BT insurance funds trust
prospectus: ____________, 1996
EAFE Equity Index Fund
This Prospectus offers shares of the EAFE Equity Index Fund (the
"Fund"). The Fund is a series of BT Insurance Funds Trust (the
"Trust"), which is an open-end management investment company
currently having six series. Shares of the Fund are available to
the public only through the purchase of certain variable annuity
and variable life insurance contracts ("Contract(s)") issued by
various insurance companies (the "Companies").
The Fund seeks to replicate as closely as possible the performance
of the Morgan Stanley Capital International Europe, Australia, Far
East (EAFE) Index (the "EAFE Index") before the deduction of Fund
expenses (the "Expenses"). There is no assurance, however, that
the Fund will achieve its stated objective.
Bankers Trust Company ("Bankers Trust") is the investment manager
(the "Manager") of the Fund.
Please read this Prospectus carefully before investing and retain
it for future reference. It contains important information about
the Fund that you should know and can refer to in deciding whether
the Fund's goals match your own.
A Statement of Additional Information ("SAI") with the same date
has been filed with the Securities and Exchange Commission, and is
incorporated herein by reference. You may request a free copy of
the SAI by calling the Trust at the Customer Service Center at the
telephone number shown in the accompanying prospectus.
Fund shares are not deposits or obligations of, or guaranteed by,
Bankers Trust or any depository institution. Shares are not
insured by the Federal Deposit Insurance Corporation, the Federal
Reserve Board or any other agency.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The EAFE Index is the exclusive property of Morgan Stanley. Morgan
Stanley Capital International is a service mark of Morgan Stanley
and has been licensed for use by Bankers Trust Company.
bankers trust global investment management
a unit of bankers trust company
Investment Manager of the Fund
440 financial distributors, inc.
Distributor
4400 Computer Drive
Westborough, MA 01581
TABLE OF CONTENTS
Page
THE FUND 3
Who May Want to Invest
Investment Principles and Risks
THE FUND IN DETAIL 4
Investment Objectives and Policies
Risk Factors and Certain Securities and Investment Practices
Net Asset Value
Performance Information and Reports
Management of the Trust
SHAREHOLDER AND ACCOUNT POLICIES 13
Purchase and Redemption of Shares
Dividends, Distributions and Taxes
THE FUND
The Fund seeks to replicate as closely as possible (before
deduction of Expenses) the total return of EAFE Index, a
capitalization-weighted index containing approximately 1,100
equity securities of companies located outside the United States.
The Fund will be invested primarily in equity securities of
business enterprises organized and domiciled outside of the United
States or for which the principal trading market is outside the
United States. Statistical methods will be employed to replicate
the EAFE Index by buying most of the EAFE Index securities.
Securities purchased for the Fund will generally, but not
necessarily, be traded on a foreign securities exchange.
WHO MAY WANT TO INVEST
Shares of the Fund are available to the public only through the
purchase of Contracts issued by the Companies.
The Fund is not managed according to traditional methods of
"active" investment management, which involve the buying and
selling of securities based upon economic, financial and market
analysis and investment judgment. Instead, the Fund utilizes a
"passive" or "indexing" investment approach and attempts to
replicate the investment performance of the EAFE Index through
statistical procedures.
The Fund may be appropriate for investors who are willing to
endure stock market fluctuations in pursuit of potentially higher
long-term returns. The Fund invests for growth and does not
pursue income. Over time, stocks, although more volatile, have
shown greater growth potential than other types of securities. In
the shorter term, however, stock prices can fluctuate dramatically
in response to market factors.
The Fund may be appropriate for investors who want to pursue their
investment goals in markets outside of the United States. By
including international investments in their portfolio, investors
can achieve an extra level of diversification and also participate
in opportunities around the world. However, there are additional
risks involved with international investing. The performance of
international funds depends upon currency values, the political
and regulatory environment, and overall economic factors in the
countries in which the Fund invests.
The Fund is intended to be a long-term investment vehicle and is
not designated to provide investors with a means of speculating on
short-term market movements. The Fund is not in itself a balanced
investment plan. Investors should consider their investment
objective and tolerance for risk when making an investment
decision. When an investor sells his or her Fund shares, they may
be worth more or less than what the investor paid for them.
INVESTMENT PRINCIPLES AND RISKS
The value of the Fund's investments varies based on many factors.
Stock values fluctuate, sometimes dramatically, in response to the
activities of individual companies and general market and economic
conditions. Over time, however, stocks have shown greater long-
term growth potential than other types of securities. Lower
quality securities offer higher yields, but also carry more risk.
Because many foreign investments are denominated in foreign
currencies, changes in the value of these currencies can
significantly affect the Fund's share price. General economic
factors in the various world markets can also impact the value of
an investors investment. When investors sell Fund shares, they
may be worth more or less than what the investors paid for them.
See "Risk Factors and Certain Securities and Investment Practices"
for more information.
THE FUND IN DETAIL
INVESTMENT OBJECTIVES AND POLICIES
The following is a discussion of the various investments of and
techniques employed by the Fund. Additional information about the
investment policies of the Fund appears in "Risk Factors and
Certain Securities and Investment Practices" in this Prospectus
and in the Fund's SAI. There can be no assurance that the
investment objective of the Fund will be achieved.
The Fund seeks to replicate as closely as possible (before
deduction of Expenses) the total return of the EAFE Index. The
Fund attempts to achieve this objective by investing in a
statistically selected sample of the equity securities included in
the EAFE Index.
The EAFE Index is a capitalization-weighted index containing
approximately 1,100 equity securities of companies located in
countries outside the United States. The countries currently
included in the EAFE Index are Australia, Austria, Belgium,
Denmark, Finland, France, Germany, Hong Kong, Ireland, Italy,
Japan, Malaysia, The Netherlands, New Zealand, Norway, Singapore,
Spain, Sweden, Switzerland and United Kingdom.
The Fund is constructed to have aggregate investment
characteristics similar to those of the EAFE Index. The Fund
invests in a statistically selected sample of the securities of
companies included in the EAFE Index, although not all companies
within a country will be represented in the Fund at the same time.
Stocks are selected for inclusion in the Fund based on country of
origin, market capitalization, yield, volatility and industry
sector. Bankers Trust will manage the Fund using advanced
statistical techniques to determine which stocks are to be
purchased or sold to replicate the EAFE Index. From time to time,
adjustments may be made in the Fund because of changes in the
composition of the EAFE Index, but such changes should be
infrequent.
The Fund is not sponsored, endorsed, sold or promoted by Morgan
Stanley. Morgan Stanley makes no representation or warranty,
express or implied, to the owners of the Fund or any member of the
public regarding the advisability of investing in securities
generally or in the Fund particularly or the ability of the EAFE
Index to track general stock market performance. Morgan Stanley is
the licenser of certain trademarks, service marks and trade names
of Morgan Stanley and of the EAFE Index which is determined,
composed and calculated by Morgan Stanley without regard to the
issuer of the Fund or the Fund itself. Morgan Stanley has no
obligation to take the needs of the issuer of the Fund or the
owners of the Fund into consideration in determining, composing or
calculating the EAFE Index. Inclusion of a security in the EAFE
Index in no way implies an opinion by Morgan Stanley as to its
attractiveness as an investment. Morgan Stanley is not responsible
for and has not participated in the determination of the timing
of, prices at, or quantities of the Fund to be issued or in the
determination or calculation of the equation by which the Fund is
redeemable for cash. Morgan Stanley has no obligation or liability
to owners of the Fund in connection with the administration,
marketing or trading of the Fund. The Fund is neither sponsored by
nor affiliated with Morgan Stanley.
ALTHOUGH MORGAN STANLEY SHALL OBTAIN INFORMATION FOR INCLUSION IN
OR FOR USE IN THE CALCULATION OF THE INDICES FROM SOURCES WHICH
MORGAN STANLEY CONSIDERS RELIABLE, MORGAN STANLEY DOES NOT
GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE INDICES OR
ANY DATA INCLUDED THEREIN. MORGAN STANLEY MAKES NO WARRANTY,
EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY LICENSEE,
LICENSEE'S CUSTOMERS AND COUNTERPARTIES, OWNERS OF THE PRODUCTS,
OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE INDICES OR ANY
DATA INCLUDED THEREIN IN CONNECTION WITH THE RIGHTS LICENSED
HEREUNDER OR FOR ANY OTHER USE. MORGAN STANLEY MAKES NO EXPRESS OR
IMPLIED WARRANTIES, AND HEREBY EXPRESSLY DISCLAIMS ALL WARRANTIES
OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE WITH
RESPECT TO THE INDICES OR ANY DATA INCLUDED THEREIN. WITHOUT
LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL MORGAN STANLEY
HAVE ANY LIABILITY FOR ANY DIRECT, INDIRECT, SPECIAL, PUNITIVE,
CONSEQUENTIAL OR ANY OTHER DAMAGES (INCLUDING LOST PROFITS) EVEN
IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
General
Over time, the correlation between the performance of the Fund and
the EAFE Index is expected to be 0.95 or higher before deduction
of Fund expenses. A correlation of 1.00 would indicate perfect
correlation, which would be achieved when the net asset value of
the Fund, including the value of its dividend and any capital gain
distributions, increases or decreases in exact proportion to
changes in the EAFE Index. The Fund's ability to track the EAFE
Index may be affected by, among other things, transaction costs,
administration and other expenses incurred by the Fund, changes in
either the composition of the EAFE Index or the assets of the
Fund, and the timing and amount of Fund investor contributions and
withdrawals, if any. In the unlikely event that a high
correlation is not achieved, the Trust's Board of Trustees will
consider alternatives. Because the Fund seeks to track the EAFE
Index, Bankers Trust will not attempt to judge the merits of any
particular stock as an investment.
Under normal circumstances, the Fund will invest at least 80% of
its assets in the securities of the EAFE Index.
As a diversified fund, no more than 5% of the assets of the Fund
may be invested in the securities of one issuer (other than U.S.
Government Securities), except that up to 25% of the Fund's assets
may be invested without regard to this limitation. The Fund will
not invest more than 25% of its assets in the securities of
issuers in any one industry. In the unlikely event that the EAFE
Index should concentrate to an extent greater than that amount,
the Funds ability to achieve its objective may be impaired. No
more than 15% of the Fund's net assets may be invested in illiquid
or not readily marketable securities (including repurchase
agreements and time deposits with maturities of more than seven
days). These are fundamental investment policies of the Fund which
may not be changed without shareholder approval. Additional
investment policies of the Fund are contained in the SAI.
The Fund may maintain up to 25% of its assets in short-term debt
securities and money market instruments to meet redemption
requests or to facilitate investment in the securities of the EAFE
Index. Securities index futures contracts and related options,
warrants and convertible securities may be used for several
reasons: to simulate full investment in the EAFE Index while
retaining a cash balance for fund management purposes, to
facilitate trading, to reduce transaction costs or to seek higher
investment returns when a futures contract, option, warrant or
convertible security is priced more attractively than the
underlying equity security or EAFE Index. These instruments may
be considered derivatives. See "Risk Factors and Certain
Securities and Investment Practices -- Derivatives."
The use of derivatives for non-hedging purposes may be considered
speculative. While each of these securities can be used as
leveraged investments, the Fund may not use them to leverage its
net assets. The Fund will not invest in such instruments as part
of a temporary defensive strategy (in anticipation of declining
stock prices) to protect the Fund against potential market
declines.
The Fund may lend its investment securities and purchase
securities on a when-issued and a delayed delivery basis. The Fund
may engage in foreign currency forward and futures transactions
for the purpose of enhancing Fund returns or hedging against
foreign exchange risk arising from the Fund's investment or
anticipated investment in securities denominated in foreign
currencies. See "Risk Factors and Certain Securities and
Investment Practices" for more information about the investment
practices of the Fund.
RISK FACTORS AND CERTAIN SECURITIES AND INVESTMENT PRACTICES
The following pages contain more detailed information about types
of instruments in which the Fund may invest and strategies Bankers
Trust may employ in pursuit of the Fund's investment objective. A
summary of risks and restrictions associated with these instrument
types and investment practices is included as well.
Bankers Trust may not buy all of these instruments or use all of
these techniques to the full extent permitted unless it believes
that doing so will help the Fund achieve its goal. Holdings and
recent investment strategies are described in the financial
reports of the Fund, which are sent to Fund shareholders on a
semi-annual and annual basis.
Market Risk
As a mutual fund investing primarily in common stocks, the Fund is
subject to market risk --- i.e., the possibility that common stock
prices will decline over short or even extended periods. The U.S.
and foreign stock markets tend to be cyclical, with periods when
stock prices generally rise and periods when prices generally
decline.
Risks of Investing in Foreign Securities
Investors should realize that investing in securities of foreign
issuers involves considerations not typically associated with
investing in securities of companies organized and operated in the
United States. Investors should realize that the value of the
Fund's foreign investments may be adversely affected by changes in
political or social conditions, diplomatic relations, confiscatory
taxation, expropriation, nationalization, limitation on the
removal of funds or assets, or imposition of (or change in)
exchange control or tax regulations in foreign countries. In
addition, changes in government administrations or economic or
monetary policies in the United States or abroad could result in
appreciation or depreciation of portfolio securities and could
favorably or unfavorably affect the Fund's operations.
Furthermore, the economies of individual foreign nations may
differ from the U.S. economy, whether favorably or unfavorably, in
areas such as growth of gross national product, rate of inflation,
capital reinvestment, resource self-sufficiency and balance of
payments position; it may also be more difficult to obtain and
enforce a judgment against a foreign issuer. In general, less
information is publicly available with respect to foreign issuers
than is available with respect to U.S. companies. Most foreign
companies are also not subject to the uniform accounting and
financial reporting requirements applicable to issuers in the
United States. Any foreign investments made by the Fund must be
made in compliance with U.S. and foreign currency restrictions and
tax laws restricting the amounts and types of foreign investments.
Because foreign securities generally are denominated and pay
dividends or interest in foreign currencies, the value of the net
assets of the Fund as measured in U.S. dollars will be affected
favorably or unfavorably by changes in exchange rates. In order to
protect against uncertainty in the level of future foreign
currency exchange rates, the Fund is also authorized to enter into
certain foreign currency exchange transactions. Furthermore, the
Fund's foreign investments may be less liquid and their prices may
be more volatile than comparable investments in securities of U.S.
companies. The settlement periods for foreign securities, which
are often longer than those for securities of U.S. issuers, may
affect Fund liquidity. Finally, there may be less government
supervision and regulation of securities exchanges, brokers and
issuers in foreign countries than in the United States.
The Fund's investment objective is not a fundamental policy and
may be changed upon notice to, but without the approval of, the
Fund's shareholders. If there is a change in the Fund's
investment objective, the Fund's shareholders should consider
whether the Fund remains an appropriate investment in light of
their then-current needs. Shareholders of the Fund will receive
30 days prior written notice with respect to any change in the
investment objective of the Fund. See "Risk Factors and Certain
Securities and Investment Practices" in the SAI for a description
of the fundamental policies of the Fund that cannot be changed
without approval by "the vote of a majority of the outstanding
voting securities" (as defined in the Investment Company Act of
1940, as amended (the "1940 Act")) of the Fund.
For descriptions of the investment objective, policies and
restrictions of the Fund, see "The Fund in Detail" herein and
"Risk Factors and Certain Securities and Investment Practices"
herein and in the SAI. For a description of the management and
expenses of the Fund, see "Management of the Trust" herein and in
the SAI.
Short-Term Investments. The Fund may invest in certain short-term
fixed income securities. Such securities may be used to invest
uncommitted cash balances, to maintain liquidity to meet
shareholder redemptions or to serve as collateral for the
obligations underlying the Fund's investment in securities index
futures or related options or warrants. These securities include:
obligations issued or guaranteed by the U.S. Government or any of
its agencies or instrumentalities or by any of the states,
repurchase agreements, time deposits, certificates of deposit,
bankers' acceptances and commercial paper.
U.S. Government Securities are obligations of, or guaranteed by,
the U.S. Government, its agencies or instrumentalities. Some U.S.
Government securities, such as Treasury bills, notes and bonds,
are supported by the full faith and credit of the United States;
others, such as those of the Federal Home Loan Banks, are
supported by the right of the issuer to borrow from the Treasury;
others, such as those of the Federal National Mortgage
Association, are supported by the discretionary authority of the
U.S. Government to purchase the agency's obligations; and still
others, such as those of the Student Loan Marketing Association,
are supported only by the credit of the instrumentality.
Securities Lending. The Fund may lend its investment securities
to qualified institutional investors for either short-term or
long-term purposes of realizing additional income. Loans of
securities by the Fund will be collateralized by cash, letters of
credit, or securities issued or guaranteed by the U.S. Government
or its agencies. The collateral will equal at least 100% of the
current market value of the loaned securities, and such loans may
not exceed 30% of the value of the Fund's net assets. The risks
in lending portfolio securities, as with other extensions of
credit, consist of possible loss of rights in the collateral
should the borrower fail financially. In determining whether to
lend securities, Bankers Trust will consider all relevant facts
and circumstances, including the creditworthiness of the borrower.
When Issued and Delayed Delivery Securities. The Fund may purchase
securities on a when-issued or delayed delivery basis. Delivery of
and payment for these securities may take place as long as a month
or more after the date of the purchase commitment. The value of
these securities is subject to market fluctuation during this
period and no income accrues to the Fund until settlement takes
place. The Fund maintains with its custodian a segregated account
containing cash or liquid portfolio securities in an amount at
least equal to these commitments.
Derivatives
The Fund may invest in various instruments that are commonly known
as derivatives. Generally, a derivative is a financial
arrangement, the value of which is based on, or "derived" from, a
traditional security, asset, or market index. Some "derivatives"
such as mortgage-related and other asset-backed securities are in
many respects like any other investment, although they may be more
volatile or less liquid than more traditional debt securities.
There are, in fact, many different types of derivatives and many
different ways to use them. There are a range of risks associated
with those uses. Futures and options are commonly used for
traditional hedging purposes to attempt to protect the Fund from
exposure to changing interest rates, securities prices or currency
exchange rates and as a low cost method of gaining exposure to a
particular securities market without investing directly in those
securities. The Manager will only use derivatives for cash
management purposes. Derivatives will not be used to increase
portfolio risk above the level that would be achieved using only
traditional investment securities or to acquire exposure to
changes in the value of assets or indices that by themselves would
not be purchased for the Fund.
Securities Index Futures and Related Options. The Fund may enter
into securities index futures contracts and related options
provided that not more than 5% of its assets are required as a
margin deposit for futures contracts or options and provided that
not more than 20% of the Fund's assets are invested in futures and
options at any time. When the Fund has cash from new investments
in the Fund or holds a portion of its assets in money market
instruments, it may enter into index futures or options to attempt
to increase its exposure to the market. Strategies the Fund could
use to accomplish this include purchasing futures contracts,
writing put options and purchasing call options. When the Fund
wishes to sell securities, because of shareholder redemptions or
otherwise, it may use index futures or options to hedge against
market risk until the sale can be completed. These strategies
could include selling futures contracts, writing call options and
purchasing put options.
Warrants. Warrants are instruments which entitle the holder to
buy underlying equity securities at a specific price for a
specific period of time. A warrant tends to be more volatile than
its underlying securities and ceases to have value if it is not
exercised prior to its expiration date. In addition, changes in
the value of a warrant do not necessarily correspond to changes in
the value of its underlying securities.
Convertible Securities. The Fund may invest in convertible
securities which are a bond or preferred stock which may be
converted at a stated price within a specific period of time into
a specified number of shares of common stock of the same or
different issuer. Convertible securities are senior to common
stock in a corporation's capital structure, but usually are
subordinated to non-convertible debt securities. While providing a
fixed income stream -- generally higher in yield than the income
derived from a common stock but lower than that afforded by a non-
convertible debt security -- a convertible security also affords
an investor the opportunity, through its conversion feature, to
participate in the capital appreciation of common stock into which
it is convertible.
In general, the market value of a convertible security is the
higher of its investment value (its value as a fixed income
security) or its conversion value (the value of the underlying
shares of common stock if the security is converted). As a fixed
income security, the market value of a convertible security
generally increases when interest rates decline and generally
decreases when interest rates rise; however, the price of a
convertible security generally increases as the market value of
the underlying stock increases, and generally decreases as the
market value of the underlying stock declines. Investments in
convertible securities generally entail less risk than investments
in the common stock of the same issuer.
Further risks associated with the use of futures contracts,
options, warrants and convertible securities. The risk of loss
associated with futures contracts in some strategies can be
substantial due to both the low margin deposits required and the
extremely high degree of leverage involved in futures pricing. As
a result, a relatively small price movement in a futures contract
may result in an immediate and substantial loss or gain. However,
the Fund will not use futures contracts, options, warrants and
convertible securities for speculative purposes or to leverage
their net assets. Accordingly, the primary risks associated with
the use of futures contracts, options, warrants and convertible
securities by the Fund are: (i) imperfect correlation between the
change in market value of the securities held by the Fund and the
prices of futures contracts, options, warrants and convertible
securities; and (ii) possible lack of a liquid secondary market
for a futures contract and the resulting inability to close a
futures position prior to its maturity date. The risk of
imperfect correlation will be minimized by investing only in those
contracts whose behavior is expected to resemble that of the
Fund's underlying securities. The risk that the Fund will be
unable to close out a futures position will be minimized by
entering into stock transactions on an exchange with an active and
liquid secondary market. However, options, warrants and
convertible securities purchased or sold over-the-counter may be
less liquid than exchange-traded securities. Illiquid securities,
in general, may not represent more than 15% of the net assets of
the Fund.
Foreign Currency Forward, Futures and Related Options
Transactions. The Fund may enter into foreign currency forward and
foreign currency futures contracts in order to maintain the same
currency exposure as the EAFE Index. The Fund may not enter into
such contracts as a way of protecting against anticipated adverse
changes in exchange rates between foreign currencies and the U.S.
dollar. A foreign currency forward contract is an obligation to
purchase or sell a specific currency at a future date, which may
be any fixed number of days from the date of the contract agreed
upon by the parties, at a price set at the time of the contract.
Such contracts do not eliminate fluctuations in the underlying
prices of securities held by the Fund. Although such contracts
tend to minimize the risk of loss due to a decline in the value of
a currency that has been sold forward, and the risk of loss due to
an increase in the value of a currency that has been purchased
forward, at the same time they tend to limit any potential gain
that might be realized should the value of such currency increase.
Asset Coverage. To assure that futures and related options, as
well as when-issued and delayed-delivery securities, are not used
by the Fund to achieve excessive investment leverage, the Fund
will cover such transactions, as required under applicable
interpretations of the Securities and Exchange Commission (the
"SEC"), either by owning the underlying securities, entering into
an off-setting transaction, or by establishing a segregated
account with the Fund's custodian containing cash or liquid
portfolio securities in an amount at all times equal to or
exceeding the Fund's commitment with respect to these instruments
or contracts.
Portfolio Turnover
The frequency of Fund transactions - the Fund's turnover rate -
will vary from year to year depending on market conditions and the
Fund's cash flows. The Fund's annual portfolio turnover rate is
not expected to exceed 100%.
NET ASSET VALUE
The Fund is open for business on each day when both the NYSE and
the Tokyo Stock Exchange are open (each such day being a
"Valuation Day"). The net asset value per share of the Fund is
calculated once on each Valuation Day as of the close of regular
trading on the NYSE, which under normal circumstances is 4:00
p.m., New York time. The Fund will not process orders on any day
when either the NYSE or the Tokyo Stock Exchange is closed.
Orders received on such days will be priced on the next day the
Fund computes its net asset value. As such, investors may
experience a delay in purchasing or redeeming shares of the Fund.
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 0.25% of the average daily net assets
of the Fund for its then-current fiscal year.
Bankers Trust has been advised by its counsel that, in counsel's
opinion, Bankers Trust currently may perform the services for the
Trust and the Fund described in this Prospectus and the SAI
without violation of the Glass-Steagall Act or other applicable
banking laws or regulations. State laws on this issue may differ
from the interpretations of relevant Federal law, and banks and
financial institutions may be required to register as dealers
pursuant to state securities law.
Fund Manager
Richard J. Vella, Managing Director of Bankers Trust, is
responsible for the day-to-day management of the Fund. Mr. Vella
has been employed by Bankers Trust since 1985 and has ten years of
trading and investment experience.
Expenses
In addition to the fees of the Manager, the Fund is responsible
for the payment of all its other expenses incurred in the
operation of the Fund, which include, among other things, expenses
for legal and independent auditor's services, charges of the
Fund's custodian and transfer agent, SEC fees, a pro rata portion
of the fees of the Trust's unaffiliated trustees and officers,
accounting costs for reports sent to owners of the Contracts which
provide for investment in the Fund ("Contractowners"), the Fund's
pro rata portion of membership fees in trade organizations, a pro
rata portion of the fidelity bond coverage for the Trust's
officers, interest, brokerage and other trading costs, taxes, all
expenses of computing the Fund's net asset value per share,
expenses involved in registering and maintaining the registration
of the Fund's shares with the SEC and qualifying the Fund for sale
in various jurisdictions and maintaining such qualification,
litigation and other extraordinary or non-recurring expenses.
However, other typical Fund expenses such as Contractowner
servicing, distribution of reports to Contractowners and
prospectus printing and postage will be borne by the relevant
Company.
Administrator
First Data Investor Services Group, Inc. ("First Data"), a
subsidiary of First Data Corporation, One Exchange Place, Boston,
Massachusetts 02109, serves as the Fund's administrator pursuant
to an Administration Agreement with the Trust. Under the terms of
the Administration Agreement, First Data generally assists in all
aspects of the Fund's operations, other than providing investment
advice, subject to the overall authority of the Trust's Board of
Trustees. Pursuant to the terms of the Administration Agreement,
dated April 16, 1996, the Trust has agreed to pay First Data a
monthly fee at the annual rate of 0.02% of the value of the
Trust's average monthly net assets not exceeding $2 billion; 0.01%
of the Trust's monthly average net assets exceeding $2 billion but
not exceeding $3 billion and 0.0075% of the Trust's monthly
average net assets exceeding $3 billion, in addition to a flat fee
of $70,000 per year per Fund.
Distributor
440 Financial Distributors, Inc. (the "Distributor") serves as
distributor of the Fund's shares to separate accounts of the
Companies for which it receives no separate fee from the Fund.
The principal business address of the Distributor is 4400 Computer
Drive, Westborough, Massachusetts 01581.
Custodian and Transfer Agent
Bankers Trust acts as custodian of the assets of the Fund and
First Data serves as the transfer agent for the Fund.
Organization of the Trust
The Trust was organized on January 19, 1996, under the laws of the
Commonwealth of Massachusetts. The Fund is a separate series of
the Trust. The Trust offers shares of beneficial interest of the
Fund and the Trust's other series, par value $0.001 per share.
The shares of the other series of the Trust are offered through
separate Prospectuses. No series of shares has any preference
over any other series. All shares, when issued, will be fully
paid and nonassessable. The Trust's Board of Trustees has the
authority to create additional series without obtaining
shareholder approval.
The Trust is an entity of the type commonly known as a
"Massachusetts business trust." Under Massachusetts law,
shareholders of such a business trust may, under certain
circumstances, be held personally liable as partners for its
obligations. However, the risk of a shareholder incurring
financial loss on account of shareholder liability is limited to
circumstances in which both inadequate insurance existed and the
Trust itself was unable to meet its obligations.
Through its separate accounts, the Companies are the Fund's sole
stockholders of record, so under the 1940 Act, such Companies are
deemed to be in control of the Fund. Nevertheless, when a
shareholders' meeting occurs, each Company solicits and accepts
voting instructions from its Contractowners who have allocated or
transferred monies for an investment in the Fund as of the record
date of the meeting. Each Company then votes the Fund's shares
that are attributable to its Contractowners' interests in the Fund
in proportion to the voting instructions received. Each Company
will vote any share that it is entitled to vote directly due to
amounts it has contributed or accumulated in its separate accounts
in the manner described in the prospectuses for its variable
annuities and variable life insurance policies.
Each share of the Fund is entitled to one vote, and fractional
shares are entitled to fractional votes. Fund shares have non-
cumulative voting rights, so the vote of more than 50% of the
shares can elect 100% of the Trustees.
The Trust is not required, and does not intend, to hold regular
annual shareholder meetings, but may hold special meetings for
consideration of proposals requiring shareholder approval.
The Fund is only available to owners of variable annuities or
variable life insurance policies issued by the Companies through
their respective separate accounts. The Fund does not currently
foresee any disadvantages to Contractowners arising from offering
its shares to variable annuity and variable life insurance policy
separate accounts simultaneously, and the Board of Trustees
monitors events for the existence of any material irreconcilable
conflict between or among Contractowners. If a material
irreconcilable conflict arises, one or more separate accounts may
withdraw their investment in the Fund. This could possibly force
the Fund to sell portfolio securities at disadvantageous prices.
Each Company will bear the expenses of establishing separate
portfolios for its variable annuity and variable life insurance
separate accounts if such action becomes necessary; however,
ongoing expenses that are ultimately borne by Contractowners will
likely increase due to the loss of economies of scale benefits
that can be provided to mutual funds with substantial assets.
SHAREHOLDER AND ACCOUNT POLICIES
PURCHASE AND REDEMPTION OF SHARES
Shares of the Fund will be continuously offered to each Company's
separate accounts at the net asset value per share next determined
after a proper purchase request has been received by the Company.
The Company then offers to Contractowners units in its separate
accounts which directly correspond to shares in the Fund. Each
Company submits purchase and redemption orders to the Fund based
on allocation instructions for premium payments, transfer
instructions and surrender or partial withdrawal requests which
are furnished to the Company by such Contractowners.
Contractowners can send such instructions and requests to the
Companies by first class mail, overnight mail or express mail sent
to the address set forth in the relevant Company's offering
memorandum included with this prospectus. The Fund and the
Distributor reserve the right to reject any purchase order for
shares of the Fund.
Payment for redeemed shares will ordinarily be made within seven
(7) business days after the Fund receives a redemption order from
the relevant Company. The redemption price will be the net asset
value per share next determined after the Company receives the
Contractowner's request in proper form.
The Fund may suspend the right of redemption or postpone the date
of payment during any period when trading on the NYSE is
restricted, or the NYSE is closed for other than weekends and
holidays; when an emergency makes it not reasonably practicable
for the Fund to dispose of assets or calculate its net asset
value; or as permitted by the SEC.
The accompanying offering memorandum for the Company's variable
annuity or variable life insurance policy describes the
allocation, transfer and withdrawal provisions of such annuity or
policy.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Fund distributes substantially all of its net income and
capital gains to shareholders each year. The Fund distributes
capital gains and income dividends annually. All dividends and
capital gains distributions paid by the Fund will be automatically
reinvested, at net asset value, by the Companies' separate
accounts in additional shares of the Fund, unless an election is
made by a Contractowner to receive distributions in cash.
The Fund will be treated as a separate entity for federal income
tax purposes. The Fund intends to qualify as a "regulated
investment company" under the Internal Revenue Code of 1986, as
amended (the "Code"). As a regulated investment company the Fund
will not be subject to U.S. Federal income tax on its investment
company taxable income and net capital gains (the excess of net
long-term capital gains over net short-term capital losses), if
any, that it distributes to shareholders. The Fund intends to
distribute to its shareholders, at least annually, substantially
all of its investment company taxable income and net capital
gains, and therefore does not anticipate incurring a Federal
income tax liability.
The Code and Treasury Department regulations promulgated
thereunder require that mutual funds that are offered through
insurance company separate accounts must meet certain
diversification requirements to preserve the tax-deferral benefits
provided by the variable contracts which are offered in connection
with such separate accounts. The Manager intends to diversify the
Fund's investments in accordance with those requirements. The
enclosed offering memorandum for a Company's variable annuity or
variable life insurance policies describes the federal income tax
treatment of distributions from such contracts to Contractowners.
The foregoing is only a brief summary of important tax law
provisions that affect the Fund. Other Federal, state and local
tax law provisions may also affect the Fund and its operations.
Anyone who is considering allocating, transferring or withdrawing
monies held under a variable contract to or from the Fund should
consult a qualified tax adviser.
Investment Manager of the Fund
bankers trust global investment management
a unit of
bankers trust company
Administrator
first data investor services group, inc.
Distributor
440 FINANCIAL DISTRIBUTORS, INC.
Custodian
BANKERS TRUST COMPANY
Transfer Agent
first data investor services group, inc.
Independent Accountants
COOPERS & LYBRAND LLP
Counsel
WILLKIE FARR & GALLAGHER
..................................................................
.............
No person has been authorized to give any information or to make
any representation other than those contained in the Fund's
Prospectus, its Statement of Additional Information or the Fund's
official sales literature in connection with the offering of the
Fund's shares and, if given or made, such other information or
representations must not be relied on as having been authorized by
the Fund. This Prospectus does not constitute an offer in any
state in which, or to any person to whom, such offer may not
lawfully be made.
..................................................................
.............
BT insurance Fund trust
prospectus: ____________, 1996
Small Cap Index Fund
This Prospectus offers shares of the Small Cap Index Fund (the
"Fund"), a series of BT Insurance Funds Trust (the "Trust"), which
is an open-end management investment company currently having six
series. Shares of the Fund are available to the public only
through the purchase of certain variable annuity and variable life
insurance contracts ("Contract(s)") issued by various insurance
companies (the "Companies").
The Fund seeks to replicate as closely as possible the performance
of the Russell 2000 Index before the deduction of Fund expenses
(the "Expenses"). There is no assurance, however, that the Fund
will achieve its stated objective.
Bankers Trust Company ("Bankers Trust") is the investment manager
(the "Manager") of the Fund.
Please read this Prospectus carefully before investing and retain
it for future reference. It contains important information about
the Fund that you should know and can refer to in deciding whether
the Fund's goals match your own.
A Statement of Additional Information ("SAI") with the same date
has been filed with the Securities and Exchange Commission, and is
incorporated herein by reference. You may request a free copy of
the SAI by calling the Trust at the Customer Service Center at the
telephone number shown in the accompanying prospectus.
Fund shares are not deposits or obligations of, or guaranteed by,
Bankers Trust or any depository institution. Shares are not
insured by the Federal Deposit Insurance Corporation, the Federal
Reserve Board or any other agency.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
bankers trust global investment management
a unit of bankers trust company
Investment Manager of the Fund
440 financial distributors, inc.
Distributor
4400 Computer Drive
Westborough, MA 01581
TABLE OF CONTENTS
Page
THE FUND 3
Who May Want to Invest
Investment Principles and Risks
THE FUND IN DETAIL 3
Investment Objectives and Policies
Risk Factors and Certain Securities and Investment Practices
Net Asset Value
Performance Information and Reports
Management of the Trust
SHAREHOLDER AND ACCOUNT POLICIES 13
Purchase and Redemption of Shares
Dividends, Distributions and Taxes
THE FUND
The Fund seeks to replicate as closely as possible (before
deduction of Expenses) the total return of the Russell 2000 Small
Stock Index (the "Russell 2000"), an index consisting of 2,000
small-capitalization common stocks. The Fund will include the
common stock of companies included in the Russell 2000, on the
basis of computer-generated statistical data, that are deemed
representative of the industry diversification of the entire
Russell 2000.
WHO MAY WANT TO INVEST
Shares of the Fund are available to the public only through the
purchase of Contracts issued by the Companies.
The Fund is not managed according to traditional methods of
"active" investment management, which involve the buying and
selling of securities based upon economic, financial and market
analysis and investment judgment. Instead, the Fund utilizes a
"passive" or "indexing" investment approach and attempts to
replicate the investment performance of the Russell 2000 through
statistical procedures.
The Fund may be appropriate for investors who are willing to
endure stock market fluctuations in pursuit of potentially higher
long-term returns. The Fund invests for growth and does not
pursue income as a primary objective. Over time, stocks, although
more volatile, have shown greater growth potential than other
types of securities. In the shorter term, however, stock prices
can fluctuate dramatically in response to market factors.
The Fund is intended to be a long-term investment vehicle and is
not designated to provide investors with a means of speculating on
short-term market movements. The Fund is not in itself a balanced
investment plan. Investors should consider their investment
objective and tolerance for risk when making an investment
decision. When an investor sells his or her Fund shares, they may
be worth more or less than what the investor paid for them.
INVESTMENT PRINCIPLES AND RISKS
The value of the Fund's investments varies based on many factors.
Stock values fluctuate, sometimes dramatically, in response to the
activities of individual companies and general market and economic
conditions. Over time, however, stocks have shown greater long-
term growth potential than other types of securities. Lower
quality securities offer higher yields, but also carry more risk.
General economic factors in the various world markets can also
impact the value of an investors investment. When investors sell
Fund shares, they may be worth more or less than what the
investors paid for them. See "Risk Factors and Certain Securities
and Investment Practices" for more information.
THE FUND IN DETAIL
INVESTMENT OBJECTIVES AND POLICIES
The following is a discussion of the various investments of and
techniques employed by the Fund. Additional information about the
investment policies of the Fund appears in "Risk Factors and
Certain Securities and Investment Practices" in this Prospectus
and in the Fund's SAI. There can be no assurance that the
investment objective of the Fund will be achieved.
The Fund seeks to replicate as closely as possible (before
deduction of Fund expenses) the total return of the Russell 2000.
The Russell 2000 is composed of approximately 2,000 small-
capitalization common stocks. A company's stock market
capitalization is the total market value of its floating
outstanding shares. As of December 31, 1995, the average stock
market capitalization of the Russell 2000 was $280 million and the
weighted average stock market capitalization of the Russell 2000
was $540 million.
The Fund is neither sponsored by nor affiliated with the Frank
Russell Company. Frank Russell's only relationship to the Fund is
the licensing of the use of the Russell 2000. Frank Russell
Company is the owner of the trademarks and copyrights relating to
the Russell indices.
The Fund invests in a statistically selected sample of the 2,000
stocks included in the Russell 2000. The stocks of the Russell
2000 to be included in the Fund will be selected utilizing a
statistical sampling technique known as "optimization." This
process selects stocks for the Fund so that various industry
weightings, market capitalizations and fundamental characteristics
(e.g., price-to-book, price-to-earnings and debt-to-asset ratios
and dividend yields) closely approximate those of the Russell
2000. For instance, if 10% of the capitalization of the Russell
2000 consists of utility companies with relatively small
capitalizations, then the Fund is constructed so that
approximately 10% of the Fund's assets are invested in the stocks
of utility companies with relatively small capitalizations. The
stocks held by the Fund are weighted to make the Fund's aggregate
investment characteristics similar to those of the Russell 2000 as
a whole.
General
Over time, the correlation between the performance of the Fund and
the Russell 2000 is expected to be 0.95 or higher before deduction
of Fund expenses. A correlation of 1.00 would indicate perfect
correlation, which would be achieved when the net asset value of
the Fund, including the value of its dividend and any capital gain
distributions, increases or decreases in exact proportion to
changes in the Russell 2000. The Fund's ability to track the
Russell 2000 may be affected by, among other things, transaction
costs, administration and other expenses incurred by the Fund,
changes in either the composition of the Russell 2000 or the
assets of the Fund, and the timing and amount of Fund investor
contributions and withdrawals, if any. In the unlikely event that
a high correlation is not achieved, the Trust's Board of Trustees
will consider alternatives. Because the Fund seeks to track the
Russell 2000, Bankers Trust will not attempt to judge the merits
of any particular stock as an investment.
Under normal circumstances, the Fund will invest at least 80% of
its assets in the securities of the Russell 2000.
As a diversified fund, no more than 5% of the assets of the Fund
may be invested in the securities of one issuer (other than U.S.
Government Securities), except that up to 25% of the Fund's assets
may be invested without regard to this limitation. The Fund will
not invest more than 25% of its assets in the securities of
issuers in any one industry. In the unlikely event that the
Russell 2000 should concentrate to an extent greater than that
amount, the Fund's ability to achieve its objective may be
impaired. These are fundamental investment policies of the Fund
which may not be changed without shareholder approval. No more
than 15% of the Fund's net assets may be invested in illiquid or
not readily marketable securities (including repurchase agreements
and time deposits with maturities of more than seven days).
Additional investment policies of the Fund are contained in the
SAI.
The Fund may maintain up to 25% of its assets in short-term debt
securities and money market instruments to meet redemption
requests or to facilitate investment in the securities of the
Russell 2000. Securities index futures contracts and related
options, warrants and convertible securities may be used for
several reasons: to simulate full investment in the Russell 2000
while retaining a cash balance for fund management purposes, to
facilitate trading, to reduce transaction costs or to seek higher
investment returns when a futures contract, option, warrant or
convertible security is priced more attractively than the
underlying equity security or the Russell 2000. These instruments
may be considered derivatives. See "Risk Factors and Certain
Securities and Investment Practices -- Derivatives."
The use of derivatives for non-hedging purposes may be considered
speculative. While each of these securities can be used as
leveraged investments, the Fund may not use them to leverage its
net assets. The Fund will not invest in such instruments as part
of a temporary defensive strategy (in anticipation of declining
stock prices) to protect the Fund against potential market
declines.
The Fund may lend its investment securities and purchase
securities on a when-issued and a delayed delivery basis. See
"Risk Factors and Certain Securities and Investment Practices" for
more information about the investment practices of the Fund.
RISK FACTORS AND CERTAIN SECURITIES AND INVESTMENT PRACTICES
The following pages contain more detailed information about types
of instruments in which the Fund may invest and strategies Bankers
Trust may employ in pursuit of the Fund's investment objective. A
summary of risks and restrictions associated with these instrument
types and investment practices is included as well.
Bankers Trust may not buy all of these instruments or use all of
these techniques to the full extent permitted unless it believes
that doing so will help the Fund achieve its goal. Holdings and
recent investment strategies are described in the financial
reports of the Fund, which are sent to Fund shareholders on a
semi-annual and annual basis.
Market Risk
As a mutual fund investing primarily in common stocks, the Fund is
subject to market risk --- i.e., the possibility that common stock
prices will decline over short or even extended periods. The U.S.
stock market tends to be cyclical, with periods when stock prices
generally rise and periods when prices generally decline.
Risks of Investing in Medium- and Small-Capitalization Stocks
Historically, medium- and small-capitalization stocks have been
more volatile in price than the larger-capitalization stocks
included in the Standard & Poor's 500 Composite Stock Price Index.
Among the reasons for the greater price volatility of these
securities are: the less certain growth prospects of smaller
firms, the lower degree of liquidity in the markets for such
stocks, and the greater sensitivity of medium- and small-size
companies to changing economic conditions. In addition to
exhibiting greater volatility, medium- and small-size company
stocks may fluctuate independently of larger company stocks.
Medium- and small-size company stocks may decline in price as
large company stocks rise, or rise in price as large company
stocks decline.
The Fund's investment objective is not a fundamental policy and
may be changed upon notice to, but without the approval of, the
Fund's shareholders. If there is a change in the Fund's
investment objective, the Fund's shareholders should consider
whether the Fund remains an appropriate investment in light of
their then-current needs. Shareholders of the Fund will receive
30 days prior written notice with respect to any change in the
investment objective of the Fund. See "Risk Factors and Certain
Securities and Investment Practices" in the SAI for a description
of the fundamental policies of the Fund that cannot be changed
without approval by "the vote of a majority of the outstanding
voting securities" (as defined in the Investment Company Act of
1940, as amended (the "1940 Act")) of the Fund.
For descriptions of the investment objective, policies and
restrictions of the Fund, see "The Fund in Detail" herein and
"Risk Factors and Certain Securities and Investment Practices"
herein and in the SAI. For descriptions of the management and
expenses of the Fund, see "Management of the Trust" herein and in
the SAI.
Short-Term Investments. The Fund may invest in certain short-term
fixed income securities. Such securities may be used to invest
uncommitted cash balances, to maintain liquidity to meet
shareholder redemptions or to serve as collateral for the
obligations underlying the Fund's investment in securities index
futures or related options or warrants. These securities include:
obligations issued or guaranteed by the U.S. Government or any of
its agencies or instrumentalities or by any of the states,
repurchase agreements, time deposits, certificates of deposit,
bankers' acceptances and commercial paper.
U.S. Government Securities are obligations of, or guaranteed by,
the U.S. Government, its agencies or instrumentalities. Some U.S.
Government securities, such as Treasury bills, notes and bonds,
are supported by the full faith and credit of the United States;
others, such as those of the Federal Home Loan Banks, are
supported by the right of the issuer to borrow from the Treasury;
others, such as those of the Federal National Mortgage
Association, are supported by the discretionary authority of the
U.S. Government to purchase the agency's obligations; and still
others, such as those of the Student Loan Marketing Association,
are supported only by the credit of the instrumentality.
Securities Lending. The Fund may lend its investment securities
to qualified institutional investors for either short-term or
long-term purposes of realizing additional income. Loans of
securities by the Fund will be collateralized by cash, letters of
credit, or securities issued or guaranteed by the U.S. Government
or its agencies. The collateral will equal at least 100% of the
current market value of the loaned securities, and such loans may
not exceed 30% of the value of the Fund's net assets. The risks
in lending portfolio securities, as with other extensions of
credit, consist of possible loss of rights in the collateral
should the borrower fail financially. In determining whether to
lend securities, Bankers Trust will consider all relevant facts
and circumstances, including the creditworthiness of the borrower.
When Issued and Delayed Delivery Securities. The Fund may purchase
securities on a when-issued or delayed delivery basis. Delivery of
and payment for these securities may take place as long as a month
or more after the date of the purchase commitment. The value of
these securities is subject to market fluctuation during this
period and no income accrues to the Fund until settlement takes
place. The Fund maintains with its custodian a segregated account
containing cash or liquid portfolio securities in an amount at
least equal to these commitments.
Derivatives
The Fund may invest in various instruments that are commonly known
as derivatives. Generally, a derivative is a financial
arrangement, the value of which is based on, or "derived" from, a
traditional security, asset, or market index. Some "derivatives"
such as mortgage-related and other asset-backed securities are in
many respects like any other investment, although they may be more
volatile or less liquid than more traditional debt securities.
There are, in fact, many different types of derivatives and many
different ways to use them. There are a range of risks associated
with those uses. Futures and options are commonly used for
traditional hedging purposes to attempt to protect the Fund from
exposure to changing interest rates, securities prices or currency
exchange rates and as a low cost method of gaining exposure to a
particular securities market without investing directly in those
securities. The Manager will only use derivatives for cash
management purposes. Derivatives will not be used to increase
portfolio risk above the level that would be achieved using only
traditional investment securities or to acquire exposure to
changes in the value of assets or indices that by themselves would
not be purchased for the Fund.
Securities Index Futures and Related Options. The Fund may enter
into securities index futures contracts and related options
provided that not more than 5% of its assets are required as a
margin deposit for futures contracts or options and provided that
not more than 20% of the Fund's assets are invested in futures and
options at any time. When the Fund has cash from new investments
in the Fund or holds a portion of its assets in money market
instruments, it may enter into index futures or options to attempt
to increase its exposure to the market. Strategies the Fund could
use to accomplish this include purchasing futures contracts,
writing put options and purchasing call options. When the Fund
wishes to sell securities, because of shareholder redemptions or
otherwise, it may use index futures or options to hedge against
market risk until the sale can be completed. These strategies
could include selling futures contracts, writing call options and
purchasing put options.
Warrants. Warrants are instruments which entitle the holder to
buy underlying equity securities at a specific price for a
specific period of time. A warrant tends to be more volatile than
its underlying securities and ceases to have value if it is not
exercised prior to its expiration date. In addition, changes in
the value of a warrant do not necessarily correspond to changes in
the value of its underlying securities.
Convertible Securities. The Fund may invest in convertible
securities which are a bond or preferred stock which may be
converted at a stated price within a specific period of time into
a specified number of shares of common stock of the same or
different issuer. Convertible securities are senior to common
stock in a corporation's capital structure, but usually are
subordinated to non-convertible debt securities. While providing a
fixed income stream -- generally higher in yield than the income
derived from a common stock but lower than that afforded by a non-
convertible debt security -- a convertible security also affords
an investor the opportunity, through its conversion feature, to
participate in the capital appreciation of common stock into which
it is convertible.
In general, the market value of a convertible security is the
higher of its investment value (its value as a fixed income
security) or its conversion value (the value of the underlying
shares of common stock if the security is converted). As a fixed
income security, the market value of a convertible security
generally increases when interest rates decline and generally
decreases when interest rates rise; however, the price of a
convertible security generally increases as the market value of
the underlying stock increases, and generally decreases as the
market value of the underlying stock declines. Investments in
convertible securities generally entail less risk than investments
in the common stock of the same issuer.
Further risks associated with the use of futures contracts,
options, warrants and convertible securities. The risk of loss
associated with futures contracts in some strategies can be
substantial due to both the low margin deposits required and the
extremely high degree of leverage involved in futures pricing. As
a result, a relatively small price movement in a futures contract
may result in an immediate and substantial loss or gain. However,
the Fund will not use futures contracts, options, warrants and
convertible securities for speculative purposes or to leverage
their net assets. Accordingly, the primary risks associated with
the use of futures contracts, options, warrants and convertible
securities by the Fund are: (i) imperfect correlation between the
change in market value of the securities held by the Fund and the
prices of futures contracts, options, warrants and convertible
securities; and (ii) possible lack of a liquid secondary market
for a futures contract and the resulting inability to close a
futures position prior to its maturity date. The risk of
imperfect correlation will be minimized by investing only in those
contracts whose behavior is expected to resemble that of the
Fund's underlying securities. The risk that the Fund will be
unable to close out a futures position will be minimized by
entering into stock transactions on an exchange with an active and
liquid secondary market. However, options, warrants and
convertible securities purchased or sold over-the-counter may be
less liquid than exchange-traded securities. Illiquid securities,
in general, may not represent more than 15% of the net assets of
the Fund.
Asset Coverage. To assure that futures and related options, as
well as when-issued and delayed-delivery securities, are not used
by the Fund to achieve excessive investment leverage, the Fund
will cover such transactions, as required under applicable
interpretations of the Securities and Exchange Commission (the
"SEC"), either by owning the underlying securities, entering into
an off-setting transaction, or by establishing a segregated
account with the Fund's custodian containing cash or liquid
portfolio securities in an amount at all times equal to or
exceeding the Fund's commitment with respect to these instruments
or contracts.
Portfolio Turnover
The frequency of Fund transactions - the Fund's turnover rate -
will vary from year to year depending on market conditions and the
Fund's cash flows. The Fund's annual portfolio turnover rate is
not expected to exceed 100%.
NET ASSET VALUE
The Fund is open for business each day the NYSE is open (each such
day being a "Valuation Day"). The NYSE is currently open on each
day, Monday through Friday, except: (a) January 1st, Presidents'
Day (the third Monday in February), Good Friday, Memorial Day (the
last Monday in May), July 4th, Labor Day (the first Monday in
September), Thanksgiving Day (the last Thursday in November) and
December 25th; and (b) the preceding Friday or the subsequent
Monday when one of the calendar-determined holidays falls on a
Saturday or Sunday, respectively.
The net asset value per share of the Fund is calculated once on
each Valuation Day as of the close of regular trading on the NYSE,
which under normal circumstances is 4:00 p.m., New York time. The
net asset value per share of the Fund is computed by dividing the
value of the Fund's assets, less all liabilities, by the total
number of its shares outstanding. The Fund's securities and other
assets are valued primarily on the basis of market quotations or,
if quotations are not readily available, by a method which the
Fund's Board of Trustees believes accurately reflects fair value.
PERFORMANCE INFORMATION AND REPORTS
The Fund's performance may be used from time to time in
advertisements, shareholder reports or other communications to
existing or prospective owners of the Companies' variable
contracts. When performance information is provided in
advertisements, it will include the effect of all charges deducted
under the terms of the specified contract, as well as all
recurring and non-recurring charges incurred by the Fund.
Performance information may include the Fund's investment results
and/or comparisons of its investment results to the Lipper
International Average or other various unmanaged indices or
results of other mutual funds or investment or savings vehicles.
The Fund's investment results as used in such communications will
be calculated on a total rate of return basis in the manner set
forth below. From time to time, fund rankings may be quoted from
various sources, such as Lipper Analytical Services, Inc., Value
Line and Morningstar Inc.
The Trust may provide period and average annualized "total return"
quotations for the Fund. The Fund's "total return" refers to the
change in the value of an investment in the Fund over a stated
period based on any change in net asset value per share and
including the value of any shares purchasable with any dividends
or capital gains distributed during such period. Period total
return may be annualized. An annualized total return is a
compounded total return which assumes that the period total return
is generated over a one-year period, and that all dividends and
capital gain distributions are reinvested. An annualized total
return will be higher than a period total return if the period is
shorter than one year, because of the compounding effect.
Unlike some bank deposits or other investments which pay a fixed
yield for a stated period of time, the total return of the Fund
will vary depending upon interest rates, the current market value
of the securities held by the Fund and changes in the Fund's
expenses. In addition, during certain periods for which total
return quotations may be provided, Bankers Trust and/or the
Trust's other service providers may have voluntarily agreed to
waive portions of their respective fees, or reimburse certain
operating expenses of the Fund, on a month-to-month basis. Such
waivers will have the effect of increasing the Fund's net income
(and therefore its total return) during the period such waivers
are in effect.
Total returns are based on past results and are not an indication
of future performance.
Shareholders will receive unaudited financial reports semiannually
that include the Fund's financial statements, including listings
of investment securities held by the Fund at those dates. Annual
reports are audited by independent accountants.
MANAGEMENT OF THE TRUST
Board of Trustees
The affairs of the Fund are managed under the supervision of the
Board of Trustees of the Trust, of which the Fund is a series. By
virtue of the responsibilities assumed by Bankers Trust, neither
the Trust nor the Fund require employees other than the Trust's
officers. None of the Trust's officers devotes full time to the
affairs of the Trust or the Fund.
For more information with respect to the Trustees of the Trust,
see "Management of the Trust" in the Statement of Additional
Information.
Investment Manager
The Fund has retained the services of Bankers Trust Global
Investment Management, a unit of Bankers Trust, as investment
manager. Bankers Trust, a New York banking corporation with
executive offices at 280 Park Avenue, New York, New York 10017,
is a wholly-owned subsidiary of Bankers Trust New York
Corporation. Bankers Trust conducts a variety of general banking
and trust activities and is a major wholesaler supplier of
financial services to the international and domestic institutional
markets.
As of June 30, 1996, Bankers Trust New York Corporation was the
seventh largest bank holding company in the United States with
total assets of approximately $115 billion. Bankers Trust is a
worldwide merchant bank dedicated to servicing the needs of
corporations, governments, financial institutions and private
clients through a global network of over 120 offices in more than
40 countries. Investment management is a core business of Bankers
Trust, built on a tradition of excellence from its roots as a
trust bank founded in 1903. The scope of Bankers Trust's
investment management capability is unique due to its leadership
positions in both active and passive quantitative management and
its presence in major equity and fixed income markets around the
world. Bankers Trust is one of the nation's largest and most
experienced investment managers with approximately $215 billion in
assets under management globally.
Bankers Trust has more than 50 years of experience managing
retirement assets for the nation's largest corporations and
institutions. Now, the Trust brings Bankers Trust's extensive
investment management expertise - once available to only the
largest institutions in the U.S. - to individual investors.
Bankers Trust's officers have had extensive experience in managing
investment portfolios having objectives similar to those of the
Fund.
Bankers Trust, subject to the supervision and direction of the
Board of Trustees, manages the Fund in accordance with the Fund's
investment objective and stated investment policies, makes
investment decisions for the Fund, places orders to purchase and
sell securities and other financial instruments on behalf of the
Fund, employs professional investment managers and securities
analysts who provide research services to the Fund, oversees the
administration of all aspects of the Trust's business and affairs
and supervises the performance of professional services provided
by other vendors. Bankers Trust may utilize the expertise of any
of its world wide subsidiaries and affiliates to assist it in its
role as investment manager. All orders for investment
transactions on behalf of the Fund are placed by Bankers Trust
with broker-dealers and other financial intermediaries that it
selects, including those affiliated with Bankers Trust. A Bankers
Trust affiliate will be used in connection with a purchase or sale
of an investment for the Fund only if Bankers Trust believes that
the affiliate's charge for the transaction does not exceed usual
and customary levels. The Fund will not invest in obligations for
which Bankers Trust or any of its affiliates is the ultimate
obligor or accepting bank. The Fund may, however, invest in the
obligations of correspondents and customers of Bankers Trust.
As compensation for its services to the Fund, Bankers Trust
receives a fee from the Fund, accrued daily and paid monthly,
equal on an annual basis to 0.15% of the average daily net assets
of the Fund for its then-current fiscal year.
Bankers Trust has been advised by its counsel that, in counsel's
opinion, Bankers Trust currently may perform the services for the
Trust and the Fund described in this Prospectus and the SAI
without violation of the Glass-Steagall Act or other applicable
banking laws or regulations. State laws on this issue may differ
from the interpretations of relevant Federal law, and banks and
financial institutions may be required to register as dealers
pursuant to state securities law.
Fund Manager
Frank Salerno, Managing Director of Bankers Trust, is responsible
for the day-to-day management of the Fund. Mr. Salerno oversees
administration, management and trading of international and
domestic equity index strategies. He has been employed by Bankers
Trust since 1981.
Expenses
In addition to the fees of the Manager, the Fund is responsible
for the payment of all its other expenses incurred in the
operation of the Fund, which include, among other things, expenses
for legal and independent auditor's services, charges of the
Fund's custodian and transfer agent, SEC fees, a pro rata portion
of the fees of the Trust's unaffiliated trustees and officers,
accounting costs for reports sent to owners of the Contracts which
provide for investment in the Fund ("Contractowners"), the Fund's
pro rata portion of membership fees in trade organizations, a pro
rata portion of the fidelity bond coverage for the Trust's
officers, interest, brokerage and other trading costs, taxes, all
expenses of computing the Fund's net asset value per share,
expenses involved in registering and maintaining the registration
of the Fund's shares with the SEC and qualifying the Fund for sale
in various jurisdictions and maintaining such qualification,
litigation and other extraordinary or non-recurring expenses.
However, other typical Fund expenses such as Contractowner
servicing, distribution of reports to Contractowners and
prospectus printing and postage will be borne by the relevant
Company.
Administrator
First Data Investor Services Group, Inc. ("First Data"), a
subsidiary of First Data Corporation, One Exchange Place, Boston,
Massachusetts 02109, serves as the Fund's administrator pursuant
to an Administration Agreement with the Trust. Under the terms of
the Administration Agreement, First Data generally assists in all
aspects of the Fund's operations, other than providing investment
advice, subject to the overall authority of the Trust's Board of
Trustees. Pursuant to the terms of the Administration Agreement,
dated April 16, 1996, the Trust has agreed to pay First Data a
monthly fee at the annual rate of 0.02% of the value of the
Trust's average monthly net assets not exceeding $2 billion; 0.01%
of the Trust's monthly average net assets exceeding $2 billion but
not exceeding $3 billion; and 0.0075% of the Trust's monthly
average net assets exceeding $3 billion, in addition to a flat fee
of $70,000 per year per Fund.
Distributor
440 Financial Distributors, Inc. (the "Distributor") serves as
distributor of the Fund's shares to separate accounts of the
Companies for which it receives no separate fee from the Fund.
The principal business address of the Distributor is 4400 Computer
Drive, Westborough, Massachusetts 01581.
Custodian and Transfer Agent
Bankers Trust acts as custodian of the assets of the Fund and
First Data serves as the transfer agent for the Fund.
Organization of the Trust
The Trust was organized on January 19, 1996, under the laws of the
Commonwealth of Massachusetts. The Fund is a separate series of
the Trust. The Trust offers shares of beneficial interest of the
Fund and the Trust's other series, par value $0.001 per share.
The shares of each of the other series of the Trust are offered
through separate Prospectuses. No series of shares has any
preference over any other series. All shares, when issued, will
be fully paid and nonassessable. The Trust's Board of Trustees
has the authority to create additional series without obtaining
shareholder approval.
The Trust is an entity of the type commonly known as a
"Massachusetts business trust." Under Massachusetts law,
shareholders of such a business trust may, under certain
circumstances, be held personally liable as partners for its
obligations. However, the risk of a shareholder incurring
financial loss on account of shareholder liability is limited to
circumstances in which both inadequate insurance existed and the
Trust itself was unable to meet its obligations.
Through its separate accounts, the Companies are the Fund's sole
stockholders of record, so under the 1940 Act, such Companies are
deemed to be in control of the Fund. Nevertheless, when a
shareholders' meeting occurs, each Company solicits and accepts
voting instructions from its Contractowners who have allocated or
transferred monies for an investment in the Fund as of the record
date of the meeting. Each Company then votes the Fund's shares
that are attributable to its Contractowners' interests in the Fund
in proportion to the voting instructions received. Each Company
will vote any share that it is entitled to vote directly due to
amounts it has contributed or accumulated in its separate accounts
in the manner described in the prospectuses for its variable
annuities and variable life insurance policies.
Each share of the Fund is entitled to one vote, and fractional
shares are entitled to fractional votes. Fund shares have non-
cumulative voting rights, so the vote of more than 50% of the
shares can elect 100% of the Trustees.
The Trust is not required, and does not intend, to hold regular
annual shareholder meetings, but may hold special meetings for
consideration of proposals requiring shareholder approval.
The Fund is only available to owners of variable annuities or
variable life insurance policies issued by the Companies through
their respective separate accounts. The Fund does not currently
foresee any disadvantages to Contractowners arising from offering
its shares to variable annuity and variable life insurance policy
separate accounts simultaneously, and the Board of Trustees
monitors events for the existence of any material irreconcilable
conflict between or among Contractowners. If a material
irreconcilable conflict arises, one or more separate accounts may
withdraw their investment in the Fund. This could possibly force
the Fund to sell portfolio securities at disadvantageous prices.
Each Company will bear the expenses of establishing separate
portfolios for its variable annuity and variable life insurance
separate accounts if such action becomes necessary; however,
ongoing expenses that are ultimately borne by Contractowners will
likely increase due to the loss of economies of scale benefits
that can be provided to mutual funds with substantial assets.
SHAREHOLDER AND ACCOUNT POLICIES
PURCHASE AND REDEMPTION OF SHARES
Shares of the Fund will be continuously offered to each Company's
separate accounts at the net asset value per share next determined
after a proper purchase request has been received by the Company.
The Company then offers to Contractowners units in its separate
accounts which directly correspond to shares in the Fund. Each
Company submits purchase and redemption orders to the Fund based
on allocation instructions for premium payments, transfer
instructions and surrender or partial withdrawal requests which
are furnished to the Company by such Contractowners.
Contractowners can send such instructions and requests to the
Companies by first class mail, overnight mail or express mail sent
to the address set forth in the relevant Company's offering
memorandum included with this prospectus. The Fund and the
Distributor reserve the right to reject any purchase order for
shares of the Fund.
Payment for redeemed shares will ordinarily be made within seven
(7) business days after the Fund receives a redemption order from
the relevant Company. The redemption price will be the net asset
value per share next determined after the Company receives the
Contractowner's request in proper form.
The Fund may suspend the right of redemption or postpone the date
of payment during any period when trading on the NYSE is
restricted, or the NYSE is closed for other than weekends and
holidays; when an emergency makes it not reasonably practicable
for the Fund to dispose of assets or calculate its net asset
value; or as permitted by the SEC.
The accompanying offering memorandum for the Company's variable
annuity or variable life insurance policy describes the
allocation, transfer and withdrawal provisions of such annuity or
policy.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Fund distributes substantially all of its net income and
capital gains to shareholders each year. The Fund distributes
capital gains and income dividends annually. All dividends and
capital gains distributions paid by the Fund will be automatically
reinvested, at net asset value, by the Companies' separate
accounts in additional shares of the Fund, unless an election is
made by a Contractowner to receive distributions in cash.
The Fund will be treated as a separate entity for federal income
tax purposes. The Fund intends to qualify as a "regulated
investment company" under the Internal Revenue Code of 1986, as
amended (the "Code"). As a regulated investment company the Fund
will not be subject to U.S. Federal income tax on its investment
company taxable income and net capital gains (the excess of net
long-term capital gains over net short-term capital losses), if
any, that it distributes to shareholders. The Fund intends to
distribute to its shareholders, at least annually, substantially
all of its investment company taxable income and net capital
gains, and therefore does not anticipate incurring a Federal
income tax liability.
The Code and Treasury Department regulations promulgated
thereunder require that mutual funds that are offered through
insurance company separate accounts must meet certain
diversification requirements to preserve the tax-deferral benefits
provided by the variable contracts which are offered in connection
with such separate accounts. The Manager intends to diversify the
Fund's investments in accordance with those requirements. The
enclosed offering memorandum for a Company's variable annuity or
variable life insurance policies describes the federal income tax
treatment of distributions from such contracts to Contractowners.
The foregoing is only a brief summary of important tax law
provisions that affect the Fund. Other Federal, state or local
tax law provisions may also affect the Fund and its operations.
Anyone who is considering allocating, transferring or withdrawing
monies held under a variable contract to or from the Fund should
consult a qualified tax adviser.
Investment Manager of the Fund
bankers trust global investment management
a unit of
bankers trust company
Administrator
first data investor services group, inc.
Distributor
440 FINANCIAL DISTRIBUTORS, INC.
Custodian
BANKERS TRUST COMPANY
Transfer Agent
first data investor services group, inc.
Independent Accountants
COOPERS & LYBRAND LLP
Counsel
WILLKIE FARR & GALLAGHER
..................................................................
.............
No person has been authorized to give any information or to make
any representation other than those contained in the Fund's
Prospectus, its Statement of Additional Information or the Fund's
official sales literature in connection with the offering of the
Fund's shares and, if given or made, such other information or
representations must not be relied on as having been authorized by
the Fund. This Prospectus does not constitute an offer in any
state in which, or to any person to whom, such offer may not
lawfully be made.
..................................................................
.............
BT insurance funds trust
prospectus: ____________, 1996
Equity 500 Index Fund
This Prospectus offers shares of the Equity 500 Index Fund (the
"Fund"). The Fund is a series of BT Insurance Funds Trust (the
"Trust"), which is an open-end management investment company
currently having six series. Shares of the Fund are available to
the public only through the purchase of certain variable annuity
and variable life insurance contracts ("Contract(s)") issued by
various insurance companies (the "Companies").
The Fund seeks to replicate as closely as possible the performance
of the Standard & Poor's 500 Composite Stock Price Index before
the deduction of Fund expenses (the "Expenses"). There is no
assurance, however, that the Fund will achieve its stated
objective.
Bankers Trust Company ("Bankers Trust") is the investment manager
(the "Manager") of the Fund.
Please read this Prospectus carefully before investing and retain
it for future reference. It contains important information about
the Fund that you should know and can refer to in deciding whether
the Fund's goals match your own.
A Statement of Additional Information ("SAI") with the same date
has been filed with the Securities and Exchange Commission, and is
incorporated herein by reference. You may request a free copy of
the SAI by calling the Trust at the Customer Service Center at the
telephone number shown in the accompanying prospectus.
Fund shares are not deposits or obligations of, or guaranteed by,
Bankers Trust or any depository institution. Shares are not
insured by the Federal Deposit Insurance Corporation, the Federal
Reserve Board or any other agency.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
bankers trust global investment management
a unit of bankers trust company
Investment Manager of the Fund
440 financial distributors, inc.
Distributor
4400 Computer Drive
Westborough, MA 01581
TABLE OF CONTENTS
Page
THE FUND 3
Who May Want to Invest
Investment Principles and Risks
THE FUND IN DETAIL 4
Investment Objectives and Policies
Risk Factors and Certain Securities and Investment Practices
Net Asset Value
Performance Information and Reports
Management of the Trust
SHAREHOLDER AND ACCOUNT POLICIES 13
Purchase and Redemption of Shares
Dividends, Distributions and Taxes
THE FUND
The Fund seeks to replicate as closely as possible (before
deduction of Expenses) the total return of the Standard & Poor's
500 Composite Stock Price Index (the "S&P 500"), an index
emphasizing large-capitalization stocks. The Fund will include
the common stock of those companies included in the S&P 500, other
than Bankers Trust New York Corporation, selected on the basis of
computer generated statistical data, that are deemed
representative of the industry diversification of the entire S&P
500.
WHO MAY WANT TO INVEST
Shares of the Fund are available to the public only through the
purchase of Contracts issued by the Companies.
The Fund is not managed according to traditional methods of
"active" investment management, which involve the buying and
selling of securities based upon economic, financial and market
analysis and investment judgment. Instead, the Fund utilizes a
"passive" or "indexing" investment approach and attempts to
replicate the investment performance of the Russell 2000 through
statistical procedures.
The Fund may be appropriate for investors who are willing to
endure stock market fluctuations in pursuit of potentially higher
long-term returns. The Fund invests for growth and does not
pursue income. Over time, stocks, although more volatile, have
shown greater growth potential than other types of securities. In
the shorter term, however, stock prices can fluctuate dramatically
in response to market factors.
The Fund is intended to be a long-term investment vehicle and is
not designated to provide investors with a means of speculating on
short-term market movements. The Fund is not in itself a balanced
investment plan. Investors should consider their investment
objective and tolerance for risk when making an investment
decision. When an investor sells his or her Fund shares, they may
be worth more or less than what the investor paid for them.
INVESTMENT PRINCIPLES AND RISKS
The Fund's investments vary based on many factors. Stock values
fluctuate, sometimes dramatically, in response to the activities
of individual companies and general market and economic
conditions. Over time, however, stocks have shown greater long-
term growth potential than other types of securities. Lower
quality securities offer higher yields, but also carry more risk.
General economic factors in the various world markets can also
impact the value of an investors investment. When investors sell
Fund shares, they may be worth more or less than what the
investors paid for them. See "Risk Factors and Certain Securities
and Investment Practices" for more information.
THE FUND IN DETAIL
INVESTMENT OBJECTIVES AND POLICIES
The following is a discussion of the various investments of and
techniques employed by the Fund. Additional information about the
investment policies of the Fund appears in "Risk Factors and
Certain Securities and Investment Practices" herein and in the
Fund's SAI. There can be no assurance that the investment
objective of the Fund will be achieved.
The Fund seeks to replicate as closely as possible (before
deduction of Expenses) the total return of the S&P 500.
The S&P 500 is an index of 500 common stocks, most of which trade
on the New York Stock Exchange Inc. (the "NYSE"). Bankers Trust
believes that the S&P 500 is representative of the performance of
publicly traded common stocks in the U.S. in general.
In seeking to replicate the performance of the S&P 500, before
deduction of Expenses, Bankers Trust will attempt over time to
allocate the Fund's investment among common stocks in
approximately the same proportions as they are represented in the
S&P 500, beginning with the heaviest weighted stocks that make up
a larger portion of the Index's value.
The Manager utilizes a two-stage sampling approach in seeking to
obtain its objective. Stage one, which encompasses large
capitalization stocks, maintains the stock holdings at or near
their benchmark weights. Large capitalization stocks are defined
as those securities which represent 0.10% or more of the S&P 500.
In stage two, smaller stocks are analyzed and selected using risk
characteristics and industry weights in order to match the sector
and risk characteristics of the smaller companies in the S&P 500.
This approach helps to maximize Fund liquidity while minimizing
costs.
Bankers Trust generally will seek to match the composition of the
S&P 500 but usually will not invest the Fund's stock portfolio to
mirror the S&P 500 exactly. Because of the difficulty and cost of
executing relatively small stock transactions, the Fund may not
always be invested in the less heavily weighted S&P 500 stocks,
and may at times have its portfolio weighted differently than the
S&P 500, particularly if the Fund has a low level of assets. In
addition, the Fund may omit or remove any S&P 500 stock from the
Fund if, following objective criteria, Bankers Trust judges the
stock to be insufficiently liquid or believes the merit of the
investment has been substantially impaired by extraordinary events
or financial conditions. Bankers Trust will not purchase the
stock of Bankers Trust New York Corporation, which is included in
the S&P 500, and instead will overweight its holdings of companies
engaged in similar businesses.
About the S&P 500. The S&P 500 is composed of 500 common stocks,
which are chosen by Standard & Poor's Corporation ("S&P") on a
statistical basis to be included in the S&P 500. The inclusion of
a stock in the S&P 500 in no way implies that S&P believes the
stock to be an attractive investment. The 500 securities, most of
which trade on the NYSE, represented, as of March 31, 1996,
approximately 79.7% of the market value of all U.S. common stocks.
Each stock in the S&P 500 is weighted by its market value.
Bankers Trust believes that the performance of the S&P 500 is
representative of the performance of publicly traded common stocks
in general. The composition of the S&P 500 is determined by S&P
and is based on such factors as the market capitalization and
trading activity of each stock and its adequacy as a
representation of stocks in a particular industry group, and may
be changed from time to time.
The Fund is not sponsored, endorsed, sold or promoted by S&P. S&P
makes no representation or warranty, express or implied, to the
shareholders of the Fund or any member of the public regarding the
advisability of investing in securities generally or in the Fund
particularly or the ability of the S&P 500 to track general stock
market performance.
S&P does not guarantee the accuracy and/or the completeness of the
S&P 500 or any data included therein.
S&P makes no warranty, express or implied, as to the results to be
obtained by the Fund, owners of the Fund, or any other person or
entity from the use of the S&P 500 or any data included therein.
S&P makes no express or implied warranties and hereby expressly
disclaims all such warranties of merchantability or fitness for a
particular purpose or use with respect to the S&P 500 or any data
included therein.
For more information about the performance of the S&P 500, see the
SAI.
General
Over time, the correlation between the performance of the Fund and
the S&P 500 is expected to be 0.95 or higher before deduction of
Fund expenses. A correlation of 1.00 would indicate perfect
correlation, which would be achieved when the net asset value of
the Fund, including the value of its dividend and any capital gain
distributions, increases or decreases in exact proportion to
changes in the S&P 500. The Fund's ability to track the S&P 500
may be affected by, among other things, transaction costs,
administration and other expenses incurred by the Fund, changes in
either the composition of the S&P 500 or the assets of the Fund,
and the timing and amount of Fund investor contributions and
withdrawals, if any. In the unlikely event that a high
correlation is not achieved, the Trust's Board of Trustees will
consider alternatives. Because the Fund seeks to track the S&P
500, Bankers Trust will not attempt to judge the merits of any
particular stock as an investment.
Under normal circumstances, the Fund will invest at least 80% of
its assets in the securities of the S&P 500.
As a diversified fund, no more than 5% of the assets of the Fund
may be invested in the securities of one issuer (other than U.S.
Government Securities), except that up to 25% of the Fund's assets
may be invested without regard to this limitation. The Fund will
not invest more than 25% of its assets in the securities of
issuers in any one industry. In the unlikely event that the S&P
500 should concentrate to an extent greater than that amount, the
Funds ability to achieve its objective may be impaired. These
are fundamental investment policies of the Fund which may not be
changed without shareholder approval. No more than 15% of the
Fund's net assets may be invested in illiquid or not readily
marketable securities (including repurchase agreements and time
deposits with maturities of more than seven days). Additional
investment policies of the Fund are contained in the SAI.
The Fund may maintain up to 25% of its assets in short-term debt
securities and money market instruments to meet redemption
requests or to facilitate investment in the securities of the S&P
500. Securities index futures contracts and related options,
warrants and convertible securities may be used for several
reasons: to simulate full investment in the S&P 500 while
retaining a cash balance for fund management purposes, to
facilitate trading, to reduce transaction costs or to seek higher
investment returns when a futures contract, option, warrant or
convertible security is priced more attractively than the
underlying equity security or S&P 500. These instruments may be
considered derivatives. See "Risk Factors and Certain Securities
and Investment Practices -- Derivatives."
The use of derivatives for non-hedging purposes may be considered
speculative. While each of these securities can be used as
leveraged investments, the Fund may not use them to leverage its
net assets. No Fund will invest in such instruments as part of a
temporary defensive strategy (in anticipation of declining stock
prices) to protect the Fund against potential market declines.
The Fund may lend its investment securities and purchase
securities on a when-issued and a delayed delivery basis. See
"Risk Factors and Certain Securities and Investment Practices" for
more information about the investment practices of the Fund.
RISK FACTORS AND CERTAIN SECURITIES AND INVESTMENT PRACTICES
The following pages contain more detailed information about types
of instruments in which the Fund may invest and strategies Bankers
Trust may employ in pursuit of the Fund's investment objective. A
summary of risks and restrictions associated with these instrument
types and investment practices is included as well.
Bankers Trust may not buy all of these instruments or use all of
these techniques to the full extent permitted unless it believes
that doing so will help the Fund achieve its goal. Holdings and
recent investment strategies are described in the financial
reports of the Fund, which are sent to Fund shareholders on a
semi-annual and annual basis.
Market Risk
As a mutual fund investing primarily in common stocks, the Fund is
subject to market risk --- i.e., the possibility that common stock
prices will decline over short or even extended periods. The U.S.
stock market tends to be cyclical, with periods when stock prices
generally rise and periods when prices generally decline.
The Fund's investment objective is not a fundamental policy and
may be changed upon notice to, but without the approval of, the
Fund's shareholders. If there is a change in the Fund's
investment objective, the Fund's shareholders should consider
whether the Fund remains an appropriate investment in light of
their then-current needs. Shareholders of the Fund will receive
30 days prior written notice with respect to any change in the
investment objective of the Fund. See "Risk Factors and Certain
Securities and Investment Practices" in the SAI for a description
of the fundamental policies of the Fund that cannot be changed
without approval by "the vote of a majority of the outstanding
voting securities" (as defined in the Investment Company Act of
1940, as amended (the "1940 Act")) of the Fund.
For descriptions of the investment objective, policies and
restrictions of the Fund, see "The Fund in Detail" herein and
"Risk Factors and Certain Securities and Investment Practices"
herein and in the SAI. For descriptions of the management and
expenses of the Fund, see "Management of the Trust" herein and in
the SAI.
Short-Term Investments. The Fund may invest in certain short-term
fixed income securities. Such securities may be used to invest
uncommitted cash balances, to maintain liquidity to meet
shareholder redemptions or to serve as collateral for the
obligations underlying the Fund's investment in securities index
futures or related options or warrants. These securities include:
obligations issued or guaranteed by the U.S. Government or any of
its agencies or instrumentalities or by any of the states,
repurchase agreements, time deposits, certificates of deposit,
bankers' acceptances and commercial paper.
U.S. Government Securities are obligations of, or guaranteed by,
the U.S. Government, its agencies or instrumentalities. Some U.S.
Government securities, such as Treasury bills, notes and bonds,
are supported by the full faith and credit of the United States;
others, such as those of the Federal Home Loan Banks, are
supported by the right of the issuer to borrow from the Treasury;
others, such as those of the Federal National Mortgage
Association, are supported by the discretionary authority of the
U.S. Government to purchase the agency's obligations; and still
others, such as those of the Student Loan Marketing Association,
are supported only by the credit of the instrumentality.
Securities Lending. The Fund is permitted to lend up to 30% of
the total value of its securities. These loans must be secured
continuously by cash or equivalent collateral or by a letter of
credit at least equal to the market value of the securities loaned
plus accrued income. By lending its securities, the Fund can
increase its income by continuing to receive income on the loaned
securities as well as by the opportunity to receive interest on
the collateral Any gain or loss in the market price of the
borrowed securities which occurs during the term of the loan
inures to the Fund and its investors. In lending securities to
brokers, dealers and other organizations, the Fund is subject to
risks which, like those associated with other extensions of
credit, include delays in recovery and possible loss of rights in
the collateral should the borrower fail financially.
When Issued and Delayed Delivery Securities. The Fund may purchase
securities on a when-issued or delayed delivery basis. Delivery of
and payment for these securities may take place as long as a month
or more after the date of the purchase commitment. The value of
these securities is subject to market fluctuation during this
period and no income accrues to the Fund until settlement takes
place. The Fund maintains with its custodian a segregated account
containing cash or liquid portfolio securities in an amount at
least equal to these commitments.
Derivatives
The Fund may invest in various instruments that are commonly known
as derivatives. Generally, a derivative is a financial
arrangement, the value of which is based on, or "derived" from, a
traditional security, asset, or market index. Some "derivatives"
such as mortgage-related and other asset-backed securities are in
many respects like any other investment, although they may be more
volatile or less liquid than more traditional debt securities.
There are, in fact, many different types of derivatives and many
different ways to use them. There are a range of risks associated
with those uses. Futures and options are commonly used for
traditional hedging purposes to attempt to protect a fund from
exposure to changing interest rates, securities prices or currency
exchange rates and as a low cost method of gaining exposure to a
particular securities market without investing directly in those
securities. The Manager will only use derivatives for cash
management purposes. Derivatives will not be used to increase
portfolio risk above the level that would be achieved using only
traditional investment securities or to acquire exposure to
changes in the value of assets or indices that by themselves would
not be purchased for the Fund.
Securities Index Futures and Related Options. The Fund may enter
into securities index futures contracts and related options
provided that not more than 5% of its assets are required as a
margin deposit for futures contracts or options and provided that
not more than 20% of the Fund's assets are invested in futures and
options at any time. When the Fund has cash from new investments
in the Fund or holds a portion of its assets in money market
instruments, it may enter into index futures or options to attempt
to increase its exposure to the market. Strategies the Fund could
use to accomplish this include purchasing futures contracts,
writing put options and purchasing call options. When the Fund
wishes to sell securities, because of shareholder redemptions or
otherwise, it may use index futures or options to hedge against
market risk until the sale can be completed. These strategies
could include selling futures contracts, writing call options and
purchasing put options.
Warrants. Warrants are instruments which entitle the holder to
buy underlying equity securities at a specific price for a
specific period of time. A warrant tends to be more volatile than
its underlying securities and ceases to have value if it is not
exercised prior to its expiration date. In addition, changes in
the value of a warrant do not necessarily correspond to changes in
the value of its underlying securities.
Convertible Securities. The Fund may invest in convertible
securities which are a bond or preferred stock which may be
converted at a stated price within a specific period of time into
a specified number of shares of common stock of the same or
different issuer. Convertible securities are senior to common
stock in a corporation's capital structure, but usually are
subordinated to non-convertible debt securities. While providing a
fixed income stream -- generally higher in yield than the income
derived from a common stock but lower than that afforded by a non-
convertible debt security -- a convertible security also affords
an investor the opportunity, through its conversion feature, to
participate in the capital appreciation of common stock into which
it is convertible.
In general, the market value of a convertible security is the
higher of its investment value (its value as a fixed income
security) or its conversion value (the value of the underlying
shares of common stock if the security is converted). As a fixed
income security, the market value of a convertible security
generally increases when interest rates decline and generally
decreases when interest rates rise; however, the price of a
convertible security generally increases as the market value of
the underlying stock increases, and generally decreases as the
market value of the underlying stock declines. Investments in
convertible securities generally entail less risk than investments
in the common stock of the same issuer.
Further risks associated with the use of futures contracts,
options, warrants and convertible securities. The risk of loss
associated with futures contracts in some strategies can be
substantial due to both the low margin deposits required and the
extremely high degree of leverage involved in futures pricing. As
a result, a relatively small price movement in a futures contract
may result in an immediate and substantial loss or gain. However,
the Fund will not use futures contracts, options, warrants and
convertible securities for speculative purposes or to leverage
their net assets. Accordingly, the primary risks associated with
the use of futures contracts, options, warrants and convertible
securities by the Fund are: (i) imperfect correlation between the
change in market value of the securities held by the Fund and the
prices of futures contracts, options, warrants and convertible
securities; and (ii) possible lack of a liquid secondary market
for a futures contract and the resulting inability to close a
futures position prior to its maturity date. The risk of
imperfect correlation will be minimized by investing only in those
contracts whose behavior is expected to resemble that of the
Fund's underlying securities. The risk that the Fund will be
unable to close out a futures position will be minimized by
entering into stock transactions on an exchange with an active and
liquid secondary market. However, options, warrants and
convertible securities purchased or sold over-the-counter may be
less liquid than exchange-traded securities. Illiquid securities,
in general, may not represent more than 15% of the net assets of
the Fund.
Asset Coverage. To assure that futures and related options, as
well as when-issued and delayed-delivery securities, are not used
by the Fund to achieve excessive investment leverage, the Fund
will cover such transactions, as required under applicable
interpretations of the Securities and Exchange Commission (the
"SEC"), either by owning the underlying securities, entering into
an off-setting transaction, or by establishing a segregated
account with the Fund's custodian containing cash or liquid
portfolio securities in an amount at all times equal to or
exceeding the Fund's commitment with respect to these instruments
or contracts.
Portfolio Turnover
The frequency of Fund transactions - the Fund's turnover rate -
will vary from year to year depending on market conditions and the
Fund's cash flows. The Fund's annual portfolio turnover rate is
not expected to exceed 100%.
NET ASSET VALUE
The Fund is open for business each day the NYSE is open (each such
day being a "Valuation Day"). The NYSE is currently open on each
day, Monday through Friday, except: (a) January 1st, Presidents'
Day (the third Monday in February), Good Friday, Memorial Day (the
last Monday in May), July 4th, Labor Day (the first Monday in
September), Thanksgiving Day (the last Thursday in November) and
December 25th; and (b) the preceding Friday or the subsequent
Monday when one of the calendar-determined holidays falls on a
Saturday or Sunday, respectively.
The net asset value per share of the Fund is calculated once on
each Valuation Day as of the close of regular trading on the NYSE,
which under normal circumstances is 4:00 p.m., New York time.
The net asset value per share of the Fund is computed by dividing
the value of the Fund's assets, less all liabilities, by the total
number of its shares outstanding. The Fund's securities and other
assets are valued primarily on the basis of market quotations or,
if quotations are not readily available, by a method which the
Fund's Board of Trustees believes accurately reflects fair value.
PERFORMANCE INFORMATION AND REPORTS
The Fund's performance may be used from time to time in
advertisements, shareholder reports or other communications to
existing or prospective owners of the Companies' variable
contracts. When performance information is provided in
advertisements, it will include the effect of all charges deducted
under the terms of the specified contract, as well as all
recurring and non-recurring charges incurred by the Fund.
Performance information may include the Fund's investment results
and/or comparisons of its investment results to various unmanaged
indices or results of other mutual funds or investment or savings
vehicles. The Fund's investment results as used in such
communications will be calculated on a total rate of return basis
in the manner set forth below. From time to time, fund rankings
may be quoted from various sources, such as Lipper Analytical
Services, Inc., Value Line and Morningstar Inc.
The Trust may provide period and average annualized "total return"
quotations for the Fund. The Fund's "total return" refers to the
change in the value of an investment in the Fund over a stated
period based on any change in net asset value per share and
including the value of any shares purchasable with any dividends
or capital gains distributed during such period. Period total
return may be annualized. An annualized total return is a
compounded total return which assumes that the period total return
is generated over a one-year period, and that all dividends and
capital gain distributions are reinvested. An annualized total
return will be higher than a period total return if the period is
shorter than one year, because of the compounding effect.
Unlike some bank deposits or other investments which pay a fixed
yield for a stated period of time, the total return of the Fund
will vary depending upon interest rates, the current market value
of the securities held by the Fund and changes in the Fund's
expenses. In addition, during certain periods for which total
return quotations may be provided, Bankers Trust and/or the
Trust's other service providers may have voluntarily agreed to
waive portions of their respective fees, or reimburse certain
operating expenses of the Fund, on a month-to-month basis. Such
waivers will have the effect of increasing the Fund's net income
(and therefore its total return) during the period such waivers
are in effect.
Total returns are based on past results and are not an indication
of future performance.
Shareholders will receive unaudited financial reports semiannually
that include the Fund's financial statements, including listings
of investment securities held by the Fund at those dates. Annual
reports are audited by independent accountants.
MANAGEMENT OF THE TRUST
Board of Trustees
The affairs of the Fund are managed under the supervision of the
Board of Trustees of the Trust, of which the Fund is a series. By
virtue of the responsibilities assumed by Bankers Trust, neither
the Trust nor the Fund require employees other than the Trust's
officers. None of the Trust's officers devotes full time to the
affairs of the Trust or the Fund.
For more information with respect to the Trustees of the Trust,
see "Management of the Trust" in the Statement of Additional
Information.
Investment Manager
The Fund has retained the services of Bankers Trust Global
Investment Management, a unit of Bankers Trust, as investment
manager. Bankers Trust, a New York banking corporation with
executive offices at 280 Park Avenue, New York, New York 10017, is
a wholly-owned subsidiary of Bankers Trust New York Corporation.
Bankers Trust conducts a variety of general banking and trust
activities and is a major wholesaler supplier of financial
services to the international and domestic institutional markets.
As of June 30, 1996, Bankers Trust New York Corporation was the
seventh largest bank holding company in the United States with
total assets of approximately $115 billion. Bankers Trust is a
worldwide merchant bank dedicated to servicing the needs of
corporations, governments, financial institutions and private
clients through a global network of over 120 offices in more than
40 countries. Investment management is a core business of Bankers
Trust, built on a tradition of excellence from its roots as a
trust bank founded in 1903. The scope of Bankers Trust's
investment management capability is unique due to its leadership
positions in both active and passive quantitative management and
its presence in major equity and fixed income markets around the
world. Bankers Trust is one of the nation's largest and most
experienced investment managers with approximately $215 billion in
assets under management globally.
Bankers Trust has more than 50 years of experience managing
retirement assets for the nation's largest corporations and
institutions. Now, the Trust brings Bankers Trust's extensive
investment management expertise - once available to only the
largest institutions in the U.S. - to individual investors.
Bankers Trust's officers have had extensive experience in managing
investment portfolios having objectives similar to those of the
Fund.
Bankers Trust, subject to the supervision and direction of the
Board of Trustees, manages the Fund in accordance with the Fund's
investment objective and stated investment policies, makes
investment decisions for the Fund, places orders to purchase and
sell securities and other financial instruments on behalf of the
Fund, employs professional investment managers and securities
analysts who provide research services to the Fund, oversees the
administration of all aspects of the Trust's business and affairs
and supervises the performance of professional services provided
by other vendors. Bankers Trust may utilize the expertise of any
of its world wide subsidiaries and affiliates to assist it in its
role as investment manager. All orders for investment
transactions on behalf of the Fund are placed by Bankers Trust
with broker-dealers and other financial intermediaries that it
selects, including those affiliated with Bankers Trust. A Bankers
Trust affiliate will be used in connection with a purchase or sale
of an investment for the Fund only if Bankers Trust believes that
the affiliate's charge for the transaction does not exceed usual
and customary levels. The Fund will not invest in obligations for
which Bankers Trust or any of its affiliates is the ultimate
obligor or accepting bank. The Fund may, however, invest in the
obligations of correspondents and customers of Bankers Trust.
As compensation for its services to the Fund, Bankers Trust
receives a fee from the Fund, accrued daily and paid monthly,
equal on an annual basis to 0.10% of the average daily net assets
of the Fund for its then-current fiscal year.
Bankers Trust has been advised by its counsel that, in counsel's
opinion, Bankers Trust currently may perform the services for the
Trust and the Fund described in this Prospectus and the SAI
without violation of the Glass-Steagall Act or other applicable
banking laws or regulations. State laws on this issue may differ
from the interpretations of relevant Federal law, and banks and
financial institutions may be required to register as dealers
pursuant to state securities law.
Fund Manager
Frank Salerno, Managing Director of Bankers Trust, is responsible
for the day-to-day management of the Fund. Mr. Salerno oversees
administration, management and trading of international and
domestic equity index strategies. He has been employed by Bankers
Trust since 1981.
Expenses
In addition to the fees of the Manager, the Fund is responsible
for the payment of all its other expenses incurred in the
operation of the Fund, which include, among other things, expenses
for legal and independent auditor's services, charges of the
Fund's custodian and transfer agent, SEC fees, a pro rata portion
of the fees of the Trust's unaffiliated trustees and officers,
accounting costs for reports sent to owners of the Contracts which
provide for investment in the Fund ("Contractowners"), the Fund's
pro rata portion of membership fees in trade organizations, a pro
rata portion of the fidelity bond coverage for the Trust's
officers, interest, brokerage and other trading costs, taxes, all
expenses of computing the Fund's net asset value per share,
expenses involved in registering and maintaining the registration
of the Fund's shares with the SEC and qualifying the Fund for sale
in various jurisdictions and maintaining such qualification,
litigation and other extraordinary or non-recurring expenses.
However, other typical Fund expenses such as Contractowner
servicing, distribution of reports to Contractowners and
prospectus printing and postage will be borne by the relevant
Company.
Administrator
First Data Investor Services Group, Inc. ("First Data"), a
subsidiary of First Data Corporation, One Exchange Place, Boston,
Massachusetts 02109, serves as the Fund's administrator pursuant
to an Administration Agreement with the Trust. Under the terms of
the Administration Agreement, First Data generally assists in all
aspects of the Fund's operations, other than providing investment
advice, subject to the overall authority of the Trust's Board of
Trustees. Pursuant to the terms of the Administration Agreement,
dated April 16, 1996, the Trust has agreed to pay First Data a
monthly fee at the annual rate of 0.02% of the value of the
Trust's average monthly net assets not exceeding $2 billion; 0.01%
of the Trust's monthly average net assets exceeding $2 billion but
not exceeding $3 billion; and 0.0075% of the Trust's monthly
average net assets exceeding $3 billion, in addition to a flat fee
of $70,000 per year per Fund.
Distributor
440 Financial Distributors, Inc. (the "Distributor") serves as
distributor of the Fund's shares to separate accounts of the
Companies for which it receives no separate fee from the Fund.
The principal business address of the Distributor is 4400 Computer
Drive, Westborough, Massachusetts 01581.
Custodian and Transfer Agent
Bankers Trust acts as custodian of the assets of the Fund and
First Data serves as the transfer agent for the Fund.
Organization of the Trust
The Trust was organized on January 19, 1996, under the laws of the
Commonwealth of Massachusetts. The Fund is a separate series of
the Trust. The Trust offers shares of beneficial interest of the
Fund and the Trust's other series, par value $0.001 per share.
The shares of the other series of the Trust are offered through
separate Prospectuses. No series of shares has any preference
over any other series. All shares, when issued, will be fully
paid and nonassessable. The Trust's Board of Trustees has the
authority to create additional series without obtaining
shareholder approval.
The Trust is an entity of the type commonly known as a
"Massachusetts business trust." Under Massachusetts law,
shareholders of such a business trust may, under certain
circumstances, be held personally liable as partners for its
obligations. However, the risk of a shareholder incurring
financial loss on account of shareholder liability is limited to
circumstances in which both inadequate insurance existed and the
Trust itself was unable to meet its obligations.
Through its separate accounts, the Companies are the Fund's sole
stockholders of record, so under the 1940 Act, such Companies are
deemed to be in control of the Fund. Nevertheless, when a
shareholders' meeting occurs, each Company solicits and accepts
voting instructions from its Contractowners who have allocated or
transferred monies for an investment in the Fund as of the record
date of the meeting. Each Company then votes the Fund's shares
that are attributable to its Contractowners' interests in the Fund
in proportion to the voting instructions received. Each Company
will vote any share that it is entitled to vote directly due to
amounts it has contributed or accumulated in its separate accounts
in the manner described in the prospectuses for its variable
annuities and variable life insurance policies.
Each share of the Fund is entitled to one vote, and fractional
shares are entitled to fractional votes. Fund shares have non-
cumulative voting rights, so the vote of more than 50% of the
shares can elect 100% of the Trustees.
The Trust is not required, and does not intend, to hold regular
annual shareholder meetings, but may hold special meetings for
consideration of proposals requiring shareholder approval.
The Fund is only available to owners of variable annuities or
variable life insurance policies issued by the Companies through
their respective separate accounts. The Fund does not currently
foresee any disadvantages to Contractowners arising from offering
its shares to variable annuity and variable life insurance policy
separate accounts simultaneously, and the Board of Trustees
monitors events for the existence of any material irreconcilable
conflict between or among Contractowners. If a material
irreconcilable conflict arises, one or more separate accounts may
withdraw their investment in the Fund. This could possibly force
the Fund to sell portfolio securities at disadvantageous prices.
Each Company will bear the expenses of establishing separate
portfolios for its variable annuity and variable life insurance
separate accounts if such action becomes necessary; however,
ongoing expenses that are ultimately borne by Contractowners will
likely increase due to the loss of economies of scale benefits
that can be provided to mutual funds with substantial assets.
SHAREHOLDER AND ACCOUNT POLICIES
PURCHASE AND REDEMPTION OF SHARES
Shares of the Fund will be continuously offered to each Company's
separate accounts at the net asset value per share next determined
after a proper purchase request has been received by the Company.
The Company then offers to Contractowners units in its separate
accounts which directly correspond to shares in the Fund. Each
Company submits purchase and redemption orders to the Fund based
on allocation instructions for premium payments, transfer
instructions and surrender or partial withdrawal requests which
are furnished to the Company by such Contractowners.
Contractowners can send such instructions and requests to the
Companies by first class mail, overnight mail or express mail sent
to the address set forth in the relevant Company's offering
memorandum included with this prospectus. The Fund and the
Distributor reserve the right to reject any purchase order for
shares of the Fund.
Payment for redeemed shares will ordinarily be made within seven
(7) business days after the Fund receives a redemption order from
the relevant Company. The redemption price will be the net asset
value per share next determined after the Company receives the
Contractowner's request in proper form.
The Fund may suspend the right of redemption or postpone the date
of payment during any period when trading on the NYSE is
restricted, or the NYSE is closed for other than weekends and
holidays; when an emergency makes it not reasonably practicable
for the Fund to dispose of assets or calculate its net asset
value; or as permitted by the SEC.
The accompanying offering memorandum for the Company's variable
annuity or variable life insurance policy describes the
allocation, transfer and withdrawal provisions of such annuity or
policy.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Fund distributes substantially all of its net income and
capital gains to shareholders each year. The Fund distributes
capital gains and income dividends annually. All dividends and
capital gains distributions paid by the Fund will be automatically
reinvested, at net asset value, by the Companies' separate
accounts in additional shares of the Fund, unless an election is
made by a Contractowner to receive distributions in cash.
The Fund will be treated as a separate entity for federal income
tax purposes. The Fund intends to qualify as a "regulated
investment company" under the Internal Revenue Code of 1986, as
amended (the "Code"). As a regulated investment company the Fund
will not be subject to U.S. Federal income tax on its investment
company taxable income and net capital gains (the excess of net
long-term capital gains over net short-term capital losses), if
any, that it distributes to shareholders. The Fund intends to
distribute to its shareholders, at least annually, substantially
all of its investment company taxable income and net capital
gains, and therefore does not anticipate incurring a Federal
income tax liability.
The Code and Treasury Department regulations promulgated
thereunder require that mutual funds that are offered through
insurance company separate accounts must meet certain
diversification requirements to preserve the tax-deferral benefits
provided by the variable contracts which are offered in connection
with such separate accounts. The Manager intends to diversify the
Fund's investments in accordance with those requirements. The
enclosed offering memorandum for a Company's variable annuity or
variable life insurance policies describes the federal income tax
treatment of distributions from such contracts to Contractowners.
The foregoing is only a brief summary of important tax law
provisions that affect the Fund. Other Federal, state or local
tax law provisions may also affect the Fund and its operations.
Anyone who is considering allocating, transferring or withdrawing
monies held under a variable contract to or from the Fund should
contact a qualified tax adviser.
Investment Manager of the Fund
bankers trust global investment management
a unit of
bankers trust company
Administrator
first data investor services group, inc.
Distributor
440 FINANCIAL DISTRIBUTORS, INC.
Custodian
BANKERS TRUST COMPANY
Transfer Agent
first data investor services group, inc.
Independent Accountants
COOPERS & LYBRAND LLP
Counsel
WILLKIE FARR & GALLAGHER
..................................................................
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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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