As filed with the Securities and Exchange Commission on October 1, 1997
Securities Act File No. 333-00479
Investment Company Act File No. 811-07507
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
----
Pre-Effective Amendment No.
Post-Effective Amendment No. 4 X
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 6 X
BT Insurance Funds Trust
(Exact Name of Registrant as Specified in Charter)
One Exchange Place
Boston, Massachusetts 02109
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (617) 573-1529
Name and Address of Agent for Service: Copies to:
Brigid O. Bieber, Esq. Burton M. Leibert, Esq.
First Data Investor Services Group, Inc. Willkie Farr & Gallagher
One Exchange Place One Citicorp Center
Boston, Massachusetts 02109 New York, NY 10022-4669
Approximate Date of Proposed Public Offering:
As soon as practicable after the effective date of the Registration Statement.
It is proposed that this filing will become effective:
X immediately upon filing pursuant to paragraph (b), or
on pursuant to paragraph (b) 60 days after filing pursuant to
paragraph (a)(1), or on pursuant to paragraph (a)(1) 75 days
after filing pursuant to paragraph (a)(2) on __________ pursuant
to paragraph (a)(2) of Rule 485
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, the Registrant
has registered an indefinite number of shares of Beneficial Interest, $0.001 par
value per share, of all series and classes of the Registrant, then existing or
thereafter created, and will file a Rule 24f-2 Notice within 60 days after the
close of the Registrant's fiscal year.
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BT INSURANCE FUNDS TRUST
FORM N-1A
CROSS REFERENCE SHEET
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Part A.
Item No. Prospectus Caption
Item 1. Cover Page............................................ Cover Page
Item 2. Synopsis.............................................. Not Applicable
Item 3. Condensed Financial Information....................... Not Applicable
Item 4. General Description of Registrant..................... Investment Objectives and Policies; Risk Factors and
Certain Securities and Investment Practices; Who May
Want to Invest; Investment Principles and Risks
Item 5. Management of the Fund................................ Management of the Trust; Purchase and Redemption of
Shares
Item 5A. Management's Discussion of
Fund Performance...................................... Not Applicable
Item 6. Capital Stock and Other Securities.................... Dividends, Distributions and Taxes
Item 7. Purchase of Securities Being Offered.................. Net Asset Value; Purchase and Redemption of Shares
Item 8. Redemption or Repurchase.............................. Purchase and Redemption of Shares
Item 9. Pending Legal Proceedings............................. Not Applicable
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N-1A Statement of Additional
Item No. Information Caption
Item 10. Cover Page......................................... Cover Page
Item 11. Table of Contents.................................. Table of Contents
Item 12. General Information and History.................... Not Applicable
Item 13. Investment Objectives and Policies................. Risk Factors and Certain Securities and Investment
Practices
Item 14. Management of the Fund............................. Management of the Trust; Organization of the Trust
Item 15. Control Persons and Principal
Holders of Securities................................. Management of the Trust; Organization of the Trust
Item 16. Investment Advisory and
Other Services........................................ Management of the Trust
Item 17. Brokerage Allocation and
Other Practices....................................... Valuation of Securities; Redemption in Kind
Item 18. Capital Stock and Other Securities................. Risk Factors and Certain Securities and Investment
Practices
Item 19. Purchase, Redemption and
Pricing of Securities Being Offered................... Valuation of Securities; Redemption in Kind
Item 20. Tax Status......................................... Taxation
Item 21. Underwriters....................................... Valuation of Securities; Redemption in Kind
Item 22. Calculation of Performance Data.................... Performance Information
Item 23. Financial Statements............................... Not Applicable
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Part C
Information required to be included in Part C is set forth under the appropriate
Item, so number, in Part C of this Registration Statement.
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BT INSURANCE FUNDS TRUST
U.S. BOND INDEX FUND
PROSPECTUS
OCTOBER 1, 1997
This Prospectus offers shares of the U.S. Bond Index Fund (the "Fund"), a series
of BT Insurance Funds Trust (the "Trust"), which is an open-end management
investment company currently having seven series. Shares of the Fund are
available to the public only through the purchase of certain variable annuity
and variable life insurance contracts ("Contract(s)") issued by various
insurance companies (the "Companies").
The Fund seeks to replicate as closely as possible the performance of the Lehman
Brothers Aggregate Bond Index before the deduction of Fund expenses (the
"Expenses"). There is no assurance, however, that the Fund will achieve its
stated objective.
Bankers Trust Company ("Bankers Trust") is the investment manager (the
"Manager") of the Fund.
Please read this Prospectus carefully before investing and retain it for future
reference. It contains important information about the Fund that you should know
and can refer to in deciding whether the Fund's goals match your own.
A Statement of Additional Information ("SAI") with the same date has been filed
with the Securities and Exchange Commission (the "SEC"), and is incorporated
herein by reference. You may request a free copy of the SAI by calling your
insurance company's Customer Service Center at the telephone number shown in the
accompanying offering memorandum.
Fund shares are not deposits or obligations of, or guaranteed by, Bankers Trust
or any depository institution. Shares are not insured by the Federal Deposit
Insurance Corporation, the Federal Reserve Board or any other agency.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
BANKERS TRUST GLOBAL INVESTMENT MANAGEMENT,
a unit of BANKERS TRUST COMPANY
Investment Manager of the Fund
FIRST DATA DISTRIBUTORS, INC.
Distributor
4400 Computer Drive
Westborough, MA 01581
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TABLE OF CONTENTS
Page
THE FUND................................................................. 3
Who May Want to Invest
Investment Principles and Risks
THE FUND IN DETAIL........................................................ 4
Investment Objectives and Policies
Risk Factors and Certain Securities and Investment Practices
Net Asset Value
Performance Information and Reports
Management of the Trust
SHAREHOLDER AND ACCOUNT POLICIES.......................................... 13
Purchase and Redemption of Shares
Dividends, Distributions and Taxes
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THE FUND
The Fund seeks to replicate as closely as possible (before deduction of
Expenses) the investment performance of the Lehman Brothers Aggregate Bond Index
(the "Aggregate Bond Index"), a broad market weighted index which encompasses
U.S. Treasury and agency securities, corporate investment grade bonds,
international (dollar-denominated) investment grade bonds, and mortgage-backed
securities. The Fund will be invested primarily in fixed income securities of
the U.S. government or any agency thereof, publicly issued fixed rate domestic
debt of industrial, financial, and utility corporations, and U.S. dollar
denominated fixed income securities of foreign and supranational entities issued
publicly in the United States. The Fund will also invest in mortgage
pass-through securities issued by the Government National Mortgage Association
("GNMA"), the Federal Home Loan Mortgage Corporation ("FHLMC"), and the Federal
National Mortgage Association ("FNMA").
WHO MAY WANT TO INVEST
Shares of the Fund are available to the public only through the purchase of
Contracts issued by the Companies.
The Fund is not managed according to traditional methods of "active" investment
management, which involve the buying and selling of securities based upon
economic, financial and market analysis and investment judgment. Instead, the
Fund utilizes a "passive" or "indexing" investment approach and attempts to
replicate the investment performance of the Aggregate Bond Index through
statistical procedures.
The Fund may be appropriate for investors who are willing to endure stock market
fluctuations in pursuit of potentially higher long-term returns. The Fund
invests for growth and does not pursue income as a primary objective. Over time,
stocks, although more volatile, have shown greater growth potential than other
types of securities. In the shorter term, however, stock prices can fluctuate
dramatically in response to market factors.
The Fund is intended to be a long-term investment vehicle and is not designed to
provide investors with a means of speculating on short-term market movements.
The Fund is not in itself a balanced investment plan. Investors should consider
their investment objective and tolerance for risk when making an investment
decision.
INVESTMENT PRINCIPLES AND RISKS
The value of the Fund's investments varies based on many factors. The value of
bonds fluctuates based on changes in domestic or foreign interest rates, the
credit quality of the issuer, market conditions, and other economic and
political news. In general, bond prices rise when interest rates fall, and vice
versa. This effect is usually more pronounced for longer-term securities.
Lower-quality securities offer higher yields, but also carry more risk.
When investors sell Fund shares, they may be worth more or less than what the
investor paid for them. See "Risk Factors and Certain Securities and Investment
Practices" for more information.
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THE FUND IN DETAIL
INVESTMENT OBJECTIVES AND POLICIES
The following is a discussion of the various investments of and techniques
employed by the Fund. Additional information about the investment policies of
the Fund appears in "Risk Factors and Certain Securities and Investment
Practices" in this Prospectus and in the Fund's SAI. There can be no assurance
that the investment objective of the Fund will be achieved.
The Fund seeks to replicate as closely as possible (before deduction of Fund
expenses) the investment performance of the Aggregate Bond Index, a broad market
weighted index which encompasses four major classes of investment grade
fixed-income securities in the United States: U.S. Treasury and agency
securities, corporate bonds, international (dollar-denominated) bonds, and
mortgage-backed securities, with maturities greater than one year. As of
August 31, 1997, the major classes of fixed-income securities represented the
following proportions of the Aggregate Bond Index's total market value.
Aggregate
Bond Index
U.S. Treasury and agency securities 50%
Corporate bonds 15%
International (dollar-denominated) bonds 4%
Mortgage-backed securities 30%
Asset Backed Securities 1%
Dollar-weighted average maturity (Years) 8.8yrs
The Fund will be unable to hold all of the individual issues which comprise the
Aggregate Bond Index because of the large number of securities involved.
Instead, the Fund will hold a representative sample of the securities in the
Aggregate Bond Index, selecting one or two issues to represent entire "classes"
or types of securities in the Aggregate Bond Index. The Fund will be constructed
so as to match as closely as possible the composition of the Aggregate Bond
Index by investing in fixed-income securities approximating their relative
proportion of the Aggregate Bond Index's total market value.
The Fund may, from time to time, substitute one type of investment grade bond
for another. For instance, a Fund may hold more short-term corporate bonds (and,
in turn, hold fewer short U.S. Treasury bonds) than represented in the Aggregate
Bond Index so as to increase income. This corporate substitution strategy will
entail the assumption of additional credit risk; however, substantial
diversification within the corporate sector should moderate issue-specific
credit risk.
Fixed-income securities will be primarily of investment grade quality - i.e.,
those rated at least Baa by Moody's Investors Service, Inc. ("Moody's") or BBB-
by Standard & Poor's Ratings Group ("S&P"). Securities rated Baa or BBB possess
some speculative characteristics.
The Fund may invest in U.S. Treasury bills, notes and bonds and other "full
faith and credit" obligations of the U.S. government and in U.S. government
agency securities, which are debt obligations issued or guaranteed by agencies
or instrumentalities of the U.S. government ("U.S. Government Securities"). Such
"agency" securities may not be backed by the "full faith and credit" of the U.S.
government. Such U.S. government agencies may include the Farm Credit Banks and
the Resolution Trust Corporation. Even though they all carry top (AAA) credit
ratings, agency obligations are not explicitly guaranteed by the U.S. government
and so are perceived as somewhat riskier than comparable Treasury bonds.
As a mutual fund investing primarily in fixed-income securities, the Fund is
subject to interest rate, income, call and credit risks. Since the Fund also
invests in mortgage-backed securities, it is also subject to prepayment risk.
See "Risk Factors and Certain Securities and Investment Practices."
General
Over time, the correlation between the performance of the Fund and the Aggregate
Bond Index is expected to be 0.95 or higher before deduction of Fund expenses. A
correlation of 1.00 would indicate perfect correlation, which would be achieved
when the net asset value of the Fund, including the value of its dividend and
any capital gain distributions, increases or decreases in exact proportion to
changes in the Aggregate Bond Index. The Fund's ability to track the Aggregate
Bond Index may be affected by, among other things, transaction costs,
administration and other expenses incurred by the Fund, changes in either the
composition of the Aggregate Bond Index or the assets of the Fund, and the
timing and amount of Fund investor contributions and withdrawals, if any. In the
unlikely event that a high correlation is not achieved, the Trust's Board of
Trustees will consider alternatives. Because the Fund seeks to track the
Aggregate Bond Index, Bankers Trust generally will not attempt to judge the
merits of any particular stock as an investment.
Under normal circumstances, the Fund will invest at least 80% of its assets in
the securities of the Aggregate Bond Index.
As a diversified fund, no more than 5% of the assets of the Fund may be invested
in the securities of one issuer (other than U.S. Government Securities), except
that up to 25% of the Fund's assets may be invested without regard to this
limitation. The Fund will not invest more than 25% of its assets in the
securities of issuers in any one industry. These are fundamental investment
policies of the Fund which may not be changed without shareholder approval. No
more than 15% of the Fund's net assets may be invested in illiquid or not
readily marketable securities (including repurchase agreements and time deposits
with maturities of more than seven days). Additional investment policies of the
Fund are contained in the SAI.
The Fund may maintain up to 25% of its assets in short-term debt securities and
money market instruments to meet redemption requests or to facilitate investment
in the securities of the Aggregate Bond Index. Securities index futures
contracts and related options, warrants, convertible securities and swap
agreements may be used for several reasons: to simulate full investment in the
Aggregate Bond Index while retaining a cash balance for fund management
purposes, to facilitate trading, to reduce transaction costs or to seek higher
investment returns when a futures contract, option, warrant, convertible
security or swap agreement is priced more attractively than the underlying
equity security or the Aggregate Bond Index. These instruments may be considered
derivatives. See "Risk Factors and Certain Securities and Investment Practices
- -- Derivatives."
The use of derivatives for non-hedging purposes may be considered speculative.
While each of these securities can be used as leveraged investments, the Fund
may not use them to leverage its net assets. The Fund will not invest in such
instruments as part of a temporary defensive strategy (such as altering the
aggregate maturity of the Fund) to protect the Fund against potential market
declines.
The Fund may lend its investment securities and purchase securities on a
when-issued and a delayed delivery basis. The Fund may also invest in
mortgage-related and other asset-backed securities. See "Risk Factors and
Certain Securities and Investment Practices" for more information about the
investment practices of the Fund.
RISK FACTORS AND CERTAIN SECURITIES AND INVESTMENT PRACTICES
The following pages contain more detailed information about types of instruments
in which the Fund may invest and strategies Bankers Trust may employ in pursuit
of the Fund's investment objective. A summary of risks and restrictions
associated with these instrument types and investment practices is included as
well.
Bankers Trust may not buy all of these instruments or use all of these
techniques to the full extent permitted unless it believes that doing so will
help the Fund achieve its goal. Holdings and recent investment strategies are
described in the financial reports of the Fund, which are sent to Fund
shareholders on a semi-annual basis.
Fixed Income Security Risk
Investors in the Fund are exposed to four types of risk from fixed income
securities: (1) Interest rate risk is the potential for fluctuations in bond
prices due to changing interest rates; (2) Income risk is the potential for a
decline in a Fund's income due to falling market interest rates; (3) Credit risk
is the possibility that a bond issuer will fail to make timely payments of
either interest or principal to the Fund; and (4) Prepayment risk or call risk
is the likelihood that, during periods of falling interest rates, securities
with high stated interest rates will be prepaid (or "called") prior to maturity,
requiring the Fund to invest the proceeds at generally lower interest rates.
The Fund's investment objective is not a fundamental policy and may be changed
upon notice to, but without the approval of, the Fund's shareholders. If there
is a change in the Fund's investment objective, the Fund's shareholders should
consider whether the Fund remains an appropriate investment in light of their
then-current needs. Shareholders of the Fund will receive 30 days prior written
notice with respect to any change in the investment objective of the Fund. See
"Risk Factors and Certain Securities and Investment Practices" in the SAI for a
description of the fundamental policies that cannot be changed without approval
by "the vote of a majority of the outstanding voting securities" (as defined in
the Investment Company Act of 1940, as amended (the "1940 Act")) of the Fund.
For descriptions of the investment objective, policies and restrictions of the
Fund, see "The Fund in Detail" and "Risk Factors and Certain Securities and
Investment Practices" herein and in the SAI.
Securities and Investment Practices
Short-Term Investments. The Fund may invest in certain short-term fixed income
securities. Such securities may be used to invest uncommitted cash balances, to
maintain liquidity to meet shareholder redemptions or to serve as collateral for
the obligations underlying the Fund's investment in securities index futures or
related options or warrants. These securities include: obligations issued or
guaranteed by the U.S. government or any of its agencies or instrumentalities or
by any of the states, repurchase agreements, time deposits, certificates of
deposit, bankers' acceptances and commercial paper.
U.S. Government Securities. Some U.S. 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 FNMA, 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.
Mortgage-Related Securities. As part of its effort to replicate the investment
performance of the Aggregate Bond Index, the Fund may invest in mortgage-backed
securities. Mortgage-backed securities represent an interest in an underlying
pool of mortgages. Unlike ordinary fixed-income securities, which generally pay
a fixed rate of interest and return principal upon maturity, mortgage-backed
securities repay both interest income and principal as part of their periodic
payments. Because the mortgages underlying mortgage-backed certificates can be
prepaid at any time by homeowners or corporate borrowers, mortgage-backed
securities give rise to certain unique "pre-payment" risks. See "Risk Factors
and Certain Securities and Investment Practices."
The Fund may purchase mortgage-backed securities issued by the GNMA, the FHLMC,
the FNMA, and the Federal Housing Authority ("FHA"). GNMA securities are
guaranteed by the U.S. government as to the timely payment of principal and
interest; securities from other Government-sponsored entities are generally not
secured by an explicit pledge of the U.S. government. The Fund may also invest
in conventional mortgage securities, which are packaged by private corporations
and are not guaranteed by the U.S. government. Mortgage securities that are
guaranteed by the U.S. government are guaranteed only as to the timely payment
of principal and interest. The market value of such securities is not guaranteed
and may fluctuate.
Derivatives
The Fund may invest in various instruments that are commonly known as
"derivatives". Generally, a derivative is a financial arrangement, the value of
which is based on, or "derived" from, a traditional security, asset, or market
index. Some derivatives such as mortgage-related and other asset-backed
securities are in many respects like any other investment, although they may be
more volatile or less liquid than more traditional debt securities. There are,
in fact, many different types of derivatives and many different ways to use
them. There are a range of risks associated with those uses. Futures and options
are commonly used for traditional hedging purposes to attempt to protect the
Fund from exposure to changing interest rates, securities prices or currency
exchange rates and as a low cost method of gaining exposure to a particular
securities market without investing directly in those securities. Derivatives
will not be used to increase portfolio risk above the level that would be
achieved using only traditional investment securities or to acquire exposure to
changes in the value of assets or indices that by themselves would not be
purchased for the Fund.
Securities Index Futures and Related Options. The Fund may enter into securities
index futures contracts and related options provided that not more than 5% of
its assets are required as a margin deposit for futures contracts or options and
provided that not more than 20% of the Fund's assets are invested in futures and
options at any time. When the Fund has cash from new investments in the Fund or
holds a portion of its assets in money market instruments, it may enter into
index futures or options to attempt to increase its exposure to the market.
Strategies the Fund could use to accomplish this include purchasing futures
contracts, writing put options and purchasing call options. When the Fund wishes
to sell securities, because of shareholder redemptions or otherwise, it may use
index futures or options to hedge against market risk until the sale can be
completed. These strategies could include selling futures contracts, writing
call options and purchasing put options.
Swap Agreements. The Fund may enter into swap agreements only to the extent that
obligations under such agreements represent not more than 10% of the Fund's
total assets. Swap agreements are contracts between parties in which one party
agrees to make payments to the other party based on the change in market value
of a specified index or asset. In return, the other party agrees to make
payments to the first party based on the return of a different specified index
or asset.
Although swap agreements entail the risk that a party will default on its
payment obligations thereunder, the Fund will minimize this risk by entering
into agreements that mark to market no less frequently than quarterly. Swap
agreements also bear the risk that the Fund will not be able to meet its
obligation to the counterparty. This risk will be mitigated by investing the
Fund in the specific asset for which it is obligated to pay a return.
Warrants. The Fund's investment in warrants will not exceed more than 5% of its
assets (2% with respect to warrants not listed on a recognized United States
stock exchange). Warrants are instruments which entitle the holder to buy
underlying equity securities at a specific price for a specific period of time.
A warrant tends to be more volatile than its underlying securities and ceases to
have value if it is not exercised prior to its expiration date. In addition,
changes in the value of a warrant do not necessarily correspond to changes in
the value of its underlying securities.
Convertible Securities. The Fund may invest in convertible securities which are
a bond or preferred stock which may be converted at a stated price within a
specific period of time into a specified number of shares of common stock of the
same or different issuer. Convertible securities are senior to common stock in a
corporation's capital structure, but usually are subordinated to non-convertible
debt securities. While providing a fixed income stream -- generally higher in
yield than the income derived from a common stock but lower than that afforded
by a non-convertible debt security -- a convertible security also affords an
investor the opportunity, through its conversion feature, to participate in the
capital appreciation of common stock into which it is convertible.
In general, the market value of a convertible security is the higher of its
investment value (its value as a fixed income security) or its conversion value
(the value of the underlying shares of common stock if the security is
converted). As a fixed income security, the market value of a convertible
security generally increases when interest rates decline and generally decreases
when interest rates rise; however, the price of a convertible security generally
increases as the market value of the underlying stock increases, and generally
decreases as the market value of the underlying stock declines. Investments in
convertible securities generally entail less risk than investments in the common
stock of the same issuer.
Further risks associated with the use of futures contracts, options, warrants,
convertible securities and swap agreements. The risk of loss associated with
futures contracts in some strategies can be substantial due to both the low
margin deposits required and the extremely high degree of leverage involved in
futures pricing. As a result, a relatively small price movement in a futures
contract may result in an immediate and substantial loss or gain. However, the
Fund will not use futures contracts, options, warrants, convertible securities
and swap agreements for speculative purposes or to leverage their net assets.
Accordingly, the primary risks associated with the use of futures contracts,
options, warrants, convertible securities and swap agreements by the Fund are:
(i) imperfect correlation between the change in market value of the securities
held by the Fund and the prices of futures contracts, options, warrants,
convertible securities and swap agreements; and (ii) possible lack of a liquid
secondary market for a futures contract and the resulting inability to close a
futures position prior to its maturity date. The risk of imperfect correlation
will be minimized by investing only in those contracts whose behavior is
expected to resemble that of the Fund's underlying securities. The risk that the
Fund will be unable to close out a futures position will be minimized by
entering into stock transactions on an exchange with an active and liquid
secondary market. However, options, warrants, convertible securities and swap
agreements purchased or sold over-the-counter may be less liquid than
exchange-traded securities. Illiquid securities, in general, may not represent
more than 15% of the net assets of the Fund.
Asset Coverage. To assure that futures and related options, as well as
when-issued and delayed-delivery securities, interest rate swaps and related
options transactions are not used by the Fund to achieve excessive investment
leverage, the Fund will cover such transactions, as required under applicable
interpretations of the SEC, either by owning the underlying securities, entering
into an off-setting transaction, or by establishing a segregated account with
the Fund's custodian containing cash or liquid portfolio securities in an amount
at all times equal to or exceeding the Fund's commitment with respect to these
instruments or contracts.
Portfolio Turnover
The frequency of Fund transactions - the Fund's turnover rate - will vary from
year to year depending on market conditions and the Fund's cash flows. The
Fund's annual portfolio turnover rate is not expected to exceed 100%.
NET ASSET VALUE
The Fund is open for business each day the NYSE is open (each such day being a
"Valuation Day"). The NYSE is currently open on each day, Monday through Friday,
except: (a) January 1st, Martin Luther King Day, Presidents' Day (the third
Monday in February), Good Friday, Memorial Day (the last Monday in May), July
4th, Labor Day (the first Monday in September), Thanksgiving Day (the last
Thursday in November) and December 25th; and (b) the preceding Friday or the
subsequent Monday when one of the calendar-determined holidays falls on a
Saturday or Sunday, respectively. The net asset value per share of the Fund
is calculated once on each Valuation Day as of the close of regular trading on
the NYSE, which under normal circumstances is 4:00 p.m., New York time. The net
asset value per share of the Fund is computed by dividing the value of the
Fund's assets, less all liabilities, by the total number of its shares
outstanding. The Fund's securities and other assets are valued primarily on the
basis of market quotations or, if quotations are not readily available, by a
method which the Fund's Board of Trustees believes accurately reflects fair
value.
PERFORMANCE INFORMATION AND REPORTS
Mutual fund performance is commonly measured as total return and/or yield. The
Fund's performance is affected by the expenses of the Fund.
Total return is the change in value of an investment in the Fund over a given
period, assuming reinvestment of any dividends and capital gains. A cumulative
total return reflects actual performance over a stated period of time. An
average annual total return is a hypothetical rate of return that, if achieved
annually, would have produced the same cumulative total return if performance
had been constant over the entire period. Average annual total return
calculations smooth out variations in performance; they are not the same as
actual year-by-year results. Average annual total returns covering periods of
less than one year assume that performance will remain constant for the rest of
the year.
Yield refers to the income generated by an investment in a Fund over a given
period of time, expressed as an annual percentage rate. Yields are calculated
according to a standard that is required for all stock and bond funds. Because
this differs from other accounting methods, the quoted yield may not equal the
income actually paid to shareholders.
Performance information may include comparisons of the Fund's investment results
to various unmanaged indices or results of other mutual funds or investment or
savings vehicles. From time to time, Fund rankings may be quoted from various
sources, such as Lipper Analytical Services, Inc., Value Line and Morningstar,
Inc.
Unlike some bank deposits or other investments which pay a fixed yield for a
stated period of time, the total return of the Fund will vary depending upon
interest rates, the current market value of the securities held by the Fund and
changes in the Fund's expenses. In addition, during certain periods for which
total return may be provided, Bankers Trust may have voluntarily agreed to waive
portions of their fees, or reimburse certain operating expenses of the Fund, on
a month-to-month basis. Such waivers will have the effect of increasing the
Fund's net income (and therefore its yield and total return) during the period
such waivers are in effect.
Total returns are based on past results and are not an indication of future
performance.
Shareholders will receive audited annual financial reports and unaudited
semi-annual financial reports that include the Fund's financial statements,
including listings of investment securities held by the Fund at those dates. For
current Fund performance or a free copy of the Fund's financial report, please
contact the relevant Company or Bankers Trust.
MANAGEMENT OF THE TRUST
Board of Trustees
The affairs of the Fund are managed under the supervision of the Board of
Trustees of the Trust, of which the Fund is a series. By virtue of the
responsibilities assumed by Bankers Trust, neither the Trust nor the Fund
require employees other than the Trust's officers. None of the Trust's officers
devotes full time to the affairs of the Trust or the Fund.
For more information with respect to the Trustees of the Trust, see "Management
of the Trust" in the SAI.
Investment Manager
The Fund has retained the services of Bankers Trust Company, as investment
manager. Bankers Trust, a New York banking corporation with principal offices at
130 Liberty Street, New York, New York 10006, is a wholly-owned subsidiary of
Bankers Trust New York Corporation. Bankers Trust conducts a variety of general
banking and trust activities and is a major wholesale supplier of financial
services to the international and domestic institutional markets. As of June
30, 1997, Bankers Trust New York Corporation was the seventh largest bank
holding company in the United States with total assets of approximately $129
billion. Bankers Trust is a worldwide merchant bank dedicated to servicing the
needs of corporations, governments, financial institutions and private clients
through a global network of over 180 offices in more than 48 countries.
Investment management is a core business of Bankers Trust, built on a tradition
of excellence from its roots as a trust bank founded in 1903. The scope of
Bankers Trust's investment management capability is unique due to its leadership
positions in both active and passive quantitative management and its presence in
major equity and fixed income markets around the world. Bankers Trust is one of
the nation's largest and most experienced investment managers with approximately
$233 billion in assets under management globally. Of the total, approximately
$129.4 billion are in index assets alone, making Bankers Trust one of the
nation's leading managers of index funds. Bankers Trust, subject to the
supervision and direction of the Board of Trustees, manages the Fund in
accordance with the Fund's investment objective and stated investment policies,
makes investment decisions for the Fund, places orders to purchase and sell
securities and other financial instruments on behalf of the Fund, employs
professional investment managers and securities analysts who provide research
services to the Fund, oversees the administration of all aspects of the Trust's
business and affairs and supervises the performance of professional services
provided by other vendors. Bankers Trust may utilize the expertise of any of its
world wide subsidiaries and affiliates to assist it in its role as investment
manager. All orders for investment transactions on behalf of the Fund are placed
by Bankers Trust with broker-dealers and other financial intermediaries that it
selects, including those affiliated with Bankers Trust. A Bankers Trust
affiliate will be used in connection with a purchase or sale of an investment
for the Fund only if Bankers Trust believes that the affiliate's charge for the
transaction does not exceed usual and customary levels. The Fund will not invest
in obligations for which Bankers Trust or any of its affiliates is the ultimate
obligor or accepting bank. The Fund may, however, invest in the obligations of
correspondents and customers of Bankers Trust.
As compensation for its services to the Fund, Bankers Trust receives a fee from
the Fund, accrued daily and paid monthly, equal on an annual basis to 0.15% of
the average daily net assets of the Fund for its then-current fiscal year.
Bankers Trust has been advised by its counsel that, in counsel's opinion,
Bankers Trust currently may perform the services for the Trust and the Fund
described in this Prospectus and the SAI without violation of the Glass-Steagall
Act or other applicable banking laws or regulations. State laws on this issue
may differ from the interpretations of relevant federal law, and banks and
financial institutions may be required to register as dealers pursuant to state
securities law.
Fund Manager
Louis R. D'Arienzo, Vice President of Bankers Trust, is responsible for the
day-to-day management of the Fund. Mr. D'Arienzo has been employed by Bankers
Trust since 1981 and has twelve years trading and investment experience in fixed
income securities.
Expenses
In addition to the fees of Bankers Trust, the Fund is responsible for the
payment of all its other expenses incurred in the operation of the Fund, which
include, among other things, expenses for legal and independent auditor's
services, charges of the Fund's custodian and transfer agent, SEC fees, a pro
rata portion of the fees of the Trust's unaffiliated trustees and officers,
accounting costs for reports sent to owners of the Contracts which provide for
investment in the Fund ("Contractowners"), the Fund's pro rata portion of
membership fees in trade organizations, a pro rata portion of the fidelity bond
coverage for the Trust's officers, interest, brokerage and other trading costs,
taxes, all expenses of computing the Fund's net asset value per share, expenses
involved in registering and maintaining the registration of the Fund's shares
with the SEC and qualifying the Fund for sale in various jurisdictions and
maintaining such qualification, litigation and other extraordinary or
non-recurring expenses. However, other typical Fund expenses such as
Contractowner servicing, distribution of reports to Contractowners and
prospectus printing and postage will be borne by the relevant Company.
Administrator First Data Investor Services Group, Inc. ("Investor Services
Group"), a subsidiary of First Data Corporation, One Exchange Place, Boston,
Massachusetts 02109, serves as the Fund's administrator pursuant to an
Administration Agreement with the Trust. Under the terms of the Administration
Agreement, Investor Services Group generally assists in all aspects of the
Fund's operations, other than providing investment advice, subject to the
overall authority of the Trust's Board of Trustees. Pursuant to the terms of the
Administration Agreement, the Trust has agreed to pay Investor Services Group a
monthly fee at the annual rate of 0.02% of the value of the Trust's average
monthly net assets not exceeding $2 billion; 0.01% of the Trust's monthly
average net assets exceeding $2 billion but not exceeding $5 billion; and
0.0075% of the Trust's monthly average net assets exceeding $5 billion, in
addition to a flat fee of $70,000 per year for each portfolio of the Trust and a
one-time start up fee for each portfolio of the Trust. Distributor
First Data Distributors, Inc. ("FDDI") serves as distributor of the Fund's
shares to separate accounts of the Companies, for which it receives no separate
fee from the Fund. The principal business address of the Distributor is 4400
Computer Drive, Westborough, Massachusetts 01581. Custodian and Transfer
Agent Bankers Trust acts as custodian of the assets of the Fund and Investor
Services Group serves as the transfer agent for the Fund. Organization of
the Trust
The Trust was organized on January 19, 1996, under the laws of the Commonwealth
of Massachusetts. The Fund is a separate series of the Trust. The Trust offers
shares of beneficial interest of the Fund and the Trust's other series, par
value $0.001 per share. The shares of each of the other series of the Trust are
offered through separate Prospectuses. No series of shares has any preference
over any other series. All shares, when issued, will be fully paid and
nonassessable. The Trust's Board of Trustees has the authority to create
additional series without obtaining shareholder approval.
The Trust is an entity of the type commonly known as a "Massachusetts business
trust." Under Massachusetts law, shareholders of such a business trust may,
under certain circumstances, be held personally liable as partners for its
obligations. However, the risk of a shareholder incurring financial loss on
account of shareholder liability is limited to circumstances in which both
inadequate insurance existed and the Trust itself was unable to meet its
obligations.
Through its separate accounts, the Companies are the Fund's sole stockholders of
record, so under the 1940 Act, such Companies are deemed to be in control of the
Fund. Nevertheless, when a shareholders' meeting occurs, each Company solicits
and accepts voting instructions from its Contractowners who have allocated or
transferred monies for an investment in the Fund as of the record date of the
meeting. Each Company then votes the Fund's shares that are attributable to its
Contractowners' interests in the Fund in proportion to the voting instructions
received. Each Company will vote any share that it is entitled to vote directly
due to amounts it has contributed or accumulated in its separate accounts in the
manner described in the prospectuses for its variable annuities and variable
life insurance policies.
Each share of the Fund is entitled to one vote, and fractional shares are
entitled to fractional votes. Fund shares have non-cumulative voting rights, so
the vote of more than 50% of the shares can elect 100% of the Trustees.
The Trust is not required, and does not intend, to hold regular annual
shareholder meetings, but may hold special meetings for consideration of
proposals requiring shareholder approval.
The Fund is only available to owners of variable annuities or variable life
insurance policies issued by the Companies through their respective separate
accounts. The Fund does not currently foresee any disadvantages to
Contractowners arising from offering its shares to variable annuity and variable
life insurance policy separate accounts simultaneously, and the Board of
Trustees monitors events for the existence of any material irreconcilable
conflict between or among Contractowners. If a material irreconcilable conflict
arises, one or more separate accounts may withdraw their investment in the Fund.
This could possibly force the Fund to sell portfolio securities at
disadvantageous prices. Each Company will bear the expenses of establishing
separate portfolios for its variable annuity and variable life insurance
separate accounts if such action becomes necessary; however, ongoing expenses
that are ultimately borne by Contractowners will likely increase due to the loss
of economies of scale benefits that can be provided to mutual funds with
substantial assets.
SHAREHOLDER AND ACCOUNT POLICIES
PURCHASE AND REDEMPTION OF SHARES
Shares of the Fund will be continuously offered to each Company's separate
accounts at the net asset value per share next determined after a proper
purchase request has been received by the Company. The Company then offers to
Contractowners units in its separate accounts which directly correspond to
shares in the Fund. Each Company submits purchase and redemption orders to the
Fund based on allocation instructions for premium payments, transfer
instructions and surrender or partial withdrawal requests which are furnished to
the Company by such Contractowners. Contractowners can send such instructions
and requests to the Companies by first class mail, overnight mail or express
mail sent to the address set forth in the relevant Company's offering memorandum
included with this prospectus. The Fund and the Distributor reserve the right to
reject any purchase order for shares of the Fund.
Payment for redeemed shares will ordinarily be made within seven (7) business
days after the Fund receives a redemption order from the relevant Company. The
redemption price will be the net asset value per share next determined after the
Company receives the Contractowner's request in proper form.
The Fund may suspend the right of redemption or postpone the date of payment
during any period when trading on the NYSE is restricted, or the NYSE is closed
for other than weekends and holidays; when an emergency makes it not reasonably
practicable for the Fund to dispose of assets or calculate its net asset value;
or as permitted by the SEC.
The accompanying offering memorandum for the
Company's variable annuity or variable life insurance policy describes the
allocation, transfer and withdrawal provisions of such annuity or policy.
Contractowners may direct any inquiries regarding their accounts by calling
their insurance company's Customer Service Center at the telephone number shown
in the accompanying offering memorandum.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Fund distributes substantially all of its net income and capital gains
to shareholders each year. The Fund declares dividends from its net income daily
and pays the dividends monthly. Distribution of the Fund's net realized capital
gains, if any, are normally declared and paid annually at the end of the fiscal
year in which they were earned to the extent they are not offset by any capital
loss carryforwards. All dividends and capital gains distributions paid by the
Fund will be automatically reinvested, at net asset value, by the Companies'
separate accounts in additional shares of the Fund, unless an election is made
by a Contractowner to receive distributions in cash.
The Fund will be treated as a separate entity for federal income tax purposes.
The Fund intends to qualify as a "regulated investment company" under the
Internal Revenue Code of 1986, as amended (the "Code"). As a regulated
investment company the Fund will not be subject to U.S. federal income tax on
its investment company taxable income and net capital gains (the excess of net
long-term capital gains over net short-term capital losses), if any, that it
distributes to shareholders. The Fund intends to distribute to its shareholders,
at least annually, substantially all of its investment company taxable income
and net capital gains, and therefore does not anticipate incurring a federal
income tax liability.
The Code and Treasury Department regulations promulgated thereunder require that
mutual funds that are offered through insurance company separate accounts must
meet certain diversification requirements to preserve the tax-deferral benefits
provided by the variable contracts which are offered in connection with such
separate accounts. Bankers Trust intends to diversify the Fund's investments in
accordance with those requirements. The enclosed offering memorandum for a
Company's variable annuity or variable life insurance policies describes the
federal income tax treatment of distributions from such contracts to
Contractowners.
The foregoing is only a brief summary of important tax law provisions that
affect the Fund. Other federal, state or local tax law provisions may also
affect the Fund and its operations. Anyone who is considering allocating,
transferring or withdrawing monies held under a variable contract to or from the
Fund should consult a qualified tax adviser.
<PAGE>
Investment Manager of the Fund
BANKERS TRUST GLOBAL INVESTMENT MANAGEMENT
a unit of
BANKERS TRUST COMPANY
Administrator
FIRST DATA INVESTOR SERVICES GROUP, INC.
Distributor
FIRST DATA DISTRIBUTORS, INC.
Custodian
BANKERS TRUST COMPANY
Transfer Agent
FIRST DATA INVESTOR SERVICES GROUP, INC.
Independent Accountants
ERNST & YOUNG LLP
Counsel
WILLKIE FARR & GALLAGHER
No person has been authorized to give any information or to make any
representation other than those contained in the Fund's Prospectus, its SAI or
the Fund's official sales literature in connection with the offering of the
Fund's shares and, if given or made, such other information or representations
must not be relied on as having been authorized by the Fund. This Prospectus
does not constitute an offer in any state in which, or to any person to whom,
such offer may not lawfully be made.
<PAGE>
STATEMENT OF
ADDITIONAL INFORMATION
BT INSURANCE FUNDS TRUST
U. S. BOND INDEX FUND
OCTOBER 1, 1997
BT Insurance Funds Trust (the "Trust") is currently comprised of seven
series: the U.S. Bond Index Fund (the "Fund") and six other series. The shares
of the Fund are described herein. Capitalized terms not otherwise defined herein
shall have the same meaning as in the Prospectus.
Table of Contents
Risk Factors and Certain Securities and Investment Practices... 2
Performance Information........................................ 17
Valuation of Securities; Redemption in Kind.................... 18
Management of the Trust........................................ 18
Organization of the Trust...................................... 21
Taxation....................................................... 22
Shares of the Fund are available to the public only through the purchase of
certain variable annuity and variable life insurance contracts ("Contract(s)")
issued by various insurance companies (the "Companies"). The investment adviser
of the Fund is Bankers Trust Company (the "Manager" or "Bankers Trust"). The
distributor of the Fund shares is First Data Distributors, Inc. (the
"Distributor" or "FDDI "). The Prospectus for the Fund is dated October
1,1997. The Prospectus provides the basic information investors should know
before investing and may be obtained without charge by calling your insurance
company's Customer Service Center at the telephone number shown in the
accompanying offering memorandum. This Statement of Additional Information
("SAI"), which is not a Prospectus, is intended to provide additional
information regarding the activities and operations of the Fund and should be
read in conjunction with the Fund's Prospectus. This SAI is not an offer of any
Fund for which an investor has not received a Prospectus. Capitalized terms not
otherwise defined in this SAI have the meanings accorded to them in the Fund's
Prospectus. BANKERS TRUST GLOBAL INVESTMENT MANAGEMENT, a unit of
BANKERS TRUST COMPANY Investment Manager of the Fund
The Trust's distributor is FIRST DATA DISTRIBUTORS, INC., 4400 Computer Drive,
Westborough, MA 01581.
<PAGE>
RISK FACTORS AND CERTAIN SECURITIES AND INVESTMENT PRACTICES
Investment Objective
The investment objective of the Fund is described in the Fund's
Prospectus. There can, of course, be no assurance that the Fund will achieve its
investment objective.
Investment Practices
The following is a discussion of the various investments of and
techniques employed by the Fund:
Certificates of Deposit and Bankers' Acceptances. Certificates of
deposit are receipts issued by a depository institution in exchange for the
deposit of funds. The issuer agrees to pay the amount deposited plus interest to
the bearer of the receipt on the date specified on the certificate. The
certificate usually can be traded in the secondary market prior to maturity.
Bankers' acceptances typically arise from short-term credit arrangements
designed to enable businesses to obtain funds to finance commercial
transactions. Generally, an acceptance is a time draft drawn on a bank by an
exporter or an importer to obtain a stated amount of funds to pay for specific
merchandise. The draft is then "accepted" by a bank that, in effect,
unconditionally guarantees to pay the face value of the instrument on its
maturity date. The acceptance may then be held by the accepting bank as an
earning asset or it may be sold in the secondary market at the going rate of
discount for a specific maturity. Although maturities for acceptances can be as
long as 270 days, most acceptances have maturities of six months or less.
Commercial Paper. Commercial paper consists of short-term (usually from
1 to 270 days) unsecured promissory notes issued by corporations in order to
finance their current operations. A variable amount master demand note (which is
a type of commercial paper) represents a direct borrowing arrangement involving
periodically fluctuating rates of interest under a letter agreement between a
commercial paper issuer and an institutional lender pursuant to which the lender
may determine to invest varying amounts.
Illiquid Securities. Historically, illiquid securities have included
securities subject to contractual or legal restrictions on resale because they
have not been registered under the Securities Act of 1933, as amended (the "1933
Act"), securities which are otherwise not readily marketable and repurchase
agreements having a maturity of longer than seven days. Securities which have
not been registered under the 1933 Act are referred to as private placements or
restricted securities and are purchased directly from the issuer or in the
secondary market. Mutual funds do not typically hold a significant amount of
these restricted or other illiquid securities because of the potential for
delays on resale and uncertainty in valuation. Limitations on resale may have an
adverse effect on the marketability of portfolio securities and a mutual fund
might be unable to dispose of restricted or other illiquid securities promptly
or at reasonable prices and might thereby experience difficulty satisfying
redemptions within seven days. A mutual fund might also have to register such
restricted securities in order to dispose of them resulting in additional
expense and delay. Adverse market conditions could impede such a public offering
of securities.
In recent years, however, a large institutional market has developed
for certain securities that are not registered under the 1933 Act, including
repurchase agreements, commercial paper, municipal securities and corporate
bonds and notes. Institutional investors depend on an efficient institutional
market in which the unregistered security can be readily resold or on an
issuer's ability to honor a demand for repayment. The fact that there are
contractual or legal restrictions on resale of such investments to the general
public or to certain institutions may not be indicative of their liquidity.
The Securities and Exchange Commission (the "SEC") has adopted Rule
144A, which allows a broader institutional trading market for securities
otherwise subject to restriction on their resale to the general public. Rule
144A establishes a "safe harbor" from the registration requirements of the 1933
Act of resales of certain securities to qualified institutional buyers. The
Manager anticipates that the market for certain restricted securities such as
institutional commercial paper will expand further as a result of this
regulation and the development of automated systems for the trading, clearance
and settlement of unregistered securities of issuers, such as the PORTAL System
sponsored by the National Association of Securities Dealers, Inc.
The Manager will monitor the liquidity of Rule 144A securities in the
Fund's portfolio under the supervision of the Trust's Board of Trustees. In
reaching liquidity decisions, the Manager will consider, among other things, the
following factors: (i) the frequency of trades and quotes for the security; (ii)
the number of dealers and other potential purchasers wishing to purchase or sell
the security; (iii) dealer undertakings to make a market in the security and
(iv) the nature of the security and of the marketplace trades (e.g., the time
needed to dispose of the security, the method of soliciting offers and the
mechanics of the transfer).
Lending of Portfolio Securities. The Fund has the authority to lend
portfolio securities to brokers, dealers and other financial organizations. The
Fund will not lend securities to Bankers Trust, the Distributor or their
affiliates. By lending its securities, the Fund can increase its income by
continuing to receive interest on the loaned securities as well as by either
investing the cash collateral in short-term securities or obtaining yield in the
form of interest paid by the borrower when U.S. government obligations are used
as collateral. There may be risks of delay in receiving additional collateral or
risks of delay in recovery of the securities or even loss of rights in the
collateral should the borrower of the securities fail financially. The Fund will
adhere to the following conditions whenever its securities are loaned: (i) the
Fund must receive at least 100 percent cash collateral or equivalent securities
from the borrower; (ii) the borrower must increase this collateral whenever the
market value of the securities including accrued interest rises above the level
of the collateral; (iii) the Fund must be able to terminate the loan at any
time; (iv) the Fund must receive reasonable interest on the loan, as well as any
dividends, interest or other distributions on the loaned securities, and any
increase in market value; (v) the Fund may pay only reasonable custodian fees in
connection with the loan; and (vi) voting rights on the loaned securities may
pass to the borrower; provided, however, that if a material event adversely
affecting the investment occurs, the Trust's Board of Trustees must terminate
the loan and regain the right to vote the securities.
Short-Term Instruments. When the Fund experiences large cash inflows
through the sale of securities and desirable equity securities, that are
consistent with the Fund's investment objective, which are unavailable in
sufficient quantities or at attractive prices, the Fund may hold short-term
investments for a limited time pending availability of such equity securities.
Short-term instruments consist of: (i) short-term obligations of sovereign
governments, their agencies, instrumentalities, authorities or political
subdivisions; (ii) other short-term debt securities rated AA or higher by
Standard & Poor's Rating Service ("S&P") or Aa or higher by Moody's Investors
Service, Inc. ("Moody's") or, if unrated, of comparable quality in the opinion
of Bankers Trust; (iii) commercial paper; (iv) bank obligations, including
negotiable certificates of deposit, time deposits and bankers' acceptances; and
(v) repurchase agreements. At the time the Fund invests in commercial paper,
bank obligations or repurchase agreements, the issuer of the issuer's parent
must have outstanding debt rated AA or higher by S&P or Aa or higher by Moody's
or outstanding commercial paper or bank obligations rated A-1 by S&P or Prime-1
by Moody's; or, if no such ratings are available, the instrument must be of
comparable quality in the opinion of Bankers Trust.
When-Issued and Delayed Delivery Securities. The Fund may purchase
securities on a when-issued or delayed delivery basis. For example, delivery of
and payment for these securities can take place a month or more after the date
of the purchase commitment. The purchase price and the interest rate payable, if
any, on the securities are fixed on the purchase commitment date or at the time
the settlement date is fixed. The value of such securities is subject to market
fluctuation and no interest accrues to the Fund until settlement takes place. At
the time the Fund makes the commitment to purchase securities on a when-issued
or delayed delivery basis, it will record the transaction, reflect the value
each day of such securities in determining its net asset value and, if
applicable, calculate the maturity for the purposes of average maturity from
that date. At the time of settlement a when-issued security may be valued at
less than the purchase price. To facilitate such acquisitions, the Fund will
maintain with the Fund's custodian a segregated account with liquid assets,
consisting of cash, U.S. Government Securities or other appropriate securities,
in an amount at least equal to such commitments. On delivery dates for such
transactions, the Fund will meet its obligations from maturities or sales of the
securities held in the segregated account and/or from cash flow. If the Fund
chooses to dispose of the right to acquire a when-issued security prior to its
acquisition, it could, as with the disposition of any other Fund obligation,
incur a gain or loss due to market fluctuation. It is the current policy of the
Fund not to enter into when-issued commitments exceeding in the aggregate 15% of
the market value of the Fund's total assets, less liabilities other than the
obligations created by when-issued commitments.
Additional U.S. Government Obligations. The Fund may invest in
obligations issued or guaranteed by U.S. government agencies or
instrumentalities. These obligations may or may not be backed by the "full faith
and credit" of the United States. In the case of securities not backed by the
full faith and credit of the United States, the Fund must look principally to
the federal agency issuing or guaranteeing the obligation for ultimate
repayment, and may not be able to assert a claim against the United States
itself in the event the agency or instrumentality does not meet its commitments.
Securities in which the Fund may invest that are not backed by the full faith
and credit of the United States include, but are not limited to, obligations of
the Tennessee Valley Authority, the Federal Home Loan Mortgage Corporation
("FHLMC") and the U.S. Postal Service, each of which has the right to borrow
from the U.S. Treasury to meet its obligations, and obligations of the Farm
Credit Banks and the Federal Home Loan Banks, both of whose obligations may be
satisfied only by the individual credits of each issuing agency. Securities
which are backed by the full faith and credit of the United States include
obligations of the Government National Mortgage Association, the Farmers Home
Administration, and the Export-Import Bank.
Swap Agreements. Swap agreements are contracts entered into by two
parties, primarily institutional investors, for periods ranging from a few weeks
to more than one year. In a standard swap transaction, two parties agree to
exchange the returns (or differentials in rates of return) earned or realized on
particular predetermined investments or instruments. The gross returns to be
exchanged or swapped between the parties are calculated with respect to a
notional amount, i.e., the return on or increase in value of a particular dollar
amount invested at a particular interest rate, or in a basket of securities
representing a particular index. The notional amount of the swap agreement is
only a fictive basis on which to calculate the obligations which the parties to
a swap agreement have agreed to exchange. The Fund's obligations (or rights)
under a swap agreement will generally be equal only to the net amount to be paid
or received under the agreement based on the relative values of the positions
held by each party to the agreement (the "net amount"). The Fund's obligations
under a swap agreement will be accrued daily (offset against any amounts owing
to the Fund) and any accrued but unpaid net amounts owed to a swap counterparty
will be covered by the maintenance of a segregated account consisting of cash,
U.S. Government Securities, or high grade debt obligations, to avoid any
potential leveraging of the Fund's portfolio.
The successful use of swap agreements will depend on the Manager's
ability to correctly predict whether certain types of investments are likely to
produce greater returns than other investments. Swap agreements may be
considered to be illiquid because they are two party contracts and because they
may have terms of greater than seven days. Moreover, the Fund bears the risk of
loss of the amount expected to be received under a swap agreement in the event
of the default or bankruptcy of a swap agreement counterparty. The Fund will
enter into swap agreements only with counterparties that would be eligible for
consideration as repurchase agreement counterparties under the Fund's repurchase
agreement guidelines. Certain restrictions imposed on the Fund by the Internal
Revenue Code may limit the Fund's ability to use swap agreements. The swaps
market is a relatively new market and is largely unregulated. It is possible
that developments in the swaps market, including potential government
regulation, could adversely affect the Fund's ability to terminate existing swap
agreements or to realize amounts to be received under such agreements.
Certain swap agreements are exempt from most provisions of the
Commodity Exchange Act (the "CEA") and, therefore, are not regulated as futures
or commodity option transactions under the CEA, pursuant to regulations approved
by the Commodity Futures Trading Commission (the "CFTC") effective February 22,
1993. To qualify for this exemption, a swap agreement must be entered into by
eligible participants, which includes the following, provided the participant's
total assets exceed established levels: a bank or trust company, savings
association or credit union, insurance company, investment company subject to
regulation under the Investment Company Act of 1940, as amended (the "1940
Act"), commodity pool, corporation, partnership, proprietorship, organization,
trust or other entity, employee benefit plan, governmental entity,
broker-dealer, futures commission merchant or natural person. To be eligible,
natural persons and most other entities must have total assets exceeding $10
million; commodity pools and employee benefit plans must have assets exceeding
$5 million. In addition, an eligible swap transaction must meet three
conditions. First, the swap agreement may not be part of a fungible class of
agreements that are standardized as to their material economic terms. Second,
the creditworthiness of parties with actual or potential obligations under the
swap agreement must be a material consideration in entering into or determining
the terms of the swap agreement, including pricing, cost or credit enhancement
terms. Third, swap agreements may not be entered into and traded on or through a
multilateral transaction execution facility.
This exemption is not exclusive, and participants may continue to rely
on existing exclusions for swaps, such as the Policy Statement issued in July
1989 which recognized a "safe harbor" for swap transactions from regulation as
futures or commodity option transactions under the CEA or its regulations. The
Policy Statement applies to swap transactions settled in cash that: (i) have
individually tailored terms; (ii) lack exchange style offset and the use of a
clearing organization or margin system; (iii) are undertaken in conjunction with
a line of business; and (iv) are not marketed to the public.
Reverse Repurchase Agreements. The Fund may borrow funds for temporary
or emergency purposes, such as meeting larger than anticipated redemption
requests, and not for leverage, by among other things, agreeing to sell
portfolio securities to financial institutions such as banks and broker-dealers
and to repurchase them at a mutually agreed date and price (a "reverse
repurchase agreement"). At the time the Fund enters into a reverse repurchase
agreement it will place in a segregated custodial cash account, U.S. government
obligations or high-grade debt obligations having a value equal to the
repurchase price, including accrued interest. Reverse repurchase agreements
involve the risk that the market value of the securities sold by the Fund may
decline below the repurchase price of those securities. Reverse repurchase
agreements are considered to be borrowings by the Fund.
Warrants. Warrants entitle the holder to buy common stock from the
issuer at a specific price (the strike price) for a specific period of time. The
strike price of warrants sometimes is much lower than the current market price
of the underlying securities, yet warrants are subject to similar price
fluctuations. As a result, warrants may be more volatile investments than the
underlying securities.
Warrants do not entitle the holder to dividends or voting rights with
respect to the underlying securities and do not represent any rights in the
assets of the issuing company. Also, the value of the warrant does not
necessarily change with the value of the underlying securities and a warrant
ceases to have value if it is not exercised prior to the expiration date.
Convertible Securities. Convertible securities may be a debt security
or preferred stock which may be converted into common stock or carries the right
to purchase common stock. Convertible securities entitle the holder to exchange
the securities for a specified number of shares of common stock, usually of the
same company, at specified prices within a certain period of time.
The terms of any convertible security determine its ranking in a
company's capital structure. In the case of subordinated convertible debentures,
the holders' claims on assets and earnings are subordinated to the claims of
other creditors, and are senior to the claims of preferred and common
shareholders. In the case of convertible preferred stock, the holders' claims on
assets and earnings are subordinated to the claims of all creditors and are
senior to the claims of common shareholders.
Ginnie Mae Certificates. The Government National Mortgage Association
("Ginnie Mae") is a wholly-owned corporate instrumentality of the United States
within the Department of Housing and Urban Development. The National Housing Act
of 1934, as amended (the "Housing Act"), authorizes Ginnie Mae to guarantee the
timely payment of the principal of and interest on certificates that are based
on and backed by a pool of mortgage loans insured by the Federal Housing
Administration under the Housing Act, or Title of the Housing Act of 1949 ("FHA
Loans"), or guaranteed by the Department of Veterans Affairs under the
Servicemen's Readjustment Act of 1944, as amended ("VA Loans"), or by pools of
other eligible mortgage loans. The Housing Act provides that the full faith and
credit of the U.S. government is pledged to the payment of all amounts that may
be required to be paid under any Ginnie Mae guaranty. In order to meet its
obligations under such guaranty, Ginnie Mae is authorized to borrow from the
U.S. Treasury with no limitations as to amount.
The Ginnie Mae Certificates in which the Fund will invest will
represent a pro rata interest in one or more pools of the following types of
mortgage loans: (i) fixed-rate level payment mortgage loans; (ii) fixed-rate
graduated payment mortgage loans; (iii) fixed-rate growing equity mortgage
loans; (iv) fixed-rate mortgage loans secured by manufactured (mobile) homes;
(v) mortgage loans on multifamily residential properties under construction;
(vi) mortgage loans on completed multifamily projects; (vii) fixed-rate mortgage
loans as to which escrowed funds are used to reduce the borrower's monthly
payments during the early years of the mortgage loans ("buydown" mortgage
loans); (viii) mortgage loans that provide for adjustments in payments based on
periodic changes in interest rates or in other payment terms of the mortgage
loans; and (ix) mortgage-backed serial notes. All of these mortgage loans will
be FHA Loans or VA Loans and, except as otherwise specified above, will be
fully-amortizing loans secured by first liens on one- to four-family housing
units.
Fannie Mae Certificates. The Federal National Mortgage Association ("FNMA")
("Fannie Mae") is a federally chartered and privately owned corporation
organized and existing under the Federal National Mortgage Association Charter
Act of 1938. The
obligations of Fannie Mae are not backed by the full faith and credit of
the U.S. government.
Each Fannie Mae Certificate will represent a pro rata interest in one
or more pools of FHA Loans, VA Loans or conventional mortgage loans (i.e.,
mortgage loans that are not insured or guaranteed by any governmental agency) of
the following types: (i) fixed-rate level payment mortgage loans; (ii)
fixed-rate growing equity mortgage loans; (iii) fixed-rate graduated payment
mortgage loans; (iv) variable rate mortgage loans; (v) other adjustable rate
mortgage loans; and (vi) fixed-rate and adjustable mortgage loans secured by
multifamily projects.
Freddie Mac Certificates. The FHLMC ("Freddie Mac") is a corporate
instrumentality of the United States created pursuant to the Emergency Home
Finance Act of 1970, as amended (the "FHLMC Act"). The obligations of Freddie
Mac are obligations solely of Freddie Mac and are not backed by the full faith
and credit of the U.S. government.
Freddie Mac Certificates represent a pro rata interest in a group of
mortgage loans (a "Freddie Mac Certificate group") purchased by Freddie Mac. The
mortgage loans underlying the Freddie Mac Certificates will consist of
fixed-rate or adjustable rate mortgage loans with original terms to maturity of
between ten and thirty years, substantially all of which are secured by first
liens on one- to four-family residential properties or multifamily projects.
Each mortgage loan must meet the applicable standards set forth in the FHLMC
Act. A Freddie Mac Certificate group may include whole loans, participating
interests in whole loans and undivided interests in whole loans and
participations comprising another Freddie Mac Certificate group.
Adjustable Rate Mortgages - Interest Rate Indices. Adjustable rate
mortgages in which the Fund invests may be adjusted on the basis of one of
several indices. The One Year Treasury Index is the figure derived from the
average weekly quoted yield on U.S. Treasury Securities adjusted to a constant
maturity of one year. The Cost of Funds Index reflects the monthly weighted
average cost of funds of savings and loan associations and savings banks whose
home offices are located in Arizona, California and Nevada (the "FHLB Eleventh
District") that are member institutions of the Federal Home Loan Bank of San
Francisco (the "FHLB of San Francisco"), as computed from statistics tabulated
and published by the FHLB of San Francisco. The FHLB of San Francisco normally
announces the Cost of Funds Index on the last working day of the month following
the month in which the cost of funds was incurred.
A number of factors affect the performance of the Cost of Funds Index
and may cause the Cost of Funds Index to move in a manner different from indices
based upon specific interest rates, such as the One Year Treasury Index. Because
of the various origination dates and maturities of the liabilities of members of
the FHLB Eleventh District upon which the Cost of Funds Index is based, among
other things, at any time the Cost of Funds Index may not reflect the average
prevailing market interest rates on new liabilities of similar maturities. There
can be no assurance that the Cost of Funds Index will necessarily move in the
same direction or at the same rate as prevailing interest rates since as longer
term deposits or borrowings mature and are renewed at market interest rates, the
Cost of Funds Index will rise or fall depending upon the differential between
the prior and the new rates on such deposits and borrowings. In addition,
dislocations in the thrift industry in recent years have caused and may continue
to cause the cost of funds of thrift institutions to change for reasons
unrelated to changes in general interest rate levels. Furthermore, any movement
in the Cost of Funds Index as compared to other indices based upon specific
interest rates may be affected by changes instituted by the FHLB of San
Francisco in the method used to calculate the Cost of Funds Index. To the extent
that the Cost of Funds Index may reflect interest changes on a more delayed
basis than other indices, in a period of rising interest rates, any increase may
produce a higher yield later than would be produced by such other indices, and
in a period of declining interest rates, the Cost of Funds Index may remain
higher than other market interest rates which may result in a higher level of
principal prepayments on mortgage loans which adjust in accordance with the Cost
of Funds Index than mortgage loans which adjust in accordance with other
indices.
LIBOR, the London interbank offered rate, is the interest rate that the
most creditworthy international banks dealing in U.S. dollar-denominated
deposits and loans charge each other for large dollar-denominated loans. LIBOR
is also usually the base rate for large dollar-denominated loans in the
international market. LIBOR is generally quoted for loans having rate
adjustments at one, three, six or twelve month intervals.
Asset-Backed Securities. The asset-backed securities in which the Fund
may invest are limited to those which are readily marketable, dollar-denominated
and rated BBB or higher by S&P or Baa or higher by Moody's. Asset-backed
securities present certain risks that are not presented by mortgage-backed
securities. Primarily, these securities do not have the benefit of the same type
of security interest in the related collateral. Credit card receivables are
generally unsecured and the debtors are entitled to the protection of a number
of state and federal consumer credit laws, many of which give such debtors the
right to avoid payment of certain amounts owed on the credit cards, thereby
reducing the balance due. Most issuers of automobile receivables permit the
servicer to retain possession of the underlying obligations. If the servicer
were to sell these obligations to another party, there is a risk that the
purchaser would acquire an interest superior to that of the holders of the
related automobile receivables. In addition, because of the large number of
vehicles involved in a typical issuance and technical requirements under state
laws, the trustee for the holders of the automobile receivables may not have a
proper security interest in all of the obligations backing such receivables.
Therefore, there is the possibility that recoveries on repossessed collateral
may not, in some cases, be available to support payments on these securities.
Mortgage-Backed Securities and Asset-Backed Securities Types of Credit
Support. The mortgage-backed securities in which the Fund may invest are limited
to those relating to residential mortgages. Mortgage-backed securities and
asset-backed securities are often backed by a pool of assets representing the
obligations of a number of different parties. To lessen the effect of failure by
obligors on underlying assets to make payments, such securities may contain
elements of credit support. Such credit support falls into two categories: (i)
liquidity protection and (ii) protection against losses resulting from ultimate
default by an obligor on the underlying assets. Liquidity protection refers to
the provision of advances, generally by the entity administering the pool of
assets, to ensure that the pass-through of payments due on the underlying pool
occurs in a timely fashion. Protection against losses resulting from ultimate
default enhances the likelihood of ultimate payment of the obligations on at
least a portion of the assets in the pool. Such protection may be provided
through guarantees, insurance policies or letters of credit obtained by the
issuer or sponsor from third parties, through various means of structuring the
transaction or through a combination of such approaches. The Fund will not pay
any additional fees for such credit support, although the existence of credit
support may increase the price of a security.
The ratings of mortgage-backed securities and asset-backed securities
for which third-party credit enhancement provides liquidity protection or
protection against losses from default are generally dependent upon the
continued creditworthiness of the provider of the credit enhancement. The
ratings of such securities could be subject to reduction in the event of
deterioration in the creditworthiness of the credit enhancement provider even in
cases where the delinquency and loss experience on the underlying pool of assets
is better than expected.
Examples of credit support arising out of the structure of the
transaction include "senior-subordinated securities," creation of "reserve
funds" (where cash or investments, sometimes funded from a portion of the
payments on the underlying assets, are held in reserve against future losses)
and "over-collateralization" (where the scheduled payments on, or the principal
amount of, the underlying assets exceed those required to make payment of the
securities and pay any servicing or other fees). The degree of credit support
provided for each issue is generally based on historical information with
respect to the level of credit risk associated with the underlying assets.
Delinquency or loss in excess of SAI is anticipated could adversely affect the
return on an investment in such a security.
Stripped Mortgage-Backed Securities. The cash flows and yields on IO
and PO classes are extremely sensitive to the rate of principal payments
(including prepayments) on the related underlying mortgage assets. For example,
a rapid or slow rate of principal payments may have a material adverse effect on
the yield to maturity of IOs or POs, respectively. If the underlying mortgage
assets experience greater than anticipated prepayments of principal, an investor
may fail to recoup fully its initial investment in an IO class of a stripped
mortgage-backed security, even if the IO class is rated AAA or Aaa. Conversely,
if the underlying mortgage assets experience slower than anticipated prepayments
of principal, the yield on a PO class will be affected more severely than would
be the case with a traditional mortgage-backed security.
Futures Contracts and Options on Futures Contracts
General. The successful use of such instruments draws upon the
Manager's skill and experience with respect to such instruments and usually
depends on the Manager's ability to forecast interest rate and currency exchange
rate movements correctly. Should interest or exchange rates move in an
unexpected manner, the Fund may not achieve the anticipated benefits of futures
contracts or options on futures contracts or may realize losses and thus will be
in a worse position than if such strategies had not been used. In addition, the
correlation between movements in the price of futures contracts or options on
futures contracts and movements in the price of the securities and currencies
hedged or used for cover will not be perfect and could produce unanticipated
losses.
Successful use of the futures contract and related options are subject
to special risk considerations. A liquid secondary market for any futures or
options contract may not be available when a futures or options position is
sought to be closed. In addition, there may be an imperfect correlation between
movements in the securities or currency in the Fund. Successful use of futures
or options contracts is further dependent on Bankers Trust's ability to
correctly predict movements in the securities markets and no assurance can be
given that its judgment will be correct. Successful use of options on securities
or stock indices are subject to similar risk considerations. In addition, by
writing covered call options, the Fund gives up the opportunity, while the
option is in effect, to profit from any price increase in the underlying
securities above the options exercise price.
Futures Contracts. The Fund may enter into contracts for the purchase
or sale for future delivery of fixed-income securities or contracts based on
financial indices including any index of U.S. Government Securities or corporate
debt securities. U.S. futures contracts have been designed by exchanges which
have been designated "contracts markets" by the CFTC, and must be executed
through a futures commission merchant, or brokerage firm, which is a member of
the relevant contract market. Futures contracts trade on a number of exchange
markets, and, through their clearing corporations, the exchanges guarantee
performance of the contracts as between the clearing members of the exchange.
The Fund may enter into futures contracts which are based on debt securities
that are backed by the full faith and credit of the U.S. government, such as
long-term U.S. Treasury Bonds, Treasury Notes, Ginnie Mae modified pass-through
mortgage-backed securities and three-month U.S. Treasury Bills. The Fund may
also enter into futures contracts which are based on bonds issued by entities
other than the U.S. government.
At the same time a futures contract is purchased or sold, the Fund must
allocate cash or securities as a deposit payment ("initial deposit"). It is
expected that the initial deposit would be approximately 1 1/2% to 5% of a
contract's face value. Daily thereafter, the futures contract is valued and the
payment of "variation margin" may be required, since each day the Fund would
provide or receive cash that reflects any decline or increase in the contract's
value.
At the time of delivery of securities pursuant to such a contract,
adjustments are made to recognize differences in value arising from the delivery
of securities with a different interest rate from that specified in the
contract. In some (but not many) cases, securities called for by a futures
contract may not have been issued when the contract was written.
Although futures contracts by their terms call for the actual delivery
or acquisition of securities, in most cases the contractual obligation is
fulfilled before the date of the contract without having to make or take
delivery of the securities. The offsetting of a contractual obligation is
accomplished by buying (or selling, as the case may be) on a commodities
exchange an identical futures contract calling for delivery in the same month.
Such a transaction, which is effected through a member of an exchange, cancels
the obligation to make or take delivery of the securities. Since all
transactions in the futures market are made, offset or fulfilled through a
clearinghouse associated with the exchange on which the contracts are traded,
the Fund will incur brokerage fees when it purchases or sells futures contracts.
The purpose of the acquisition or sale of a futures contract, in the
case of the Fund which holds or intends to acquire fixed-income securities, is
to attempt to protect the Fund from fluctuations in interest rates without
actually buying or selling fixed-income securities. For example, if interest
rates were expected to increase, the Fund might enter into futures contracts for
the sale of debt securities. Such a sale would have much the same effect as
selling an equivalent value of the debt securities owned by the Fund. If
interest rates did increase, the value of the debt security in the Fund would
decline, but the value of the futures contracts to the Fund would increase at
approximately the same rate, thereby keeping the net asset value of the Fund
from declining as much as it otherwise would have. The Fund could accomplish
similar results by selling debt securities and investing in bonds with short
maturities when interest rates are expected to increase. However, since the
futures market is more liquid than the cash market, the use of futures contracts
as an investment technique allows the Fund to maintain a defensive position
without having to sell its portfolio securities.
Similarly, when it is expected that interest rates may decline, futures
contracts may be purchased to attempt to hedge against anticipated purchases of
debt securities at higher prices. Since the fluctuations in the value of futures
contracts should be similar to those of debt securities, the Fund could take
advantage of the anticipated rise in the value of debt securities without
actually buying them until the market had stabilized. At that time, the futures
contracts could be liquidated and the Fund could then buy debt securities on the
cash market. To the extent the Fund enters into futures contracts for this
purpose, the assets in the segregated asset account maintained to cover the
Fund's obligations with respect to such futures contracts will consist of cash,
cash equivalents or high quality liquid debt securities from its portfolio in an
amount equal to the difference between the fluctuating market value of such
futures contracts and the aggregate value of the initial and variation margin
payments made by the Fund, with respect to such futures contracts.
The ordinary spreads between prices in the cash and futures market, due
to differences in the nature of those markets, are subject to distortions.
First, all participants in the futures market are subject to initial deposit and
variation margin requirements. Rather than meeting additional variation margin
requirements, investors may close futures contracts through offsetting
transactions which could distort the normal relationship between the cash and
futures markets. Second, the liquidity of the futures market depends on
participants entering into offsetting transactions rather than making or taking
delivery. To the extent participants decide to make or take delivery, liquidity
in the futures market could be reduced, thus producing distortion. Third, from
the point of view of speculators, the margin deposit requirements in the futures
market are less onerous than margin requirements in the securities market.
Therefore, increased participation by speculators in the futures market may
cause temporary price distortions. Due to the possibility of distortion, a
correct forecast of general interest rate trends by the Manager may still not
result in a successful transaction.
In addition, futures contracts entail risks. Although the Manager
believes that use of such contracts will benefit the Fund, if the Manager's
investment judgment about the general direction of interest rates is incorrect,
the Fund's overall performance would be poorer than if it had not entered into
any such contract. For example, if the Fund has hedged against the possibility
of an increase in interest rates which would adversely affect the price of debt
securities held in its portfolio and interest rates decrease instead, the Fund
will lose part or all of the benefit of the increased value of its debt
securities which it has hedged because it will have offsetting losses in its
futures positions. In addition, in such situations, if the Fund has insufficient
cash, it may have to sell debt securities from its portfolio to meet daily
variation margin requirements. Such sales of bonds may be, but will not
necessarily be, at increased prices which reflect the rising market. The Fund
may have to sell securities at a time when it may be disadvantageous to do so.
Options on Futures Contracts. The Fund may purchase and write options
on futures contracts for hedging purposes. The purchase of a call option on a
futures contract is similar in some respects to the purchase of a call option on
an individual security. Depending on the pricing of the option compared to
either the price of the futures contract upon which it is based or the price of
the underlying debt securities, it may or may not be less risky than ownership
of the futures contract or underlying debt securities. As with the purchase of
futures contracts, when the Fund is not fully invested it may purchase a call
option on a futures contract to hedge against a market advance due to declining
interest rates.
The writing of a call option on a futures contract constitutes a
partial hedge against declining prices of the underlying security which is
deliverable upon exercise of the futures contract. If the futures price at
expiration of the option is below the exercise price, a the Fund will retain the
full amount of the option premium which provides a partial hedge against any
decline that may have occurred in the Fund's portfolio holdings. The writing of
a put option on a futures contract constitutes a partial hedge against
increasing prices of the underlying security which is deliverable upon exercise
of the futures contract. If the futures price at expiration of the option is
higher than the exercise price, the Fund will retain the full amount of the
option premium which provides a partial hedge against any increase in the price
of securities which the Fund intends to purchase. If a put or call option the
Fund has written is exercised, the Fund will incur a loss which will be reduced
by the amount of the premium it receives. Depending on the degree of correlation
between changes in the value of its portfolio securities and changes in the
value of its futures positions, the Fund's losses from existing options on
futures may to some extent be reduced or increased by changes in the value of
portfolio securities.
The purchase of a put option on a futures contract is similar in some
respects to the purchase of protective put options on portfolio securities. For
example, the Fund may purchase a put option on a futures contract to hedge its
portfolio against the risk of rising interest rates.
The amount of risk the Fund assumes when it purchases an option on a
futures contract is the premium paid for the option plus related transaction
costs. In addition to the correlation risks discussed above, the purchase of an
option also entails the risk that changes in the value of the underlying futures
contract will not be fully reflected in the value of the option purchased.
The Board of Trustees of the Trust has also adopted a restriction that
the Fund will not enter into any futures contracts or options on futures
contracts if immediately thereafter the amount of margin deposits on all the
futures contracts of the Fund and premiums paid on outstanding options on
futures contracts owned by the Fund (other than those entered into for bona fide
hedging purposes) would exceed 5% of the market value of the total assets of the
Fund.
Options on Securities. The Fund may write (sell) covered call and put
options to a limited extent on its portfolio securities ("covered options") in
an attempt to increase income. However, the Fund may forgo the benefits of
appreciation on securities sold or may pay more than the market price on
securities acquired pursuant to call and put options written by the Fund.
When the Fund writes a covered call option, it gives the purchaser of
the option the right to buy the underlying security at the price specified in
the option (the "exercise price") by exercising the option at any time during
the option period. If the option expires unexercised, the Fund will realize
income in an amount equal to the premium received for writing the option. If the
option is exercised, a decision over which the Fund has no control, the Fund
must sell the underlying security to the option holder at the exercise price. By
writing a covered call option, the Fund forgoes, in exchange for the premium
less the commission ("net premium"), the opportunity to profit during the option
period from an increase in the market value of the underlying security above the
exercise price.
When the Fund writes a covered put option, it gives the purchaser of
the option the right to sell the underlying security to the Fund at the
specified exercise price at any time during the option period. If the option
expires unexercised, the Fund will realize income in the amount of the premium
received for writing the option. If the put option is exercised, a decision over
which the Fund has no control, the Fund must purchase the underlying security
from the option holder at the exercise price. By writing a covered put option,
the Fund, in exchange for the net premium received, accepts the risk of a
decline in the market value of the underlying security below the exercise price.
The Fund will only write put options involving securities for which a
determination is made at the time the option is written that the Fund wishes to
acquire the securities at the exercise price.
The Fund may terminate its obligation as the writer of a call or put
option by purchasing an option with the same exercise price and expiration date
as the option previously written. This transaction is called a "closing purchase
transaction." The Fund will realize a profit or loss for a closing purchase
transaction if the amount paid to purchase an option is less or more, as the
case may be, than the amount received from the sale thereof. To close out a
position as a purchaser of an option, the Fund, may make a "closing sale
transaction" which involves liquidating the Fund's position by selling the
option previously purchased. Where the Fund cannot effect a closing purchase
transaction, it may be forced to incur brokerage commissions or dealer spreads
in selling securities it receives or it may be forced to hold underlying
securities until an option is exercised or expires.
When the Fund writes an option, an amount equal to the net premium
received by the Fund is included in the liability section of the Fund's
Statement of Assets and Liabilities as a deferred credit. The amount of the
deferred credit will be subsequently marked to market to reflect the current
market value of the option written. The current market value of a traded option
is the last sale price or, in the absence of a sale, the mean between the
closing bid and asked price. If an option expires on its stipulated expiration
date or if the Fund enters into a closing purchase transaction, the Fund will
realize a gain (or loss if the cost of a closing purchase transaction exceeds
the premium received when the option was sold), and the deferred credit related
to such option will be eliminated. If a call option is exercised, the Fund will
realize a gain or loss from the sale of the underlying security and the proceeds
of the sale will be increased by the premium originally received. The writing of
covered call options may be deemed to involve the pledge of the securities
against which the option is being written. Securities against which call options
are written will be segregated on the books of the custodian for the Fund.
The Fund may purchase call and put options on any securities in which
it may invest. The Fund would normally purchase a call option in anticipation of
an increase in the market value of such securities. The purchase of a call
option would entitle the Fund, in exchange for the premium paid, to purchase a
security at a specified price during the option period. The Fund would
ordinarily have a gain if the value of the securities increased above the
exercise price sufficiently to cover the premium and would have a loss if the
value of the securities remained at or below the exercise price during the
option period.
The Fund would normally purchase put options in anticipation of a
decline in the market value of securities in its portfolio ("protective puts")
or securities of the type in which it is permitted to invest. The purchase of a
put option would entitle the Fund, in exchange for the premium paid, to sell a
security, which may or may not be held in the Fund's portfolio, at a specified
price during the option period. The purchase of protective puts is designed
merely to offset or hedge against a decline in the market value of the Fund's
portfolio securities. Put options also may be purchased by the Fund for the
purpose of affirmatively benefiting from a decline in the price of securities
which the Fund does not own. The Fund would ordinarily recognize a gain if the
value of the securities decreased below the exercise price sufficiently to cover
the premium and would recognize a loss if the value of the securities remained
at or above the exercise price. Gains and losses on the purchase of protective
put options would tend to be offset by countervailing changes in the value of
underlying portfolio securities.
The Fund has adopted certain other nonfundamental policies concerning
option transactions which are discussed below. The Fund's activities in options
may also be restricted by the requirements of the Internal Revenue Code of 1986,
as amended (the "Code"), for qualification as a regulated investment company.
The hours of trading for options on securities may not conform to the
hours during which the underlying securities are traded. To the extent that the
option markets close before the markets for the underlying securities,
significant price and rate movements can take place in the underlying securities
markets that cannot be reflected in the option markets. It is impossible to
predict the volume of trading that may exist in such options, and there can be
no assurance that viable exchange markets will develop or continue.
The Fund may engage in over-the-counter options transactions with
broker-dealers who make markets in these options. At present, approximately ten
broker-dealers, including several of the largest primary dealers in U.S.
government securities, make these markets. The ability to terminate
over-the-counter option positions is more limited than with exchange-traded
option positions because the predominant market is the issuing broker rather
than an exchange, and may involve the risk that broker-dealers participating in
such transactions will not fulfill their obligations. To reduce this risk, the
Fund will purchase such options only from broker-dealers who are primary
government securities dealers recognized by the Federal Reserve Bank of New York
and who agree to (and are expected to be capable of) entering into closing
transactions, although there can be no guarantee that any such option will be
liquidated at a favorable price prior to expiration. The Manager will monitor
the creditworthiness of dealers with whom the Fund enters into such options
transactions under the general supervision of the Funds' Trustees.
Options on Securities Indices. The Fund may purchase and write (sell)
call and put options on securities indices. Such options give the holder the
right to receive a cash settlement during the term of the option based upon the
difference between the exercise price and the value of the index.
Options on securities indices entail certain risks. The absence of a
liquid secondary market to close out options positions on securities indices may
occur, although the Fund generally will only purchase or write such an option if
the Manager believes the option can be closed out.
Use of options on securities indices also entails the risk that trading
in such options may be interrupted if trading in certain securities included in
the index is interrupted. The Fund will not purchase such options unless the
Manager believes the market is sufficiently developed such that the risk of
trading in such options is no greater than the risk of trading in options on
securities.
Price movements in the Fund's portfolio may not correlate precisely
with movements in the level of an index and, therefore, the use of options on
indices cannot serve as a complete hedge. Because options on securities indices
require settlement in cash, the Manager may be forced to liquidate portfolio
securities to meet settlement obligations.
Investment Restrictions
The following investment restrictions are "fundamental policies" of the
Fund and may not be changed without the approval of a "majority of the
outstanding voting securities" of the Fund. "Majority of the outstanding voting
securities" under the 1940 Act, and as used in this SAI and the Prospectus,
means, with respect to the Fund, the lesser of (i) 67% or more of the
outstanding voting securities of the Fund present at a meeting, if the holders
of more than 50% of the outstanding voting securities of the Fund are present or
represented by proxy or (ii) more than 50% of the outstanding voting securities
of the Fund.
As a matter of fundamental policy, the Fund may not:
(1) borrow money or mortgage or hypothecate assets of the Fund, except
that in an amount not to exceed 1/3 of the current value of the Fund's assets,
it may borrow money as a temporary measure for extraordinary or emergency
purposes and enter into reverse repurchase agreements or dollar roll
transactions, and except that it may pledge, mortgage or hypothecate not more
than 1/3 of such assets to secure such borrowings (it is intended that money
would be borrowed only from banks and only either to accommodate requests for
the withdrawal of beneficial interests (redemption of shares) while effecting an
orderly liquidation of portfolio securities or to maintain liquidity in the
event of an unanticipated failure to complete a portfolio security transaction
or other similar situations) or reverse repurchase agreements, provided that
collateral arrangements with respect to options and futures, including deposits
of initial deposit and variation margin, are not considered a pledge of assets
for purposes of this restriction and except that assets may be pledged to secure
letters of credit solely for the purpose of participating in a captive insurance
company sponsored by the Investment Company Institute; for additional related
restrictions, see clause (i) under the caption "Additional Restrictions" below
(as an operating policy, the Fund may not engage in dollar roll transactions);
(2) underwrite securities issued by other persons except insofar as the
Trust or the Fund may technically be deemed an underwriter under the 1933 Act in
selling a portfolio security;
(3) make loans to other persons except: (a) through the lending of the
Fund's portfolio securities and provided that any such loans not exceed 30% of
the Fund's net assets (taken at market value); (b) through the use of repurchase
agreements or the purchase of short-term obligations; or (c) by purchasing a
portion of an issue of debt securities of types distributed publicly or
privately;
(4) purchase or sell real estate (including limited partnership
interests but excluding securities secured by real estate or interests therein),
interests in oil, gas or mineral leases, commodities or commodity contracts
(except futures and option contracts) in the ordinary course of business (except
that the Trust may hold and sell, for the Fund's portfolio, real estate acquired
as a result of the Fund's ownership of securities);
(5) concentrate its investments in any particular industry (excluding
U.S. Government Securities), but if it is deemed appropriate for the achievement
of the Fund's investment objective(s), up to 25% of its total assets may be
invested in any one industry; and
(6) issue any senior security (as that term is defined in the 1940 Act)
if such issuance is specifically prohibited by the 1940 Act or the rules and
regulations promulgated thereunder (except to the extent permitted in investment
restriction No. 1), provided that collateral arrangements with respect to
options and futures, including deposits of initial deposit and variation margin,
are not considered to be the issuance of a senior security for purposes of this
restriction;
(7) purchase the securities of any one issuer if as a result more than
5% of the value of its total assets would be invested in the securities of such
issuer or the Fund would own more than 10% of the outstanding voting securities
of such issuer, except that up to 25% of the value of its total assets may be
invested without regard to these 5% limitation and provided that there is no
limitation with respect to investments in U.S. Government Securities.
Additional investment restrictions adopted by the Fund, which may be
changed by the Board of Trustees, provide that the Fund may not:
(i) purchase any security or evidence of interest therein on margin, except
that such short-term credit as may be necessary for the clearance of
purchases and sales of securities may be obtained and except that
deposits of initial deposit and variation margin may be made in
connection with the purchase, ownership, holding or sale of futures;
(ii) sell securities it does not own such that the dollar amount of such
short sales at any one time exceeds 25% of the net equity of the Fund,
and the value of securities of any one issuer in which the Fund is
short exceeds the lesser of 2.0% of the value of the Fund's net assets
or 2.0% of the securities of any class of any U.S. issuer and, provided
that short sales may be made only in those securities which are fully
listed on a national securities exchange (This provision does not
include the sale of securities where the Fund contemporaneously owns or
has the right to obtain securities equivalent in kind and amount to
those sold, i.e., short sales against the box.) (the Fund has no
current intention to engage in short selling);
(iii) invest for the purpose of exercising control or management;
(iv) purchase securities issued by any investment company except by purchase in
the open market where no commission or profit to a sponsor or dealer
results from such purchase other than the customary broker's commission, or
except when such purchase, though not made in the open market, is part of a
plan of merger or consolidation; provided, however, that securities of any
investment company will not be purchased for the Fund if such purchase at
the time thereof would cause: (a) more than 10% of the Fund's total assets
(taken at the greater of cost or market value) (except the Fund may exceed
the applicable percentage limits to the extent permitted by an exemptive
order of the SEC)to be invested in the securities of such issuers; (b) more
than 5% of the Fund's total assets (taken at the greater of cost or market
value) (except the Fund may exceed the applicable percentage limits to the
extent permitted by an exemptive order of the SEC)to be invested in any one
investment company; or (c) more than 3% of the outstanding voting
securities of any such issuer to be held for the Fund; provided further
that, except in the case of a merger or consolidation, the Fund shall not
purchase any securities of any open-end investment company unless the Fund
(1) waives the investment advisory fee with respect to assets invested in
other open-end investment companies and (2) incurs no sales charge in
connection with the investment (as an operating policy, the Fund will not
invest in another open-end registered investment company);
(v) invest more than 10% of the Fund's total assets (taken at the greater
of cost or market value) in securities that are restricted as to resale
under the 1933 Act (other than Rule 144A securities deemed liquid by
the Fund's Board of Trustees);
(vi) invest more than 15% of the Fund's net assets (taken at the greater of
cost or market value) in securities that are illiquid or not readily
marketable not including (a) Rule 144A securities that have been
determined to be liquid by the Board of Trustees; and (b) commercial
paper that is sold under section 4(2) of the 1933 Act which: (i) is not
traded flat or in default as to interest or principal;
(vii) invest in warrants (other than warrants acquired by the Fund as part of
a unit or attached to securities at the time of purchase) if, as a
result, the investments (valued at the lower of cost or market) would
exceed 5% of the value of the Fund's net assets or if, as a result,
more than 2% of the Fund's net assets would be invested in warrants not
listed on a recognized United States stock exchange, to the extent
permitted by applicable state securities laws;
There will be no violation of any investment restriction if that
restriction is complied with at the time the relevant action is taken
notwithstanding a later change in market value of an investment, in net or total
assets, in the securities rating of the investment, or any other later change.
The Fund will comply with the state securities laws and regulations of
all states in which it is registered.
Portfolio Transactions and Brokerage Commissions
The Manager is responsible for decisions to buy and sell securities,
futures contracts and options on such securities and futures for the Fund, the
selection of brokers, dealers and futures commission merchants to effect
transactions and the negotiation of brokerage commissions, if any.
Broker-dealers may receive brokerage commissions on fund transactions, including
options, futures and options on futures transactions and the purchase and sale
of underlying securities upon the exercise of options. Orders may be directed to
any broker-dealer or futures commission merchant, including to the extent and in
the manner permitted by applicable law, Bankers Trust or its subsidiaries or
affiliates. Purchases and sales of certain fund securities on behalf of the Fund
are frequently placed by the Manager with the issuer or a primary or secondary
market-maker for these securities on a net basis, without any brokerage
commission being paid by the Fund. Trading does, however, involve transaction
costs. Transactions with dealers serving as market-makers reflect the spread
between the bid and asked prices. Transaction costs may also include fees paid
to third parties for information as to potential purchasers or sellers of
securities. Purchases of underwritten issues may be made which will include an
underwriting fee paid to the underwriter.
The Manager seeks to evaluate the overall reasonableness of the
brokerage commissions paid (to the extent applicable) in placing orders for the
purchase and sale of securities for the Fund taking into account such factors as
price, commission (negotiable in the case of national securities exchange
transactions), if any, size of order, difficulty of execution and skill required
of the executing broker-dealer through familiarity with commissions charged on
comparable transactions, as well as by comparing commissions paid by the Fund to
reported commissions paid by others. The Manager reviews on a routine basis
commission rates, execution and settlement services performed, making internal
and external comparisons.
The Manager is authorized, consistent with Section 28(e) of the
Securities Exchange Act of 1934, as amended, when placing portfolio transactions
for the Fund with a broker to pay a brokerage commission (to the extent
applicable) in excess of that which another broker might have charged for
effecting the same transaction on account of the receipt of research, market or
statistical information. The term "research, market or statistical information"
includes advice as to the value of securities; the advisability of investing in,
purchasing or selling securities; the availability of securities or purchasers
or sellers of securities; and furnishing analyses and reports concerning
issuers, industries, securities, economic factors and trends, portfolio strategy
and the performance of accounts.
Consistent with the policy stated above, the Rules of Fair Practice of
the National Association of Securities Dealers, Inc. and such other policies as
the Trustees of the Trust may determine, the Manager may consider sales of
shares of the Fund as a factor in the selection of broker-dealers to execute
portfolio transactions. Bankers Trust will make such allocations if commissions
are comparable to those charged by nonaffiliated, qualified broker-dealers for
similar services.
Higher commissions may be paid to firms that provide research services
to the extent permitted by law. Bankers Trust may use this research information
in managing the Fund's assets, as well as the assets of other clients.
Except for implementing the policies stated above, there is no
intention to place portfolio transactions with particular brokers or dealers or
groups thereof. In effecting transactions in over-the-counter securities, orders
are placed with the principal market-makers for the security being traded
unless, after exercising care, it appears that more favorable results are
available otherwise.
Although certain research, market and statistical information from
brokers and dealers can be useful to the Fund and to the Manager, it is the
opinion of the management of the Trust that such information is only
supplementary to the Manager's own research effort, since the information must
still be analyzed, weighed and reviewed by the Manager's staff. Such information
may be useful to the Manager in providing services to clients other than the
Fund, and not all such information is used by the Manager in connection with the
Fund. Conversely, such information provided to the Manager by brokers and
dealers through whom other clients of the Manager effect securities transactions
may be useful to the Manager in providing services to the Fund.
In certain instances there may be securities which are suitable for the
Fund as well as for one or more of the Manager's other clients. Investment
decisions for the Fund and for the Manager's other clients are made with a view
to achieving their respective investment objectives. It may develop that a
particular security is bought or sold for only one client even though it might
be held by, or bought or sold for, other clients. Likewise, a particular
security may be bought for one or more clients when one or more clients are
selling that same security. Some simultaneous transactions are inevitable when
several clients receive investment advice from the same investment adviser,
particularly when the same security is suitable for the investment objectives of
more than one client. When two or more clients are simultaneously engaged in the
purchase or sale of the same security, the securities are allocated among
clients in a manner believed to be equitable to each. It is recognized that in
some cases this system could have a detrimental effect on the price or volume of
the security as far as the Fund is concerned. However, it is believed that the
ability of the Fund to participate in volume transactions will produce better
executions for the Fund.
<PAGE>
PERFORMANCE INFORMATION
Standard Performance Information
From time to time, quotations of the Fund's performance may be included
in advertisements, sales literature or shareholder reports. These performance
figures are calculated in the following manner:
Yield: Yields for the Fund used in advertising are computed by dividing
the Fund's interest and dividend income for a given 30-day or one-month
period, net of expenses, by the average number of shares entitled to
receive distributions during the period, dividing this figure by the
Fund's net asset value per share at the end of the period, and
annualizing the result (assuming compounding of income) in order to
arrive at an annual percentage rate. Income is calculated for purpose
of yield quotations in accordance with standardized methods applicable
to all stock and bond mutual funds. Dividends from equity investments
are treated as if they were accrued on a daily basis, solely for the
purpose of yield calculations. In general, interest income is reduced
with respect to bonds trading at a premium over their par value by
subtracting a portion of the premium from income on a daily basis, and
is increased with respect to bonds trading at a discount by adding a
portion of the discount to daily income. Capital gains and losses
generally are excluded from the calculation.
Total Return: The Fund's average annual total return is calculated for
certain periods by determining the average annual compounded rates of
return over those periods that would cause an investment of $1,000
(made at the maximum public offering price with all distributions
reinvested) to reach the value of that investment at the end of the
periods. The Fund may also calculate total return figures which
represent aggregate performance over a period or year-by-year
performance.
Performance Results: Any total return quotation provided for the Fund
should not be considered as representative of the performance of the
Fund in the future since the net asset value and public offering price
of shares of the Fund will vary based not only on the type, quality and
maturities of the securities held in the Fund, but also on changes in
the current value of such securities and on changes in the expenses of
the Fund. These factors and possible differences in the methods used to
calculate total return should be considered when comparing the total
return of the Fund to total returns published for other investment
companies or other investment vehicles. Total return reflects the
performance of both principal and income.
Comparison of Fund Performance
Comparison of the quoted nonstandardized performance of various
investments is valid only if performance is calculated in the same manner. Since
there are different methods of calculating performance, investors should
consider the effect of the methods used to calculate performance when comparing
performance of the Fund with performance quoted with respect to other investment
companies or types of investments.
In connection with communicating its performance to current or
prospective shareholders, the Fund also may compare these figures to the
performance of other mutual funds tracked by mutual fund rating services or to
unmanaged indices which may assume reinvestment of dividends but generally do
not reflect deductions for administrative and management costs.
Evaluations of the Fund's performance made by independent sources may
also be used in advertisements concerning the Fund. Sources for the Fund's
performance information could include the following: Barron's, Business Week,
Changing Times, The Kiplinger's Magazine, Consumer Digest, Financial World,
Forbes, Fortune, Investor's Daily, Lipper Analytical Services, Inc.'s Mutual
Fund Performance Analysis, Money, Morningstar Inc., New York Times, Personal
Investing News, Personal Investor, Success, U.S. News and World Report, Value
Line, Wall Street Journal, Weisenberger Investment Companies Services and
Working Women.
VALUATION OF SECURITIES; REDEMPTION IN KIND
Debt securities (other than short-term debt obligations maturing in 60
days or less), including securities for which price quotations are available,
will normally be valued on the basis of market valuations furnished by a pricing
service. Short-term debt obligations and money market securities maturing in 60
days or less are valued at amortized cost, which approximates market value.
Securities for which market quotations are not available are valued by
Bankers Trust pursuant to procedures adopted by the Trust's Board of Trustees.
It is generally agreed that securities for which market quotations are not
readily available should not be valued at the same value as that carried by an
equivalent security which is readily marketable.
The problems inherent in making a good faith determination of value are
recognized in the codification effected by SEC Financial Reporting Release No. 1
("FRR 1" (formerly Accounting Series Release No. 113)) which concludes that
there is "no automatic formula" for calculating the value of restricted
securities. It recommends that the best method simply is to consider all
relevant factors before making any calculation. According to FRR 1 such factors
would include consideration of the:
type of security involved, financial statements, cost at date
of purchase, size of holding, discount from market value of
unrestricted securities of the same class at the time of
purchase, special reports prepared by analysts, information as
to any transactions or offers with respect to the security,
existence of merger proposals or tender offers affecting the
security, price and extent of public trading in similar
securities of the issuer or comparable companies, and other
relevant matters.
To the extent that the Fund purchases securities which are restricted
as to resale or for which current market quotations are not available, the
Manager of the Fund will value such securities based upon all relevant factors
as outlined in FRR 1.
The Trust, on behalf of the Fund, reserves the right, if conditions
exist which make cash payments undesirable, to honor any request for redemption
or repurchase order by making payment in whole or in part in readily marketable
securities chosen by the Trust, and valued as they are for purposes of computing
the Fund's net asset value (a redemption in kind). If payment is made to the
Fund shareholder in securities, the shareholder may incur transaction expenses
in converting these securities into cash. The Trust, on behalf of the Fund, has
elected, however, to be governed by Rule 18f-1 under the 1940 Act as a result of
which the Fund is obligated to redeem shares with respect to any one investor
during any 90-day period, solely in cash up to the lesser of $250,000 or 1% of
the net asset value of the Fund at the beginning of the period.
MANAGEMENT OF THE TRUST
The Board of Trustees of the Trust is composed of persons experienced
in financial matters who meet throughout the year to oversee the activities of
the Fund. In addition, the Trustees review contractual arrangements with
companies that provide services to the Fund and review the Fund's performance.
The Trustees and officers of the Trust and their principal occupations
during the past five years are set forth below. Their titles may have varied
during that period. Asterisks indicate those Trustees who are "interested
persons" (as defined in the 1940 Act) of the Trust. Unless otherwise indicated,
the address of each Trustee and officer is One Exchange Place, Boston,
Massachusetts.
<PAGE>
Trustees and Officers
<TABLE>
<CAPTION>
<S> <C> <C>
Principal Occupations During
Name, Address and Age Position Held with the Trust Past 5 Years
- --------------------- ---------------------------- ------------
Robert R. Coby, 46 Trustee President of Leadership Capital Inc.
118 North Drive since 1995; Chief Operating Officer of
North Massapequa, NY 11758 CS First Boston Investment Management
(1994-1995); President of Blackhawk
L.P. (1993-1994); Chief Financial
Officer of Equitable Capital prior to
February 1993.
Desmond G. FitzGerald, 53 Trustee Chairman of North American Properties
2015 West Main Street Group since January 1987.
Stamford, CT 06902
James S. Pasman, Jr., 66 Trustee Retired; President and Chief Operations
29 The Trillium Officer of National Intergroup Inc.
Pittsburgh, PA 15238 (1989-1991).
*William E. Small, 55 Trustee and President Independent Consultant (1996-present);
Formerly Executive Vice President of
First Data Investor Services Group Inc.
("Investor Services Group") since 1994;
Senior Vice President of The
Shareholder Services Group, Inc.
(1993-1994); independent consultant
(1990-1993).
Michael Kardok, 38 Vice President and Treasurer Vice President of Investor Services
Group since May 1994; Vice President of
The Boston Company Advisors Inc. prior
to May 1994.
Julie A. Tedesco, 40 Vice President and Secretary Counsel of Investor Services Group
since May 1994; Counsel of The Boston
Company Advisors Inc. (1992-1994);
Associate at Hutchins, Wheeler &
Dittmar prior to July 1992.
</TABLE>
Mr. Kardok and Ms. Tedesco also hold similar positions for other investment
companies for which FDDI or an affiliate serves as the principal underwriter.
No person who is an officer or director of Bankers Trust is an officer
or Trustee of the Trust. No director, officer or employee of FDDI or any of its
affiliates will receive any compensation from the Trust for serving as an
officer or Trustee of the Trust.
As of September 30, 1997 the Trustees and officers of the Trust owned
in the aggregate less than 1% of the shares of the Fund or the Trust (all series
taken together).
Investment Manager
Under the terms of the Fund's investment management agreement with
Bankers Trust (the "Management Agreement"), Bankers Trust manages the Fund
subject to the supervision and direction of the Board of Trustees of the Trust.
Bankers Trust will: (i) act in strict conformity with the Trust's Declaration of
Trust, the 1940 Act and the Investment Advisers Act of 1940, as the same may
from time to time be amended; (ii) manage the Fund in accordance with the Fund's
investment objectives, restrictions and policies; (iii) make investment
decisions for the Fund; (iv) place purchase and sale orders for securities and
other financial instruments on behalf of the Fund; (v) oversee the
administration of all aspects of the Trust's business and affairs; and (vi)
supervise the performance of professional services provided by others.
Bankers Trust bears all expenses in connection with the performance of
services under the Management Agreement. The Fund bears certain other expenses
incurred in its operation, including: taxes, interest, brokerage fees and
commissions, if any; fees of Trustees of the Trust who are not officers,
directors or employees of Bankers Trust, FDDI or any of their affiliates; SEC
fees and state Blue Sky qualification fees; charges of custodians and transfer
and dividend disbursing agents; certain insurance premiums; outside auditing and
legal expenses; cost of maintenance of corporate existence; costs attributable
to investor services, including, without limitation, telephone and personnel
expenses; costs of preparing and printing prospectuses and statements of
additional information for regulatory purposes and for distribution to existing
shareholders; costs of shareholders' reports and meetings of shareholders,
officers and Trustees of the Trust; and any extraordinary expenses.
Bankers Trust may have deposit, loan and other commercial banking
relationships with the issuers of obligations which may be purchased on behalf
of the Fund, including outstanding loans to such issuers which could be repaid
in whole or in part with the proceeds of securities so purchased. Such
affiliates deal, trade and invest for their own accounts in such obligations and
are among the leading dealers of various types of such obligations. Bankers
Trust, in making its investment decisions, does not obtain or use material
inside information in its possession or in the possession of any of its
affiliates. In making investment recommendations for the Fund, Bankers Trust
will not inquire or take into consideration whether an issuer of securities
proposed for purchase or sale by the Fund is a customer of Bankers Trust, its
parent or its subsidiaries or affiliates, and in dealing with its customers,
Bankers Trust, its parent, subsidiaries and affiliates will not inquire or take
into consideration whether securities of such customers are held by any fund
managed by Bankers Trust or any such affiliate.
Administrator
Investor Services Group, One Exchange Place, Boston, Massachusetts
02109, serves as administrator of the Fund. As administrator, Investor Services
Group is obligated on a continuous basis to provide such administrative services
as the Board of Trustees of the Trust reasonably deems necessary for the proper
administration of the Fund. Investor Services Group will generally assist in all
aspects of the Fund's operations; supply and maintain office facilities (which
may be in Investor Services Group's own offices), statistical and research data,
data processing services, clerical, accounting, bookkeeping and recordkeeping
services (including without limitation the maintenance of such books and records
as are required under the 1940 Act and the rules thereunder, except as
maintained by other agents), internal auditing, executive and administrative
services, and stationery and office supplies; prepare reports to shareholders or
investors; prepare and file tax returns; supply financial information and
supporting data for reports to and filings with the SEC and various state Blue
Sky authorities; supply supporting documentation for meetings of the Board of
Trustees; provide monitoring reports and assistance regarding compliance with
the Declaration of Trust, by-laws, investment objectives and policies and with
federal and state securities laws; arrange for appropriate insurance coverage;
calculate net asset values, net income and realized capital gains or losses, and
negotiate arrangements with, and supervise and coordinate the activities of,
agents and others to supply services.
Custodian and Transfer Agent
Bankers Trust serves as custodian for the Fund. As custodian, it holds
the Fund's assets. Bankers Trust will comply with the self-custodian provisions
of Rule 17f-2 under the 1940 Act.
Investor Services Group serves as transfer agent of the Trust. Under
its transfer agency agreement with the Trust, Investor Services Group maintains
the shareholder account records for the Fund, handles certain communications
between shareholders and the Fund and causes to be distributed any dividends and
distributions payable by the Fund.
Bankers Trust and Investor Services Group may be reimbursed by the Fund
for out-of-pocket expenses.
Use of Name
The Trust and Bankers Trust have agreed that the Trust may use "BT" as
part of its name for so long as Bankers Trust serves as investment manager to
the Fund. The Trust has acknowledged that the term "BT" is used by and is a
property right of certain subsidiaries of Bankers Trust and that those
subsidiaries and/or Bankers Trust may at any time permit others to use that
term.
The Trust may be required, on 60 days' notice from Bankers Trust at any
time, to abandon use of the acronym "BT" as part of its name. If this were to
occur, the Trustees would select an appropriate new name for the Trust, but
there would be no other material effect on the Trust, its shareholders or
activities.
Banking Regulatory Matters
Bankers Trust has been advised by its counsel that in its opinion
Bankers Trust may perform the services for the Fund contemplated by the
Management Agreement and other activities for the Fund described in the
Prospectus and this SAI without violation of the Glass-Steagall Act or other
applicable banking laws or regulations. However, counsel has pointed out that
future changes in either federal or state statutes and regulations concerning
the permissible activities of banks or trust companies, as well as future
judicial or administrative decisions or interpretations of present and future
statutes and regulations, might prevent Bankers Trust from continuing to perform
those services for the Trust and the Fund. State laws on this issue may differ
from the interpretations of relevant federal law and banks and financial
institutions may be required to register as dealers pursuant to state securities
law. If the circumstances described above should change, the Boards of Trustees
would review the relationships with Bankers Trust and consider taking all
actions necessary in the circumstances.
Counsel and Independent Accountants
Willkie Farr & Gallagher, One Citicorp Center, 153 East 53rd Street,
New York, New York 10022-4669, serves as Counsel to the Trust and the Fund.
Ernst & Young LLP, 787 Seventh Avenue, New York, New York 10019, acts as
independent accountants of the Trust and the Fund.
ORGANIZATION OF THE TRUST
Shares of the Trust do not have cumulative voting rights, which means
that holders of more than 50% of the shares voting for the election of Trustees
can elect all Trustees. Shares are transferable but have no preemptive,
conversion or subscription rights. Shareholders generally vote by Fund, except
with respect to the election of Trustees and the ratification of the selection
of independent accountants.
Through its separate accounts the Companies are the Fund's sole
stockholders of record, so under the 1940 Act, the Companies are deemed to be in
control of the Fund. Nevertheless, when a shareholders' meeting occurs, each
Company solicits and accepts voting instructions from its Contractowners who
have allocated or transferred monies for a investment in the Fund as of the
record date of the meeting. Each Company then votes the Fund's shares that are
attributable to its Contractowners' interests in the Fund in proportion to the
voting instructions received. Each Company will vote any share that it is
entitled to vote directly due to amounts it has contributed or accumulated in
its separate accounts in the manner described in the offering memoranda for its
variable annuities and variable life insurance policies.
Massachusetts law provides that shareholders could under certain
circumstances be held personally liable for the obligations of the Trust.
However, the Trust's Declaration of Trust disclaims shareholder liability for
acts or obligations of the Trust and requires that notice of this disclaimer be
given in each agreement, obligation or instrument entered into or executed by
the Trust or a Trustee. The Declaration of Trust provides for indemnification
from the Trust's property for all losses and expenses of any shareholder held
personally liable for the obligations of the Trust. Thus, the risk of a
shareholder's incurring financial loss on account of shareholder liability is
limited to circumstances in which the Trust itself would be unable to meet its
obligations, a possibility that the Trust believes is remote. Upon payment of
any liability incurred by a Trust, the shareholder paying the liability will be
entitled to reimbursement from the general assets of the Trust. The Trustees
intend to conduct the operations of the Trust in a manner so as to avoid, as far
as possible, ultimate liability of the shareholders for liabilities of the
Trust.
The Trust was organized on January 19, 1996.
TAXATION
Taxation of the Fund
The Trust intends to qualify annually and to elect the Fund to be
treated as a regulated investment company under the Code.
As a regulated investment company, the Fund will not be subject to U.S.
federal income tax on its investment company taxable income and net capital
gains (the excess of net long-term capital gains over net short-term capital
losses), if any, that it distributes to its shareholders, that is, the
Companies' separate accounts. The Fund intends to distribute to its
shareholders, at least annually, substantially all of its investment company
taxable income and net capital gains, and therefore does not anticipate
incurring a federal income tax liability.
The Code and Treasury Department regulations promulgated thereunder
require that mutual funds that are offered through insurance company separate
accounts must meet certain diversification requirements to preserve the
tax-deferred benefits provided by the variable contracts which are offered in
connection with such separate accounts. The Manager intends to diversify the
Fund's investments in accordance with those requirements. The offering memoranda
for each Company's variable annuities and variable life insurance policies
describe the federal income tax treatment of distributions from such contracts.
To comply with regulations under Section 817(h) of the Code, the Fund
will be required to diversify its investments so that on the last day of each
calendar quarter no more than 55% of the value of its assets is represented by
any one investment, no more than 70% is represented by any two investments, no
more than 80% is represented by any three investments and no more than 90% is
represented by any four investments. Generally, all securities of the same
issuer are treated as a single investment. For the purposes of Section 817(h) of
the Code, obligations of the U.S. Treasury and each U.S. government
instrumentality are treated as securities of separate issuers. The Treasury
Department has indicated that it may issue future pronouncements addressing the
circumstances in which a variable annuity contract owner's control of the
investments of a separate account may cause the variable contract owner, rather
than the separate account's sponsoring insurance company, to be treated as the
owner of the assets held by the separate account. If the variable annuity
contract owner is considered the owner of the securities underlying the separate
account, income and gains produced by those securities would be included
currently in the variable annuity contract owner's gross income. It is not known
what standards will be set forth in such pronouncements or when, if at all,
these pronouncements may be issued. In the event that rules or regulations are
adopted, there can be no assurance that the Fund will be able to operate as
described currently in the Prospectus or that the Fund will not have to change
its investment policies or goals.
The foregoing is only a brief summary of important tax law provisions
that affect the Fund. Other federal, state or local tax law provisions may also
affect the Fund and its operations. Anyone who is considering allocating,
transferring or withdrawing monies held under a variable contract to or from the
Fund should consult a qualified tax adviser.
Distributions
All dividends and capital gains distributions paid by the Fund will be
automatically reinvested, at net asset value, by the Companies' separate
accounts in additional shares of the Fund. There is no fixed dividend rate, and
there can be no assurance that the Fund will pay any dividends or realize any
capital gains. However, the Fund currently intends to pay dividends and capital
gains distributions, if any, on an annual basis. The offering memorandum for a
Company's variable annuity or variable life insurance policies describes the
frequency of distributions to Contractowners and the federal income tax
treatment of distributions from such contracts to Contractowners.
Sale of Shares
Any gain or loss realized by a shareholder upon the sale or other
disposition of shares of the Fund, or upon receipt of a distribution in complete
liquidation of the Fund, generally will be a capital gain or loss which will be
long-term or short-term, generally depending upon the shareholder's holding
period for the shares. Any loss realized on a sale or exchange will be
disallowed to the extent the shares disposed of are replaced (including shares
acquired pursuant to a dividend reinvestment plan) within a period of 61 days
beginning 30 days before and ending 30 days after disposition of the shares. In
such a case, the basis of the shares acquired will be adjusted to reflect the
disallowed loss. Any loss realized by a shareholder on a disposition of fund
shares held by the shareholder for six months or less will be treated as a
long-term capital loss to the extent of any distributions of net capital gains
received by the shareholder with respect to such shares.
Shareholders will be notified annually as to the U.S. federal tax status of
distributions.
Backup Withholding
The Fund may be required to withhold U.S. federal income tax at the
rate of 31% of all taxable distributions payable to shareholders who fail to
provide the Fund with their correct taxpayer identification number or to make
required certifications, or who have been notified by the Internal Revenue
Service that they are subject to backup withholding. Corporate shareholders and
certain other shareholders specified in the Code generally are exempt from such
backup withholding. Backup withholding is not an additional tax. Any amounts
withheld may be credited against the shareholder's U.S. federal income tax
liability.
Other Taxation
The Trust is organized as a Massachusetts business trust and, under
current law, neither the Trust nor the Fund is liable for any income or
franchise tax in the Commonwealth of Massachusetts, provided that the Fund
continues to qualify as a regulated investment company under Subchapter M of the
Code.
Fund shareholders may be subject to state and local taxes on their fund
distributions. Shareholders are advised to consult their own tax advisers with
respect to the particular tax consequences to them of an investment in the Fund.
<PAGE>
Investment Manager of the Fund
BANKERS TRUST GLOBAL INVESTMENT MANAGEMENT
a unit of
BANKERS TRUST COMPANY
Administrator
FIRST DATA INVESTOR SERVICES GROUP, INC.
Distributor
FIRST DATA DISTRIBUTORS, INC.
Custodian
BANKERS TRUST COMPANY
Transfer Agent
FIRST DATA INVESTOR SERVICES GROUP, INC.
Independent Accountants
ERNST & YOUNG LLP
Counsel
WILLKIE FARR & GALLAGHER
No person has been authorized to give any information or to make any
representations other than those contained in the Fund's Prospectuses, the SAI
or the Trust's official sales literature in connection with the offering of the
Fund's shares and, if given or made, such other information or representations
must not be relied on as having been authorized by the Trust. Neither the
Prospectus nor this SAI constitutes an offer in any state in which, or to any
person to whom, such offer may not lawfully be made.
<PAGE>
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
Included in Part A
None
Included in Part B
None
(b) Exhibits:
<TABLE>
<CAPTION>
<S> <C>
Exhibit
Number Description
1 Declaration of Trust is hereby incorporated by reference to the initial Registration Statement
filed with the Securities and Exchange Commission via EDGAR on January 26, 1996.
2 The Registrant's By-Laws are incorporated by reference to Amendment No. 1 filed with the
Securities and Exchange Commission via EDGAR on September 18, 1996.
3 Not Applicable.
4 Not Applicable.
5(a) The form of Investment Management Agreement
between Managed Assets Fund and Bankers
Trust Company is incorporated by reference
to Amendment No. 1 filed with the Securities
and Exchange Commission via EDGAR on
September 18, 1996.
(b) The form of Investment Management Agreement
between Small Cap Index Fund and
International Equity Fund and Bankers Trust
Company is incorporated by reference to
Pre-Effective Amendment No. 1 filed with the
Securities and Exchange Commission via EDGAR
on September 20, 1996.
(c) The form of Investment Management Agreement
between Small Cap Index Fund, Equity 500
Index Fund and EAFE(R) Equity Index Fund and
Bankers Trust Company is incorporated by
reference to Post-Effective Amendment No. 1
filed with the Securities and Exchange
Commission via EDGAR on November 22, 1996.
<PAGE>
Exhibit
NumberDescription
(d) The form of Investment Management Agreement
between U.S. Bond Index Fund and Bankers
Trust Company is incorporated by reference
to Post-Effective Amendment No. 2 filed with
the Securities and Exchange Commission via
EDGAR on July 18, 1997.
6 The form of Distribution Agreement between Registrant and 440 Financial Distributors, Inc.
is incorporated by reference to Pre-Effective Amendment No. 1 filed with the Securities and
Exchange Commission via EDGAR on September 20, 1996.
7 Not Applicable.
8 The Custodian Agreement between Registrant and Bankers Trust Company is incorporated by
reference to Amendment No. 1 filed with the Securities and Exchange Commission via EDGAR on
September 18, 1996.
9(a) The form of Transfer Agency Agreement
between Registrant and First Data Investor
Services Group, Inc. is incorporated by
reference to Amendment No. 1 filed with the
Securities and Exchange Commission via EDGAR
on September 18, 1996.
(b) The form of Administration Agreement between Registrant and First Data Investor Services
Group, Inc. is incorporated by reference to Pre-Effective Amendment No. 1 filed with the
Securities and Exchange Commission via EDGAR on September 20, 1996.
10 Opinion and Consent of Counsel is filed herewith.
11 Powers of Attorney is incorporated by reference to Post-
Effective Amendment No. 3 filed with the Securities and Exchange Commission via EDGAR on
August 20, 1997.
12 Not Applicable.
13(a) The form of Purchase Agreement relating to Initial Capital is incorporated by reference to
Amendment No. 1 filed with the Securities and Exchange Commission via EDGAR on
September 18,1996.
(b) The form of Purchase Agreement relating to
Small Cap Fund and International Equity Fund
is incorporated by reference to
Pre-Effective Amendment No. 1 filed with the
Securities and Exchange Commission via EDGAR
on September 20, 1996.
(c) The form of Purchase Agreement relating to
Small Cap Index Fund, EAFE(R) Equity Index
Fund and Equity 500 Index Fund is
incorporated by reference to Post-Effective
Amendment No. 1 filed with the Securities
and Exchange Commission via EDGAR on
November 22, 1996.
(d) The form of Purchase Agreement relating to
the U.S. Bond Index Fund is incorporated by
reference to Post-Effective Amendment No. 2
filed with the Securities and Exchange
Commission via EDGAR on July 18, 1997.
14 Not Applicable.
15 Not Applicable.
16 Not Applicable.
17 Not Applicable.
18 Not Applicable.
</TABLE>
Item 25. Persons Controlled by or Under Common Control with Registrant
Not Applicable.
Item 26. Number of Holders of Securities
Number of Record Holders
Name of Fund as of September 30,1997
Small Cap Index Fund 1
EAFE Equity Index Fund 1
Equity 500 Index Fund 0
Small Cap Fund 0
International Equity Fund 0
Item 27. Indemnification
Reference is made to Articles IV and V of Registrant's Declaration
of Trust filed with Securities and Exchange Commission on January 26, 1996.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Securities Act") may be permitted to directors,
officers and controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant understands that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer,
or controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
Item 28. Business and Other Connections of Investment Adviser
Bankers Trust serves as investment adviser to the Trust. Bankers
Trust, a New York banking corporation, is a wholly owned subsidiary of Bankers
Trust New York Corporation. Bankers Trust conducts a variety of commercial
banking and trust activities and is a major wholesale supplier of financial
services to the international institutional market.
To the knowledge of the Trust, none of the directors or officers
of Bankers Trust, except those set forth below, is engaged in any other
business, profession, vocation or employment of a substantial nature, except
that certain directors and officers also hold various positions with and engage
in business for Bankers Trust New York Corporation. Set forth below are the
names and principal businesses of the directors and officers of Bankers Trust
who are engaged in any other business, profession, vocation or employment of a
substantial nature.
NAME AND PRINCIPAL BUSINESS ADDRESS, PRINCIPAL OCCUPATION AND OTHER INFORMATION
George B. Beitzel, International Business Machines Corporation, 29 King Street,
Chappaqua, NY 10514-3432. Director, Bankers Trust Company; Retired senior vice
president and Director, International Business machines Corporation; Director,
Computer Task Group; Director, Phillips Petroleum Company; Director, Caliber
Systems, Inc. (formerly, Roadway Services Inc.); Director, Rohm and Haas
Company; Director, TIG Holdings; Chairman emeritus of Amherst College; and
Chairman of the Colonial Willimsburg Foundation.
Richard H. Daniel, Bankers Trust Company, 130 Liberty Street, New York, New York
10006. Vice chairman and chief financial officer, Bankers Trust Company and
Bankers Trust New York Corporation; Beneficial owner, general partner, Daniel
Brothers, Daniel Lingo & Assoc., Daniel Pelt & Assoc.; Beneficial owner, Rhea C.
Daniel Trust.
Philip A. Griffiths, Olden Lane, Princeton, NJ 08540. Director, Institute for
Advanced Study; Director, Bankers Trust Company; Chairman, Committee on Science,
Engineering and Public Policy of the National Academies of Sciences and
Engineering & the Institute of Medicine; and Chairman and member, Nominations
Committee and Committee on Science and Engineering Indicators, National Science
Board; Trustee, North Carolina School of Science and Mathematics and the
Woodward Academy.
William R. Howell, J.C. Penney Company, Inc., P.O. Box 10001, Plano, TX
75301-0001. Chairman Emeritus, J.C. Penney Company, Inc.; Director, Bankers
Trust Company; Director, Exxon Corporation; Director, Halliburton Company;
Director, Warner-Lambert Corporation; Director, The Williams Companies, Inc.;
and Director, National Retail Federation.
Vernon E. Jordan, Jr., Akin, Gump, Strauss, Hauer & Feld, LLP, 1333 New
Hampshire Ave., N.W., Washington, DC 20036. Senior Partner, Akin, Gump, Strauss,
Hauer & Feld, LLP; Director, Bankers Trust Company; Director, American Express
Company; Director, Dow-Jones, Inc.; Director, J.C. Penney Company, Inc.;
Director, Revlon Group Incorporated; Director, Ryder System, Inc.; Director,
Sara Lee Corporation; Director, Union Carbide Corporation; Director, Xerox
Corporation; Trustee, Brookings Institution; Trustee, The Ford Foundation; and
Trustee, Howard University.
David Marshall, 130 Liberty Street, New York, New York 10006. Chief Information
Officer and Executive Vice President, Bankers Trust New York Corporation; Senior
Managing Director, Bankers Trust Company.
Hamish Maxwell, Philip Morris Companies Inc., 120 Park Avenue, New York, NY
10017. Retired Chairman and Chief Executive Officer, Philip Morris Companies
Inc.; Director, Bankers Trust Company; Director, The News Corporation Limited;
Director, Sola International Inc.; and Chairman, WWP Group pic.
Frank N. Newman, Bankers Trust Company, 130 Liberty Street, New York, New York
10006. Chairman of the Board, Chief Executive Officer and President, Bankers
Trust New York Corporation and Bankers Trust Company; Director, Bankers Trust
Company; Director, Dow-Jones, Inc.; and Director, Carnegie Hall.
N.J. Nicholas Jr., 15 West 53rd Street, New York, NY 10019. Director, Bankers
Trust Company; Director, Boston Scientific Corporation; and Director, Xerox
Corporation.
Russell E. Palmer, The Palmer Group, 3600 Market Street, Suite 530,
Philadelphia, PA 19104. Chairman and Chief Executive Officer of The Palmer
Group; Director, Bankers Trust Company; Director, Allied-Signal Inc.; Director,
Federal Home Loan Mortgage Corporation; Director, GTE Corporation; Director, The
May Department Stores Company; Director, Safeguard Scientifics, Inc.; and
Trustee, University of Pennsylvania.
Donald L. Staheli, 39 Locust Avenue, Suite 204, New Canaan, CT 06840. Chairman
of the Board and Chief Executive Officer, Continental Grain Company; Director,
Bankers Trust Company; Director, ContiFinancial Corporation; Director,
Prudential Life Insurance Company of America; Director, Fresenius Medical Care,
A.g.; Director, America-China Society; Director, National Committee on United
States-China Relations; Director, New York City Partnership; Chairman,
U.S.-China Business Council; Chairman, Council on Foreign Relations; Chairman,
National Advisor Council of Brigham Young University's Marriott School of
Management; Vice Chairman, The Points of Light Foundation; and Trustee, American
Graduate School of International Management.
Patricia Carry Stewart, c/o Office of the Secretary, 130 Liberty Street, New
York, NY 10006. Director, Bankers Trust Company; Director, CVS Corporation;
Director, Community Foundation for Palm Beach and Martin Counties; Trustee
Emerita, Cornell University.
George J. Vojta, Bankers Trust Company, 130 Liberty Street, New York, NY 10006.
Vice Chairman, Bankers Trust New York Corporation and Bankers Trust Company;
Director, bankers Trust Company; Director; Alicorp S.A.; Director; Northwest
Airlines; Director, Private Export Funding Corp.; Director, New York State
Banking Board; Director, St. Lukes-Roosevelt Hospital Center; Partner, New York
City Partnership; and Chairman, Wharton Financial Services Center.
Paul A. Volcker, 599 Lexington Avenue, 40th Floor, New York, NY 10022. Director,
Bankers Trust Company; Director, American Stock Exchange; Director, Nestle S.A.;
Director, Prudential Insurance Company; Director, UAL Corporation; Chairman,
Group of 30; North American Chairman, Trilateral Commission; Co-Chairman,
Bretton Woods Committee; Co-Chairman, U.S./Hong Kong Economic Cooperation
Committee; Director, American Council on Germany; Director, Aspen Institute;
Director, Council on Foreign Relations; Director, The Japan Society; and
Trustee, The American Assembly.
Melvin A. Yellin, Bankers Trust Company, 130 Liberty Street, New York, New York
10006. Senior Managing Director and General Counsel of Bankers Trust New York
Corporation and Bankers Trust Company; Director, 1136 Tenants Corporation; and
Director, ABA Securities Association.
A.B. Krongard, BT Alex. Brown Incorporated, One South Street, 30th Floor,
Baltimore, MD 21202. Chairman of the Board of Directors and Chief Executive
Officer of Alex. Brown Incorporated. In addition, Mr. Krongard, 60 years old,
becomes a Vice Chairman of the Boards of Bankers Trust New York Corporation and
Bankers Trust Company. He has been Chief Executive Officer of Alex. Brown since
1991, adding the title of Chairman in 1994. He is also a Director of the
Securities Industry Association and a Trustee and member of the Executive
Committee of The Johns Hopkins Health System.
Lee A. Ault III, Lee Ault & Company, 1901 Avenue of the Stars, Suite 1800, Los
Angeles, CA 90067-6018. Director of Alex. Brown Incorporated and for 23 years
Chief Executive Officer of Telecredit, Inc., Los Angeles, which merged in 1990
with Equifax, Inc., the Atlanta-based provider of financial information and
processing technology. He remains a Director of Equifax and serves as a Director
of Sunrise Medical Inc. and Viking Office Products, Inc. Mr. Ault is 60 years
old.
Neil R. Austrian, National Football League, 280 Park Avenue, Floor 17E, New
York, NY 10017. Director of Alex. Brown Incorporated and President and Chief
Operating Officer of the National Football League, a post he has held since
1991. Mr. Austrian, 56 years old, was previously a Managing Director of Dillon,
Read & Co.,Chairman and Chief Executive Officer of Showtime/The Movie Channel
and President and Chief Executive Officer of Doyle Dane Bernbach.
G. Richard Thoman, Xerox Corporation, 800 Long Ridge Road, Stamford, CT 06904.
President and Chief Operating Officer of the Xerox Corporation and a member of
its board of Directors since June 15, 1997. Prior to joining Xerox, Mr. Thoman
was Senior Vice President and Chief Financial Officer of the IBM Corporation. He
is 53 years old.
Item 29. Principal Underwriters
(a) In addition to BT Insurance Funds Trust, First Data Distributors, Inc.
(the "Distributor") currently acts as distributor for The Galaxy Fund, The
Galaxy VIP Fund, Galaxy Fund II, Panorama Trust, CT&T Funds, First Choice Funds
Trust, LKCM Funds, Potomac Funds and the Wilshire Target Funds, Inc. The
Distributor is registered with the Securities and Exchange Commission as a
broker-dealer and is a member of the National Association of Securities Dealers.
The Distributor is a wholly-owned subsidiary of First Data Corporation and is
located at 4400 Computer Drive, Westborough, MA 01581.
(b) The information required by this Item 29 (b) with respect to each
director, officer, or partner of First Data Distributors, Inc. is incorporated
by reference to Schedule A of Form BD filed by First Data Distributors, Inc.
with the Securities and Exchange Commission pursuant to the Securities Act of
1934 (File No. 8-45467).
(c) Not Applicable.
Item 30. Location of Accounts and Records
All accounts books and other documents required to be maintained by
Registrant by Section 31(a) of the Investment Company Act of 1940 and the Rules
thereunder will be maintained at the offices of:
(1) Bankers Trust Global Investment Management
280 Park Avenue
New York, NY 10017
(2) First Data Distributors, Inc.
4400 Computer Drive
Westborough, MA 01581
(3) Bankers Trust Company
280 Park Avenue
New York, NY 10017
(4) First Data Investor Services Group, Inc.
One Exchange Place
Boston, MA 02109
Item 31. Management Services
Not Applicable.
Item 32. Undertakings
(a) Not Applicable.
(b) The undersigned Registrant hereby undertakes to file a
post-effective amendment, using financial statements which need not be
certified, within four to six months after the effective date of the
Registration Statement under the Securities Act of 1933.
(c) The Registrant will furnish each person to whom a prospectus
is delivered with a copy of the Registrant's latest annual report to
shareholders, upon request and without charge.
(d) Registrant hereby undertakes to call a meeting of its
shareholders for the purpose of voting upon the question of removal of a trustee
or trustees of Registrant when requested in writing to do so by the holders of
at least 10% of Registrant's outstanding shares. Registrant undertakes further,
in connection with the meeting, to comply with the provisions of Section 16(c)
of the Investment Company Act of 1940, as amended, relating to communications
with the shareholders of certain common-law trusts.
<PAGE>
INDEX TO EXHIBITS
Exhibit Number Exhibit
10 Opinion and Consent of Counsel
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
and the Investment Company Act of 1940, as amended, the Registrant certifies
that this Post-Effective Amendment No. 4 to the Registration Statement meets the
requirements for effectiveness pursuant to Rule 485(b) of the Securities Act of
1933, as amended, and the Registrant has duly caused this Post-Effective
Amendment No. 4 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Boston and the Commonwealth of Massachusetts on this
1st day of October, 1997.
BT Insurance Funds Trust
By: *
William E. Small
* By:
/s/ Julie A. Tedesco
Julie A. Tedesco
as Attorney-in-Fact
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the date indicated:
<TABLE>
<CAPTION>
<S> <C> <C>
Signatures Title Date
* President and Trustee October 1, 1997
- ------------------------------
William E. Small
* Treasurer and Vice President October 1, 1997
- ------------------------------
Michael Kardok
* Trustee October 1, 1997
- ------------------------------
Robert R. Coby
* Trustee October 1, 1997
- ------------------------------
Desmond G. Fitzgerald
* Trustee October 1, 1997
- ------------------------------
James S. Pasman
* By:
/s/ Julie A. Tedesco
Julie A. Tedesco
as Attorney-in-Fact
</TABLE>
* The Powers of Attorney are incorporated by reference to Post-Effective
Amendment No. 3 filed with the Securities and Exchange Commission via EDGAR
on August 20, 1997.
<PAGE>
October 1, 1997
BT Insurance Funds Trust
One Exchange Place
Boston, MA 02109
RE: Post-Effective Amendment No. 4 to
Form N-1A Registration Statement
File Nos. 333-00479 and 811-07507
Ladies and Gentlemen:
The undersigned is Counsel of First Data Investor Services Group, Inc.,
which serves as administrator to BT Insurance Funds Trust (the "Trust"). In such
capacity, from time to time and for certain purposes, I act as counsel for the
Trust. In connection with the Registration under the Securities Act of 1933 of
an indefinite number of shares of beneficial interest having a par value of
$.001 per share (the "Shares") of the U.S. Bond Index Fund (the "Fund") of the
Trust, I have examined such matters as I have deemed necessary and I am of the
opinion that as permitted by its Declaration of Trust, and assuming the Trust or
its agent receives consideration for its Shares in accordance with the terms of
the current Prospectus and Statement of Additional Information at the time of
sale, the Shares will be duly authorized and validly issued and fully paid and
non-assessable by the Trust.
The Trust is an entity of the type commonly known as a "Massachusetts
business trust." Under Massachusetts laws, shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the Declaration of Trust provides that if a shareholder of any series
of the Trust (such as the Fund) is charged or held personally liable solely by
reason of being or having been a shareholder, the shareholder shall be entitled
out of the assets of said series to be held harmless from and indemnified
against all loss and expense arising from such liability. Thus, the risk of a
shareholder incurring financial loss on account of shareholders liability is
limited to circumstances in which that series itself would be unable to meet its
obligations.
I consent to the filing of this opinion with and as part of the
aforementioned Post-Effective Amendment to the Trust's Registration Statement.
Very truly yours,
BRIGID O. BIEBER
Brigid O. Bieber
Counsel
<PAGE>
