BT INSURANCE FUNDS TRUST
PROSPECTUS: SEPTEMBER 20, 1996 AS SUPPLEMENTED MARCH 6, 1997
International Equity Fund
Seeks long-term capital appreciation primarily from non-U.S.
equities, or other securities with equity characteristics.
This Prospectus offers shares of the International Equity Fund
(the "Fund"), a series of BT Insurance Funds Trust (the "Trust"),
which is an open-end management investment company having multiple
series. Shares of the Fund are available to the public only
through the purchase of certain variable annuity and variable life
insurance contracts ("Contract(s)") issued by various insurance
companies (the "Companies").
Please read this Prospectus carefully before investing and retain
it for future reference. It contains important information about
the Fund that you should know and can refer to in deciding whether
the Fund's goals match your own.
A Statement of Additional Information ("SAI") with the same date
has been filed with the Securities and Exchange Commission, and is
incorporated herein by reference. You may request a free copy of
the SAI by calling the Trust at the Customer Service Center at the
telephone number shown in the accompanying prospectus.
Shares of the Fund are not deposits or obligations of, or
guaranteed or endorsed by, Bankers Trust Company and the shares
are not Federally insured by the Federal Deposit Insurance
Corporation, the Federal Reserve Board or any other agency.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
BANKERS TRUST GLOBAL INVESTMENT MANAGEMENT, a unit of
BANKERS TRUST COMPANY
Investment Manager of the Fund
First Data Distributors, Inc.
Distributor
4400 Computer Drive
Westborough, MA 01581
TABLE OF CONTENTS
Investment Objective, Policies and Risks 2
Risk Factors; Matching the Fund to Your Investment Needs 4
Net Asset Value 6
Purchase and Redemption of Shares . 7
Dividends, Distributions and Taxes 8
Performance Information and Reports 8
Management of the Fund 9
Additional Information 13
INVESTMENT OBJECTIVE, POLICIES AND RISKS
The Fund's investment objective is long-term capital appreciation
from investment in foreign equity securities (or other securities
with equity characteristics); the production of any current income
is incidental to this objective. There can be no assurance that
the investment objective of the Fund will be achieved. The Fund's
investment objective is not a fundamental policy and may be
changed upon notice to but without the approval of the Fund's
shareholders.
The Fund seeks to provide long-term capital appreciation by
investing primarily in the equity securities of foreign issuers,
consisting of common stock and other securities with equity
characteristics. These issuers are primarily established companies
based in developed countries outside the United States. However,
the Fund may also invest in securities of issuers in
underdeveloped countries. Investments in these countries will be
based on an acceptable degree of risk in anticipation of superior
returns. Under normal circumstances, the Fund will invest at least
65% of the value of its total assets in the equity securities of
issuers based in at least three countries other than the United
States. For further discussion of the unique risks associated with
investing in foreign securities in both developed and
underdeveloped countries, see "Risk Factors; Matching the Fund to
Your Investment Needs" and "Additional Information" herein and the
Statement of Additional Information.
The Fund's investments will generally be diversified among several
geographic regions and countries. Criteria for determining the
appropriate distribution of investments among various countries
and regions include the prospects for relative growth among
foreign countries, expected levels of inflation, government
policies influencing business conditions, the outlook for currency
relationships and the range of alternative opportunities available
to international investors.
In countries and regions with well-developed capital markets where
more information is available, Bankers Trust Company ("Bankers
Trust" or the "Manager") will seek to select individual
investments for the Fund. Criteria for selection of individual
securities include the issuer's competitive position, prospects
for growth, managerial strength, earnings quality, underlying
asset value, relative market value and overall marketability. The
Fund may invest in securities of companies having various levels
of net worth, including smaller companies whose securities may be
more volatile than securities offered by larger companies with
higher levels of net worth.
In other countries and regions where capital markets are
underdeveloped or not easily accessed and information is difficult
to obtain, the Fund may choose to invest only at the market level.
Here, the Fund may seek to achieve country exposure through use of
options or futures based on an established local index. Similarly,
country exposure may also be achieved through investments in other
registered investment companies. Restrictions on both these types
of investments are fully explained herein and in the Statement of
Additional Information.
The remainder of the Fund's assets will be invested in dollar and
nondollar denominated short-term instruments. These investments
are subject to the conditions described in "Short-term
Instruments" below.
Equity Investments. The Fund invests primarily in common stock and
other securities with equity characteristics. For purposes of the
Fund's policy of investing at least 65% of the value of its total
assets in the equity securities of foreign issuers, equity
securities are defined as common stock, preferred stock, trust or
limited partnership interests, rights and warrants, and
convertible securities, consisting of debt securities or preferred
stock that may be converted into common stock or that carry the
right to purchase common stock. The Fund invests in securities
listed on foreign or domestic securities exchanges and securities
traded in foreign or domestic over-the-counter markets and may
invest in restricted or unlisted securities.
With respect to certain countries in which capital markets are
either less developed or not easily accessed, investments by the
Fund may be made through investment in other investment companies
that in turn are authorized to invest in the securities of such
countries. Investment in other investment companies is limited in
amount by the Investment Company Act of 1940, as amended (the
"1940 Act"), will involve the indirect payment of a portion of the
expenses, including advisory fees, of such other investment
companies and may result in a duplication of fees and expenses.
Short-term Instruments. The Fund intends to stay invested in the
securities described above to the extent practical in light of its
objective and long-term investment perspective. However, the
Fund's assets may be invested in short-term instruments with
remaining maturities of 397 days or less to meet anticipated
redemptions and expenses or for day-to-day operating purposes and
when, in Bankers Trust's opinion, it is advisable to adopt a
temporary defensive position because of unusual and adverse
conditions affecting the equity markets. In addition, when the
Fund experiences large cash inflows through the sale of securities
and desirable equity securities that are consistent with the
Fund's investment objective are unavailable in sufficient
quantities or at attractive prices, the Fund may hold short-term
investments for a limited time pending availability of such equity
securities. Short-term instruments consist of foreign and
domestic: (i) short-term obligations of sovereign governments,
their agencies, instrumentalities, authorities or political
subdivisions; (ii) other short-term debt securities rated Aa or
higher by Moody's Investors Service, Inc. ("Moody's") or AA or
higher by Standard & Poor's Ratings Group ("S&P") or, if unrated,
of comparable quality in the opinion of Bankers Trust; (iii)
commercial paper; (iv) bank obligations, including negotiable
certificates of deposit, time deposits and bankers' acceptances;
and (v) repurchase agreements. At the time the Fund invests in
commercial paper, bank obligations or repurchase agreements, the
issuer or the issuer's parent must have outstanding debt rated Aa
or higher by Moody's or AA or higher by S&P or outstanding
commercial paper or bank obligations rated Prime-1 by Moody's or
A-1 by S&P; or, if no such ratings are available, the instrument
must be of comparable quality in the opinion of Bankers Trust.
These instruments may be denominated in U.S. dollars or in foreign
currencies and will have been determined to be of high quality by
a nationally recognized statistical rating organization, or if
unrated, by Bankers Trust.
Additional Investment Techniques
The Fund may also utilize the following investments and investment
techniques and practices: foreign currency exchange transactions,
options on foreign currencies, American Depositary Receipts and
European Depositary Receipts, options on stocks, options on
foreign stock indices, futures contracts on foreign stock indices,
options on futures contracts, Rule 144A securities, when-issued
and delayed delivery securities, securities lending and repurchase
agreements. See "Additional Information" herein for further
information.
Additional Investment Limitations
As a diversified fund, no more than 5% of the assets of the Fund
may be invested in the securities of one issuer (other than U.S.
Government securities), except that up to 25% of the Fund's assets
may be invested without regard to this limitation. The Fund will
not invest more than 25% of its assets in the securities of
issuers in any one industry. These are fundamental investment
policies of the Fund which may not be changed without investor
approval.
As a non-fundamental investment policy, no more than 15% of the
Fund's net assets may be invested in illiquid or not readily
marketable securities (including repurchase agreements and time
deposits maturing in more than seven days). Another of the Fund's
non-fundamental investment policies is that the Fund will not
purchase securities issued by any open-end or closed-end
investment company except in the open market or, in the case of
closed-end investment companies, where such purchase is part of a
merger or consolidation plan. Additional limitations on purchases
of investment company securities are imposed by statute and set
forth in the Statement of Additional Information. Additional
investment policies of the Fund are contained in the Statement of
Additional Information.
RISK FACTORS; MATCHING THE FUND TO YOUR INVESTMENT NEEDS
By itself, the Fund does not constitute a balanced investment
plan; the Fund seeks long-term capital appreciation from
investment primarily in the equity securities (or other securities
with equity characteristics) of foreign issuers. Changes in
domestic and foreign interest rates may affect the value of the
Fund's investments, and rising interest rates can be expected to
reduce the Fund's share value. A description of a number of
investments and investment techniques available to the Fund,
including foreign investments and the use of options and futures,
and certain risks associated with these investments and techniques
is included under "Additional Information." The Fund's share price
and total return fluctuate and your investment may be worth more
or less than your original cost when you redeem your shares.
Risk of Investing in Foreign Securities
Investors should realize that investing in securities of foreign
issuers involves considerations not typically associated with
investing in securities of companies organized and operated in the
United States. Although the Fund intends to invest primarily in
securities of established companies based in developed countries,
investors should realize that the value of the Fund's investments
may be adversely affected by changes in political or social
conditions, diplomatic relations, confiscatory taxation,
expropriation, nationalization, limitation on the removal of funds
or assets, or imposition of (or change in) exchange control or tax
regulations in those foreign countries. In addition, changes in
government administrations or economic or monetary policies in the
United States or abroad could result in appreciation or
depreciation of portfolio securities and could favorably or
unfavorably affect the Fund's operations. Furthermore, the
economies of individual foreign nations may differ from the U.S.
economy, whether favorably or unfavorably, in areas such as growth
of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments
position; it may also be more difficult to obtain and enforce a
judgment against a foreign issuer. In general, less information is
publicly available with respect to foreign issuers than is
available with respect to U.S. companies. Most foreign companies
are also not subject to the uniform accounting and financial
reporting requirements applicable to issuers in the United States.
Any foreign investments made by the Fund must be made in
compliance with U.S. and foreign currency restrictions and tax
laws restricting the amounts and types of foreign investments.
The Fund may invest in the securities of issuers based in
underdeveloped countries, including those in Eastern Europe.
Investment in securities of issuers based in underdeveloped
countries entails all of the risks of investing in securities of
foreign issuers outlined in this section to a heightened degree.
These heightened risks include: (i) greater risks of
expropriation, confiscatory taxation, nationalization, and less
social, political and economic stability; (ii) the smaller size of
the market for such securities and a low or nonexistent volume of
trading, resulting in lack of liquidity and in price volatility;
(iii) certain national policies which may restrict the Fund's
investment opportunities including restrictions on investing in
issuers or industries deemed sensitive to relevant national
interests; and (iv) in the case of Eastern Europe, the absence of
developed capital market and legal structures governing private or
foreign investment and private property and the possibility that
recent favorable economic and political developments could be
slowed or reversed by unanticipated events. The Fund will not
invest more than 5% of the value of its total assets in securities
of issuers based in Eastern Europe.
Because foreign securities generally are denominated and pay
dividends or interest in foreign currencies, and the Fund holds
various foreign currencies from time to time, the value of the net
assets of the Fund as measured in U.S. dollars will be affected
favorably or unfavorably by changes in exchange rates. Generally,
the Fund's currency exchange transactions will be conducted on a
spot (i.e., cash) basis at the spot rate prevailing in the
currency exchange market. The cost of the Fund's currency exchange
transactions will generally be the difference between the bid and
offer spot rate of the currency being purchased or sold. In order
to protect against uncertainty in the level of future foreign
currency exchange rates, the Fund is authorized to enter into
certain foreign currency exchange transactions. See "Additional
Information."
In addition, while the volume of transactions effected on foreign
stock exchanges has increased in recent years, in most cases it
remains appreciably below that of the New York Stock Exchange Inc.
(the "NYSE"). Accordingly, the Fund's foreign investments may be
less liquid and their prices may be more volatile than comparable
investments in securities of U.S. companies. Moreover, the
settlement periods for foreign securities, which are often longer
than those for securities of U.S. issuers, may affect portfolio
liquidity. In buying and selling securities on foreign exchanges,
the Fund normally pays fixed commissions that are generally higher
than the negotiated commissions charged in the United States. In
addition, there is generally less government supervision and
regulation of securities exchanges, brokers and issuers in foreign
countries than in the United States.
The Fund intends to manage its holdings actively to pursue its
investment objective. The Fund does not expect to trade in
securities for short-term profits but, when circumstances warrant,
securities may be sold without regard to the length of time held.
Derivatives
The Fund may invest in various instruments that are commonly known
as derivatives. Generally, a derivative is a financial
arrangement, the value of which is based on, or "derived" from, a
traditional security, asset, or market index. Some "derivatives"
such as mortgage-related and other asset-backed securities are in
many respects like any other investment, although they may be more
volatile or less liquid than more traditional debt securities.
There are, in fact, many different types of derivatives and many
different ways to use them. There are a range of risks associated
with those uses. Futures and options are commonly used for
traditional hedging purposes to attempt to protect a fund from
exposure to changing interest rates, securities prices, or
currency exchange rates and for cash management purposes as a low
cost method of gaining exposure to a particular securities market
without investing directly in those securities. However, some
derivatives are used for leverage, which tends to magnify the
effects of an instrument's price changes as market conditions
change. Leverage involves the use of a small amount of money to
control a large amount of financial assets, and can in some
circumstances, lead to significant losses. The Manager will use
derivatives only in circumstances where the Manager believes they
offer the most economic means of improving the risk/reward profile
of the Fund. Derivatives will not be used to increase portfolio
risk above the level that could be achieved using only traditional
investment securities or to acquire exposure to changes in the
value of assets or Indices that by themselves would not be
purchased for the Fund. The use of derivatives for non-hedging
purposes may be considered speculative. A description of the
derivatives that the Fund may use and some of their associated
risks is found under "Additional Information."
Although a change in the Fund's investment objective does not
require shareholder approval, shareholders of the Fund will
receive 30 days prior written notice with respect to any such
change. If there is a change in the Fund's investment objective,
the Fund's shareholders should consider whether the Fund remains
an appropriate investment in light of their then-current needs.
See "Investment Objective, Policies and Risks" for a description
of the fundamental policies of the Fund that cannot be changed
without approval by the holders of "a majority of the outstanding
voting securities" (as defined in the 1940 Act) of the Fund.
For descriptions of the management of the Fund, see "Management of
the Fund" herein and "Management of the Funds" in the Statement of
Additional Information. For descriptions of the expenses of the
Fund, see "Management of the Fund" herein.
NET ASSET VALUE
The net asset value per share of the Fund is calculated on each
day on which the NYSE is open (each such day being a "Valuation
Day"). The NYSE is currently open on each day, Monday through
Friday, except: (a) January 1st, Presidents' Day (the third Monday
in February), Good Friday, Memorial Day (the last Monday in May),
July 4th, Labor Day (the first Monday in September), Thanksgiving
Day (the last Thursday in November) and December 25th; and (b) the
preceding Friday or the subsequent Monday when one of the
calendar-determined holidays falls on a Saturday or Sunday,
respectively.
The net asset value per share of the Fund is calculated once on
each Valuation Day as of the close of regular trading on the NYSE,
which under normal circumstances is 4:00 p.m., New York time. The
net asset value per share of the Fund is computed by dividing the
value of the Fund's assets, less all liabilities, by the total
number of its shares outstanding. The Fund's securities and other
assets are valued primarily on the basis of market quotations or,
if quotations are not readily available, by a method which the
Fund's Board of Trustees believes accurately reflects fair value.
Under procedures adopted by the Board, a net asset value for a
Fund later determined to have been inaccurate for any reason will
be recalculated. Purchases and redemptions made at a net asset
value determined to have been inaccurate will be adjusted if the
difference between the original net asset value and the
recalculated net asset value divided by the recalculated net asset
value is 0.005 (1/2 of 1%) or greater and the difference between
the net asset value is equal to or greater than $0.01, unless the
impact of the error to a shareholder account was $10 or less.
PURCHASE AND REDEMPTION OF SHARES
Shares of the Fund are continuously offered to each Company's
separate accounts at the net asset value per share next determined
after a completed and signed purchase request has been received by
the Company. The Company then offers to owners of the Contracts
which provide for investment in the Fund ("Contractowner(s)")
units in its separate accounts which directly correspond to shares
in the Fund. Each Company will process a purchase order from a
prospective Contractowner within two business days of its receipt
or its completion. If an initial purchase request remains
incomplete after five business days, the prospective Contractowner
will be informed by the Company as to the reasons for delay and
the initial purchase payment will be returned, unless the
prospective Contractowner consents to the Company's retaining the
purchase payment until the purchase request is completed.
Each Company submits purchase and redemption orders to the Fund
based on allocation instructions for premium payments, transfer
instructions and surrender or partial withdrawal requests which
are furnished to the Company by such Contractowners.
Contractowners can send such instructions and requests to the
Companies by first class mail, overnight mail or express mail sent
to the address set forth in the relevant Company's offering
memorandum included with this prospectus. The Fund and First Data
Distributors, Inc., the Fund's distributor ("FDDI" or the
"Distributor"), reserve the right to reject any purchase order.
Payment for redeemed shares will ordinarily be made within three
(3) business days after the Fund receives a redemption order from
the relevant Company. The redemption price will be the net asset
value per share next determined after the Company receives the
Contractowner's completed and signed redemption order.
The Fund may suspend the right of redemption or postpone the date
of payment during any period when trading on the NYSE is
restricted, or the NYSE is closed for other than weekends and
holidays; when an emergency makes it not reasonably practicable
for the Fund to dispose of assets or calculate its net asset
value; or as permitted by the Securities and Exchange Commission
(the "SEC").
The accompanying offering memorandum for a Company's variable
annuity or variable life insurance policy describes the
allocation, transfer and withdrawal provisions of such annuity or
policy.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Fund distributes substantially all of its net investment
income and capital gains each year. All dividends and capital
gains distributions paid by the Fund will be automatically
reinvested, at net asset value, by the Companies' separate
accounts in additional shares of the Fund, unless an election is
made by a Contractowner to receive distributions in cash.
Contractowners who own units in a separate account which
correspond to shares in the Fund will be notified when
distributions are made.
The Fund will be treated as a separate entity for Federal income
tax purposes. The Fund intends to qualify as a "regulated
investment company" under the Internal Revenue Code of 1986, as
amended (the "Code"), in order to be relieved of Federal income
tax on that part of its net investment income and realized capital
gains which it distributes to the Companies' separate accounts.
The Code and Treasury Department regulations promulgated
thereunder require that mutual funds that are offered through
insurance company separate accounts must meet certain
diversification requirements to preserve the tax-deferral benefits
provided by the variable contracts which are offered in connection
with such separate accounts. The Manager intends to diversify the
Fund's investments in accordance with those requirements. The
enclosed offering memorandum for a Company's variable annuity or
variable life insurance policies describes the Federal income tax
treatment of distributions from such contracts to Contractowners.
The foregoing is only a brief summary of important tax law
provisions that affect the Fund. Other Federal, state or local
tax law provisions may also affect the Fund and its operations.
Anyone who is considering allocating, transferring or withdrawing
monies held under a variable contract to or from the Fund should
consult a qualified tax adviser.
PERFORMANCE INFORMATION AND REPORTS
The Fund's performance may be used from time to time in
advertisements, shareholder reports or other communications to
existing or prospective owners of the Companies' variable
contracts. When performance information is provided in
advertisements, it will include the effect of all charges deducted
under the terms of the specified contract, as well as all
recurring and non-recurring charges incurred by the Fund.
Performance information may include the Fund's investment results
and/or comparisons of its investment results to the MSCI GDP
weighted EAFE Index, MSCI EAFE Index, and the Lipper International
Average or other various unmanaged indices or results of other
mutual funds or investment or savings vehicles. The Fund's
investment results as used in such communications will be
calculated on a total rate of return basis in the manner set forth
below. From time to time, fund rankings may be quoted from various
sources, such as Lipper Analytical Services, Inc., Value Line and
Morningstar Inc.
The Trust may provide period and average annualized "total return"
quotations for the Fund. The Fund's "total return" refers to the
change in the value of an investment in the Fund over a stated
period based on any change in net asset value per share and
including the value of any shares purchasable with any dividends
or capital gains distributed during such period. Period total
return may be annualized. An annualized total return is a
compounded total return which assumes that the period total return
is generated over a one-year period, and that all dividends and
capital gain distributions are reinvested. An annualized total
return will be higher than a period total return if the period is
shorter than one year, because of the compounding effect.
Unlike some bank deposits or other investments which pay a fixed
yield for a stated period of time, the total return of the Fund
will vary depending upon interest rates, the current market value
of the securities held by the Fund and changes in the Fund's
expenses. In addition, during certain periods for which total
return quotations may be provided, Bankers Trust may have
voluntarily agreed to waive portions of its fees on a month-to-
month basis. Such waivers will have the effect of increasing the
Fund's net income (and therefore its total return) during the
period such waivers are in effect.
Shareholders will receive financial reports semiannually that
include the Fund's financial statements, including listings of
investment securities held by the Fund at those dates. Annual
reports are audited by independent accountants.
MANAGEMENT OF THE FUND
Board of Trustees
The affairs of the Fund are managed under the supervision of the
Board of Trustees of the Trust, of which the Fund is a series. By
virtue of the responsibilities assumed by Bankers Trust, neither
the Trust nor the Fund requires employees other than the Trust's
officers. None of the Trust's officers devotes full time to the
affairs of the Trust or the Fund.
For more information with respect to the Trustees of the Trust,
see "Management of the Funds" in the Statement of Additional
Information.
Investment Manager
The Fund has retained the services of Bankers Trust Global
Investment Management, a unit of Bankers Trust, as investment
manager. Bankers Trust, a New York banking corporation with
executive offices at 280 Park Avenue, New York, New York 10017, is
a wholly owned subsidiary of Bankers Trust New York Corporation.
Bankers Trust conducts a variety of general banking and trust
activities and is a major wholesaler supplier of financial
services to the international and domestic institutional markets.
As of December 31, 1995, Bankers Trust New York Corporation was
the ninth largest bank holding company in the United States with
total assets of approximately $104 billion. Bankers Trust is a
worldwide merchant bank dedicated to servicing the needs of
corporations, governments, financial institutions and private
clients through a global network of over 120 offices in more than
40 countries. Investment management is a core business of Bankers
Trust, built on a tradition of excellence from its roots as a
trust bank founded in 1903. The scope of Bankers Trust's
investment management capability is unique due to its leadership
positions in both active and passive quantitative management and
its presence in major equity and fixed income markets around the
world. Bankers Trust is one of the nation's largest and most
experienced investment managers with approximately $210 billion in
assets under management as of March 31, 1996.
Bankers Trust has more than 50 years of experience managing
retirement assets for the nation's largest corporations and
institutions. Now, the Trust brings Bankers Trust's extensive
investment management expertise -- once available to only the
largest institutions in the U.S. -- to individual investors.
Bankers Trust's officers have had extensive experience in managing
investment portfolios having objectives similar to those of the
Fund.
Bankers Trust, subject to the supervision and direction of the
Board of Trustees, manages the Fund in accordance with the Fund's
investment objective and stated investment policies, makes
investment decisions for the Fund, places orders to purchase and
sell securities and other financial instruments on behalf of the
Fund, employs professional investment managers and securities
analysts who provide research services to the Fund, oversees the
administration of all aspects of the Trust's business and affairs
and supervises the performance of professional services provided
by other vendors. Bankers Trust may utilize the expertise of any
of its world wide subsidiaries and affiliates to assist it in its
role as investment manager. All orders for investment
transactions on behalf of the Fund are placed by Bankers Trust
with broker-dealers and other financial intermediaries that it
selects, including those affiliated with Bankers Trust. A Bankers
Trust affiliate will be used in connection with a purchase or sale
of an investment for the Fund only if Bankers Trust believes that
the affiliate's charge for the transaction does not exceed usual
and customary levels. The Fund will not invest in obligations for
which Bankers Trust or any of its affiliates is the ultimate
obligor or accepting bank. The Fund may, however, invest in the
obligations of correspondents and customers of Bankers Trust.
Bankers Trust has been advised by its counsel that, in counsel's
opinion, Bankers Trust currently may perform the services for the
Trust and the Fund described in this Prospectus and the Statement
of Additional Information without violation of the Glass-Steagall
Act or other applicable banking laws or regulations. State laws on
this issue may differ from the interpretations of relevant Federal
law and banks and financial institutions may be required to
register as dealers pursuant to state securities law.
Mr. Michael Levy, Manager Director of Bankers Trust Global
Investment Management, has been a manager of the Portfolio since
joining Bankers Trust in 1993, and has been its primary manager
since 1995. He also heads the international equity team, which is
responsible for the day to day management of the Fund. Since
joining Bankers Trust, Mr. Levy has been the head of this team and
International Equity Strategist. The international equity team
has provided input into the management of the Fund since the
Fund's commencement of operations. Mr. Levy's experience prior to
joining Bankers Trust includes investment banking and equity
analysis with Oppenheimer & Company. He has more than twenty-six
years of business experience, of which sixteen years have been in
the investment industry.
Robert Reiner, Vice President of Bankers Trust Global Investment
Management, has been a manager of the Portfolio since joining
Bankers Trust in 1994 and its co-manager since 1995. At Bankers
Trust, he has been responsible for managing global portfolios and
developing analytical and investment tools for the group's global
equity team. His primary focus has been on Japanese and European
markets. Prior to joining Bankers Trust, he was an equity analyst
and also provided macroeconomic coverage for Scudder, Stevens &
Clark from 1993 to 1994. He previously served as Senior Analyst
at Sanford C. Bernstein & Co. from 1991 to 1992 and was
instrumental in the development of Bernstein's International Value
Fund. Mr. Reiner spent more than nine years at Standard & Poor's
Corporation, where he was a member of its international ratings
group. His tenure included managing the day to day operations of
Standard & Poor's Corporation Tokyo office for three years.
As compensation for its services to the Fund, Bankers Trust
receives a fee from the Fund computed daily and paid monthly at
the annual rate of .98% of the average daily net assets of the
Fund.
Expenses
In addition to the fees of the Manager, the Fund is responsible
for the payment of all its other expenses incurred in the
operation of the Fund, which include, among other things, expenses
for legal and independent auditor's services, charges of the
Fund's custodian and transfer agent, SEC fees, a pro rata portion
of the fees of the Trust's unaffiliated trustees, accounting costs
for reports sent to Contractowners, the Fund's pro rata portion of
membership fees in trade organizations, a pro rata portion of the
fidelity bond coverage for the Trust's officers, interest,
brokerage and other trading costs, taxes, all expenses of
computing the Fund's net asset value per share, expenses involved
in registering and maintaining the registration of the Fund's
shares with the SEC and qualifying the Fund for sale in various
jurisdictions and maintaining such qualification, litigation and
other extraordinary or non-recurring expenses. However, other
typical Fund expenses such as Contractowner servicing,
distribution of reports to Contractowners and prospectus printing
and postage will be borne by the relevant Company.
Administrator and Transfer Agent
First Data Investor Services Group, Inc. ("First Data"), a
subsidiary of First Data Corporation, One Exchange Place, Boston,
Massachusetts 02109, serves as the Fund's administrator pursuant
to an Administration Agreement with the Trust. Under the terms of
the Administration Agreement, First Data generally assists in all
aspects of the Fund's operations, other than providing investment
advice, subject to the overall authority of the Trust's Board of
Trustees. First Data also serves as the transfer agent for the
Fund.
Distributor
First Data Distributors, Inc. serves as distributor of the Fund's
shares to separate accounts of the Companies for which it receives
no separate fee from the Fund. The principal business address of
the Distributor is 4400 Computer Drive, Westborough, Massachusetts
01581.
Custodian
Bankers Trust acts as custodian of the assets of the Fund.
Organization of the Trust
The Trust was organized on January 19, 1996, under the laws of the
Commonwealth of Massachusetts. The Fund is a separate series of
the Trust. The Trust offers shares of beneficial interest of its
two series, par value $0.001 per share. The shares of the other
series of the Trust are offered through a separate Prospectus. No
series of shares has any preference over any other series. All
shares, when issued, will be fully paid and nonassessable. The
Trust's Board of Trustees has the authority to create additional
series without obtaining shareholder approval.
The Trust is an entity of the type commonly known as a
"Massachusetts business trust." Under Massachusetts law,
shareholders of such a business trust may, under certain
circumstances, be held personally liable as partners for its
obligations. However, the risk of a shareholder incurring
financial loss on account of shareholder liability is limited to
circumstances in which both inadequate insurance existed and the
Trust itself was unable to meet its obligations.
Through its separate accounts, the Companies are the Fund's sole
stockholder of record, so under the 1940 Act, the Companies are
deemed to be in control of the Fund. Nevertheless, when a
shareholders' meeting occurs, each Company solicits and accepts
voting instructions from its Contractowners who have allocated or
transferred monies for an investment in the Fund as of the record
date of the meeting. Each Company then votes the Fund's shares
that are attributable to its Contractowners' interests in the Fund
in proportion to the voting instructions received. Each Company
will vote any share that it is entitled to vote directly due to
amounts it has contributed or accumulated in its separate accounts
in the manner described in the prospectuses for its variable
annuities and variable life insurance policies.
Each share of the Fund is entitled to one vote, and fractional
shares are entitled to fractional votes. Fund shares have non-
cumulative voting rights, so the vote of more than 50% of the
shares can elect 100% of the Trustees.
The Trust is not required, and does not intend, to hold regular
annual shareholder meetings, but may hold special meetings for
consideration of proposals requiring shareholder approval.
The Fund is only available to owners of variable annuities or
variable life insurance policies issued by the Companies through
their respective separate accounts. The Fund does not currently
foresee any disadvantages to Contractowners arising from offering
its shares to variable annuity and variable life insurance policy
separate accounts simultaneously, and the Board of Trustees
monitors events for the existence of any material irreconcilable
conflict between or among Contractowners. If a material
irreconcilable conflict arises, one or more separate accounts may
withdraw their investments in the Fund. This could possibly force
the Fund to sell portfolio securities at disadvantageous prices.
Each Company will bear the expenses of establishing separate
portfolios for its variable annuity and variable life insurance
separate accounts if such action becomes necessary; however,
ongoing expenses that are ultimately borne by Contractowners will
likely increase due to the loss of economies of scale benefits
that can be provided to mutual funds with substantial assets.
ADDITIONAL INFORMATION
American Depositary Receipts and European Depositary Receipts. The
Fund may invest in securities of foreign issuers directly or in
the form of American Depositary Receipts ("ADRs"), Global
Depositary Receipts ("GDRs") and European Depositary Receipts
("EDRs") or other similar securities representing securities of
foreign issuers. These securities may not necessarily be
denominated in the same currency as the securities they represent.
ADRs and GDRs are receipts typically issued by a U.S. bank or
trust company evidencing ownership of the underlying securities.
EDRs are receipts issued by a European financial institution
evidencing a similar arrangement. Generally, ADRs and GDRs, in
registered form, are designed for use in the U.S. securities
markets, and EDRs, in bearer form, are designed for use in
European securities markets.
Rule 144A Securities. The Fund may purchase securities in the
United States that are not registered for sale under Federal
securities laws but which can be resold to institutions under SEC
Rule 144A. Provided that a dealer or institutional trading market
in such securities exists, these restricted securities are treated
as exempt from the Fund's 15% limit on illiquid securities. Under
the supervision of the Board of Trustees of the Fund, the Manager
determines the liquidity of restricted securities and, through
reports from the Manager, the Board will monitor trading activity
in restricted securities. If institutional trading in restricted
securities were to decline, the liquidity of the Fund could be
adversely affected.
When-Issued and Delayed Delivery Securities. The Fund may purchase
securities on a when-issued or delayed delivery basis. Delivery of
and payment for these securities may take place as long as a month
or more after the date of the purchase commitment. The value of
these securities is subject to market fluctuation during this
period and no income accrues to the Fund until settlement takes
place. The Fund maintains with the custodian a segregated account
containing high grade liquid securities in an amount at least
equal to these commitments. When entering into a when-issued or
delayed delivery transaction, the Fund will rely on the other
party to consummate the transaction; if the other party fails to
do so, the Fund may be disadvantaged.
Securities Lending. The Fund is permitted to lend up to 30% of the
total value of its securities. These loans must be secured
continuously by cash or equivalent collateral or by a letter of
credit at least equal to the market value of the securities loaned
plus accrued income. By lending its securities, the Fund can
increase its income by continuing to receive income on the loaned
securities as well as by the opportunity to receive interest on
the collateral. Any gain or loss in the market price of the
borrowed securities which occurs during the term of the loan
inures to the Fund and its investors.
WEBS. The Fund may invest from time to time in World Equity
Benchmark Shares ("WEBS"). WEBS are shares of underlying common
stock portfolios constructed to provide investment results that
track the performance of publicly traded securities in the
aggregate, as represented by a particular Morgan Stanley Capital
International benchmark country index. WEBS are listed for
trading on the American Stock Exchange, Inc. ("AMEX") and are non-
redeemable, except when aggregated in "creation units" of a
specified number of shares. It is expected that non-redeemable
WEBS will trade on the AMEX at prices which may differ from their
net asset value and there can be no assurance that an active
market will develop for WEBS. Investing in WEBS generally
involves the same risks as investing in foreign securities, as
described above in "Risk of Investing in Foreign Securities."
Foreign Currency Exchange Transactions. Because the Fund buys and
sells securities denominated in currencies other than the U.S.
dollar and receives interest, dividends and sale proceeds in
currencies other than the U.S. dollar, the Fund from time to time
may enter into foreign currency exchange transactions to convert
to and from different foreign currencies and to convert foreign
currencies to and from the U.S. dollar. The Fund either enters
into these transactions on a spot (i.e., cash) basis at the spot
rate prevailing in the foreign currency exchange market or uses
forward contracts to purchase or sell foreign currencies.
A forward foreign currency exchange contract is an obligation by
the Fund to purchase or sell a specific currency at a future date,
which may be any fixed number of days from the date of the
contract. Forward foreign currency exchange contracts establish an
exchange rate at a future date. These contracts are transferable
in the interbank market conducted directly between currency
traders (usually large commercial banks) and their customers. A
forward foreign currency exchange contract generally has no
deposit requirement and is traded at a net price without
commission. The Fund maintains with its custodian a segregated
account of high grade liquid assets in an amount at least equal to
its obligations under each forward foreign currency exchange
contract. Neither spot transactions nor forward foreign currency
exchange contracts eliminate fluctuations in the prices of the
Fund's securities or in foreign exchange rates, or prevent loss if
the prices of these securities should decline.
The Fund may enter into foreign currency hedging transactions in
an attempt to protect against changes in foreign currency exchange
rates between the trade and settlement dates of specific
securities transactions or changes in foreign currency exchange
rates that would adversely affect a portfolio position or an
anticipated investment position. Since consideration of the
prospect for currency parities will be incorporated into the
Manager's long-term investment decisions, the Fund will not
routinely enter into foreign currency hedging transactions with
respect to security transactions; however, the Manager believes
that it is important to have the flexibility to enter into foreign
currency hedging transactions when it determines that the
transactions would be in the Fund's best interest. Although these
transactions tend to minimize the risk of loss due to a decline in
the value of the hedged currency, at the same time they tend to
limit any potential gain that might be realized should the value
of the hedged currency increase. The precise matching of the
forward contract amounts and the value of the securities involved
will not generally be possible because the future value of such
securities in foreign currencies will change as a consequence of
market movements in the value of such securities between the date
the forward contract is entered into and the date it matures. The
projection of currency market movements is extremely difficult,
and the successful execution of a hedging strategy is highly
uncertain.
Options on Foreign Currencies. The Fund may write covered put and
call options and purchase put and call options on foreign
currencies for the purpose of protecting against declines in the
dollar value of portfolio securities and against increases in the
dollar cost of securities to be acquired. The Fund may use options
on currency to cross-hedge, which involves writing or purchasing
options on one currency to hedge against changes in exchange rates
for a different, but related currency. As with other types of
options, however, the writing of an option on foreign currency
will constitute only a partial hedge up to the amount of the
premium received, and the Fund could be required to purchase or
sell foreign currencies at disadvantageous exchange rates, thereby
incurring losses. The purchase of an option on foreign currency
may be used to hedge against fluctuations in exchange rates
although, in the event of exchange rate movements adverse to the
Fund's position, it may forfeit the entire amount of the premium
plus related transaction costs. In addition, the Fund may purchase
call options on currency when the Manager anticipates that the
currency will appreciate in value.
There is no assurance that a liquid secondary market on an options
exchange will exist for any particular option, or at any
particular time. If the Fund is unable to effect a closing
purchase transaction with respect to covered options it has
written, the Fund will not be able to sell the underlying currency
or dispose of assets held in a segregated account until the
options expire or are exercised. Similarly, if the Fund is unable
to effect a closing sale transaction with respect to options it
has purchased, it would have to exercise the options in order to
realize any profit and will incur transaction costs upon the
purchase or sale of underlying currency. The Fund pays brokerage
commissions or spreads in connection with its options
transactions.
As in the case of forward contracts, certain options on foreign
currencies are traded over-the-counter and involve liquidity and
credit risks which may not be present in the case of exchange-
traded currency options. In some circumstances, the Fund's
ability to terminate over-the-counter options ("OTC Options") may
be more limited than with exchange-traded options. It is also
possible that broker-dealers participating in OTC Options
transactions will not fulfill their obligations. Provided that a
dealer or institutional trading market in such securities exists,
these restricted securities are not covered by the Fund's 15%
limit on illiquid securities. Under the supervision of the Board
of Trustees of the Fund, Bankers Trust determines the liquidity of
restricted securities and, through reports from Bankers Trust, the
Board will monitor trading activity in restricted securities.
With respect to options written with primary dealers in U.S.
government securities pursuant to an agreement requiring a closing
purchase transaction at a formula price, the amount of illiquid
securities may be calculated with reference to the repurchase
formula.
The Fund will write and purchase options only to the extent
permitted by the policies of state securities authorities in
states where shares of the Fund are qualified for offer and sale.
Options on Stocks. The Fund may write and purchase put and call
options on stocks. A call option gives the purchaser of the option
the right to buy, and obligates the writer to sell, the underlying
stock at the exercise price at any time during the option period.
Similarly, a put option gives the purchaser of the option the
right to sell, and obligates the writer to buy, the underlying
stock at the exercise price at any time during the option period.
A covered call option, which is a call option with respect to
which the Fund owns the underlying stock, sold by the Fund exposes
the Fund during the term of the option to possible loss of
opportunity to realize appreciation in the market price of the
underlying stock or to possible continued holding of a stock which
might otherwise have been sold to protect against depreciation in
the market price of the stock. A covered put option sold by the
Fund exposes the Fund during the term of the option to a decline
in price of the underlying stock. A put option sold by the Fund is
covered when, among other things, cash or liquid securities are
placed in a segregated account to fulfill the obligations
undertaken.
To close out a position when writing covered options, the Fund may
make a "closing purchase transaction," which involves purchasing
an option on the same stock with the same exercise price and
expiration date as the option which it has previously written on
the stock. The Fund will realize a profit or loss for a closing
purchase transaction if the amount paid to purchase an option is
less or more, as the case may be, than the amount received from
the sale thereof. To close out a position as a purchaser of an
option, the Fund may make a "closing sale transaction," which
involves liquidating the Fund's position by selling the option
previously purchased.
The Fund intends to treat OTC Options purchased and the assets
used to "cover" OTC Options written as not readily marketable and
therefore subject to the limitations described in "Investment
Restrictions" in the Statement of Additional Information.
Options on Foreign Stock Indices. The Fund may purchase and write
put and call options on foreign stock indices listed on domestic
and foreign stock exchanges. The Fund may also purchase and write
OTC Options on foreign stock indices. The OTC Options would be
subject to the same liquidity and credit risks noted above with
respect to OTC Options on foreign currencies. A stock index
fluctuates with changes in the market values of the stocks
included in the index.
OTC Options are purchased from or sold to securities dealers,
financial institutions or other parties (collectively referred to
as "Counterparties" and individually referred to as a
"Counterparty") through direct bilateral agreement with the
Counterparty. In contrast to exchange listed options, which
generally have standardized terms and performance mechanics, all
of the terms of an OTC Option, including such terms as method of
settlement, term exercise price, premium guaranties and security,
are set by negotiation of the parties.
Unless the parties provide for it, no central clearing or guaranty
function is involved in an OTC Option. As a result, if a
Counterparty fails to make or take delivery of the security,
currency or other instrument underlying an OTC Option it has
entered into with the Fund or fails to make a cash settlement
payment due in accordance with the terms of that option, the Fund
will lose any premium it paid for the option as well as any
anticipated benefit of the transaction. Thus, Bankers Trust must
assess the creditworthiness of each such Counterparty or any
guarantor or credit enhancement of the Counterparty's credit to
determine the likelihood that the terms of the OTC Option will be
met.
Options on stock indices are generally similar to options on stock
except that the delivery requirements are different. Instead of
giving the right to take or make delivery of stock at a specified
price, an option on a stock index gives the holder the right to
receive a cash "exercise settlement amount" equal to (a) the
amount, if any, by which the fixed exercise price of the option
exceeds (in the case of a put) or is less than (in the case of a
call) the closing value of the underlying index on the date of
exercise, multiplied by (b) a fixed "index multiplier." Receipt of
this cash amount will depend upon the closing level of the stock
index upon which the option is based being greater than, in the
case of a call, or less than, in the case of a put, the exercise
price of the option. The amount of cash received will be equal to
such difference between the closing price of the index and the
exercise price of the option expressed in dollars or a foreign
currency, the case may be, times a specified multiple. The writer
of the option is obligated, in return for the premium received, to
make delivery of this amount. The writer may offset its position
in stock index options prior to expiration by entering into a
closing transaction on an exchange or the option may expire
unexercised.
To the extent permitted by U.S. Federal or state securities laws,
the Fund may invest in options on foreign stock indices in lieu of
direct investment in foreign securities. The Fund may also use
foreign stock index options for hedging purposes.
Because the value of an index option depends upon movements in the
level of the index rather than the price of a particular stock,
whether the Fund will realize a gain or loss from the purchase or
writing of options on an index depends upon movements in the level
of stock prices in the stock market generally or, in the case of
certain indices, in an industry or market segment, rather than
movements in the price of a particular stock. Accordingly,
successful use by the Fund of options on stock indices will be
subject to the Manager's ability to predict correctly movements in
the direction of the stock market generally or of a particular
industry. This requires different skills and techniques than
predicting changes in the price of individual stocks.
Futures Contracts on Foreign Stock Indices. The Fund may enter
into contracts providing for the making and acceptance of a cash
settlement based upon changes in the value of an index of
securities ("futures contracts"). This investment technique is
designed only to hedge against anticipated future change in
general market prices which otherwise might either adversely
affect the value of securities held by the Fund or adversely
affect the prices of securities which are intended to be purchased
at a later date for the Fund. A futures contract may also be
entered into to close out or offset an existing futures position.
In general, each transaction in futures contracts involves the
establishment of a position which will move in a direction
opposite to that of the investment being hedged. If these hedging
transactions are successful, the futures positions taken for the
Fund will rise in value by an amount which approximately offsets
the decline in value of the portion of the Fund's investments that
are being hedged. Should general market prices move in an
unexpected manner, the full anticipated benefits of futures
contracts may not be achieved or a loss may be realized.
Although futures contracts would be entered into for hedging
purposes only, such transactions do involve certain risks. These
risks could include a lack of correlation between the futures
contract and the foreign equity market being hedged, a potential
lack of liquidity in the secondary market and incorrect
assessments of market trends which may result in poorer overall
performance than if a futures contract had not been entered into.
Brokerage costs will be incurred and "margin" will be required to
be posted and maintained as a good-faith deposit against
performance of obligations under futures contracts written for the
Fund. The Fund may not purchase or sell a futures contract if
immediately thereafter its margin deposits on its outstanding
futures contracts would exceed 5% of the market value of the
Fund's total assets.
Options on Futures Contracts. The Fund may invest in options on
such futures contracts for similar purposes.
All options that the Fund writes will be covered under applicable
requirements of the SEC. The Fund will write and purchase options
only to the extent permitted by the policies of state securities
authorities in states where shares of the Fund are qualified for
offer and sale.
Repurchase Agreements. In a repurchase agreement the Fund buys a
security and simultaneously agrees to sell it back at a higher
price. In the event of the bankruptcy of the other party to either
a repurchase agreement or a securities loan, the Fund could
experience delays in recovering either its cash or the securities
it lent. To the extent that, in the meantime, the value of the
securities repurchased had decreased or the value of the
securities lent had increased, the Fund could experience a loss.
In all cases, the Manager must find the creditworthiness of the
other party to the transaction satisfactory. A repurchase
agreement is considered a collateralized loan under the 1940 Act.
There can be no assurances that the use of these portfolio
strategies will be successful.
Asset Coverage. To assure that the Fund's use of futures and
related options, as well as when-issued and delayed-delivery
securities and foreign currency exchange transactions, are not
used to achieve investment leverage, the Fund will cover such
transactions, as required under applicable interpretations of the
SEC, either by owning the underlying securities or by establishing
a segregated account with the Fund's custodian containing high
grade liquid debt securities in an amount at all times equal to or
exceeding the Fund's commitment with respect to these instruments
or contracts.
Investment Manager of the Fund
BANKERS TRUST GLOBAL INVESTMENT MANAGEMENT
a unit of
BANKERS TRUST COMPANY
Administrator
FIRST DATA INVESTOR SERVICES GROUP, INC.
Distributor
FIRST DATA DISTRIBUTORS, INC.
Custodian
BANKERS TRUST COMPANY
Transfer Agent
FIRST DATA INVESTOR SERVICES GROUP, INC.
Independent Accountants
ERNST & YOUNG L.L.P.
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.
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