, is responsible for the
day-to-day management of the Fund. Mr. Salerno oversees administration,
management and trading of international and domestic equity index strategies. He
has been employed by Bankers Trust since 1981.
Expenses
In addition to the fees of Bankers Trust, 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. ("Investor Services Group"), 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,
Investor Services Group 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, the Trust has agreed to pay Investor Services Group a
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 $5 billion; and
0.0075% of the Trust's monthly average net assets exceeding $5 billion, in
addition to a flat fee of $70,000 per year for each portfolio of the Trust and a
one-time start-up fee for each portfolio of the Trust. Distributor
First Data Distributors, Inc. (the "Distributor") serves as distributor of the
Fund's shares to separate accounts of the Companies, for which it receives no
separate fee from the Fund. The principal business address of the Distributor is
4400 Computer Drive, Westborough, Massachusetts 01581. Custodian and
Transfer Agent Bankers Trust acts as custodian of the assets of the Fund and
Investor Services Group serves as the transfer agent for the Fund.
Organization of the Trust
The Trust was organized on January 19, 1996, under the laws of the Commonwealth
of Massachusetts. The Fund is a separate series of the Trust. The Trust offers
shares of beneficial interest of the Fund and the Trust's other series, par
value $0.001 per share. The shares of the other series of the Trust are offered
through separate Prospectuses. No series of shares has any preference over any
other series. All shares, when issued, will be fully paid and nonassessable. The
Trust's Board of Trustees has the authority to create additional series without
obtaining shareholder approval.
The Trust is an entity of the type commonly known as a "Massachusetts business
trust." Under Massachusetts law, shareholders of such a business trust may,
under certain circumstances, be held personally liable as partners for its
obligations. However, the risk of a shareholder incurring financial loss on
account of shareholder liability is limited to circumstances in which both
inadequate insurance existed and the Trust itself was unable to meet its
obligations.
Through its separate accounts, the Companies are the Fund's sole stockholders of
record, so under the 1940 Act, such Companies are deemed to be in control of the
Fund. Nevertheless, when a shareholders' meeting occurs, each Company solicits
and accepts voting instructions from its Contractowners who have allocated or
transferred monies for an investment in the Fund as of the record date of the
meeting. Each Company then votes the Fund's shares that are attributable to its
Contractowners' interests in the Fund in proportion to the voting instructions
received. Each Company will vote any share that it is entitled to vote directly
due to amounts it has contributed or accumulated in its separate accounts in the
manner described in the prospectuses for its variable annuities and variable
life insurance policies.
Each share of the Fund is entitled to one vote, and fractional shares are
entitled to fractional votes. Fund shares have non-cumulative voting rights, so
the vote of more than 50% of the shares can elect 100% of the Trustees.
The Trust is not required, and does not intend, to hold regular annual
shareholder meetings, but may hold special meetings for consideration of
proposals requiring shareholder approval.
The Fund is only available to owners of variable annuities or variable life
insurance policies issued by the Companies through their respective separate
accounts. The Fund does not currently foresee any disadvantages to
Contractowners arising from offering its shares to variable annuity and variable
life insurance policy separate accounts simultaneously, and the Board of
Trustees monitors events for the existence of any material irreconcilable
conflict between or among Contractowners. If a material irreconcilable conflict
arises, one or more separate accounts may withdraw their investment in the Fund.
This could possibly force the Fund to sell portfolio securities at
disadvantageous prices. Each Company will bear the expenses of establishing
separate portfolios for its variable annuity and variable life insurance
separate accounts if such action becomes necessary; however, ongoing expenses
that are ultimately borne by Contractowners will likely increase due to the loss
of economies of scale benefits that can be provided to mutual funds with
substantial assets.
SHAREHOLDER AND ACCOUNT POLICIES
PURCHASE AND REDEMPTION OF SHARES
Shares of the Fund will be continuously offered to each Company's separate
accounts at the net asset value per share next determined after a proper
purchase request has been received by the Company. The Company then offers to
Contractowners units in its separate accounts which directly correspond to
shares in the Fund. Each Company submits purchase and redemption orders to the
Fund based on allocation instructions for premium payments, transfer
instructions and surrender or partial withdrawal requests which are furnished to
the Company by such Contractowners. Contractowners can send such instructions
and requests to the Companies by first class mail, overnight mail or express
mail sent to the address set forth in the relevant Company's offering memorandum
included with this prospectus. The Fund and the Distributor reserve the right to
reject any purchase order for shares of the Fund.
Payment for redeemed shares will ordinarily be made within seven (7) business
days after the Fund receives a redemption order from the relevant Company. The
redemption price will be the net asset value per share next determined after the
Company receives the Contractowner's request in proper form.
The Fund may suspend the right of redemption or postpone the date of payment
during any period when trading on the NYSE is restricted, or the NYSE is closed
for other than weekends and holidays; when an emergency makes it not reasonably
practicable for the Fund to dispose of assets or calculate its net asset value;
or as permitted by the SEC.
The accompanying offering memorandum for the Company's variable annuity or
variable life insurance policy describes the allocation, transfer and withdrawal
provisions of such annuity or policy.
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Fund distributes substantially all of its net income and capital gains to
shareholders each year. The Fund distributes capital gains and income dividends
annually. All dividends and capital gains distributions paid by the Fund will be
automatically reinvested, at net asset value, by the Companies' separate
accounts in additional shares of the Fund, unless an election is made by a
Contractowner to receive distributions in cash.
The Fund will be treated as a separate entity for federal income tax purposes.
The Fund intends to qualify as a "regulated investment company" under the
Internal Revenue Code of 1986, as amended (the "Code"). As a regulated
investment company the Fund will not be subject to U.S. Federal income tax on
its investment company taxable income and net capital gains (the excess of net
long-term capital gains over net short-term capital losses), if any, that it
distributes to shareholders. The Fund intends to distribute to its shareholders,
at least annually, substantially all of its investment company taxable income
and net capital gains, and therefore does not anticipate incurring a Federal
income tax liability.
The Code and Treasury Department regulations promulgated thereunder require that
mutual funds that are offered through insurance company separate accounts must
meet certain diversification requirements to preserve the tax-deferral benefits
provided by the variable contracts which are offered in connection with such
separate accounts. Bankers Trust intends to diversify the Fund's investments in
accordance with those requirements. The enclosed offering memorandum for a
Company's variable annuity or variable life insurance policies describes the
federal income tax treatment of distributions from such contracts to
Contractowners. The foregoing is only a brief summary of important tax law
provisions that affect the Fund. Other Federal, state or local tax law
provisions may also affect the Fund and its operations. Anyone who is
considering allocating, transferring or withdrawing monies held under a variable
contract to or from the Fund should contact a qualified tax adviser.
<PAGE>
188
G:\SHARED\BANKERS\SAI\619500.DOC
Investment Manager of the Fund
BANKERS TRUST GLOBAL INVESTMENT MANAGEMENT
a unit of
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 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.
..........................................................
<PAGE>
STATEMENT OF
ADDITIONAL INFORMATION
BT INSURANCE FUNDS TRUST
EQUITY 500 INDEX FUND
AUGUST 20, 1997
BT Insurance Funds Trust (the "Trust") is currently comprised of six
series: the Equity 500 Index Fund (the "Fund") and five other series. The shares
of the Fund are described herein. Capitalized terms not otherwise defined herein
shall have the same meaning as in the Prospectus.
Table of Contents
Risk Factors and Certain Securities and Investment Practices....... 2
Performance Information............................................ 12
Valuation of Securities; Redemption in Kind........................ 13
Management of the Trust............................................ 14
Organization of the Trust.......................................... 18
Taxation........................................................... 18
Shares of the Fund are available to the public only through the purchase of
certain variable annuity and variable life insurance contracts ("Contract(s)")
issued by various insurance companies (the "Companies"). The investment adviser
of the Fund is Bankers Trust Global Investment Management, a unit of Bankers
Trust Company (the "Manager" or "Bankers Trust"). The distributor of the Fund
shares is First Data Distributors, Inc. (the "Distributor" or "First Data
Distributors").
The Prospectus for the Fund is dated August 20, 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 GLOBAL INVESTMENT MANAGEMENT, a unit of BANKERS TRUST COMPANY
Investment Manager of the Fund
The Trust's distributor is FIRST DATA DISTRIBUTORS, INC., 4400 Computer Drive,
Westborough, MA 01581.
<PAGE>
RISK FACTORS AND CERTAIN SECURITIES AND INVESTMENT PRACTICES
Investment Objective
The investment objective of the Fund is described in the Fund's
Prospectus. There can, of course, be no assurance that the Fund will achieve its
investment objective.
Investment Practices
The following is a discussion of the various investments of and
techniques employed by the Fund:
Certificates of Deposit and Bankers' Acceptances. Certificates of
deposit are receipts issued by a depository institution in exchange for the
deposit of funds. The issuer agrees to pay the amount deposited plus interest to
the bearer of the receipt on the date specified on the certificate. The
certificate usually can be traded in the secondary market prior to maturity.
Bankers' acceptances typically arise from short-term credit arrangements
designed to enable businesses to obtain funds to finance commercial
transactions. Generally, an acceptance is a time draft drawn on a bank by an
exporter or an importer to obtain a stated amount of funds to pay for specific
merchandise. The draft is then "accepted" by a bank that, in effect,
unconditionally guarantees to pay the face value of the instrument on its
maturity date. The acceptance may then be held by the accepting bank as an
earning asset or it may be sold in the secondary market at the going rate of
discount for a specific maturity. Although maturities for acceptances can be as
long as 270 days, most acceptances have maturities of six months or less.
Commercial Paper. Commercial paper consists of short-term (usually from
1 to 270 days) unsecured promissory notes issued by corporations in order to
finance their current operations. A variable amount master demand note (which is
a type of commercial paper) represents a direct borrowing arrangement involving
periodically fluctuating rates of interest under a letter agreement between a
commercial paper issuer and an institutional lender pursuant to which the lender
may determine to invest varying amounts.
Illiquid Securities. Historically, illiquid securities have included
securities subject to contractual or legal restrictions on resale because they
have not been registered under the Securities Act of 1933, as amended (the "1933
Act"), securities which are otherwise not readily marketable and repurchase
agreements having a maturity of longer than seven days. Securities which have
not been registered under the 1933 Act are referred to as private placements or
restricted securities and are purchased directly from the issuer or in the
secondary market. Mutual funds do not typically hold a significant amount of
these restricted or other illiquid securities because of the potential for
delays on resale and uncertainty in valuation. Limitations on resale may have an
adverse effect on the marketability of portfolio securities and a mutual fund
might be unable to dispose of restricted or other illiquid securities promptly
or at reasonable prices and might thereby experience difficulty satisfying
redemptions within seven days. A mutual fund might also have to register such
restricted securities in order to dispose of them resulting in additional
expense and delay. Adverse market conditions could impede such a public offering
of securities.
In recent years, however, a large institutional market has developed
for certain securities that are not registered under the 1933 Act, including
repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be readily
resold or on an issuer's ability to honor a demand for repayment. The fact that
there are contractual or legal restrictions on resale of such investments to the
general public or to certain institutions may not be indicative of their
liquidity.
The Securities and Exchange Commission (the "SEC") has adopted Rule
144A, which allows a broader institutional trading market for securities
otherwise subject to restriction on their resale to the general public. Rule
144A establishes a "safe harbor" from the registration requirements of the 1933
Act of resales of certain securities to qualified institutional buyers. The
Manager anticipates that the market for certain restricted securities such as
institutional commercial paper will expand further as a result of this
regulation and the development of automated systems for the trading, clearance
and settlement of unregistered securities of domestic and foreign issuers, such
as the PORTAL System sponsored by the National Association of Securities
Dealers, Inc.
The Manager will monitor the liquidity of Rule 144A securities in the
Fund's portfolio under the supervision of the Trust's Board of Trustees. In
reaching liquidity decisions, the Manager will consider, among other things, the
following factors: (i) the frequency of trades and quotes for the security; (ii)
the number of dealers and other potential purchasers wishing to purchase or sell
the security; (iii) dealer undertakings to make a market in the security and
(iv) the nature of the security and of the marketplace trades (e.g., the time
needed to dispose of the security, the method of soliciting offers and the
mechanics of the transfer).
Lending of Portfolio Securities. The Fund has the authority to lend
portfolio securities to brokers, dealers and other financial organizations. The
Fund will not lend securities to Bankers Trust, the Distributor or their
affiliates. By lending its securities, the Fund can increase its income by
continuing to receive interest on the loaned securities as well as by either
investing the cash collateral in short-term securities or obtaining yield in the
form of interest paid by the borrower when U.S. Government obligations are used
as collateral. There may be risks of delay in receiving additional collateral or
risks of delay in recovery of the securities or even loss of rights in the
collateral should the borrower of the securities fail financially. The Fund will
adhere to the following conditions whenever its securities are loaned: (i) the
Fund must receive at least 100 percent cash collateral or equivalent securities
from the borrower; (ii) the borrower must increase this collateral whenever the
market value of the securities including accrued interest rises above the level
of the collateral; (iii) the Fund must be able to terminate the loan at any
time; (iv) the Fund must receive reasonable interest on the loan, as well as any
dividends, interest or other distributions on the loaned securities, and any
increase in market value; (v) the Fund may pay only reasonable custodian fees in
connection with the loan; and (vi) voting rights on the loaned securities may
pass to the borrower; provided, however, that if a material event adversely
affecting the investment occurs, the Trust's Board of Trustees must terminate
the loan and regain the right to vote the securities.
Short-Term Instruments. When the Fund experiences large cash inflows
through the sale of securities and desirable equity securities, that are
consistent with the Fund's investment objective, which are unavailable in
sufficient quantities or at attractive prices, the Fund may hold short-term
investments for a limited time pending availability of such equity securities.
Short-term instruments consist of: (i) short-term obligations issued or
guaranteed by the U.S. government or any of its agencies or instrumentalities or
by any of the states; (ii) other short-term debt securities rated AA or higher
by S&P or Aa or higher by Moody's or, if unrated, of comparable quality in the
opinion of Bankers Trust; (iii) commercial paper; (iv) bank obligations,
including negotiable certificates of deposit, time deposits and bankers'
acceptances; and (v) repurchase agreements. At the time the Fund invests in
commercial paper, bank obligations or repurchase agreements, the issuer of the
issuer's parent must have outstanding debt rated AA or higher by S&P or Aa or
higher by Moody's or outstanding commercial paper or bank obligations rated A-1
by S&P or Prime-1 by Moody's; or, if no such ratings are available, the
instrument must be of comparable quality in the opinion of Bankers Trust.
When-Issued and Delayed Delivery Securities. The Fund may purchase
securities on a when-issued or delayed delivery basis. For example, delivery of
and payment for these securities can take place a month or more after the date
of the purchase commitment. The purchase price and the interest rate payable, if
any, on the securities are fixed on the purchase commitment date or at the time
the settlement date is fixed. The value of such securities is subject to market
fluctuation and no interest accrues to the Fund until settlement takes place. At
the time the Fund makes the commitment to purchase securities on a when-issued
or delayed delivery basis, it will record the transaction, reflect the value
each day of such securities in determining its net asset value and, if
applicable, calculate the maturity for the purposes of average maturity from
that date. At the time of settlement a when-issued security may be valued at
less than the purchase price. To facilitate such acquisitions, the Fund will
maintain with the Fund's custodian a segregated account with liquid assets,
consisting of cash, U.S. Government securities or other appropriate securities,
in an amount at least equal to such commitments. On delivery dates for such
transactions, the Fund will meet its obligations from maturities or sales of the
securities held in the segregated account and/or from cash flow. If the Fund
chooses to dispose of the right to acquire a when-issued security prior to its
acquisition, it could, as with the disposition of any other Fund obligation,
incur a gain or loss due to market fluctuation. It is the current policy of the
Fund not to enter into when-issued commitments exceeding in the aggregate 15% of
the market value of the Fund's total assets, less liabilities other than the
obligations created by when-issued commitments.
Additional U.S. Government Obligations. The Fund may invest in
obligations issued or guaranteed by U.S. Government agencies or
instrumentalities. These obligations may or may not be backed by the "full faith
and credit" of the United States. In the case of securities not backed by the
full faith and credit of the United States, the Fund must look principally to
the federal agency issuing or guaranteeing the obligation for ultimate
repayment, and may not be able to assert a claim against the United States
itself in the event the agency or instrumentality does not meet its commitments.
Securities in which the Fund may invest that are not backed by the full faith
and credit of the United States include, but are not limited to, obligations of
the Tennessee Valley Authority, the Federal Home Loan Mortgage Corporation and
the U.S. Postal Service, each of which has the right to borrow from the U.S.
Treasury to meet its obligations, and obligations of the Federal Farm Credit
System and the Federal Home Loan Banks, both of whose obligations may be
satisfied only by the individual credits of each issuing agency. Securities
which are backed by the full faith and credit of the United States include
obligations of the Government National Mortgage Association, the Farmers Home
Administration, and the export-import Bank.
Equity Investments. The Fund may invest in equity securities listed on
any domestic securities exchange or traded in the over-the-counter market as
well as certain restricted or unlisted securities. They may or may not pay
dividends or carry voting rights. Common stock occupies the most junior position
in a company's capital structure.
Reverse Repurchase Agreements. The Fund may borrow funds for temporary
or emergency purposes, such as meeting larger than anticipated redemption
requests, and not for leverage, by among other things, agreeing to sell
portfolio securities to financial institutions such as banks and broker-dealers
and to repurchase them at a mutually agreed date and price (a "reverse
repurchase agreement"). At the time the Fund enters into a reverse repurchase
agreement it will place in a segregated custodial cash account, U.S. Government
Obligations or high-grade debt obligations having a value equal to the
repurchase price, including accrued interest. Reverse repurchase agreements
involve the risk that the market value of the securities sold by the Fund may
decline below the repurchase price of those securities. Reverse repurchase
agreements are considered to be borrowings by the Fund.
Warrants. Warrants entitle the holder to buy common stock from the
issuer at a specific price (the strike price) for a specific period of time. The
strike price of warrants sometimes is much lower than the current market price
of the underlying securities, yet warrants are subject to similar price
fluctuations. As a result, warrants may be more volatile investments than the
underlying securities.
Warrants do not entitle the holder to dividends or voting rights with
respect to the underlying securities and do not represent any rights in the
assets of the issuing company. Also, the value of the warrant does not
necessarily change with the value of the underlying securities and a warrant
ceases to have value if it is not exercised prior to the expiration date.
Convertible Securities. Convertible securities may be a debt security
or preferred stock which may be converted into common stock or carries the right
to purchase common stock. Convertible securities entitle the holder to exchange
the securities for a specified number of shares of common stock, usually of the
same company, at specified prices within a certain period of time.
The terms of any convertible security determine its ranking in a
company's capital structure. In the case of subordinated convertible debentures,
the holders' claims on assets and earnings are subordinated to the claims of
other creditors, and are senior to the claims of preferred and common
shareholders. In the case of convertible preferred stock, the holders' claims on
assets and earnings are subordinated to the claims of all creditors and are
senior to the claims of common shareholders.
Futures Contracts and Options on Futures Contracts
General. The successful use of such instruments draws upon the
Manager's skill and experience with respect to such instruments. When futures
are purchased to hedge against a possible increase in the price of securities
before the Fund is able to invest its cash (or cash equivalents) in an orderly
fashion, it is possible that the market may decline instead; if the Fund then
concludes not to invest its cash at that time because of concern as to possible
further market decline or for other reasons, the Fund will realize a loss on the
futures contract that is not offset by a reduction in the price of the
instruments that were to be purchased. In addition, the correlation between
movements in the price of futures contracts or options on futures contracts and
movements in the price of the securities hedged or used for cover will not be
perfect and could produce unanticipated losses.
Successful use of the futures contract and related options are subject
to special risk considerations. A liquid secondary market for any futures or
options contract may not be available when a futures or options position is
sought to be closed. In addition, there may be an imperfect correlation between
movements in the securities in the Fund. Successful use of futures or options
contracts is further dependent on Bankers Trust's ability to correctly predict
movements in the securities markets and no assurance can be given that its
judgment will be correct. Successful use of options on securities or stock
indices are subject to similar risk considerations. In addition, by writing
covered call options, the Fund gives up the opportunity, while the option is in
effect, to profit from any price increase in the underlying securities above the
options exercise price.
Futures Contracts. The Fund may enter into securities index futures
contracts. U.S. futures contracts have been designed by exchanges which have
been designated "contracts markets" by the CFTC, and must be executed through a
futures commission merchant, or brokerage firm, which is a member of the
relevant contract market. Futures contracts trade on a number of exchange
markets, and, through their clearing corporations, the exchanges guarantee
performance of the contracts as between the clearing members of the exchange.
These investments will be made by the Fund solely for cash management purposes.
Such investments will be made only if they are economically appropriate to the
reduction of risks involved in the management of the Fund. In this regard, the
Fund may enter into futures contracts or options on futures related to the
Standard & Poor's 500 Composite Stock Price Index.
At the same time a futures contract is purchased or sold, the Fund must
allocate cash or securities as a deposit payment ("initial deposit"). It is
expected that the initial deposit would be approximately 1 1/2% to 5% of a
contract's face value. Daily thereafter, the futures contract is valued and the
payment of "variation margin" may be required, since each day the Fund would
provide or receive cash that reflects any decline or increase in the contract's
value.
Although futures contracts by their terms call for the actual delivery
or acquisition of securities, in most cases the contractual obligation is
fulfilled before the date of the contract without having to make or take
delivery of the securities. The offsetting of a contractual obligation is
accomplished by buying (or selling, as the case may be) on a commodities
exchange an identical futures contract calling for delivery in the same month.
Such a transaction, which is effected through a member of an exchange, cancels
the obligation to make or take delivery of the securities. Since all
transactions in the futures market are made, offset or fulfilled through a
clearinghouse associated with the exchange on which the contracts are traded,
the Fund will incur brokerage fees when it purchases or sells futures contracts.
The ordinary spreads between prices in the cash and futures market, due
to differences in the nature of those markets, are subject to distortions.
First, all participants in the futures market are subject to initial deposit and
variation margin requirements. Rather than meeting additional variation margin
requirements, investors may close futures contracts through offsetting
transactions which could distort the normal relationship between the cash and
futures markets. Second, the liquidity of the futures market depends on
participants entering into offsetting transactions rather than making or taking
delivery. To the extent participants decide to make or take delivery, liquidity
in the futures market could be reduced, thus producing distortion. Third, from
the point of view of speculators, the margin deposit requirements in the futures
market are less onerous than margin requirements in the securities market.
Therefore, increased participation by speculators in the futures market may
cause temporary price distortions. Due to the possibility of distortion, a
correct forecast of general interest rate trends by the Manager may still not
result in a successful transaction.
In addition, futures contracts entail risks. The Manager believes that
use of such contracts will benefit the Fund. The successful use of futures
contracts, however, depends on the degree of correlation between the futures and
securities markets.
Options on Futures Contracts. The Fund may use stock index futures on a
continual basis to equitize cash so that the Fund may maintain 100% equity
exposure. The Board of Trustees has adopted a restriction that the Fund will not
enter into any futures contracts or options on futures contracts if immediately
thereafter the amount of margin deposits on all the futures contracts of the
Fund and premiums paid on outstanding options on futures contracts owned by the
Fund (other than those entered into for bona fide hedging purposes) would exceed
5% of the market value of the total assets of the Fund.
A futures option gives the holder, in return for the premium paid, the
right to buy (call) from or sell (put) to the writer of the option a futures
contract at a specified price at any time during the period of the option. Upon
exercise, the writer of the option is obligated to pay the difference between
the cash value of the futures contract and the exercise price. Like the buyer or
seller of a futures contract, the holder, or writer, of an option has the right
to terminate its position prior to the scheduled expiration of the option by
selling, or purchasing an option of the same series, at which time the person
entering into the closing transaction will realize a gain or loss. The Fund will
be required to deposit initial margin and variation margin with respect to put
and call options on futures contracts written by it pursuant to brokers'
requirements similar to those described above. Net option premiums received will
be included as initial margin deposits. In anticipation of a decline in interest
rates, the Fund may purchase call options on futures contracts as a substitute
for the purchase of futures contracts to hedge against a possible increase in
the price of securities which the Fund intends to purchase. Similarly, if the
value of the securities held by the Fund is expected to decline as a result of
an increase in interest rates, the Fund might purchase put options or sell call
options on futures contracts rather than sell futures contracts.
Investments in futures options involve some of the same considerations
that are involved in connection with investments in futures contracts (for
example, the existence of a liquid secondary market). In addition, the purchase
or sale of an option also entails the risk that changes in the value of the
underlying futures contract will not correspond to changes in the value of the
option purchased. Depending on the pricing of the option compared to either the
futures contract upon which it is based, or upon the price of the securities
being hedged, an option may or may not be less risky than ownership of the
futures contract or such securities. In general, the market prices of options
can be expected to be more volatile than the market prices on the underlying
futures contract. Compared to the purchase or sale of futures contracts,
however, the purchase of call or put options on futures contracts may frequently
involve less potential risk to the Fund because the maximum amount at risk is
the premium paid for the options (plus transaction costs). The writing of an
option on a futures contact involves risks similar to those risks relating to
the sale of futures contracts.
Options on Securities Indices. The Fund may purchase and write (sell)
call and put options on securities indices. Such options give the holder the
right to receive a cash settlement during the term of the option based upon the
difference between the exercise price and the value of the index.
Options on securities indices entail certain risks. The absence of a
liquid secondary market to close out options positions on securities indices may
occur, although the Fund generally will only purchase or write such an option if
the Manager believes the option can be closed out.
Use of options on securities indices also entails the risk that trading
in such options may be interrupted if trading in certain securities included in
the index is interrupted. The Fund will not purchase such options unless the
Manager believes the market is sufficiently developed such that the risk of
trading in such options is no greater than the risk of trading in options on
securities.
Price movements in the Fund's portfolio may not correlate precisely
with movements in the level of an index and, therefore, the use of options on
indices cannot serve as a complete hedge. Because options on securities indices
require settlement in cash, the Manager may be forced to liquidate portfolio
securities to meet settlement obligations.
Investment Restrictions
The following investment restrictions are "fundamental policies" of the
Fund and may not be changed without the approval of a "majority of the
outstanding voting securities" of the Fund. "Majority of the outstanding voting
securities" under the 1940 Act, and as used in this Statement of Additional
Information and the Prospectus, means, with respect to the Fund, the lesser of
(i) 67% or more of the outstanding voting securities of the Fund present at a
meeting, if the holders of more than 50% of the outstanding voting securities of
the Fund are present or represented by proxy or (ii) more than 50% of the
outstanding voting securities of the Fund.
As a matter of fundamental policy, the Fund may not:
(1) borrow money or mortgage or hypothecate assets of the Fund, except
that in an amount not to exceed 1/3 of the current value of the
Fund's assets, it may borrow money as a temporary measure for
extraordinary or emergency purposes and enter into reverse
repurchase agreements or dollar roll transactions, and except that
it may pledge, mortgage or hypothecate not more than 1/3 of such
assets to secure such borrowings (it is intended that money would
be borrowed only from banks and only either to accommodate
requests for the withdrawal of beneficial interests (redemption of
shares) while effecting an orderly liquidation of portfolio
securities or to maintain liquidity in the event of an
unanticipated failure to complete a portfolio security transaction
or other similar situations) or reverse repurchase agreements,
provided that collateral arrangements with respect to options and
futures, including deposits of initial deposit and variation
margin, are not considered a pledge of assets for purposes of this
restriction (as an operating policy, the Funds may not engage in
dollar roll transactions);
(2) underwrite securities issued by other persons except insofar as
the Trust or the 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); or
(b) through the use of repurchase agreements or the purchase of
short-term obligations;
(4) purchase or sell real estate (including limited partnership
interests but excluding securities secured by real estate or
interests therein), in the ordinary course of business (except
that the Trust may hold and sell, for the Fund's portfolio, real
estate acquired as a result of the Fund's ownership of
securities);
(5) concentrate its investments in any particular industry (excluding U.S.
Government securities), but if it is deemed appropriate for the achievement of
the Fund's investment objective(s), up to 25% of its total assets may be
invested in any one industry;
(6) issue any senior security (as that term is defined in the 1940
Act) if such issuance is specifically prohibited by the 1940 Act
or the rules and regulations promulgated thereunder (except to the
extent permitted in investment restriction No. 1), provided that
collateral arrangements with respect to options and futures,
including deposits of initial deposit and variation margin, are
not considered to be the issuance of a senior security for
purposes of this restriction; and
(7) purchase the securities of any one issuer if as a result more than
5% of the value of its total assets would be invested in the
securities of such issuer or the Fund would own more than 10% of
the outstanding voting securities of such issuer, except that up
to 25% of the value of its total assets may be invested without
regard to these 5% limitation and provided that there is no
limitation with respect to investments in U.S. Government
securities.
Additional investment restrictions adopted by the Fund, which may be
changed by the Board of Trustees, provide that the Fund may not:
(i) purchase any security or evidence of interest therein on
margin, except that such short-term credit as may be necessary
for the clearance of purchases and sales of securities may be
obtained and except that deposits of initial deposit and
variation margin may be made in connection with the purchase,
ownership, holding or sale of futures;
(ii) invest for the purpose of exercising control or management;
(iii) purchase for the Fund securities of any investment company if such
purchase at the time thereof would cause: (a) more than 10% of the Fund's total
assets (taken at the greater of cost or market value) to be invested in the
securities of such issuers; (b) more than 5% of the Fund's total assets (taken
at the greater of cost or market value) to be invested in any one investment
company; or (c) more than 3% of the outstanding voting securities of any such
issuer to be held for the Fund (as an operating policy, the Fund will not invest
in another open-end registered investment company); or
(iv) invest more than 15% of the Fund's net assets (taken at the
greater of cost or market value) in securities that are
illiquid or not readily marketable not including (a) Rule 144A
securities that have been determined to be liquid by the Board
of Trustees; and (b) commercial paper that is sold under
section 4(2) of the 1933 Act which is not traded flat or in
default as to interest or principal.
There will be no violation of any investment restriction if that
restriction is complied with at the time the relevant action is taken
notwithstanding a later change in market value of an investment, in net or total
assets, in the securities rating of the investment, or any other later change.
The Fund will comply with the state securities laws and regulations of
all states in which it is registered.
Portfolio Transactions and Brokerage Commissions
The Manager is responsible for decisions to buy and sell securities,
futures contracts and options on such securities and futures for the Fund, the
selection of brokers, dealers and futures commission merchants to effect
transactions and the negotiation of brokerage commissions, if any.
Broker-dealers may receive brokerage commissions on fund transactions, including
options, futures and options on futures transactions and the purchase and sale
of underlying securities upon the exercise of options. Orders may be directed to
any broker-dealer or futures commission merchant, including to the extent and in
the manner permitted by applicable law, Bankers Trust or its subsidiaries or
affiliates. Purchases and sales of certain fund securities on behalf of the Fund
are frequently placed by the Manager with the issuer or a primary or secondary
market-maker for these securities on a net basis, without any brokerage
commission being paid by the Fund. Trading does, however, involve transaction
costs. Transactions with dealers serving as market-makers reflect the spread
between the bid and asked prices. Transaction costs may also include fees paid
to third parties for information as to potential purchasers or sellers of
securities. Purchases of underwritten issues may be made which will include an
underwriting fee paid to the underwriter.
The Manager seeks to evaluate the overall reasonableness of the
brokerage commissions paid (to the extent applicable) in placing orders for the
purchase and sale of securities for the Fund taking into account such factors as
price, commission (negotiable in the case of national securities exchange
transactions), if any, size of order, difficulty of execution and skill required
of the executing broker-dealer through familiarity with commissions charged on
comparable transactions, as well as by comparing commissions paid by the Fund to
reported commissions paid by others. The Manager reviews on a routine basis
commission rates, execution and settlement services performed, making internal
and external comparisons.
The Manager is authorized, consistent with Section 28(e) of the
Securities Exchange Act of 1934, as amended, when placing portfolio transactions
for the Fund with a broker to pay a brokerage commission (to the extent
applicable) in excess of that which another broker might have charged for
effecting the same transaction on account of the receipt of research, market or
statistical information. The term "research, market or statistical information"
includes advice as to the value of securities; the advisability of investing in,
purchasing or selling securities; the availability of securities or purchasers
or sellers of securities; and furnishing analyses and reports concerning
issuers, industries, securities, economic factors and trends, portfolio strategy
and the performance of accounts.
Consistent with the policy stated above, the Rules of Fair Practice of
the National Association of Securities Dealers, Inc. and such other policies as
the Trustees of the Trust may determine, the Manager may consider sales of
shares of a Fund as a factor in the selection of broker-dealers to execute
portfolio transactions. Bankers Trust will make such allocations if commissions
are comparable to those charged by nonaffiliated, qualified broker-dealers for
similar services.
Higher commissions may be paid to firms that provide research services
to the extent permitted by law. Bankers Trust may use this research information
in managing the Fund's assets, as well as the assets of other clients.
Except for implementing the policies stated above, there is no
intention to place portfolio transactions with particular brokers or dealers or
groups thereof. In effecting transactions in over-the-counter securities, orders
are placed with the principal market-makers for the security being traded
unless, after exercising care, it appears that more favorable results are
available otherwise.
Although certain research, market and statistical information from
brokers and dealers can be useful to the Fund and to the Manager, it is the
opinion of the management of the Trust that such information is only
supplementary to the Manager's own research effort, since the information must
still be analyzed, weighed and reviewed by the Manager's staff. Such information
may be useful to the Manager in providing services to clients other than the
Fund, and not all such information is used by the Manager in connection with the
Fund. Conversely, such information provided to the Manager by brokers and
dealers through whom other clients of the Manager effect securities transactions
may be useful to the Manager in providing services to the Fund.
In certain instances there may be securities which are suitable for the
Fund as well as for one or more of the Manager's other clients. Investment
decisions for the Fund and for the Manager's other clients are made with a view
to achieving their respective investment objectives. It may develop that a
particular security is bought or sold for only one client even though it might
be held by, or bought or sold for, other clients. Likewise, a particular
security may be bought for one or more clients when one or more clients are
selling that same security. Some simultaneous transactions are inevitable when
several clients receive investment advice from the same investment adviser,
particularly when the same security is suitable for the investment objectives of
more than one client. When two or more clients are simultaneously engaged in the
purchase or sale of the same security, the securities are allocated among
clients in a manner believed to be equitable to each. It is recognized that in
some cases this system could have a detrimental effect on the price or volume of
the security as far as the Fund is concerned. However, it is believed that the
ability of the Fund to participate in volume transactions will produce better
executions for the Fund.
PERFORMANCE INFORMATION
Standard Performance Information
From time to time, quotations of the Fund's performance may be included
in advertisements, sales literature or shareholder reports. These performance
figures are calculated in the following manner:
Total return: The Fund's average annual total return is calculated for
certain periods by determining the average annual compounded rates of
return over those periods that would cause an investment of $1,000
(made at the maximum public offering price with all distributions
reinvested) to reach the value of that investment at the end of the
periods. The Fund may also calculate total return figures which
represent aggregate performance over a period or year-by-year
performance.
Performance Results: Any total return quotation provided for the Fund
should not be considered as representative of the performance of the
Fund in the future since the net asset value and offering price of
shares of the Fund will vary based not only on the type, quality and
maturities of the securities held in the Fund, but also on changes in
the current value of such securities and on changes in the expenses of
the Fund. These factors and possible differences in the methods used to
calculate total return should be considered when comparing the total
return of the Fund to total returns published for other investment
companies or other investment vehicles. Total return reflects the
performance of both principal and income.
Comparison of Fund Performance
Comparison of the quoted nonstandardized performance of various
investments is valid only if performance is calculated in the same manner. Since
there are different methods of calculating performance, investors should
consider the effect of the methods used to calculate performance when comparing
performance of the Fund with performance quoted with respect to other investment
companies or types of investments.
In connection with communicating its performance to current or
prospective shareholders, the Fund also may compare these figures to the
performance of other mutual funds tracked by mutual fund rating services or to
unmanaged indices which may assume reinvestment of dividends but generally do
not reflect deductions for administrative and management costs.
Evaluations of the Fund's performance made by independent sources may also be
used in advertisements concerning the Fund. Sources for the Fund's performance
information could include the following: Barron's, Business Week, Changing
Times, The Kiplinger's Magazine, Consumer Digest, Financial Times, Financial
World, Forbes, Fortune, Investor's Daily, Lipper Analytical Services, Inc.'s
Mutual Fund Performance Analysis, Money, Morningstar Inc., New York Times,
Personal Investing News, Personal Investor, Success, U.S. News and World Report,
Value Line, Wall Street Journal, Weisenberger Investment Companies Services and
Working Women.
VALUATION OF SECURITIES; REDEMPTION IN KIND
Equity and debt securities (other than short-term debt obligations
maturing in 60 days or less), including listed securities and securities for
which price quotations are available, will normally be valued on the basis of
market valuations furnished by a pricing service. Short-term debt obligations
and money market securities maturing in 60 days or less are valued at amortized
cost, which approximates market.
Securities for which market quotations are not available are valued by
Bankers Trust pursuant to procedures adopted by the Trust's Board of Trustees.
It is generally agreed that securities for which market quotations are not
readily available should not be valued at the same value as that carried by an
equivalent security which is readily marketable.
The problems inherent in making a good faith determination of value are
recognized in the codification effected by SEC Financial Reporting Release No. 1
("FRR 1" (formerly Accounting Series Release No. 113)) which concludes that
there is "no automatic formula" for calculating the value of restricted
securities. It recommends that the best method simply is to consider all
relevant factors before making any calculation. According to FRR 1 such factors
would include consideration of the:
type of security involved, financial statements, cost at date
of purchase, size of holding, discount from market value of
unrestricted securities of the same class at the time of
purchase, special reports prepared by analysts, information as
to any transactions or offers with respect to the security,
existence of merger proposals or tender offers affecting the
security, price and extent of public trading in similar
securities of the issuer or comparable companies, and other
relevant matters.
To the extent that the Fund purchases securities which are restricted
as to resale or for which current market quotations are not available, the
Manager of the Fund will value such securities based upon all relevant factors
as outlined in FRR 1.
The Trust, on behalf of the Fund, reserves the right, if conditions
exist which make cash payments undesirable, to honor any request for redemption
or repurchase order by making payment in whole or in part in readily marketable
securities chosen by the Trust, and valued as they are for purposes of computing
the Fund's net asset value (a redemption in kind). If payment is made to a Fund
shareholder in securities, the shareholder may incur transaction expenses in
converting these securities into cash. The Trust, on behalf of the Fund, and the
Fund have elected, however, to be governed by Rule 18f-1 under the 1940 Act as a
result of which the Fund is obligated to redeem shares with respect to any one
investor during any 90-day period, solely in cash up to the lesser of $250,000
or 1% of the net asset value of the Fund at the beginning of the period.
MANAGEMENT OF THE TRUST
The Board of Trustees of the Trust is composed of persons experienced
in financial matters who meet throughout the year to oversee the activities of
the Fund. In addition, the Trustees review contractual arrangements with
companies that provide services to the Fund and review the Fund's performance.
The Trustees and officers of the Trust and their principal occupations
during the past five years are set forth below. Their titles may have varied
during that period. Asterisks indicate those Trustees who are "interested
persons" (as defined in the 1940 Act) of the Trust. Unless otherwise indicated,
the address of each Trustee and officer is One Exchange Place, Boston,
Massachusetts.
<TABLE>
Trustees and Officers
<CAPTION>
Principal Occupations During
Name, Address and Age Position Held with the Trust Past 5 Years
- --------------------- ---------------------------- ------------
<S> <C> <C>
Robert R. Coby, 46 Trustee President of Leadership Capital Inc.
118 North Drive since 1995; Chief Operating Officer of
North Massapequa, NY 11758 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 Trustee Chairman of North American Properties
2015 West Main Street Group since January 1987.
Stamford, CT 06902
James S. Pasman, Jr., 66 Trustee Retired; President and Chief Operations
29 The Trillium Officer of National Intergroup Inc.
Pittsburgh, PA 15238 (1989-1991).
*William E. Small, 55 Trustee and President Independent Consultant (1996-present);
Formerly Executive Vice President of
First Data Investor Services Group Inc.
("First Data") (1994-1996); Senior Vice
President of The Shareholder Services
Group, Inc. (1993-1994); independent
consultant (1990-1993).
Principal Occupations During
Name, Address and Age Position Held with the Trust Past 5 Years
- --------------------- ---------------------------- ------------
Michael Kardok, 38 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.
</TABLE>
Mr. Kardok and Ms. Tedesco also hold similar positions for other investment
companies for which First Data Distributors or an affiliate serves as the
principal underwriter.
No person who is an officer or director of Bankers Trust is an officer
or Trustee of the Trust. No director, officer or employee of First Data
Distributors or any of its affiliates will receive any compensation from the
Trust for serving as an officer or Trustee of the Trust.
As of August 1, 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, First Data Distributors or any of their
affiliates; SEC fees and state Blue Sky qualification fees; charges of
custodians and transfer and dividend disbursing agents; certain insurance
premiums; outside auditing and legal expenses; cost of maintenance of corporate
existence; costs attributable to investor services, including, without
limitation, telephone and personnel expenses; costs of preparing and printing
prospectuses and statements of additional information for regulatory purposes
and for distribution to existing shareholders; costs of shareholders' reports
and meetings of shareholders, officers and Trustees of the Trust; and any
extraordinary expenses.
Bankers Trust may have deposit, loan and other commercial banking
relationships with the issuers of obligations which may be purchased on behalf
of the Fund, including outstanding loans to such issuers which could be repaid
in whole or in part with the proceeds of securities so purchased. Such
affiliates deal, trade and invest for their own accounts in such obligations and
are among the leading dealers of various types of such obligations. Bankers
Trust, in making its investment decisions, does not obtain or use material
inside information in its possession or in the possession of any of its
affiliates. In making investment recommendations for the Fund, Bankers Trust
will not inquire or take into consideration whether an issuer of securities
proposed for purchase or sale by the Fund is a customer of Bankers Trust, its
parent or its subsidiaries or affiliates and in dealing with its customers,
Bankers Trust, its parent, subsidiaries and affiliates will not inquire or take
into consideration whether securities of such customers are held by any fund
managed by Bankers Trust or any such affiliate.
The Fund's prospectus contains disclosure as to the amount of Bankers
Trust's investment advisory and administration and services fees.
Bankers Trust has agreed that if in any fiscal year the aggregate
expenses of the Fund (including fees pursuant to the Management Agreement, but
excluding interest, taxes, brokerage and, if permitted by the relevant state
securities commissions, extraordinary expenses) exceed the expense limitation of
any state having jurisdiction over the Fund, Bankers Trust will reimburse the
Fund for the excess expense to the extent required by state law.
Administrator
First Data, One Exchange Place, Boston, Massachusetts 02109, serves as
administrator of the Fund. As administrator, First Data is obligated on a
continuous basis to provide such administrative services as the Board of
Trustees of the Trust reasonably deems necessary for the proper administration
of the Fund. First Data will generally assist in all aspects of the Fund's
operations; supply and maintain office facilities (which may be in First Data's
own offices), statistical and research data, data processing services, clerical,
accounting, bookkeeping and recordkeeping services (including without limitation
the maintenance of such books and records as are required under the 1940 Act and
the rules thereunder, except as maintained by other agents), internal auditing,
executive and administrative services, and stationery and office supplies;
prepare reports to shareholders or investors; prepare and file tax returns;
supply financial information and supporting data for reports to and filings with
the SEC and various state Blue Sky authorities; supply supporting documentation
for meetings of the Board of Trustees; provide monitoring reports and assistance
regarding compliance with the Declaration of Trust, by-laws, investment
objectives and policies and with Federal and state securities laws; arrange for
appropriate insurance coverage; calculate net asset values, net income and
realized capital gains or losses, and negotiate arrangements with, and supervise
and coordinate the activities of, agents and others to supply services.
Custodian and Transfer Agent
Bankers Trust, 130 Liberty Stree (One Bankers Trust Plaza), New York,
New York 10006, serves as custodian for the Fund. As custodian, it holds the
Fund's assets. Bankers Trust will comply with the self-custodian provisions of
Rule 17f-2 under the 1940 Act.
First Data serves as transfer agent of the Trust. Under its transfer
agency agreement with the Trust, First Data maintains the shareholder account
records for the Fund, handles certain communications between shareholders and
the Fund and causes to be distributed any dividends and distributions payable by
the Fund.
Bankers Trust and First Data may be reimbursed by the Fund for
out-of-pocket expenses.
Use of Name
The Trust and Bankers Trust have agreed that the Trust may use "BT" as
part of its name for so long as Bankers Trust serves as investment manager to
the Fund. The Trust has acknowledged that the term "BT" is used by and is a
property right of certain subsidiaries of Bankers Trust and that those
subsidiaries and/or Bankers Trust may at any time permit others to use that
term.
The Trust may be required, on 60 days' notice from Bankers Trust at any
time, to abandon use of the acronym "BT" as part of its name. If this were to
occur, the Trustees would select an appropriate new name for the Trust, but
there would be no other material effect on the Trust, its shareholders or
activities.
Banking Regulatory Matters
Bankers Trust has been advised by its counsel that in its opinion
Bankers Trust may perform the services for the Fund contemplated by the
Management Agreement and other activities for the Fund described in the
Prospectus and this Statement of Additional Information without violation of the
Glass-Steagall Act or other applicable banking laws or regulations. However,
counsel has pointed out that future changes in either Federal or state statutes
and regulations concerning the permissible activities of banks or trust
companies, as well as future judicial or administrative decisions or
interpretations of present and future statutes and regulations, might prevent
Bankers Trust from continuing to perform those services for the Trust and the
Fund. State laws on this issue may differ from the interpretations of relevant
Federal law and banks and financial institutions may be required to register as
dealers pursuant to state securities law. If the circumstances described above
should change, the Boards of Trustees would review the relationships with
Bankers Trust and consider taking all actions necessary in the circumstances.
Counsel and Independent Accountants
Willkie Farr & Gallagher, One Citicorp Center, 153 East 53rd Street,
New York, New York 10022-4669, serves as Counsel to the Trust and the Fund.
Ernst & Young LLP, 787 Seventh Avenue, New York, New York 10019, acts as
independent accountants of the Trust and the Fund.
ORGANIZATION OF THE TRUST
Shares of the Trust do not have cumulative voting rights, which means
that holders of more than 50% of the shares voting for the election of Trustees
can elect all Trustees. Shares are transferable but have no preemptive,
conversion or subscription rights. Shareholders generally vote by Fund, except
with respect to the election of Trustees and the ratification of the selection
of independent accountants.
Through its separate accounts the Companies are the Fund's sole
stockholders of record, so under the 1940 Act, the Companies are deemed to be in
control of the Fund. Nevertheless, when a shareholders' meeting occurs, each
Company solicits and accepts voting instructions from its Contractowners who
have allocated or transferred monies for a investment in the Fund as of the
record date of the meeting. Each Company then votes the Fund's shares that are
attributable to its Contractowners' interest in the Fund in proportion to the
voting instructions received. Each Company will vote any share that it is
entitled to vote directly due to amounts it has contributed or accumulated in
its separate accounts in the manner described in the offering memoranda for its
variable annuities and variable life insurance policies.
Massachusetts law provides that shareholders could under certain
circumstances be held personally liable for the obligations of the Trust.
However, the Trust's Declaration of Trust disclaims shareholder liability for
acts or obligations of the Trust and requires that notice of this disclaimer be
given in each agreement, obligation or instrument entered into or executed by
the Trust or a Trustee. The Declaration of Trust provides for indemnification
from the Trust's property for all losses and expenses of any shareholder held
personally liable for the obligations of the Trust. Thus, the risk of a
shareholder's incurring financial loss on account of shareholder liability is
limited to circumstances in which the Trust itself would be unable to meet its
obligations, a possibility that the Trust believes is remote. Upon payment of
any liability incurred by a Trust, the shareholder paying the liability will be
entitled to reimbursement from the general assets of the Trust. The Trustees
intend to conduct the operations of the Trust in a manner so as to avoid, as far
as possible, ultimate liability of the shareholders for liabilities of the
Trust.
The Trust was organized on January 19, 1996.
TAXATION
Taxation of the Funds
The Trust intends to qualify annually and to elect the Fund to be
treated as a regulated investment company under the Internal Revenue Code of
1986, as amended.
As a regulated investment company, the Fund will not be subject to U.S.
Federal income tax on its investment company taxable income and net capital
gains (the excess of net long-term capital gains over net short-term capital
losses), if any, that it distributes to its shareholders, that is, the
Companies' separate accounts. The Fund intends to distribute to its
shareholders, at least annually, substantially all of its investment company
taxable income and net capital gains and, therefore, does not anticipate
incurring Federal income tax liability.
The Code and Treasury Department regulations promulgated thereunder
require that mutual funds that are offered through insurance company separate
accounts must meet certain diversification requirements to preserve the
tax-deferred benefits provided by the variable contracts which are offered in
connection with such separate accounts. The Manager intends to diversify the
Fund's investments in accordance with those requirements. The offering memoranda
for each Company's variable annuities and variable life insurance policies
describe the federal income tax treatment of distributions from such contracts.
To comply with regulations under Section 817(h) of the Code, the Fund
will be required to diversify its investments so that on the last day of each
calendar quarter no more than 55% of the value of its assets is represented by
any one investment, no more than 70% is represented by any two investments, no
more than 80% is represented by any three investments and no more than 90% is
represented by any four investments. Generally, all securities of the same
issuer are treated as a single investment. For the purposes of Section 817(h) of
the Code, obligations of the U.S. Treasury and each U.S. Government
instrumentality are treated as securities of separate issuers. The Treasury
Department has indicated that it may issue future pronouncements addressing the
circumstances in which a variable annuity contract owner's control of the
investments of a separate account may cause the variable contract owner, rather
than the separate account's sponsoring insurance company, to be treated as the
owner of the assets held by the separate account. If the variable annuity
contract owner is considered the owner of the securities underlying the separate
account, income and gains produced by those securities would be included
currently in the variable annuity contract owner's gross income. It is not known
what standards will be set forth in such pronouncements or when, if at all,
these pronouncements may be issued. In the event that rules or regulations are
adopted, there can be no assurance that the Fund will be able to operate as
described currently in the Prospectus or that the Fund will not have to change
its investment policies or goals.
The foregoing is only a brief summary of important tax law provisions
that affect the Fund. Other Federal, state or local tax law provisions may also
affect the Fund and its operations. Anyone who is considering allocating,
transferring or withdrawing monies held under a variable contract to or from the
Fund should consult a qualified tax adviser.
Distributions
All dividends and capital distributions paid by the Fund will be
automatically reinvested, at net asset value, by the Companies' separate
accounts in additional shares of the Fund. There is no fixed dividend rate, and
there can be no assurance that the Fund will pay any dividends or realize any
capital gains. However, the Fund currently intends to pay dividends and capital
gains distributions, if any, on an annual basis. The offering memorandum for a
Company's variable annuity or variable life insurance policies describes the
frequency of distributions to Contractowners and the Federal income tax
treatment of distributions from such contracts to Contractowners.
Sale of Shares
Any gain or loss realized by a shareholder upon the sale or other
disposition of shares of the Fund, or upon receipt of a distribution in complete
liquidation of the Fund, generally will be a capital gain or loss which will be
long-term or short-term, generally depending upon the shareholder's holding
period for the shares. Any loss realized on a sale or exchange will be
disallowed to the extent the shares disposed of are replaced (including shares
acquired pursuant to a dividend reinvestment plan) within a period of 61 days
beginning 30 days before and ending 30 days after disposition of the shares. In
such a case, the basis of the shares acquired will be adjusted to reflect the
disallowed loss. Any loss realized by a shareholder on a disposition of fund
shares held by the shareholder for six months or less will be treated as a
long-term capital loss to the extent of any distributions of net capital gains
received by the shareholder with respect to such shares.
Shareholders will be notified annually as to the U.S. Federal tax
status of distributions.
Backup Withholding
The Fund may be required to withhold U.S. Federal income tax at the
rate of 31% of all taxable distributions payable to shareholders who fail to
provide the Fund with their correct taxpayer identification number or to make
required certifications, or who have been notified by the Internal Revenue
Service that they are subject to backup withholding. Corporate shareholders and
certain other shareholders specified in the Code generally are exempt from such
backup withholding. Backup withholding is not an additional tax. Any amounts
withheld may be credited against the shareholder's U.S. Federal income tax
liability.
Other Taxation
The Trust is organized as a Massachusetts business trust and, under
current law, neither the Trust nor the Fund is viable for any income or
franchise tax in the Commonwealth of Massachusetts, provided that the Fund
continues to qualify as a regulated investment company under Subchapter M of the
Code.
Fund shareholders may be subject to state and local taxes on their fund
distributions. Shareholders are advised to consult their own tax advisers with
respect to the particular tax consequences to them of an investment in the Fund.
<PAGE>
Investment Manager of the Fund
BANKERS TRUST GLOBAL INVESTMENT MANAGEMENT
a unit of
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.
<PAGE>
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(R) 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
NumberDescription
(d) The form of Investment Management Agreement between U.S. Bond Index
Fund and Bankers Trust Company is incorporated by reference to Post-Effective
Amendment No. 2 filed with the Securities and Exchange Commission via EDGAR on
July 18, 1997.
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 Not Applicable.
11 Powers of Attorney is filed herewith.
12 Not Applicable.
13(a) The form of Purchase Agreement relating to Initial Capital is
incorporated by reference to Amendment No. 1 filed with the Securities and
Exchange Commission 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(R) 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 incorporated by reference to Post-Effective Amendment No. 2 filed with the
Securities and Exchange Commission via EDGAR on July 18, 1997.
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 Corporation.
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 University's 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
<PAGE>
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.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, and the Investment Company Act of 1940, as amended, the Registrant
certifies that this Post-Effective Amendment No. 3 to the Registration Statement
meets the requirements for effectiveness pursuant to Rule 485(b) of the
Securities Act of 1933, as amended, and the Registrant has duly caused this
Post-Effective Amendment No. 3 to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Boston and the Commonwealth of
Massachusetts on this 20th day of August, 1997.
BT Insurance Funds Trust
By: *
William E. Small
* By:
/s/ Julie A. Tedesco
Julie A. Tedesco
as Attorney-in-Fact
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the date indicated:
<TABLE>
<CAPTION>
Signatures Title Date
<S> <C> <C>
* President and Trustee August 20, 1997
- ------------------------------
William E. Small
* Treasurer and Vice President August 20, 1997
- ------------------------------
Michael Kardok
* Trustee August 20, 1997
- ------------------------------
Robert R. Coby
* Trustee August 20, 1997
- ------------------------------
Desmond G. Fitzgerald
* Trustee August 20, 1997
- ------------------------------
James S. Pasman
</TABLE>
* By:
/s/ Julie A. Tedesco
Julie A. Tedesco
as Attorney-in-Fact
* The Powers of Attorney are filed herein.
<PAGE>
INDEX TO EXHIBITS
Exhibit Number Exhibit
11 Powers of Attorney
<PAGE>
Exhibit 11
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, as amended, the Registrant, BT INSURANCE FUNDS TRUST, has
duly caused this Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereto duly authorized, all in the City of Boston,
State of Massachusetts, on the 20 day of August, 1997.
BT INSURANCE FUNDS TRUST
By: /s/ William E. Small
William E. Small
President
We, the undersigned, hereby severally constitute and appoint each of
Julie A. Tedesco, Elizabeth Russell and Brigid O. Bieber, our true and lawful
attorney, with full power to sign for us, and in our hands and in the capacities
indicated below, any and all Amendments to this Registration Statement and to
file the same, with all exhibits thereto, and other documents therewith, with
the Securities and Exchange Commission, granting unto said attorney, full
authority and power to do and perform each and every act and thing requisite or
necessary to be done in the premises, as fully to all intents and purposes as
she might or could do in person, hereby ratifying and confirming all that said
attorney may lawfully do or cause to be done by virtue thereof.
WITNESS our hands on the date set forth below.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment to the Registration Statement and the above Power of Attorney has been
signed below by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ William E. Small President and Trustee August 20, 1997
- ------------------------------------
William E. Small
/s/ Michael Kardok Treasurer and Vice President August 20, 1997
- ------------------------------------
Michael Kardok
/s/Robert R. Coby Trustee August 20, 1997
Robert R. Coby
/s/ Desmond G. Fitzgerald Trustee August 20 , 1997
- ---------------------------
Desmond G. Fitzgerald
/s/ James S. Pasman Trustee August 20 , 1997
- ------------------------------------
James S. Pasman
</TABLE>
<PAGE>