BT INSURANCE FUND TRUST
PROSPECTUS: FEBRUARY 5, 1997 AS SUPPLEMENTED JUNE 16, 1997
Small Cap Index Fund
This Prospectus offers shares of the Small Cap Index Fund (the "Fund"), a series
of BT Insurance Funds Trust (the "Trust"), which is an open-end management
investment company currently having six series. Shares of the Fund are available
to the public only through the purchase of certain variable annuity and variable
life insurance contracts ("Contract(s)") issued by various insurance companies
(the "Companies").
The Fund seeks to replicate as closely as possible the performance of the
Russell 2000 Index before the deduction of Fund expenses (the "Expenses"). There
is no assurance, however, that the Fund will achieve its stated objective.
Bankers Trust Company ("Bankers Trust") is the investment manager (the
"Manager") of the Fund.
Please read this Prospectus carefully before investing and retain it for future
reference. It contains important information about the Fund that you should know
and can refer to in deciding whether the Fund's goals match your own.
A Statement of Additional Information ("SAI") with the same date has been filed
with the Securities and Exchange Commission, and is incorporated herein by
reference. You may request a free copy of the SAI by calling the Trust at the
Customer Service Center at the telephone number shown in the accompanying
prospectus.
Fund shares are not deposits or obligations of, or guaranteed by, Bankers Trust
or any depository institution. Shares are not insured by the Federal Deposit
Insurance Corporation, the Federal Reserve Board or any other agency.
THESESECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
BANKERS TRUST GLOBAL INVESTMENT MANAGEMENT a unit of BANKERS TRUST COMPANY
Investment Manager of the Fund
440 FINANCIAL DISTRIBUTORS, INC.
Distributor
4400 Computer Drive
Westborough, MA 01581
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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 objective of the Fund will be achieved.
The Fund seeks to replicate as closely as possible (before deduction of Fund
expenses) the total return of the Russell 2000. The Russell 2000 is composed of
approximately 2,000 small-capitalization common stocks. A company's stock market
capitalization is the total market value of its floating outstanding shares. As
of December 31, 1995, the average stock market capitalization of the Russell
2000 was $280 million and the weighted average stock market capitalization of
the Russell 2000 was $540 million.
The Fund is neither sponsored by nor affiliated with the Frank Russell Company.
Frank Russell's only relationship to the Fund is the licensing of the use of the
Russell 2000. Frank Russell Company is the owner of the trademarks and
copyrights relating to the Russell indices.
The Fund invests in a statistically selected sample of the 2,000 stocks included
in the Russell 2000. The stocks of the Russell 2000 to be included in the Fund
will be selected utilizing a statistical sampling technique known as
"optimization." This process selects stocks for the Fund so that various
industry weightings, market capitalizations and fundamental characteristics
(e.g., price-to-book, price-to-earnings and debt-to-asset ratios and dividend
yields) closely approximate those of the Russell 2000. For instance, if 10% of
the capitalization of the Russell 2000 consists of utility companies with
relatively small capitalizations, then the Fund is constructed so that
approximately 10% of the Fund's assets are invested in the stocks of utility
companies with relatively small capitalizations. The stocks held by the Fund are
weighted to make the Fund's aggregate investment characteristics similar to
those of the Russell 2000 as a whole.
General
Over time, the correlation between the performance of the Fund and the Russell
2000 is expected to be 0.95 or higher before deduction of Fund expenses. A
correlation of 1.00 would indicate perfect correlation, which would be achieved
when the net asset value of the Fund, including the value of its dividend and
any capital gain distributions, increases or decreases in exact proportion to
changes in the Russell 2000. The Fund's ability to track the Russell 2000 may be
affected by, among other things, transaction costs, administration and other
expenses incurred by the Fund, changes in either the composition of the Russell
2000 or the assets of the Fund, and the timing and amount of Fund investor
contributions and withdrawals, if any. In the unlikely event that a high
correlation is not achieved, the Trust's Board of Trustees will consider
alternatives. Because the Fund seeks to track the Russell 2000, Bankers Trust
will not attempt to judge the merits of any particular stock as an investment.
Under normal circumstances, the Fund will invest at least 80% of its assets in
the securities of the Russell 2000.
As a diversified fund, no more than 5% of the assets of the Fund may be invested
in the securities of one issuer (other than U.S. Government Securities), except
that up to 25% of the Fund's assets may be invested without regard to this
limitation. The Fund will not invest more than 25% of its assets in the
securities of issuers in any one industry. In the unlikely event that the
Russell 2000 should concentrate to an extent greater than that amount, the
Fund's ability to achieve its objective may be impaired. These are fundamental
investment policies of the Fund which may not be changed without shareholder
approval. No more than 15% of the Fund's net assets may be invested in illiquid
or not readily marketable securities (including repurchase agreements and time
deposits with maturities of more than seven days). Additional investment
policies of the Fund are contained in the SAI.
The Fund may maintain up to 25% of its assets in short-term debt securities and
money market instruments to meet redemption requests or to facilitate investment
in the securities of the Russell 2000. Securities index futures contracts and
related options, warrants and convertible securities may be used for several
reasons: to simulate full investment in the Russell 2000 while retaining a cash
balance for fund management purposes, to facilitate trading, to reduce
transaction costs or to seek higher investment returns when a futures contract,
option, warrant or convertible security is priced more attractively than the
underlying equity security or the Russell 2000. These instruments may be
considered derivatives. See "Risk Factors and Certain Securities and Investment
Practices -- Derivatives."
The use of derivatives for non-hedging purposes may be considered speculative.
While each of these securities can be used as leveraged investments, the Fund
may not use them to leverage its net assets. The Fund will not invest in such
instruments as part of a temporary defensive strategy (in anticipation of
declining stock prices) to protect the Fund against potential market declines.
The Fund may lend its investment securities and purchase securities on a
when-issued and a delayed delivery basis. See "Risk Factors and Certain
Securities and Investment Practices" for more information about the investment
practices of the Fund.
RISK FACTORS AND CERTAIN SECURITIES AND INVESTMENT PRACTICES
The following pages contain more detailed information about types of instruments
in which the Fund may invest and strategies Bankers Trust may employ in pursuit
of the Fund's investment objective. A summary of risks and restrictions
associated with these instrument types and investment practices is included as
well.
Bankers Trust may not buy all of these instruments or use all of these
techniques to the full extent permitted unless it believes that doing so will
help the Fund achieve its goal. Holdings and recent investment strategies are
described in the financial reports of the Fund, which are sent to Fund
shareholders on a semi-annual and annual basis.
Market Risk
As a mutual fund investing primarily in common stocks, the Fund is subject to
market risk --- i.e., the possibility that common stock prices will decline over
short or even extended periods. The U.S. stock market tends to be cyclical, with
periods when stock prices generally rise and periods when prices generally
decline.
Risks of Investing in Medium- and Small-Capitalization Stocks
Historically, medium- and small-capitalization stocks have been more volatile in
price than the larger-capitalization stocks included in the Standard & Poor's
500 Composite Stock Price Index. Among the reasons for the greater price
volatility of these securities are: the less certain growth prospects of smaller
firms, the lower degree of liquidity in the markets for such stocks, and the
greater sensitivity of medium- and small-size companies to changing economic
conditions. In addition to exhibiting greater volatility, medium- and small-size
company stocks may fluctuate independently of larger company stocks. Medium- and
small-size company stocks may decline in price as large company stocks rise, or
rise in price as large company stocks decline.
The Fund's investment objective is not a fundamental policy and may be changed
upon notice to, but without the approval of, the Fund's shareholders. If there
is a change in the Fund's investment objective, the Fund's shareholders should
consider whether the Fund remains an appropriate investment in light of their
then-current needs. Shareholders of the Fund will receive 30 days prior written
notice with respect to any change in the investment objective of the Fund. See
"Risk Factors and Certain Securities and Investment Practices" in the SAI for a
description of the fundamental policies of the Fund that cannot be changed
without approval by "the vote of a majority of the outstanding voting
securities" (as defined in the Investment Company Act of 1940, as amended (the
"1940 Act")) of the Fund.
For descriptions of the investment objective, policies and restrictions of the
Fund, see "The Fund in Detail" herein and "Risk Factors and Certain Securities
and Investment Practices" herein and in the SAI. For descriptions of the
management and expenses of the Fund, see "Management of the Trust" herein and in
the SAI.
Short-Term Investments. The Fund may invest in certain short-term fixed income
securities. Such securities may be used to invest uncommitted cash balances, to
maintain liquidity to meet shareholder redemptions or to serve as collateral for
the obligations underlying the Fund's investment in securities index futures or
related options or warrants. These securities include: obligations issued or
guaranteed by the U.S. Government or any of its agencies or instrumentalities or
by any of the states, repurchase agreements, time deposits, certificates of
deposit, bankers' acceptances and commercial paper.
U.S. Government Securities are obligations of, or guaranteed by, the U.S.
Government, its agencies or instrumentalities. Some U.S. Government securities,
such as Treasury bills, notes and bonds, are supported by the full faith and
credit of the United States; others, such as those of the Federal Home Loan
Banks, are supported by the right of the issuer to borrow from the Treasury;
others, such as those of the Federal National Mortgage Association, are
supported by the discretionary authority of the U.S. Government to purchase the
agency's obligations; and still others, such as those of the Student Loan
Marketing Association, are supported only by the credit of the instrumentality.
Securities Lending. The Fund may lend its investment securities to qualified
institutional investors for either short-term or long-term purposes of realizing
additional income. Loans of securities by the Fund will be collateralized by
cash, letters of credit, or securities issued or guaranteed by the U.S.
Government or its agencies. The collateral will equal at least 100% of the
current market value of the loaned securities, and such loans may not exceed 30%
of the value of the Fund's net assets. The risks in lending portfolio
securities, as with other extensions of credit, consist of possible loss of
rights in the collateral should the borrower fail financially. In determining
whether to lend securities, Bankers Trust will consider all relevant facts and
circumstances, including the creditworthiness of the borrower.
When Issued and Delayed Delivery Securities. The Fund may purchase securities on
a when-issued or delayed delivery basis. Delivery of and payment for these
securities may take place as long as a month or more after the date of the
purchase commitment. The value of these securities is subject to market
fluctuation during this period and no income accrues to the Fund until
settlement takes place. The Fund maintains with its custodian a segregated
account containing cash or liquid portfolio securities in an amount at least
equal to these commitments.
Derivatives
The Fund may invest in various instruments that are commonly known as
derivatives. Generally, a derivative is a financial arrangement, the value of
which is based on, or "derived" from, a traditional security, asset, or market
index. Some "derivatives" such as mortgage-related and other asset-backed
securities are in many respects like any other investment, although they may be
more volatile or less liquid than more traditional debt securities. There are,
in fact, many different types of derivatives and many different ways to use
them. There are a range of risks associated with those uses. Futures and options
are commonly used for traditional hedging purposes to attempt to protect the
Fund from exposure to changing interest rates, securities prices or currency
exchange rates and as a low cost method of gaining exposure to a particular
securities market without investing directly in those securities. The Manager
will only use derivatives for cash management purposes. Derivatives will not be
used to increase portfolio risk above the level that would be achieved using
only traditional investment securities or to acquire exposure to changes in the
value of assets or indices that by themselves would not be purchased for the
Fund.
Securities Index Futures and Related Options. The Fund may enter into securities
index futures contracts and related options provided that not more than 5% of
its assets are required as a margin deposit for futures contracts or options and
provided that not more than 20% of the Fund's assets are invested in futures and
options at any time. When the Fund has cash from new investments in the Fund or
holds a portion of its assets in money market instruments, it may enter into
index futures or options to attempt to increase its exposure to the market.
Strategies the Fund could use to accomplish this include purchasing futures
contracts, writing put options and purchasing call options. When the Fund wishes
to sell securities, because of shareholder redemptions or otherwise, it may use
index futures or options to hedge against market risk until the sale can be
completed. These strategies could include selling futures contracts, writing
call options and purchasing put options.
Warrants. Warrants are instruments which entitle the holder to buy underlying
equity securities at a specific price for a specific period of time. A warrant
tends to be more volatile than its underlying securities and ceases to have
value if it is not exercised prior to its expiration date. In addition, changes
in the value of a warrant do not necessarily correspond to changes in the value
of its underlying securities.
Convertible Securities. The Fund may invest in convertible securities which are
a bond or preferred stock which may be converted at a stated price within a
specific period of time into a specified number of shares of common stock of the
same or different issuer. Convertible securities are senior to common stock in a
corporation's capital structure, but usually are subordinated to non-convertible
debt securities. While providing a fixed income stream -- generally higher in
yield than the income derived from a common stock but lower than that afforded
by a non-convertible debt security -- a convertible security also affords an
investor the opportunity, through its conversion feature, to participate in the
capital appreciation of common stock into which it is convertible.
In general, the market value of a convertible security is the higher of its
investment value (its value as a fixed income security) or its conversion value
(the value of the underlying shares of common stock if the security is
converted). As a fixed income security, the market value of a convertible
security generally increases when interest rates decline and generally decreases
when interest rates rise; however, the price of a convertible security generally
increases as the market value of the underlying stock increases, and generally
decreases as the market value of the underlying stock declines. Investments in
convertible securities generally entail less risk than investments in the common
stock of the same issuer.
Further risks associated with the use of futures contracts, options, warrants
and convertible securities. The risk of loss associated with futures contracts
in some strategies can be substantial due to both the low margin deposits
required and the extremely high degree of leverage involved in futures pricing.
As a result, a relatively small price movement in a futures contract may result
in an immediate and substantial loss or gain. However, the Fund will not use
futures contracts, options, warrants and convertible securities for speculative
purposes or to leverage their net assets. Accordingly, the primary risks
associated with the use of futures contracts, options, warrants and convertible
securities by the Fund are: (i) imperfect correlation between the change in
market value of the securities held by the Fund and the prices of futures
contracts, options, warrants and convertible securities; and (ii) possible lack
of a liquid secondary market for a futures contract and the resulting inability
to close a futures position prior to its maturity date. The risk of imperfect
correlation will be minimized by investing only in those contracts whose
behavior is expected to resemble that of the Fund's underlying securities. The
risk that the Fund will be unable to close out a futures position will be
minimized by entering into stock transactions on an exchange with an active and
liquid secondary market. However, options, warrants and convertible securities
purchased or sold over-the-counter may be less liquid than exchange-traded
securities. Illiquid securities, in general, may not represent more than 15% of
the net assets of the Fund.
Asset Coverage. To assure that futures and related options, as well as
when-issued and delayed-delivery securities, are not used by the Fund to achieve
excessive investment leverage, the Fund will cover such transactions, as
required under applicable interpretations of the Securities and Exchange
Commission (the "SEC"), either by owning the underlying securities, entering
into an off-setting transaction, or by establishing a segregated account with
the Fund's custodian containing cash or liquid portfolio securities in an amount
at all times equal to or exceeding the Fund's commitment with respect to these
instruments or contracts.
Portfolio Turnover
The frequency of Fund transactions - the Fund's turnover rate - will vary from
year to year depending on market conditions and the Fund's cash flows. The
Fund's annual portfolio turnover rate is not expected to exceed 100%.
<PAGE>
NET ASSET VALUE
The Fund is open for business each day the NYSE is open (each such day being a
"Valuation Day"). The NYSE is currently open on each day, Monday through Friday,
except: (a) January 1st, Presidents' Day (the third Monday in February), Good
Friday, Memorial Day (the last Monday in May), July 4th, Labor Day (the first
Monday in September), Thanksgiving Day (the last Thursday in November) and
December 25th; and (b) the preceding Friday or the subsequent Monday when one of
the calendar-determined holidays falls on a Saturday or Sunday, respectively.
The net asset value per share of the Fund is calculated once on each Valuation
Day as of the close of regular trading on the NYSE, which under normal
circumstances is 4:00 p.m., New York time. The net asset value per share of the
Fund is computed by dividing the value of the Fund's assets, less all
liabilities, by the total number of its shares outstanding. The Fund's
securities and other assets are valued primarily on the basis of market
quotations or, if quotations are not readily available, by a method which the
Fund's Board of Trustees believes accurately reflects fair value.
PERFORMANCE INFORMATION AND REPORTS
The Fund's performance may be used from time to time in advertisements,
shareholder reports or other communications to existing or prospective owners of
the Companies' variable contracts. When performance information is provided in
advertisements, it will include the effect of all charges deducted under the
terms of the specified contract, as well as all recurring and non-recurring
charges incurred by the Fund. Performance information may include the Fund's
investment results and/or comparisons of its investment results to the Lipper
International Average or other various unmanaged indices or results of other
mutual funds or investment or savings vehicles. The Fund's investment results as
used in such communications will be calculated on a total rate of return basis
in the manner set forth below. From time to time, fund rankings may be quoted
from various sources, such as Lipper Analytical Services, Inc., Value Line and
Morningstar Inc.
The Trust may provide period and average annualized "total return" quotations
for the Fund. The Fund's "total return" refers to the change in the value of an
investment in the Fund over a stated period based on any change in net asset
value per share and including the value of any shares purchasable with any
dividends or capital gains distributed during such period. Period total return
may be annualized. An annualized total return is a compounded total return which
assumes that the period total return is generated over a one-year period, and
that all dividends and capital gain distributions are reinvested. An annualized
total return will be higher than a period total return if the period is shorter
than one year, because of the compounding effect.
Unlike some bank deposits or other investments which pay a fixed yield for a
stated period of time, the total return of the Fund will vary depending upon
interest rates, the current market value of the securities held by the Fund and
changes in the Fund's expenses. In addition, during certain periods for which
total return quotations may be provided, Bankers Trust and/or the Trust's other
service providers may have voluntarily agreed to waive portions of their
respective fees, or reimburse certain operating expenses of the Fund, on a
month-to-month basis. Such waivers will have the effect of increasing the Fund's
net income (and therefore its total return) during the period such waivers are
in effect.
Total returns are based on past results and are not an indication of future
performance.
Shareholders will receive unaudited financial reports semiannually that include
the Fund's financial statements, including listings of investment securities
held by the Fund at those dates. Annual reports are audited by independent
accountants.
MANAGEMENT OF THE TRUST
Board of Trustees
The affairs of the Fund are managed under the supervision of the Board of
Trustees of the Trust, of which the Fund is a series. By virtue of the
responsibilities assumed by Bankers Trust, neither the Trust nor the Fund
require employees other than the Trust's officers. None of the Trust's officers
devotes full time to the affairs of the Trust or the Fund.
For more information with respect to the Trustees of the Trust, see "Management
of the Trust" in the Statement of Additional Information.
Investment Manager
The Fund has retained the services of Bankers Trust Global Investment
Management, a unit of Bankers Trust, as investment manager. Bankers Trust, a New
York banking corporation with executive offices at 280 Park Avenue, New York,
New York 10017, is a wholly-owned subsidiary of Bankers Trust New York
Corporation. Bankers Trust conducts a variety of general banking and trust
activities and is a major wholesaler supplier of financial services to the
international and domestic institutional markets.
As of June 30, 1996, Bankers Trust New York Corporation was the seventh largest
bank holding company in the United States with total assets of approximately
$115 billion. Bankers Trust is a worldwide merchant bank dedicated to servicing
the needs of corporations, governments, financial institutions and private
clients through a global network of over 120 offices in more than 40 countries.
Investment management is a core business of Bankers Trust, built on a tradition
of excellence from its roots as a trust bank founded in 1903. The scope of
Bankers Trust's investment management capability is unique due to its leadership
positions in both active and passive quantitative management and its presence in
major equity and fixed income markets around the world. Bankers Trust is one of
the nation's largest and most experienced investment managers with approximately
$215 billion in assets under management globally.
Bankers Trust has more than 50 years of experience managing retirement assets
for the nation's largest corporations and institutions. Now, the Trust brings
Bankers Trust's extensive investment management expertise - once available to
only the largest institutions in the U.S. - to individual investors. Bankers
Trust's officers have had extensive experience in managing investment portfolios
having objectives similar to those of the Fund.
Bankers Trust, subject to the supervision and direction of the Board of
Trustees, manages the Fund in accordance with the Fund's investment objective
and stated investment policies, makes investment decisions for the Fund, places
orders to purchase and sell securities and other financial instruments on behalf
of the Fund, employs professional investment managers and securities analysts
who provide research services to the Fund, oversees the administration of all
aspects of the Trust's business and affairs and supervises the performance of
professional services provided by other vendors. Bankers Trust may utilize the
expertise of any of its world wide subsidiaries and affiliates to assist it in
its role as investment manager. All orders for investment transactions on behalf
of the Fund are placed by Bankers Trust with broker-dealers and other financial
intermediaries that it selects, including those affiliated with Bankers Trust. A
Bankers Trust affiliate will be used in connection with a purchase or sale of an
investment for the Fund only if Bankers Trust believes that the affiliate's
charge for the transaction does not exceed usual and customary levels. The Fund
will not invest in obligations for which Bankers Trust or any of its affiliates
is the ultimate obligor or accepting bank. The Fund may, however, invest in the
obligations of correspondents and customers of Bankers Trust.
As compensation for its services to the Fund, Bankers Trust receives a fee from
the Fund, accrued daily and paid monthly, equal on an annual basis to 0.35% 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 the Manager, the Fund is responsible for the payment
of all its other expenses incurred in the operation of the Fund, which include,
among other things, expenses for legal and independent auditor's services,
charges of the Fund's custodian and transfer agent, SEC fees, a pro rata portion
of the fees of the Trust's unaffiliated trustees and officers, accounting costs
for reports sent to owners of the Contracts which provide for investment in the
Fund ("Contractowners"), the Fund's pro rata portion of membership fees in trade
organizations, a pro rata portion of the fidelity bond coverage for the Trust's
officers, interest, brokerage and other trading costs, taxes, all expenses of
computing the Fund's net asset value per share, expenses involved in registering
and maintaining the registration of the Fund's shares with the SEC and
qualifying the Fund for sale in various jurisdictions and maintaining such
qualification, litigation and other extraordinary or non-recurring expenses.
However, other typical Fund expenses such as Contractowner servicing,
distribution of reports to Contractowners and prospectus printing and postage
will be borne by the relevant Company.
Administrator
First Data Investor Services Group, Inc. ("First Data"), a subsidiary of First
Data Corporation, One Exchange Place, Boston, Massachusetts 02109, serves as the
Fund's administrator pursuant to an Administration Agreement with the Trust.
Under the terms of the Administration Agreement, First Data generally assists in
all aspects of the Fund's operations, other than providing investment advice,
subject to the overall authority of the Trust's Board of Trustees. Pursuant to
the terms of the Administration Agreement, dated April 16, 1996, the Trust has
agreed to pay First Data a monthly fee at the annual rate of 0.02% of the value
of the Trust's average monthly net assets not exceeding $2 billion; 0.01% of the
Trust's monthly average net assets exceeding $2 billion but not exceeding $3
billion; and 0.0075% of the Trust's monthly average net assets exceeding $3
billion, in addition to a flat fee of $70,000 per year per Fund.
Distributor
440 Financial Distributors, Inc. (the "Distributor") serves as distributor of
the Fund's shares to separate accounts of the Companies for which it receives no
separate fee from the Fund. The principal business address of the Distributor is
4400 Computer Drive, Westborough, Massachusetts 01581.
Custodian and Transfer Agent
Bankers Trust acts as custodian of the assets of the Fund and First Data serves
as the transfer agent for the Fund.
Organization of the Trust
The Trust was organized on January 19, 1996, under the laws of the Commonwealth
of Massachusetts. The Fund is a separate series of the Trust. The Trust offers
shares of beneficial interest of the Fund and the Trust's other series, par
value $0.001 per share. The shares of each of the other series of the Trust are
offered through separate Prospectuses. No series of shares has any preference
over any other series. All shares, when issued, will be fully paid and
nonassessable. The Trust's Board of Trustees has the authority to create
additional series without obtaining shareholder approval.
The Trust is an entity of the type commonly known as a "Massachusetts business
trust." Under Massachusetts law, shareholders of such a business trust may,
under certain circumstances, be held personally liable as partners for its
obligations. However, the risk of a shareholder incurring financial loss on
account of shareholder liability is limited to circumstances in which both
inadequate insurance existed and the Trust itself was unable to meet its
obligations.
Through its separate accounts, the Companies are the Fund's sole stockholders of
record, so under the 1940 Act, such Companies are deemed to be in control of the
Fund. Nevertheless, when a shareholders' meeting occurs, each Company solicits
and accepts voting instructions from its Contractowners who have allocated or
transferred monies for an investment in the Fund as of the record date of the
meeting. Each Company then votes the Fund's shares that are attributable to its
Contractowners' interests in the Fund in proportion to the voting instructions
received. Each Company will vote any share that it is entitled to vote directly
due to amounts it has contributed or accumulated in its separate accounts in the
manner described in the prospectuses for its variable annuities and variable
life insurance policies.
Each share of the Fund is entitled to one vote, and fractional shares are
entitled to fractional votes. Fund shares have non-cumulative voting rights, so
the vote of more than 50% of the shares can elect 100% of the Trustees.
The Trust is not required, and does not intend, to hold regular annual
shareholder meetings, but may hold special meetings for consideration of
proposals requiring shareholder approval.
The Fund is only available to owners of variable annuities or variable life
insurance policies issued by the Companies through their respective separate
accounts. The Fund does not currently foresee any disadvantages to
Contractowners arising from offering its shares to variable annuity and variable
life insurance policy separate accounts simultaneously, and the Board of
Trustees monitors events for the existence of any material irreconcilable
conflict between or among Contractowners. If a material irreconcilable conflict
arises, one or more separate accounts may withdraw their investment in the Fund.
This could possibly force the Fund to sell portfolio securities at
disadvantageous prices. Each Company will bear the expenses of establishing
separate portfolios for its variable annuity and variable life insurance
separate accounts if such action becomes necessary; however, ongoing expenses
that are ultimately borne by Contractowners will likely increase due to the loss
of economies of scale benefits that can be provided to mutual funds with
substantial assets.
SHAREHOLDER AND ACCOUNT POLICIES
PURCHASE AND REDEMPTION OF SHARES
Shares of the Fund will be continuously offered to each Company's separate
accounts at the net asset value per share next determined after a proper
purchase request has been received by the Company. The Company then offers to
Contractowners units in its separate accounts which directly correspond to
shares in the Fund. Each Company submits purchase and redemption orders to the
Fund based on allocation instructions for premium payments, transfer
instructions and surrender or partial withdrawal requests which are furnished to
the Company by such Contractowners. Contractowners can send such instructions
and requests to the Companies by first class mail, overnight mail or express
mail sent to the address set forth in the relevant Company's offering memorandum
included with this prospectus. The Fund and the Distributor reserve the right to
reject any purchase order for shares of the Fund.
Payment for redeemed shares will ordinarily be made within seven (7) business
days after the Fund receives a redemption order from the relevant Company. The
redemption price will be the net asset value per share next determined after the
Company receives the Contractowner's request in proper form.
The Fund may suspend the right of redemption or postpone the date of payment
during any period when trading on the NYSE is restricted, or the NYSE is closed
for other than weekends and holidays; when an emergency makes it not reasonably
practicable for the Fund to dispose of assets or calculate its net asset value;
or as permitted by the SEC.
The accompanying offering memorandum for the Company's variable annuity or
variable life insurance policy describes the allocation, transfer and withdrawal
provisions of such annuity or policy.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Fund distributes substantially all of its net income and capital gains to
shareholders each year. The Fund distributes capital gains and income dividends
annually. All dividends and capital gains distributions paid by the Fund will be
automatically reinvested, at net asset value, by the Companies' separate
accounts in additional shares of the Fund, unless an election is made by a
Contractowner to receive distributions in cash.
The Fund will be treated as a separate entity for federal income tax purposes.
The Fund intends to qualify as a "regulated investment company" under the
Internal Revenue Code of 1986, as amended (the "Code"). As a regulated
investment company the Fund will not be subject to U.S. Federal income tax on
its investment company taxable income and net capital gains (the excess of net
long-term capital gains over net short-term capital losses), if any, that it
distributes to shareholders. The Fund intends to distribute to its shareholders,
at least annually, substantially all of its investment company taxable income
and net capital gains, and therefore does not anticipate incurring a Federal
income tax liability.
The Code and Treasury Department regulations promulgated thereunder require that
mutual funds that are offered through insurance company separate accounts must
meet certain diversification requirements to preserve the tax-deferral benefits
provided by the variable contracts which are offered in connection with such
separate accounts. The Manager intends to diversify the Fund's investments in
accordance with those requirements. The enclosed offering memorandum for a
Company's variable annuity or variable life insurance policies describes the
federal income tax treatment of distributions from such contracts to
Contractowners.
The foregoing is only a brief summary of important tax law provisions that
affect the Fund. Other Federal, state or local tax law provisions may also
affect the Fund and its operations. Anyone who is considering allocating,
transferring or withdrawing monies held under a variable contract to or from the
Fund should consult a qualified tax adviser.
<PAGE>
g:\shared\bankers\prospect\S&P500-4.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
440 FINANCIAL DISTRIBUTORS, INC.
Custodian
BANKERS TRUST COMPANY
Transfer Agent
FIRST DATA INVESTOR SERVICES GROUP, INC.
Independent Accountants
COOPERS & LYBRAND LLP
Counsel
WILLKIE FARR & GALLAGHER
..........................................................
No person has been authorized to give any information or to make any
representation other than those contained in the Fund's Prospectus, its
Statement of Additional Information or the Fund's official sales literature in
connection with the offering of the Fund's shares and, if given or made, such
other information or representations must not be relied on as having been
authorized by the Fund. This Prospectus does not constitute an offer in any
state in which, or to any person to whom, such offer may not lawfully be made.
..........................................................
<PAGE>
16
BT INSURANCE FUNDS TRUST
PROSPECTUS: FEBRUARY 5, 1997 AS SUPPLEMENTED JUNE 16, 1997
EAFE(R) Equity Index Fund
This Prospectus offers shares of the EAFE(R) Equity Index Fund (the "Fund"). The
Fund is a series of BT Insurance Funds Trust (the "Trust"), which is an open-end
management investment company currently having six series. Shares of the Fund
are available to the public only through the purchase of certain variable
annuity and variable life insurance contracts ("Contract(s)") issued by various
insurance companies (the "Companies").
The Fund seeks to replicate as closely as possible the performance of the Morgan
Stanley Capital International Europe, Australia, Far East (EAFE) Index (the
"EAFE Index") before the deduction of Fund expenses (the "Expenses"). There is
no assurance, however, that the Fund will achieve its stated objective.
Bankers Trust Company ("Bankers Trust") is the investment manager (the
"Manager") of the Fund.
Please read this Prospectus carefully before investing and retain it for future
reference. It contains important information about the Fund that you should know
and can refer to in deciding whether the Fund's goals match your own.
A Statement of Additional Information ("SAI") with the same date has been filed
with the Securities and Exchange Commission, and is incorporated herein by
reference. You may request a free copy of the SAI by calling the Trust at the
Customer Service Center at the telephone number shown in the accompanying
prospectus.
Fund shares are not deposits or obligations of, or guaranteed by, Bankers Trust
or any depository institution. Shares are not insured by the Federal Deposit
Insurance Corporation, the Federal Reserve Board or any other agency.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
The EAFE Index is the exclusive property of Morgan Stanley. Morgan Stanley
Capital International is a service mark of Morgan Stanley and has been licensed
for use by Bankers Trust Company.
BANKERS TRUST GLOBAL INVESTMENT MANAGEMENT a unit of BANKERS TRUST COMPANY
Investment Manager of the Fund
440 FINANCIAL DISTRIBUTORS, INC.
Distributor
4400 Computer Drive
Westborough, MA 01581
<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....................................... 14
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 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 United Kingdom.
The Fund is constructed to have aggregate investment characteristics similar to
those of the EAFE Index. The Fund invests in a statistically selected sample of
the securities of companies included in the EAFE Index, although not all
companies within a country will be represented in the Fund at the same time.
Stocks are selected for inclusion in the Fund based on country of origin, market
capitalization, yield, volatility and industry sector. Bankers Trust will manage
the Fund using advanced statistical techniques to determine which stocks are to
be purchased or sold to replicate the EAFE Index. From time to time, adjustments
may be made in the Fund because of changes in the composition of the EAFE Index,
but such changes should be infrequent.
The Fund is not sponsored, endorsed, sold or promoted by Morgan Stanley. Morgan
Stanley makes no representation or warranty, express or implied, to the owners
of the Fund or any member of the public regarding the advisability of investing
in securities generally or in the Fund particularly or the ability of the EAFE
Index to track general stock market performance. Morgan Stanley is the licenser
of certain trademarks, service marks and trade names of Morgan Stanley and of
the EAFE Index which is determined, composed and calculated by Morgan Stanley
without regard to the issuer of the Fund or the Fund itself. Morgan Stanley has
no obligation to take the needs of the issuer of the Fund or the owners of the
Fund into consideration in determining, composing or calculating the EAFE Index.
Inclusion of a security in the EAFE Index in no way implies an opinion by Morgan
Stanley as to its attractiveness as an investment. Morgan Stanley is not
responsible for and has not participated in the determination of the timing of,
prices at, or quantities of the Fund to be issued or in the determination or
calculation of the equation by which the Fund is redeemable for cash. Morgan
Stanley has no obligation or liability to owners of the Fund in connection with
the administration, marketing or trading of the Fund. The Fund is neither
sponsored by nor affiliated with Morgan Stanley.
ALTHOUGH MORGAN STANLEY SHALL OBTAIN INFORMATION FOR INCLUSION IN OR FOR USE IN
THE CALCULATION OF THE INDICES FROM SOURCES WHICH MORGAN STANLEY CONSIDERS
RELIABLE, MORGAN STANLEY DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS
OF THE INDICES OR ANY DATA INCLUDED THEREIN. MORGAN STANLEY MAKES NO WARRANTY,
EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY LICENSEE, LICENSEE'S
CUSTOMERS AND COUNTERPARTIES, OWNERS OF THE PRODUCTS, OR ANY OTHER PERSON OR
ENTITY FROM THE USE OF THE INDICES OR ANY DATA INCLUDED THEREIN IN CONNECTION
WITH THE RIGHTS LICENSED HEREUNDER OR FOR ANY OTHER USE. MORGAN STANLEY MAKES NO
EXPRESS OR IMPLIED WARRANTIES, AND HEREBY EXPRESSLY DISCLAIMS ALL WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO THE INDICES
OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT
SHALL MORGAN STANLEY HAVE ANY LIABILITY FOR ANY DIRECT, INDIRECT, SPECIAL,
PUNITIVE, CONSEQUENTIAL OR ANY OTHER DAMAGES (INCLUDING LOST PROFITS) EVEN IF
NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
General
Over time, the correlation between the performance of the Fund and the EAFE
Index is expected to be 0.95 or higher before deduction of Fund expenses. A
correlation of 1.00 would indicate perfect correlation, which would be achieved
when the net asset value of the Fund, including the value of its dividend and
any capital gain distributions, increases or decreases in exact proportion to
changes in the EAFE Index. The Fund's ability to track the EAFE Index may be
affected by, among other things, transaction costs, administration and other
expenses incurred by the Fund, changes in either the composition of the EAFE
Index or the assets of the Fund, and the timing and amount of Fund investor
contributions and withdrawals, if any. In the unlikely event that a high
correlation is not achieved, the Trust's Board of Trustees will consider
alternatives. Because the Fund seeks to track the EAFE Index, Bankers Trust will
not attempt to judge the merits of any particular stock as an investment.
Under normal circumstances, the Fund will invest at least 80% of its assets in
the securities of the EAFE Index.
As a diversified fund, no more than 5% of the assets of the Fund may be invested
in the securities of one issuer (other than U.S. Government Securities), except
that up to 25% of the Fund's assets may be invested without regard to this
limitation. The Fund will not invest more than 25% of its assets in the
securities of issuers in any one industry. In the unlikely event that the EAFE
Index should concentrate to an extent greater than that amount, the 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. The Manager
will only use derivatives for cash management purposes. Derivatives will not be
used to increase portfolio risk above the level that would be achieved using
only traditional investment securities or to acquire exposure to changes in the
value of assets or indices that by themselves would not be purchased for the
Fund.
Securities Index Futures and Related Options. The Fund may enter into securities
index futures contracts and related options provided that not more than 5% of
its assets are required as a margin deposit for futures contracts or options and
provided that not more than 20% of the Fund's assets are invested in futures and
options at any time. When the Fund has cash from new investments in the Fund or
holds a portion of its assets in money market instruments, it may enter into
index futures or options to attempt to increase its exposure to the market.
Strategies the Fund could use to accomplish this include purchasing futures
contracts, writing put options and purchasing call options. When the Fund wishes
to sell securities, because of shareholder redemptions or otherwise, it may use
index futures or options to hedge against market risk until the sale can be
completed. These strategies could include selling futures contracts, writing
call options and purchasing put options.
Warrants. Warrants are instruments which entitle the holder to buy underlying
equity securities at a specific price for a specific period of time. A warrant
tends to be more volatile than its underlying securities and ceases to have
value if it is not exercised prior to its expiration date. In addition, changes
in the value of a warrant do not necessarily correspond to changes in the value
of its underlying securities.
Convertible Securities. The Fund may invest in convertible securities which are
a bond or preferred stock which may be converted at a stated price within a
specific period of time into a specified number of shares of common stock of the
same or different issuer. Convertible securities are senior to common stock in a
corporation's capital structure, but usually are subordinated to non-convertible
debt securities. While providing a fixed income stream -- generally higher in
yield than the income derived from a common stock but lower than that afforded
by a non-convertible debt security -- a convertible security also affords an
investor the opportunity, through its conversion feature, to participate in the
capital appreciation of common stock into which it is convertible.
In general, the market value of a convertible security is the higher of its
investment value (its value as a fixed income security) or its conversion value
(the value of the underlying shares of common stock if the security is
converted). As a fixed income security, the market value of a convertible
security generally increases when interest rates decline and generally decreases
when interest rates rise; however, the price of a convertible security generally
increases as the market value of the underlying stock increases, and generally
decreases as the market value of the underlying stock declines. Investments in
convertible securities generally entail less risk than investments in the common
stock of the same issuer.
Further risks associated with the use of futures contracts, options, warrants
and convertible securities. The risk of loss associated with futures contracts
in some strategies can be substantial due to both the low margin deposits
required and the extremely high degree of leverage involved in futures pricing.
As a result, a relatively small price movement in a futures contract may result
in an immediate and substantial loss or gain. However, the Fund will not use
futures contracts, options, warrants and convertible securities for speculative
purposes or to leverage their net assets. Accordingly, the primary risks
associated with the use of futures contracts, options, warrants and convertible
securities by the Fund are: (i) imperfect correlation between the change in
market value of the securities held by the Fund and the prices of futures
contracts, options, warrants and convertible securities; and (ii) possible lack
of a liquid secondary market for a futures contract and the resulting inability
to close a futures position prior to its maturity date. The risk of imperfect
correlation will be minimized by investing only in those contracts whose
behavior is expected to resemble that of the Fund's underlying securities. The
risk that the Fund will be unable to close out a futures position will be
minimized by entering into stock transactions on an exchange with an active and
liquid secondary market. However, options, warrants and convertible securities
purchased or sold over-the-counter may be less liquid than exchange-traded
securities. Illiquid securities, in general, may not represent more than 15% of
the net assets of the Fund.
Foreign Currency Forward, Futures and Related Options Transactions. The Fund may
enter into foreign currency forward and foreign currency futures contracts in
order to maintain the same currency exposure as the EAFE Index. The Fund may not
enter into such contracts as a way of protecting against anticipated adverse
changes in exchange rates between foreign currencies and the U.S. dollar. A
foreign currency forward contract is an obligation to purchase or sell a
specific currency at a future date, which may be any fixed number of days from
the date of the contract agreed upon by the parties, at a price set at the time
of the contract. Such contracts do not eliminate fluctuations in the underlying
prices of securities held by the Fund. Although such contracts tend to minimize
the risk of loss due to a decline in the value of a currency that has been sold
forward, and the risk of loss due to an increase in the value of a currency that
has been purchased forward, at the same time they tend to limit any potential
gain that might be realized should the value of such currency increase.
Asset Coverage. To assure that futures and related options, as well as
when-issued and delayed-delivery securities, are not used by the Fund to achieve
excessive investment leverage, the Fund will cover such transactions, as
required under applicable interpretations of the Securities and Exchange
Commission (the "SEC"), either by owning the underlying securities, entering
into an off-setting transaction, or by establishing a segregated account with
the Fund's custodian containing cash or liquid portfolio securities in an amount
at all times equal to or exceeding the Fund's commitment with respect to these
instruments or contracts.
Portfolio Turnover
The frequency of Fund transactions - the Fund's turnover rate - will vary from
year to year depending on market conditions and the Fund's cash flows. The
Fund's annual portfolio turnover rate is not expected to exceed 100%.
NET ASSET VALUE
The Fund is open for business on each day when both the NYSE and the Tokyo Stock
Exchange are open (each such day being a "Valuation Day"). The net asset value
per share of the Fund is calculated once on each Valuation Day as of the close
of regular trading on the NYSE, which under normal circumstances is 4:00 p.m.,
New York time. The Fund will not process orders on any day when either the NYSE
or the Tokyo Stock Exchange is closed. Orders received on such days will be
priced on the next day the Fund computes its net asset value. As such, investors
may experience a delay in purchasing or redeeming shares of the Fund. 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 MSCI GDP
weighted the EAFE Index, and the Lipper International Average or other various
unmanaged indices or results of other mutual funds or investment or savings
vehicles. The Fund's investment results as used in such communications will be
calculated on a total rate of return basis in the manner set forth below. From
time to time, fund rankings may be quoted from various sources, such as Lipper
Analytical Services, Inc., Value Line and Morningstar Inc.
The Trust may provide period and average annualized "total return" quotations
for the Fund. The Fund's "total return" refers to the change in the value of an
investment in the Fund over a stated period based on any change in net asset
value per share and including the value of any shares purchasable with any
dividends or capital gains distributed during such period. Period total return
may be annualized. An annualized total return is a compounded total return which
assumes that the period total return is generated over a one-year period, and
that all dividends and capital gain distributions are reinvested. An annualized
total return will be higher than a period total return if the period is shorter
than one year, because of the compounding effect.
Unlike some bank deposits or other investments which pay a fixed yield for a
stated period of time, the total return of the Fund will vary depending upon
interest rates, the current market value of the securities held by the Fund and
changes in the Fund's expenses. In addition, during certain periods for which
total return quotations may be provided, Bankers Trust and/or the Trust's other
service providers may have voluntarily agreed to waive portions of their
respective fees, or reimburse certain operating expenses of the Fund, on a
month-to-month basis. Such waivers will have the effect of increasing the Fund's
net income (and therefore its total return) during the period such waivers are
in effect.
Total returns are based on past results and are not an indication of future
performance.
Shareholders will receive unaudited financial reports semiannually that include
the Fund's financial statements, including listings of investment securities
held by the Fund at those dates. Annual reports are audited by independent
accountants.
MANAGEMENT OF THE TRUST
Board of Trustees
The affairs of the Fund are managed under the supervision of the Board of
Trustees of the Trust, of which the Fund is a series. By virtue of the
responsibilities assumed by Bankers Trust, neither the Trust nor the Fund
requires employees other than the Trust's officers. None of the Trust's officers
devotes full time to the affairs of the Trust or the Fund.
For more information with respect to the Trustees of the Trust, see "Management
of the Trust" in the Statement of Additional Information.
Investment Manager
The Fund has retained the services of Bankers Trust Global Investment
Management, a unit of Bankers Trust, as investment manager. Bankers Trust, a New
York banking corporation with executive offices at 280 Park Avenue, New York,
New York 10017, is a wholly-owned subsidiary of Bankers Trust New York
Corporation. Bankers Trust conducts a variety of general banking and trust
activities and is a major wholesaler supplier of financial services to the
international and domestic institutional markets.
As of June 30, 1996, Bankers Trust New York Corporation was the seventh largest
bank holding company in the United States with total assets of approximately
$115 billion. Bankers Trust is a worldwide merchant bank dedicated to servicing
the needs of corporations, governments, financial institutions and private
clients through a global network of over 120 offices in more than 40 countries.
Investment management is a core business of Bankers Trust, built on a tradition
of excellence from its roots as a trust bank founded in 1903. The scope of
Bankers Trust's investment management capability is unique due to its leadership
positions in both active and passive quantitative management and its presence in
major equity and fixed income markets around the world. Bankers Trust is one of
the nation's largest and most experienced investment managers with approximately
$215 billion in assets under management globally.
Bankers Trust has more than 50 years of experience managing retirement assets
for the nation's largest corporations and institutions. Now, the Trust brings
Bankers Trust's extensive investment management expertise once available to only
the largest institutions in the U.S. - to individual investors. Bankers Trust's
officers have had extensive experience in managing investment portfolios having
objectives similar to those of the Fund.
Bankers Trust, subject to the supervision and direction of the Board of
Trustees, manages the Fund in accordance with the Fund's investment objective
and stated investment policies, makes investment decisions for the Fund, places
orders to purchase and sell securities and other financial instruments on behalf
of the Fund, employs professional investment managers and securities analysts
who provide research services to the Fund, oversees the administration of all
aspects of the Trust's business and affairs and supervises the performance of
professional services provided by other vendors. Bankers Trust may utilize the
expertise of any of its world wide subsidiaries and affiliates to assist it in
its role as investment manager. All orders for investment transactions on behalf
of the Fund are placed by Bankers Trust with broker-dealers and other financial
intermediaries that it selects, including those affiliated with Bankers Trust. A
Bankers Trust affiliate will be used in connection with a purchase or sale of an
investment for the Fund only if Bankers Trust believes that the affiliate's
charge for the transaction does not exceed usual and customary levels. The Fund
will not invest in obligations for which Bankers Trust or any of its affiliates
is the ultimate obligor or accepting bank. The Fund may, however, invest in the
obligations of correspondents and customers of Bankers Trust.
As compensation for its services to the Fund, Bankers Trust receives a fee from
the Fund, accrued daily and paid monthly, equal on an annual basis to 0.45% 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 the Manager, the Fund is responsible for the payment
of all its other expenses incurred in the operation of the Fund, which include,
among other things, expenses for legal and independent auditor's services,
charges of the Fund's custodian and transfer agent, SEC fees, a pro rata portion
of the fees of the Trust's unaffiliated trustees and officers, accounting costs
for reports sent to owners of the Contracts which provide for investment in the
Fund ("Contractowners"), the Fund's pro rata portion of membership fees in trade
organizations, a pro rata portion of the fidelity bond coverage for the Trust's
officers, interest, brokerage and other trading costs, taxes, all expenses of
computing the Fund's net asset value per share, expenses involved in registering
and maintaining the registration of the Fund's shares with the SEC and
qualifying the Fund for sale in various jurisdictions and maintaining such
qualification, litigation and other extraordinary or non-recurring expenses.
However, other typical Fund expenses such as Contractowner servicing,
distribution of reports to Contractowners and prospectus printing and postage
will be borne by the relevant Company.
Administrator
First Data Investor Services Group, Inc. ("First Data"), a subsidiary of First
Data Corporation, One Exchange Place, Boston, Massachusetts 02109, serves as the
Fund's administrator pursuant to an Administration Agreement with the Trust.
Under the terms of the Administration Agreement, First Data generally assists in
all aspects of the Fund's operations, other than providing investment advice,
subject to the overall authority of the Trust's Board of Trustees. Pursuant to
the terms of the Administration Agreement, dated April 16, 1996, the Trust has
agreed to pay First Data a monthly fee at the annual rate of 0.02% of the value
of the Trust's average monthly net assets not exceeding $2 billion; 0.01% of the
Trust's monthly average net assets exceeding $2 billion but not exceeding $3
billion and 0.0075% of the Trust's monthly average net assets exceeding $3
billion, in addition to a flat fee of $70,000 per year per Fund.
Distributor
440 Financial Distributors, Inc. (the "Distributor") serves as distributor of
the Fund's shares to separate accounts of the Companies for which it receives no
separate fee from the Fund. The principal business address of the Distributor is
4400 Computer Drive, Westborough, Massachusetts 01581.
Custodian and Transfer Agent
Bankers Trust acts as custodian of the assets of the Fund and First Data serves
as the transfer agent for the Fund.
Organization of the Trust
The Trust was organized on January 19, 1996, under the laws of the Commonwealth
of Massachusetts. The Fund is a separate series of the Trust. The Trust offers
shares of beneficial interest of the Fund and the Trust's other series, par
value $0.001 per share. The shares of the other series of the Trust are offered
through separate Prospectuses. No series of shares has any preference over any
other series. All shares, when issued, will be fully paid and nonassessable. The
Trust's Board of Trustees has the authority to create additional series without
obtaining shareholder approval.
The Trust is an entity of the type commonly known as a "Massachusetts business
trust." Under Massachusetts law, shareholders of such a business trust may,
under certain circumstances, be held personally liable as partners for its
obligations. However, the risk of a shareholder incurring financial loss on
account of shareholder liability is limited to circumstances in which both
inadequate insurance existed and the Trust itself was unable to meet its
obligations.
Through its separate accounts, the Companies are the Fund's sole stockholders of
record, so under the 1940 Act, such Companies are deemed to be in control of the
Fund. Nevertheless, when a shareholders' meeting occurs, each Company solicits
and accepts voting instructions from its Contractowners who have allocated or
transferred monies for an investment in the Fund as of the record date of the
meeting. Each Company then votes the Fund's shares that are attributable to its
Contractowners' interests in the Fund in proportion to the voting instructions
received. Each Company will vote any share that it is entitled to vote directly
due to amounts it has contributed or accumulated in its separate accounts in the
manner described in the prospectuses for its variable annuities and variable
life insurance policies.
Each share of the Fund is entitled to one vote, and fractional shares are
entitled to fractional votes. Fund shares have non-cumulative voting rights, so
the vote of more than 50% of the shares can elect 100% of the Trustees.
The Trust is not required, and does not intend, to hold regular annual
shareholder meetings, but may hold special meetings for consideration of
proposals requiring shareholder approval.
The Fund is only available to owners of variable annuities or variable life
insurance policies issued by the Companies through their respective separate
accounts. The Fund does not currently foresee any disadvantages to
Contractowners arising from offering its shares to variable annuity and variable
life insurance policy separate accounts simultaneously, and the Board of
Trustees monitors events for the existence of any material irreconcilable
conflict between or among Contractowners. If a material irreconcilable conflict
arises, one or more separate accounts may withdraw their investment in the Fund.
This could possibly force the Fund to sell portfolio securities at
disadvantageous prices. Each Company will bear the expenses of establishing
separate portfolios for its variable annuity and variable life insurance
separate accounts if such action becomes necessary; however, ongoing expenses
that are ultimately borne by Contractowners will likely increase due to the loss
of economies of scale benefits that can be provided to mutual funds with
substantial assets.
SHAREHOLDER AND ACCOUNT POLICIES
PURCHASE AND REDEMPTION OF SHARES
Shares of the Fund will be continuously offered to each Company's separate
accounts at the net asset value per share next determined after a proper
purchase request has been received by the Company. The Company then offers to
Contractowners units in its separate accounts which directly correspond to
shares in the Fund. Each Company submits purchase and redemption orders to the
Fund based on allocation instructions for premium payments, transfer
instructions and surrender or partial withdrawal requests which are furnished to
the Company by such Contractowners. Contractowners can send such instructions
and requests to the Companies by first class mail, overnight mail or express
mail sent to the address set forth in the relevant Company's offering memorandum
included with this prospectus. The Fund and the Distributor reserve the right to
reject any purchase order for shares of the Fund.
Payment for redeemed shares will ordinarily be made within seven (7) business
days after the Fund receives a redemption order from the relevant Company. The
redemption price will be the net asset value per share next determined after the
Company receives the Contractowner's request in proper form.
The Fund may suspend the right of redemption or postpone the date of payment
during any period when trading on the NYSE is restricted, or the NYSE is closed
for other than weekends and holidays; when an emergency makes it not reasonably
practicable for the Fund to dispose of assets or calculate its net asset value;
or as permitted by the SEC.
The accompanying offering memorandum for the Company's variable annuity or
variable life insurance policy describes the allocation, transfer and withdrawal
provisions of such annuity or policy.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Fund distributes substantially all of its net income and capital gains to
shareholders each year. The Fund distributes capital gains and income dividends
annually. All dividends and capital gains distributions paid by the Fund will be
automatically reinvested, at net asset value, by the Companies' separate
accounts in additional shares of the Fund, unless an election is made by a
Contractowner to receive distributions in cash.
The Fund will be treated as a separate entity for federal income tax purposes.
The Fund intends to qualify as a "regulated investment company" under the
Internal Revenue Code of 1986, as amended (the "Code"). As a regulated
investment company the Fund will not be subject to U.S. Federal income tax on
its investment company taxable income and net capital gains (the excess of net
long-term capital gains over net short-term capital losses), if any, that it
distributes to shareholders. The Fund intends to distribute to its shareholders,
at least annually, substantially all of its investment company taxable income
and net capital gains, and therefore does not anticipate incurring a Federal
income tax liability.
The Code and Treasury Department regulations promulgated thereunder require that
mutual funds that are offered through insurance company separate accounts must
meet certain diversification requirements to preserve the tax-deferral benefits
provided by the variable contracts which are offered in connection with such
separate accounts. The Manager intends to diversify the Fund's investments in
accordance with those requirements. The enclosed offering memorandum for a
Company's variable annuity or variable life insurance policies describes the
federal income tax treatment of distributions from such contracts to
Contractowners.
The foregoing is only a brief summary of important tax law provisions that
affect the Fund. Other Federal, state 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>
Investment Manager of the Fund
BANKERS TRUST GLOBAL INVESTMENT MANAGEMENT
a unit of
BANKERS TRUST COMPANY
Administrator
FIRST DATA INVESTOR SERVICES GROUP, INC.
Distributor
440 FINANCIAL DISTRIBUTORS, INC.
Custodian
BANKERS TRUST COMPANY
Transfer Agent
FIRST DATA INVESTOR SERVICES GROUP, INC.
Independent Accountants
COOPERS & LYBRAND LLP
Counsel
WILLKIE FARR & GALLAGHER
...................................................
No person has been authorized to give any information or to make any
representation other than those contained in the Fund's Prospectus, its
Statement of Additional Information or the Fund's official sales literature in
connection with the offering of the Fund's shares and, if given or made, such
other information or representations must not be relied on as having been
authorized by the Fund. This Prospectus does not constitute an offer in any
state in which, or to any person to whom, such offer may not lawfully be made.
.................................................
<PAGE>
BT INSURANCE FUNDS TRUST
PROSPECTUS: FEBRUARY 5, 1997 AS SUPPLEMENTED JUNE 16, 1997
Equity 500 Index Fund
This Prospectus offers shares of the Equity 500 Index Fund (the "Fund"). The
Fund is a series of BT Insurance Funds Trust (the "Trust"), which is an open-end
management investment company currently having six series. Shares of the Fund
are available to the public only through the purchase of certain variable
annuity and variable life insurance contracts ("Contract(s)") issued by various
insurance companies (the "Companies").
The Fund seeks to replicate as closely as possible the performance of the
Standard & Poor's 500 Composite Stock Price Index before the deduction of Fund
expenses (the "Expenses"). There is no assurance, however, that the Fund will
achieve its stated objective.
Bankers Trust Company ("Bankers Trust") is the investment manager (the
"Manager") of the Fund.
Please read this Prospectus carefully before investing and retain it for future
reference. It contains important information about the Fund that you should know
and can refer to in deciding whether the Fund's goals match your own.
A Statement of Additional Information ("SAI") with the same date has been filed
with the Securities and Exchange Commission, and is incorporated herein by
reference. You may request a free copy of the SAI by calling the Trust at the
Customer Service Center at the telephone number shown in the accompanying
prospectus.
Fund shares are not deposits or obligations of, or guaranteed by, Bankers Trust
or any depository institution. Shares are not insured by the Federal Deposit
Insurance Corporation, the Federal Reserve Board or any other agency.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
BANKERS TRUST GLOBAL INVESTMENT MANAGEMENT a unit of BANKERS TRUST COMPANY
Investment Manager of the Fund
440 FINANCIAL DISTRIBUTORS, INC.
Distributor
4400 Computer Drive
Westborough, MA 01581
<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 Russell 2000 through statistical
procedures.
The Fund may be appropriate for investors who are willing to endure stock market
fluctuations in pursuit of potentially higher long-term returns. The Fund
invests for growth and does not pursue income. Over time, stocks, although more
volatile, have shown greater growth potential than other types of securities. In
the shorter term, however, stock prices can fluctuate dramatically in response
to market factors.
The Fund is intended to be a long-term investment vehicle and is not designated
to provide investors with a means of speculating on short-term market movements.
The Fund is not in itself a balanced investment plan. Investors should consider
their investment objective and tolerance for risk when making an investment
decision. When an investor sells his or her Fund shares, they may be worth more
or less than what the investor paid for them.
INVESTMENT PRINCIPLES AND RISKS
The Fund's investments vary based on many factors. Stock values fluctuate,
sometimes dramatically, in response to the activities of individual companies
and general market and economic conditions. Over time, however, stocks have
shown greater long-term growth potential than other types of securities. Lower
quality securities offer higher yields, but also carry more risk.
General economic factors in the various world markets can also impact the value
of an 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.
The Manager utilizes a two-stage sampling approach in seeking to obtain its
objective. Stage one, which encompasses large capitalization stocks, maintains
the stock holdings at or near their benchmark weights. Large capitalization
stocks are defined as those securities which represent 0.10% or more of the S&P
500. In stage two, smaller stocks are analyzed and selected using risk
characteristics and industry weights in order to match the sector and risk
characteristics of the smaller companies in the S&P 500. This approach helps to
maximize Fund liquidity while minimizing costs.
Bankers Trust generally will seek to match the composition of the S&P 500 but
usually will not invest the Fund's stock portfolio to mirror the S&P 500
exactly. Because of the difficulty and cost of executing relatively small stock
transactions, the Fund may not always be invested in the less heavily weighted
S&P 500 stocks, and may at times have its portfolio weighted differently than
the S&P 500, particularly if the Fund has a low level of assets. In addition,
the Fund may omit or remove any S&P 500 stock from the Fund if, following
objective criteria, Bankers Trust judges the stock to be insufficiently liquid
or believes the merit of the investment has been substantially impaired by
extraordinary events or financial conditions. Bankers Trust will not purchase
the stock of Bankers Trust New York Corporation, which is included in the S&P
500, and instead will overweight its holdings of companies engaged in similar
businesses.
About the S&P 500. The S&P 500 is composed of 500 common stocks, which are
chosen by Standard & Poor's Corporation ("S&P") on a statistical basis to be
included in the S&P 500. The inclusion of a stock in the S&P 500 in no way
implies that S&P believes the stock to be an attractive investment. The 500
securities, most of which trade on the NYSE, represented, as of March 31, 1996,
approximately 79.7% of the market value of all U.S. common stocks. Each stock in
the S&P 500 is weighted by its market value. Bankers Trust believes that the
performance of the S&P 500 is representative of the performance of publicly
traded common stocks in general. The composition of the S&P 500 is determined by
S&P and is based on such factors as the market capitalization and trading
activity of each stock and its adequacy as a representation of stocks in a
particular industry group, and may be changed from time to time.
The Fund is not sponsored, endorsed, sold or promoted by S&P. S&P makes no
representation or warranty, express or implied, to the shareholders of the Fund
or any member of the public regarding the advisability of investing in
securities generally or in the Fund particularly or the ability of the S&P 500
to track general stock market performance.
S&P does not guarantee the accuracy and/or the completeness of the S&P 500 or
any data included therein.
S&P makes no warranty, express or implied, as to the results to be obtained by
the Fund, owners of the Fund, or any other person or entity from the use of the
S&P 500 or any data included therein. S&P makes no express or implied warranties
and hereby expressly disclaims all such warranties of merchantability or fitness
for a particular purpose or use with respect to the S&P 500 or any data included
therein.
For more information about the performance of the S&P 500, see the SAI.
General
Over time, the correlation between the performance of the Fund and the S&P 500
is expected to be 0.95 or higher before deduction of Fund expenses. A
correlation of 1.00 would indicate perfect correlation, which would be achieved
when the net asset value of the Fund, including the value of its dividend and
any capital gain distributions, increases or decreases in exact proportion to
changes in the S&P 500. The Fund's ability to track the S&P 500 may be affected
by, among other things, transaction costs, administration and other expenses
incurred by the Fund, changes in either the composition of the S&P 500 or the
assets of the Fund, and the timing and amount of Fund investor contributions and
withdrawals, if any. In the unlikely event that a high correlation is not
achieved, the Trust's Board of Trustees will consider alternatives. Because the
Fund seeks to track the S&P 500, Bankers Trust will not attempt to judge the
merits of any particular stock as an investment.
Under normal circumstances, the Fund will invest at least 80% of its assets in
the securities of the S&P 500.
As a diversified fund, no more than 5% of the assets of the Fund may be invested
in the securities of one issuer (other than U.S. Government Securities), except
that up to 25% of the Fund's assets may be invested without regard to this
limitation. The Fund will not invest more than 25% of its assets in the
securities of issuers in any one industry. In the unlikely event that the S&P
500 should concentrate to an extent greater than that amount, the 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. No Fund will invest in such
instruments as part of a temporary defensive strategy (in anticipation of
declining stock prices) to protect the Fund against potential market declines.
The Fund may lend its investment securities and purchase securities on a
when-issued and a delayed delivery basis. See "Risk Factors and Certain
Securities and Investment Practices" for more information about the investment
practices of the Fund.
RISK FACTORS AND CERTAIN SECURITIES AND INVESTMENT PRACTICES
The following pages contain more detailed information about types of instruments
in which the Fund may invest and strategies Bankers Trust may employ in pursuit
of the Fund's investment objective. A summary of risks and restrictions
associated with these instrument types and investment practices is included as
well.
Bankers Trust may not buy all of these instruments or use all of these
techniques to the full extent permitted unless it believes that doing so will
help the Fund achieve its goal. Holdings and recent investment strategies are
described in the financial reports of the Fund, which are sent to Fund
shareholders on a semi-annual and annual basis.
Market Risk
As a mutual fund investing primarily in common stocks, the Fund is subject to
market risk --- i.e., the possibility that common stock prices will decline over
short or even extended periods. The U.S. stock market tends to be cyclical, with
periods when stock prices generally rise and periods when prices generally
decline.
The Fund's investment objective is not a fundamental policy and may be changed
upon notice to, but without the approval of, the Fund's shareholders. If there
is a change in the Fund's investment objective, the Fund's shareholders should
consider whether the Fund remains an appropriate investment in light of their
then-current needs. Shareholders of the Fund will receive 30 days prior written
notice with respect to any change in the investment objective of the Fund. See
"Risk Factors and Certain Securities and Investment Practices" in the SAI for a
description of the fundamental policies of the Fund that cannot be changed
without approval by "the vote of a majority of the outstanding voting
securities" (as defined in the Investment Company Act of 1940, as amended (the
"1940 Act")) of the Fund.
For descriptions of the investment objective, policies and restrictions of the
Fund, see "The Fund in Detail" herein and "Risk Factors and Certain Securities
and Investment Practices" herein and in the SAI. For descriptions of the
management and expenses of the Fund, see "Management of the Trust" herein and in
the SAI.
Short-Term Investments. The Fund may invest in certain short-term fixed income
securities. Such securities may be used to invest uncommitted cash balances, to
maintain liquidity to meet shareholder redemptions or to serve as collateral for
the obligations underlying the Fund's investment in securities index futures or
related options or warrants. These securities include: obligations issued or
guaranteed by the U.S. Government or any of its agencies or instrumentalities or
by any of the states, repurchase agreements, time deposits, certificates of
deposit, bankers' acceptances and commercial paper.
U.S. Government Securities are obligations of, or guaranteed by, the U.S.
Government, its agencies or instrumentalities. Some U.S. Government securities,
such as Treasury bills, notes and bonds, are supported by the full faith and
credit of the United States; others, such as those of the Federal Home Loan
Banks, are supported by the right of the issuer to borrow from the Treasury;
others, such as those of the Federal National Mortgage Association, are
supported by the discretionary authority of the U.S. Government to purchase the
agency's obligations; and still others, such as those of the Student Loan
Marketing Association, are supported only by the credit of the instrumentality.
Securities Lending. The Fund is permitted to lend up to 30% of the total value
of its securities. These loans must be secured continuously by cash or
equivalent collateral or by a letter of credit at least equal to the market
value of the securities loaned plus accrued income. By lending its securities,
the Fund can increase its income by continuing to receive income on the loaned
securities as well as by the opportunity to receive interest on the collateral
Any gain or loss in the market price of the borrowed securities which occurs
during the term of the loan inures to the Fund and its investors. In lending
securities to brokers, dealers and other organizations, the Fund is subject to
risks which, like those associated with other extensions of credit, include
delays in recovery and possible loss of rights in the collateral should the
borrower fail financially.
When Issued and Delayed Delivery Securities. The Fund may purchase securities on
a when-issued or delayed delivery basis. Delivery of and payment for these
securities may take place as long as a month or more after the date of the
purchase commitment. The value of these securities is subject to market
fluctuation during this period and no income accrues to the Fund until
settlement takes place. The Fund maintains with its custodian a segregated
account containing cash or liquid portfolio securities in an amount at least
equal to these commitments.
Derivatives
The Fund may invest in various instruments that are commonly known as
derivatives. Generally, a derivative is a financial arrangement, the value of
which is based on, or "derived" from, a traditional security, asset, or market
index. Some "derivatives" such as mortgage-related and other asset-backed
securities are in many respects like any other investment, although they may be
more volatile or less liquid than more traditional debt securities. There are,
in fact, many different types of derivatives and many different ways to use
them. There are a range of risks associated with those uses. Futures and options
are commonly used for traditional hedging purposes to attempt to protect a fund
from exposure to changing interest rates, securities prices or currency exchange
rates and as a low cost method of gaining exposure to a particular securities
market without investing directly in those securities. The Manager will only use
derivatives for cash management purposes. Derivatives will not be used to
increase portfolio risk above the level that would be achieved using only
traditional investment securities or to acquire exposure to changes in the value
of assets or indices that by themselves would not be purchased for the Fund.
Securities Index Futures and Related Options. The Fund may enter into securities
index futures contracts and related options provided that not more than 5% of
its assets are required as a margin deposit for futures contracts or options and
provided that not more than 20% of the Fund's assets are invested in futures and
options at any time. When the Fund has cash from new investments in the Fund or
holds a portion of its assets in money market instruments, it may enter into
index futures or options to attempt to increase its exposure to the market.
Strategies the Fund could use to accomplish this include purchasing futures
contracts, writing put options and purchasing call options. When the Fund wishes
to sell securities, because of shareholder redemptions or otherwise, it may use
index futures or options to hedge against market risk until the sale can be
completed. These strategies could include selling futures contracts, writing
call options and purchasing put options.
Warrants. Warrants are instruments which entitle the holder to buy underlying
equity securities at a specific price for a specific period of time. A warrant
tends to be more volatile than its underlying securities and ceases to have
value if it is not exercised prior to its expiration date. In addition, changes
in the value of a warrant do not necessarily correspond to changes in the value
of its underlying securities.
Convertible Securities. The Fund may invest in convertible securities which are
a bond or preferred stock which may be converted at a stated price within a
specific period of time into a specified number of shares of common stock of the
same or different issuer. Convertible securities are senior to common stock in a
corporation's capital structure, but usually are subordinated to non-convertible
debt securities. While providing a fixed income stream -- generally higher in
yield than the income derived from a common stock but lower than that afforded
by a non-convertible debt security -- a convertible security also affords an
investor the opportunity, through its conversion feature, to participate in the
capital appreciation of common stock into which it is convertible.
In general, the market value of a convertible security is the higher of its
investment value (its value as a fixed income security) or its conversion value
(the value of the underlying shares of common stock if the security is
converted). As a fixed income security, the market value of a convertible
security generally increases when interest rates decline and generally decreases
when interest rates rise; however, the price of a convertible security generally
increases as the market value of the underlying stock increases, and generally
decreases as the market value of the underlying stock declines. Investments in
convertible securities generally entail less risk than investments in the common
stock of the same issuer.
Further risks associated with the use of futures contracts, options, warrants
and convertible securities. The risk of loss associated with futures contracts
in some strategies can be substantial due to both the low margin deposits
required and the extremely high degree of leverage involved in futures pricing.
As a result, a relatively small price movement in a futures contract may result
in an immediate and substantial loss or gain. However, the Fund will not use
futures contracts, options, warrants and convertible securities for speculative
purposes or to leverage their net assets. Accordingly, the primary risks
associated with the use of futures contracts, options, warrants and convertible
securities by the Fund are: (i) imperfect correlation between the change in
market value of the securities held by the Fund and the prices of futures
contracts, options, warrants and convertible securities; and (ii) possible lack
of a liquid secondary market for a futures contract and the resulting inability
to close a futures position prior to its maturity date. The risk of imperfect
correlation will be minimized by investing only in those contracts whose
behavior is expected to resemble that of the Fund's underlying securities. The
risk that the Fund will be unable to close out a futures position will be
minimized by entering into stock transactions on an exchange with an active and
liquid secondary market. However, options, warrants and convertible securities
purchased or sold over-the-counter may be less liquid than exchange-traded
securities. Illiquid securities, in general, may not represent more than 15% of
the net assets of the Fund.
Asset Coverage. To assure that futures and related options, as well as
when-issued and delayed-delivery securities, are not used by the Fund to achieve
excessive investment leverage, the Fund will cover such transactions, as
required under applicable interpretations of the Securities and Exchange
Commission (the "SEC"), either by owning the underlying securities, entering
into an off-setting transaction, or by establishing a segregated account with
the Fund's custodian containing cash or liquid portfolio securities in an amount
at all times equal to or exceeding the Fund's commitment with respect to these
instruments or contracts.
Portfolio Turnover
The frequency of Fund transactions - the Fund's turnover rate - will vary from
year to year depending on market conditions and the Fund's cash flows. The
Fund's annual portfolio turnover rate is not expected to exceed 100%.
NET ASSET VALUE
The Fund is open for business each day the NYSE is open (each such day being a
"Valuation Day"). The NYSE is currently open on each day, Monday through Friday,
except: (a) January 1st, Presidents' Day (the third Monday in February), Good
Friday, Memorial Day (the last Monday in May), July 4th, Labor Day (the first
Monday in September), Thanksgiving Day (the last Thursday in November) and
December 25th; and (b) the preceding Friday or the subsequent Monday when one of
the calendar-determined holidays falls on a Saturday or Sunday, respectively.
The net asset value per share of the Fund is calculated once on each Valuation
Day as of the close of regular trading on the NYSE, which under normal
circumstances is 4:00 p.m., New York time. The net asset value per share of the
Fund is computed by dividing the value of the Fund's assets, less all
liabilities, by the total number of its shares outstanding. The Fund's
securities and other assets are valued primarily on the basis of market
quotations or, if quotations are not readily available, by a method which the
Fund's Board of Trustees believes accurately reflects fair value.
PERFORMANCE INFORMATION AND REPORTS
The Fund's performance may be used from time to time in advertisements,
shareholder reports or other communications to existing or prospective owners of
the Companies' variable contracts. When performance information is provided in
advertisements, it will include the effect of all charges deducted under the
terms of the specified contract, as well as all recurring and non-recurring
charges incurred by the Fund. Performance information may include the Fund's
investment results and/or comparisons of its investment results to various
unmanaged indices or results of other mutual funds or investment or savings
vehicles. The Fund's investment results as used in such communications will be
calculated on a total rate of return basis in the manner set forth below. From
time to time, fund rankings may be quoted from various sources, such as Lipper
Analytical Services, Inc., Value Line and Morningstar Inc.
The Trust may provide period and average annualized "total return" quotations
for the Fund. The Fund's "total return" refers to the change in the value of an
investment in the Fund over a stated period based on any change in net asset
value per share and including the value of any shares purchasable with any
dividends or capital gains distributed during such period. Period total return
may be annualized. An annualized total return is a compounded total return which
assumes that the period total return is generated over a one-year period, and
that all dividends and capital gain distributions are reinvested. An annualized
total return will be higher than a period total return if the period is shorter
than one year, because of the compounding effect.
Unlike some bank deposits or other investments which pay a fixed yield for a
stated period of time, the total return of the Fund will vary depending upon
interest rates, the current market value of the securities held by the Fund and
changes in the Fund's expenses. In addition, during certain periods for which
total return quotations may be provided, Bankers Trust and/or the Trust's other
service providers may have voluntarily agreed to waive portions of their
respective fees, or reimburse certain operating expenses of the Fund, on a
month-to-month basis. Such waivers will have the effect of increasing the Fund's
net income (and therefore its total return) during the period such waivers are
in effect.
Total returns are based on past results and are not an indication of future
performance.
Shareholders will receive unaudited financial reports semiannually that include
the Fund's financial statements, including listings of investment securities
held by the Fund at those dates. Annual reports are audited by independent
accountants.
MANAGEMENT OF THE TRUST
Board of Trustees
The affairs of the Fund are managed under the supervision of the Board of
Trustees of the Trust, of which the Fund is a series. By virtue of the
responsibilities assumed by Bankers Trust, neither the Trust nor the Fund
require employees other than the Trust's officers. None of the Trust's officers
devotes full time to the affairs of the Trust or the Fund.
For more information with respect to the Trustees of the Trust, see "Management
of the Trust" in the Statement of Additional Information.
Investment Manager
The Fund has retained the services of Bankers Trust Global Investment
Management, a unit of Bankers Trust, as investment manager. Bankers Trust, a New
York banking corporation with executive offices at 280 Park Avenue, New York,
New York 10017, is a wholly-owned subsidiary of Bankers Trust New York
Corporation. Bankers Trust conducts a variety of general banking and trust
activities and is a major wholesaler supplier of financial services to the
international and domestic institutional markets.
As of June 30, 1996, Bankers Trust New York Corporation was the seventh largest
bank holding company in the United States with total assets of approximately
$115 billion. Bankers Trust is a worldwide merchant bank dedicated to servicing
the needs of corporations, governments, financial institutions and private
clients through a global network of over 120 offices in more than 40 countries.
Investment management is a core business of Bankers Trust, built on a tradition
of excellence from its roots as a trust bank founded in 1903. The scope of
Bankers Trust's investment management capability is unique due to its leadership
positions in both active and passive quantitative management and its presence in
major equity and fixed income markets around the world. Bankers Trust is one of
the nation's largest and most experienced investment managers with approximately
$215 billion in assets under management globally.
Bankers Trust has more than 50 years of experience managing retirement assets
for the nation's largest corporations and institutions. Now, the Trust brings
Bankers Trust's extensive investment management expertise once available to only
the largest institutions in the U.S. - to individual investors. Bankers Trust's
officers have had extensive experience in managing investment portfolios having
objectives similar to those of the Fund.
Bankers Trust, subject to the supervision and direction of the Board of
Trustees, manages the Fund in accordance with the Fund's investment objective
and stated investment policies, makes investment decisions for the Fund, places
orders to purchase and sell securities and other financial instruments on behalf
of the Fund, employs professional investment managers and securities analysts
who provide research services to the Fund, oversees the administration of all
aspects of the Trust's business and affairs and supervises the performance of
professional services provided by other vendors. Bankers Trust may utilize the
expertise of any of its world wide subsidiaries and affiliates to assist it in
its role as investment manager. All orders for investment transactions on behalf
of the Fund are placed by Bankers Trust with broker-dealers and other financial
intermediaries that it selects, including those affiliated with Bankers Trust. A
Bankers Trust affiliate will be used in connection with a purchase or sale of an
investment for the Fund only if Bankers Trust believes that the affiliate's
charge for the transaction does not exceed usual and customary levels. The Fund
will not invest in obligations for which Bankers Trust or any of its affiliates
is the ultimate obligor or accepting bank. The Fund may, however, invest in the
obligations of correspondents and customers of Bankers Trust.
As compensation for its services to the Fund, Bankers Trust receives a fee from
the Fund, accrued daily and paid monthly, equal on an annual basis to 0.20% 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 the Manager, the Fund is responsible for the payment
of all its other expenses incurred in the operation of the Fund, which include,
among other things, expenses for legal and independent auditor's services,
charges of the Fund's custodian and transfer agent, SEC fees, a pro rata portion
of the fees of the Trust's unaffiliated trustees and officers, accounting costs
for reports sent to owners of the Contracts which provide for investment in the
Fund ("Contractowners"), the Fund's pro rata portion of membership fees in trade
organizations, a pro rata portion of the fidelity bond coverage for the Trust's
officers, interest, brokerage and other trading costs, taxes, all expenses of
computing the Fund's net asset value per share, expenses involved in registering
and maintaining the registration of the Fund's shares with the SEC and
qualifying the Fund for sale in various jurisdictions and maintaining such
qualification, litigation and other extraordinary or non-recurring expenses.
However, other typical Fund expenses such as Contractowner servicing,
distribution of reports to Contractowners and prospectus printing and postage
will be borne by the relevant Company.
Administrator
First Data Investor Services Group, Inc. ("First Data"), a subsidiary of First
Data Corporation, One Exchange Place, Boston, Massachusetts 02109, serves as the
Fund's administrator pursuant to an Administration Agreement with the Trust.
Under the terms of the Administration Agreement, First Data generally assists in
all aspects of the Fund's operations, other than providing investment advice,
subject to the overall authority of the Trust's Board of Trustees. Pursuant to
the terms of the Administration Agreement, dated April 16, 1996, the Trust has
agreed to pay First Data a monthly fee at the annual rate of 0.02% of the value
of the Trust's average monthly net assets not exceeding $2 billion; 0.01% of the
Trust's monthly average net assets exceeding $2 billion but not exceeding $3
billion; and 0.0075% of the Trust's monthly average net assets exceeding $3
billion, in addition to a flat fee of $70,000 per year per Fund.
Distributor
440 Financial Distributors, Inc. (the "Distributor") serves as distributor of
the Fund's shares to separate accounts of the Companies for which it receives no
separate fee from the Fund. The principal business address of the Distributor is
4400 Computer Drive, Westborough, Massachusetts 01581.
Custodian and Transfer Agent
Bankers Trust acts as custodian of the assets of the Fund and First Data serves
as the transfer agent for the Fund.
Organization of the Trust
The Trust was organized on January 19, 1996, under the laws of the Commonwealth
of Massachusetts. The Fund is a separate series of the Trust. The Trust offers
shares of beneficial interest of the Fund and the Trust's other series, par
value $0.001 per share. The shares of the other series of the Trust are offered
through separate Prospectuses. No series of shares has any preference over any
other series. All shares, when issued, will be fully paid and nonassessable. The
Trust's Board of Trustees has the authority to create additional series without
obtaining shareholder approval.
The Trust is an entity of the type commonly known as a "Massachusetts business
trust." Under Massachusetts law, shareholders of such a business trust may,
under certain circumstances, be held personally liable as partners for its
obligations. However, the risk of a shareholder incurring financial loss on
account of shareholder liability is limited to circumstances in which both
inadequate insurance existed and the Trust itself was unable to meet its
obligations.
Through its separate accounts, the Companies are the Fund's sole stockholders of
record, so under the 1940 Act, such Companies are deemed to be in control of the
Fund. Nevertheless, when a shareholders' meeting occurs, each Company solicits
and accepts voting instructions from its Contractowners who have allocated or
transferred monies for an investment in the Fund as of the record date of the
meeting. Each Company then votes the Fund's shares that are attributable to its
Contractowners' interests in the Fund in proportion to the voting instructions
received. Each Company will vote any share that it is entitled to vote directly
due to amounts it has contributed or accumulated in its separate accounts in the
manner described in the prospectuses for its variable annuities and variable
life insurance policies.
Each share of the Fund is entitled to one vote, and fractional shares are
entitled to fractional votes. Fund shares have non-cumulative voting rights, so
the vote of more than 50% of the shares can elect 100% of the Trustees.
The Trust is not required, and does not intend, to hold regular annual
shareholder meetings, but may hold special meetings for consideration of
proposals requiring shareholder approval.
The Fund is only available to owners of variable annuities or variable life
insurance policies issued by the Companies through their respective separate
accounts. The Fund does not currently foresee any disadvantages to
Contractowners arising from offering its shares to variable annuity and variable
life insurance policy separate accounts simultaneously, and the Board of
Trustees monitors events for the existence of any material irreconcilable
conflict between or among Contractowners. If a material irreconcilable conflict
arises, one or more separate accounts may withdraw their investment in the Fund.
This could possibly force the Fund to sell portfolio securities at
disadvantageous prices. Each Company will bear the expenses of establishing
separate portfolios for its variable annuity and variable life insurance
separate accounts if such action becomes necessary; however, ongoing expenses
that are ultimately borne by Contractowners will likely increase due to the loss
of economies of scale benefits that can be provided to mutual funds with
substantial assets.
SHAREHOLDER AND ACCOUNT POLICIES
PURCHASE AND REDEMPTION OF SHARES
Shares of the Fund will be continuously offered to each Company's separate
accounts at the net asset value per share next determined after a proper
purchase request has been received by the Company. The Company then offers to
Contractowners units in its separate accounts which directly correspond to
shares in the Fund. Each Company submits purchase and redemption orders to the
Fund based on allocation instructions for premium payments, transfer
instructions and surrender or partial withdrawal requests which are furnished to
the Company by such Contractowners. Contractowners can send such instructions
and requests to the Companies by first class mail, overnight mail or express
mail sent to the address set forth in the relevant Company's offering memorandum
included with this prospectus. The Fund and the Distributor reserve the right to
reject any purchase order for shares of the Fund.
Payment for redeemed shares will ordinarily be made within seven (7) business
days after the Fund receives a redemption order from the relevant Company. The
redemption price will be the net asset value per share next determined after the
Company receives the Contractowner's request in proper form.
The Fund may suspend the right of redemption or postpone the date of payment
during any period when trading on the NYSE is restricted, or the NYSE is closed
for other than weekends and holidays; when an emergency makes it not reasonably
practicable for the Fund to dispose of assets or calculate its net asset value;
or as permitted by the SEC.
The accompanying offering memorandum for the Company's variable annuity or
variable life insurance policy describes the allocation, transfer and withdrawal
provisions of such annuity or policy.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Fund distributes substantially all of its net income and capital gains to
shareholders each year. The Fund distributes capital gains and income dividends
annually. All dividends and capital gains distributions paid by the Fund will be
automatically reinvested, at net asset value, by the Companies' separate
accounts in additional shares of the Fund, unless an election is made by a
Contractowner to receive distributions in cash.
The Fund will be treated as a separate entity for federal income tax purposes.
The Fund intends to qualify as a "regulated investment company" under the
Internal Revenue Code of 1986, as amended (the "Code"). As a regulated
investment company the Fund will not be subject to U.S. Federal income tax on
its investment company taxable income and net capital gains (the excess of net
long-term capital gains over net short-term capital losses), if any, that it
distributes to shareholders. The Fund intends to distribute to its shareholders,
at least annually, substantially all of its investment company taxable income
and net capital gains, and therefore does not anticipate incurring a Federal
income tax liability.
The Code and Treasury Department regulations promulgated thereunder require that
mutual funds that are offered through insurance company separate accounts must
meet certain diversification requirements to preserve the tax-deferral benefits
provided by the variable contracts which are offered in connection with such
separate accounts. The Manager intends to diversify the Fund's investments in
accordance with those requirements. The enclosed offering memorandum for a
Company's variable annuity or variable life insurance policies describes the
federal income tax treatment of distributions from such contracts to
Contractowners.
The foregoing is only a brief summary of important tax law provisions that
affect the Fund. Other Federal, state or local tax law provisions may also
affect the Fund and its operations. Anyone who is considering allocating,
transferring or withdrawing monies held under a variable contract to or from the
Fund should contact a qualified tax adviser.
<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
440 FINANCIAL DISTRIBUTORS, INC.
Custodian
BANKERS TRUST COMPANY
Transfer Agent
FIRST DATA INVESTOR SERVICES GROUP, INC.
Independent Accountants
COOPERS & LYBRAND LLP
Counsel
WILLKIE FARR & GALLAGHER
..............................................
No person has been authorized to give any information or to make any
representation other than those contained in the Fund's Prospectus, its
Statement of Additional Information or the Fund's official sales literature in
connection with the offering of the Fund's shares and, if given or made, such
other information or representations must not be relied on as having been
authorized by the Fund. This Prospectus does not constitute an offer in any
state in which, or to any person to whom, such offer may not lawfully be made.
..............................................
