As filed with the Securities and Exchange Commission on February 20, 1998
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. 5
X
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
X
Amendment No. 7
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) 573-1531
Name and Address of Agent for Service: Copies to:
Elizabeth A. Russell, 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:
immediately upon filing pursuant to paragraph (b), or
X on March 20, 1998 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 90 days after the
close of the Registrant's fiscal year.
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g:\shared\bankers\pea's\pea3.doc
BT INSURANCE FUNDS TRUST
FORM N-1A
CROSS REFERENCE SHEET
FOR
(Small Cap Index Fund and EAFE(R) Equity Index Fund)
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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....................... Financial Highlights
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............................... Financial Statements
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This Post-Effective Amendment pertains only to the Small Cap Index Fund and the
EAFE Equity Index Fund. The prospectuses and statements of additional
Information for the Equity 500 Index Fund, U.S. Bond Index Fund, Small Cap Fund
and International Equity Fund are not included in this Post-Effective Amendment.
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BT INSURANCE FUNDS TRUST
EAFE(R) EQUITY INDEX FUND
PROSPECTUS
MARCH 20, 1998
This Prospectus offers shares of the EAFE(R) Equity Index Fund (the "Fund"). The
Fund is a series of BT Insurance Funds Trust (the "Trust"), which is an open-end
management investment company currently having 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 Morgan
Stanley Capital International Europe, Australia, Far East (EAFE(R)) Index (the "
EAFE(R) Index") before the deduction of Fund expenses (the "Expenses"). There is
no assurance, however, that the Fund will achieve its stated objective.
Bankers Trust Company ("Bankers Trust") is the investment manager (the
"Manager") of the Fund.
Please read this Prospectus carefully before investing and retain it for future
reference. It contains important information about the Fund that you should know
and can refer to in deciding whether the Fund's goals match your own.
A Statement of Additional Information ("SAI") with the same date has been filed
with the Securities and Exchange Commission ("SEC"), and is incorporated herein
by reference. You may request a free copy of the SAI by calling the Trust at the
Customer Service Center at the telephone number shown in the accompanying
offering memorandum.
Fund shares are not deposits or obligations of, or guaranteed by, Bankers Trust
or any depository institution. Shares are not insured by the Federal Deposit
Insurance Corporation, the Federal Reserve Board or any other agency.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
The EAFE(R) Index is the exclusive property of Morgan Stanley. Morgan Stanley
Capital International is a service mark of Morgan Stanley and has been licensed
for use by Bankers Trust Company.
BANKERS TRUST COMPANY
Investment Manager of the Fund
FIRST DATA DISTRIBUTORS, INC.
Distributor
4400 Computer Drive
Westborough, MA 01581
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TABLE OF CONTENTS
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Page
THE FUND.................................................................................................. 3
Financial Highlights
Who May Want to Invest
Investment Principles and Risks
THE FUND IN DETAIL....................................................................................... 5
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.......................................................................... 16
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 the deduction of
Expenses) the total return of the Europe, Australia, Far East Index (the
"EAFE(R) Index"), a capitalization-weighted index containing approximately
[1,100] equity securities of companies located outside the United States. The
Fund will be invested primarily in equity securities of business enterprises
organized and domiciled outside of the United States or for which the principal
trading market is outside the United States. Statistical methods will be
employed to replicate the EAFE(R) Index by buying most of the EAFE(R) Index
securities. Securities purchased for the Fund will generally, but not
necessarily, be traded on a foreign securities exchange.
FINANCIAL HIGHLIGHTS
The following table provides financial highlights of the Fund for the period
presented and should be read in conjunction with the financial statements and
related notes that appear in the Trust's annual report dated December 31, 1997
(the "Annual Report") and which are incorporated by reference into the SAI. The
financial statements and related notes contained in the Annual Report have been
audited by Ernst & Young LLP, independent accountants. Additional information
concerning the performance of the Fund is included in the Annual Report which
may be obtained without charge by writing First Data Distributors, Inc., the
distributor to the Fund at the address on the cover of this Prospectus.
EAFE(R) Equity Index Fund (Unaudited)
(For a Share Outstanding throughout each period)
Year
Ended
12/31/97*
Net asset value, beginning of period $10.00
Income from Investment Operations:
Net investment income (a) 0.02
Net realized and unrealized gain (loss)
on investments and futures contracts (0.68)
Net decrease in net asset value from operations 0.02
Net asset value, end of period $10.02
======
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Total Return (b) -6.60%
Ratios / Supplemental Data:
Net assets, end of period (in 000's) $14,409 Ratios to average
net assets:
Net investment income including reimbursement (c) 0.72%
Operating expenses including reimbursement (c) 0.65%
Operating expenses excluding reimbursement (c) 2.75%
Portfolio turnover rate 0%
Average commission rate paid $0.0196
- -------------------
* The Fund commenced operations on August 22, 1997.
(a) Based on average shares outstanding.
(b) Total investment return is calculated assuming an initial investment
made at the net asset
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value beginning of the period, reinvestment of all dividends and
distributions at net asset value during the period and redemption on the
last day of the period. Initial sales charge or contingent deferred sales
charge is not reflected in the calculation of total investment return.
Total return calculated for a period of less than one year is not
annualized.
(c) Annualized.
WHO MAY WANT TO INVEST
Shares of the Fund are available to the public only through the purchase of
Contracts issued by the Companies.
The Fund is not managed according to traditional methods of "active" investment
management, which involve the buying and selling of securities based upon
economic, financial and market analysis and investment judgment. Instead, the
Fund utilizes a "passive" or "indexing" investment approach and attempts to
replicate the investment performance of the EAFE(R) Index through statistical
procedures.
The Fund may be appropriate for investors who are willing to endure stock market
fluctuations in pursuit of potentially higher long-term returns. The Fund
invests for growth and does not pursue income. Over time, stocks, although more
volatile, have shown greater growth potential than other types of securities. In
the shorter term, however, stock prices can fluctuate dramatically in response
to market factors.
The Fund may be appropriate for investors who want to pursue their investment
goals in markets outside of the United States. By including international
investments in their portfolio, investors can achieve an extra level of
diversification and also participate in opportunities around the world. However,
there are additional risks involved with international investing. The
performance of international funds depends upon currency values, the political
and regulatory environment, and overall economic factors in the countries in
which the Fund invests.
The Fund is intended to be a long-term investment vehicle and is not 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. Stock values
fluctuate, sometimes dramatically, in response to the activities of individual
companies and general market and economic conditions. Over time, however, stocks
have shown greater long-term growth potential than other types of securities.
Lower quality securities offer higher yields, but also carry more risk.
Because many foreign investments are denominated in foreign currencies, changes
in the value of these currencies can significantly affect the Fund's share
price. General economic factors in the various world markets can also impact the
value of an investor's investment. When an investor sells his or her Fund
shares, they may be worth more or less than what the investors paid for them.
See "Risk Factors and Certain Securities and Investment Practices" for more
information.
THE FUND IN DETAIL
INVESTMENT OBJECTIVES AND POLICIES
The following is a discussion of the various investments of and techniques
employed by the Fund. Additional information about the investment policies of
the Fund appears in "Risk Factors and Certain Securities and Investment
Practices" in this Prospectus and in the Fund's SAI. There can be no assurance
that the investment objective of the Fund will be achieved.
The Fund seeks to replicate as closely as possible (before the deduction of
Expenses) the total return of the EAFE(R) Index. The Fund attempts to achieve
this objective by investing in a statistically selected sample of the equity
securities included in the EAFE(R) Index.
The EAFE(R) Index is a capitalization-weighted index containing approximately
[1,100] equity securities of companies located in countries outside the United
States. The countries currently included in the EAFE(R) Index are Australia,
Austria, Belgium, Denmark, Finland, France, Germany, Hong Kong, Ireland, Italy,
Japan, Malaysia, The Netherlands, New Zealand, Norway, Singapore, Spain, Sweden,
Switzerland and The United Kingdom.
The Fund is constructed to have aggregate investment characteristics similar to
those of the EAFE(R) Index. The Fund invests in a statistically selected sample
of the securities of companies included in the EAFE(R) Index, although not all
companies within a country will be represented in the Fund at the same time.
Stocks are selected for inclusion in the Fund based on country of origin, market
capitalization, yield, volatility and industry sector. Bankers Trust will manage
the Fund using advanced statistical techniques to determine which stocks are to
be purchased or sold to replicate the EAFE(R) Index. From time to time,
adjustments may be made in the Fund because of changes in the composition of the
EAFE(R) Index, but such changes should be infrequent.
The Fund is not sponsored, endorsed, sold or promoted by Morgan Stanley. Morgan
Stanley makes no representation or warranty, express or implied, to the owners
of the Fund or any member of the public regarding the advisability of investing
in securities generally or in the Fund particularly or the ability of the
EAFE(R) Index to track general stock market performance. Morgan Stanley is the
licenser of certain trademarks, service marks and trade names of Morgan Stanley
and of the EAFE(R) Index which is determined, composed and calculated by Morgan
Stanley without regard to the issuer of the Fund or the Fund itself. Morgan
Stanley has no obligation to take the needs of the issuer of the Fund or the
owners of the Fund into consideration in determining, composing or calculating
the EAFE(R) Index. Inclusion of a security in the EAFE(R) Index in no way
implies an opinion by Morgan Stanley as to its attractiveness as an investment.
Morgan Stanley is not responsible for and has not participated in the
determination of the timing of, prices of, or quantities of shares of the Fund
to be issued or in the determination or calculation of the equation by which
shares of the Fund are redeemable for cash. Morgan Stanley has no obligation or
liability to owners of shares of the Fund in connection with the administration,
marketing or trading of the Fund. The Fund is neither sponsored by nor
affiliated with Morgan Stanley.
ALTHOUGH MORGAN STANLEY SHALL OBTAIN INFORMATION FOR INCLUSION IN OR FOR USE IN
THE CALCULATION OF THE INDICES FROM SOURCES WHICH MORGAN STANLEY CONSIDERS
RELIABLE, MORGAN STANLEY DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS
OF THE INDICES OR ANY DATA INCLUDED THEREIN. MORGAN STANLEY MAKES NO WARRANTY,
EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY LICENSEE, LICENSEE'S
CUSTOMERS AND COUNTERPARTIES, OWNERS OF THE PRODUCTS, OR ANY OTHER PERSON OR
ENTITY FROM THE USE OF THE INDICES OR ANY DATA INCLUDED THEREIN IN CONNECTION
WITH THE RIGHTS LICENSED HEREUNDER OR FOR ANY OTHER USE. MORGAN STANLEY MAKES NO
EXPRESS OR IMPLIED WARRANTIES, AND HEREBY EXPRESSLY DISCLAIMS ALL WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO THE INDICES
OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT
SHALL MORGAN STANLEY HAVE ANY LIABILITY FOR ANY DIRECT, INDIRECT, SPECIAL,
PUNITIVE, CONSEQUENTIAL OR ANY OTHER DAMAGES (INCLUDING LOST PROFITS) EVEN IF
NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
General
Over time, the correlation between the performance of the Fund and the EAFE(R)
Index is expected to be 0.95 or higher before deduction of Expenses. A
correlation of 1.00 would indicate perfect correlation, which would be achieved
when the net asset value of the Fund, including the value of its dividend and
any capital gain distributions, increases or decreases in exact proportion to
changes in the EAFE(R) Index. The Fund's ability to track the EAFE(R) Index may
be affected by, among other things, transaction costs, administration and other
expenses incurred by the Fund, changes in either the composition of the EAFE(R)
Index or the assets of the Fund, and the timing and amount of Fund investor
contributions and withdrawals, if any. In the unlikely event that a high
correlation is not achieved, the Trust's Board of Trustees will consider
alternatives. Because the Fund seeks to track the EAFE(R) Index, Bankers Trust
generally will not attempt to judge the merits of any particular stock as an
investment.
Under normal circumstances, the Fund will invest at least 80% of its assets in
the securities of the EAFE(R) Index.
As a diversified fund, no more than 5% of the assets of the Fund may be invested
in the securities of one issuer (other than U.S. Government Securities), except
that up to 25% of the Fund's assets may be invested without regard to this
limitation. The Fund will not invest more than 25% of its assets in the
securities of issuers in any one industry. In the unlikely event that the
EAFE(R) Index should concentrate to an extent greater than that amount, the
Fund's ability to achieve its objective may be impaired. No more than 15% of the
Fund's net assets may be invested in illiquid or not readily marketable
securities (including repurchase agreements and time deposits with maturities of
more than seven days). These are fundamental investment policies of the Fund
which may not be changed without shareholder approval. Additional investment
policies of the Fund are contained in the SAI.
The Fund may maintain up to 25% of its assets in short-term debt securities and
money market instruments to meet redemption requests or to facilitate investment
in the securities of the EAFE(R) Index. Securities index futures contracts and
related options, warrants and convertible securities may be used for several
reasons: to simulate full investment in the EAFE(R) Index while retaining a cash
balance for fund management purposes, to facilitate trading, to reduce
transaction costs or to seek higher investment returns when a futures contract,
option, warrant or convertible security is priced more attractively than the
underlying equity security or EAFE(R) Index. These instruments may be considered
derivatives. See "Risk Factors and Certain Securities and Investment Practices
- -- Derivatives."
The use of derivatives for non-hedging purposes may be considered speculative.
While each of these securities can be used as leveraged investments, the Fund
may not use them to leverage its net assets. The Fund will not invest in such
instruments as part of a temporary defensive strategy (in anticipation of
declining stock prices) to protect the Fund against potential market declines.
The Fund may lend its investment securities and purchase securities on a
when-issued and a delayed delivery basis. The Fund may engage in foreign
currency forward and futures transactions for the purpose of enhancing Fund
returns or hedging against foreign exchange risk arising from the Fund's
investment or anticipated investment in securities denominated in foreign
currencies. See "Risk Factors and Certain Securities and Investment Practices"
for more information about the investment practices of the Fund.
RISK FACTORS AND CERTAIN SECURITIES AND INVESTMENT PRACTICES
The following pages contain more detailed information about types of instruments
in which the Fund may invest and strategies Bankers Trust may employ in pursuit
of the Fund's investment objective. A summary of risks and restrictions
associated with these instrument types and investment practices is included as
well.
Bankers Trust may not buy all of these instruments or use all of these
techniques to the full extent permitted unless it believes that doing so will
help the Fund achieve its goal. Holdings and recent investment strategies are
described in the financial reports of the Fund, which are sent to Fund
shareholders on a semi-annual and annual basis.
Market Risk
As a mutual fund investing primarily in common stocks, the Fund is subject to
market risk --- i.e., the possibility that common stock prices will decline over
short or even extended periods. The U.S. and foreign stock markets tend to be
cyclical, with periods when stock prices generally rise and periods when prices
generally decline.
Risks of Investing in Foreign Securities
Investors should realize that investing in securities of foreign issuers
involves considerations not typically associated with investing in securities of
companies organized and operated in the United States. Investors should realize
that the value of the Fund's foreign investments may be adversely affected by
changes in political or social conditions, diplomatic relations, confiscatory
taxation, expropriation, nationalization, limitation on the removal of funds or
assets, or imposition of (or change in) exchange control or tax regulations in
foreign countries. In addition, changes in government administrations or
economic or monetary policies in the United States or abroad could result in
appreciation or depreciation of portfolio securities and could favorably or
unfavorably affect the Fund's operations. Furthermore, the economies of
individual foreign nations may differ from the U.S. economy, whether favorably
or unfavorably, in areas such as growth of gross national product, rate of
inflation, capital reinvestment, resource self-sufficiency and balance of
payments position; it may also be more difficult to obtain and enforce a
judgment against a foreign issuer. In general, less information is publicly
available with respect to foreign issuers than is available with respect to U.S.
companies. Most foreign companies are also not subject to the uniform accounting
and financial reporting requirements applicable to issuers in the United States.
Any foreign investments made by the Fund must be made in compliance with U.S.
and foreign currency restrictions and tax laws restricting the amounts and types
of foreign investments.
Because foreign securities generally are denominated and pay dividends or
interest in foreign currencies, the value of the net assets of the Fund as
measured in U.S. dollars will be affected favorably or unfavorably by changes in
exchange rates. In order to protect against uncertainty in the level of future
foreign currency exchange rates, the Fund is also authorized to enter into
certain foreign currency exchange transactions. Furthermore, the Fund's foreign
investments may be less liquid and their prices may be more volatile than
comparable investments in securities of U.S. companies. The settlement periods
for foreign securities, which are often longer than those for securities of U.S.
issuers, may affect Fund liquidity. Finally, there may be less government
supervision and regulation of securities exchanges, brokers and issuers in
foreign countries than in the United States.
The Fund's investment objective is not a fundamental policy and may be changed
upon notice to, but without the approval of, the Fund's shareholders. If there
is a change in the Fund's investment objective, the Fund's shareholders should
consider whether the Fund remains an appropriate investment in light of their
then-current needs. Shareholders of the Fund will receive 30 days prior written
notice with respect to any change in the investment objective of the Fund. See
"Risk Factors and Certain Securities and Investment Practices" in the SAI for a
description of the fundamental policies of the Fund that cannot be changed
without approval by "the vote of a majority of the outstanding voting
securities" (as defined in the Investment Company Act of 1940, as amended (the
"1940 Act")) of the Fund.
For descriptions of the investment objective, policies and restrictions of the
Fund, see "The Fund in Detail" herein and "Risk Factors and Certain Securities
and Investment Practices" herein and in the SAI. For a description of the
management and expenses of the Fund, see "Management of the Trust" herein and in
the SAI.
Short-Term Investments. The Fund may invest in certain short-term fixed income
securities. Such securities may be used to invest uncommitted cash balances, to
maintain liquidity to meet shareholder redemptions or to serve as collateral for
the obligations underlying the Fund's investment in securities index futures or
related options or warrants. These securities include: obligations issued or
guaranteed by the U.S. Government or any of its agencies or instrumentalities or
by any of the states, repurchase agreements, time deposits, certificates of
deposit, bankers' acceptances and commercial paper.
U.S. Government Securities are obligations of, or guaranteed by, the U.S.
Government, its agencies or instrumentalities. Some U.S. Government securities,
such as Treasury bills, notes and bonds, are supported by the full faith and
credit of the United States; others, such as those of the Federal Home Loan
Banks, are supported by the right of the issuer to borrow from the Treasury;
others, such as those of the Federal National Mortgage Association, are
supported by the discretionary authority of the U.S. Government to purchase the
agency's obligations; and still others, such as those of the Student Loan
Marketing Association, are supported only by the credit of the instrumentality.
Securities Lending. The Fund may lend its investment securities to qualified
institutional investors for either short-term or long-term purposes of realizing
additional income. Loans of securities by the Fund will be collateralized by
cash, letters of credit, or securities issued or guaranteed by the U.S.
Government or its agencies. The collateral will equal at least 100% of the
current market value of the loaned securities, and such loans may not exceed 30%
of the value of the Fund's net assets. The risks in lending portfolio
securities, as with other extensions of credit, consist of possible loss of
rights in the collateral should the borrower fail financially. In determining
whether to lend securities, Bankers Trust will consider all relevant facts and
circumstances, including the creditworthiness of the borrower.
When Issued and Delayed Delivery Securities. The Fund may purchase securities on
a when-issued or delayed delivery basis. Delivery of and payment for these
securities may take place as long as a month or more after the date of the
purchase commitment. The value of these securities is subject to market
fluctuation during this period and no income accrues to the Fund until
settlement takes place. The Fund maintains with its custodian a segregated
account containing cash or liquid portfolio securities in an amount at least
equal to these commitments.
Derivatives
The Fund may invest in various instruments that are commonly known as
"derivatives." Generally, a derivative is a financial arrangement, the value of
which is based on, or "derived" from, a traditional security, asset, or market
index. Some derivatives such as mortgage-related and other asset-backed
securities are in many respects like any other investment, although they may be
more volatile or less liquid than more traditional debt securities. There are,
in fact, many different types of derivatives and many different ways to use
them. There are a range of risks associated with those uses. Futures and options
are commonly used for traditional hedging purposes to attempt to protect the
Fund from exposure to changing interest rates, securities prices or currency
exchange rates and as a low cost method of gaining exposure to a particular
securities market without investing directly in those securities. Bankers Trust
will only use derivatives for cash management purposes. Derivatives will not be
used to increase portfolio risk above the level that would be achieved using
only traditional investment securities or to acquire exposure to changes in the
value of assets or indices that by themselves would not be purchased for the
Fund.
Securities Index Futures and Related Options. The Fund may enter into securities
index futures contracts and related options provided that not more than 5% of
its assets are required as a margin deposit for futures contracts or options and
provided that not more than 20% of the Fund's assets are invested in futures and
options at any time. When the Fund has cash from new investments in the Fund or
holds a portion of its assets in money market instruments, it may enter into
index futures or options to attempt to increase its exposure to the market.
Strategies the Fund could use to accomplish this include purchasing futures
contracts, writing put options and purchasing call options. When the Fund wishes
to sell securities, because of shareholder redemptions or otherwise, it may use
index futures or options to hedge against market risk until the sale can be
completed. These strategies could include selling futures contracts, writing
call options and purchasing put options.
Warrants. Warrants are instruments which entitle the holder to buy underlying
equity securities at a specific price for a specific period of time. A warrant
tends to be more volatile than its underlying securities and ceases to have
value if it is not exercised prior to its expiration date. In addition, changes
in the value of a warrant do not necessarily correspond to changes in the value
of its underlying securities.
Convertible Securities. The Fund may invest in convertible securities which are
a bond or preferred stock which may be converted at a stated price within a
specific period of time into a specified number of shares of common stock of the
same or different issuer. Convertible securities are senior to common stock in a
corporation's capital structure, but usually are subordinated to non-convertible
debt securities. While providing a fixed income stream -- generally higher in
yield than the income derived from a common stock but lower than that afforded
by a non-convertible debt security -- a convertible security also affords an
investor the opportunity, through its conversion feature, to participate in the
capital appreciation of common stock into which it is convertible.
In general, the market value of a convertible security is the higher of its
investment value (its value as a fixed income security) or its conversion value
(the value of the underlying shares of common stock if the security is
converted). As a fixed income security, the market value of a convertible
security generally increases when interest rates decline and generally decreases
when interest rates rise; however, the price of a convertible security generally
increases as the market value of the underlying stock increases, and generally
decreases as the market value of the underlying stock declines. Investments in
convertible securities generally entail less risk than investments in the common
stock of the same issuer.
Further risks associated with the use of futures contracts, options, warrants
and convertible securities. The risk of loss associated with futures contracts
in some strategies can be substantial due to both the low margin deposits
required and the extremely high degree of leverage involved in futures pricing.
As a result, a relatively small price movement in a futures contract may result
in an immediate and substantial loss or gain. However, the Fund will not use
futures contracts, options, warrants and convertible securities for speculative
purposes or to leverage their net assets. Accordingly, the primary risks
associated with the use of futures contracts, options, warrants and convertible
securities by the Fund are: (i) imperfect correlation between the change in
market value of the securities held by the Fund and the prices of futures
contracts, options, warrants and convertible securities; and (ii) possible lack
of a liquid secondary market for a futures contract and the resulting inability
to close a futures position prior to its maturity date. The risk of imperfect
correlation will be minimized by investing only in those contracts whose
behavior is expected to resemble that of the Fund's underlying securities. The
risk that the Fund will be unable to close out a futures position will be
minimized by entering into stock transactions on an exchange with an active and
liquid secondary market. However, options, warrants and convertible securities
purchased or sold over-the-counter may be less liquid than exchange-traded
securities. Illiquid securities, in general, may not represent more than 15% of
the net assets of the Fund.
Foreign Currency Forward, Futures and Related Options Transactions. The Fund may
enter into foreign currency forward and foreign currency futures contracts in
order to maintain the same currency exposure as the EAFE(R) Index. The Fund may
not enter into such contracts as a way of protecting against anticipated adverse
changes in exchange rates between foreign currencies and the U.S. dollar. A
foreign currency forward contract is an obligation to purchase or sell a
specific currency at a future date, which may be any fixed number of days from
the date of the contract agreed upon by the parties, at a price set at the time
of the contract. Such contracts do not eliminate fluctuations in the underlying
prices of securities held by the Fund. Although such contracts tend to minimize
the risk of loss due to a decline in the value of a currency that has been sold
forward, and the risk of loss due to an increase in the value of a currency that
has been purchased forward, at the same time they tend to limit any potential
gain that might be realized should the value of such currency increase.
Asset Coverage. To assure that futures and related options, as well as
when-issued and delayed-delivery securities, are not used by the Fund to achieve
excessive investment leverage, the Fund will cover such transactions, as
required under applicable interpretations of the SEC, either by owning the
underlying securities, entering into an off-setting transaction, or by
establishing a segregated account with the Fund's custodian containing cash or
liquid portfolio securities in an amount at all times equal to or exceeding the
Fund's commitment with respect to these instruments or contracts.
Portfolio Turnover
The frequency of Fund transactions - the Fund's turnover rate - will vary from
year to year depending on market conditions and the Fund's cash flows. The
Fund's annual portfolio turnover rate is not expected to exceed 100%.
NET ASSET VALUE
The Fund is open for business on each day the New York Stock Exchange ("NYSE")
is open (each such day being a "Valuation Day"). The NYSE is currently open on
each day, Monday through Friday, except: (a) January 1st, Martin Luther King
Day, Presidents' Day (the third Monday in February), Good Friday, Memorial Day
(the last Monday in May), July 4th, Labor Day (the first Monday in September),
Thanksgiving Day (the last Thursday in November) and December 25th; and (b) the
preceding Friday or the subsequent Monday when one of the calendar-determined
holidays falls on a Saturday or Sunday, respectively.
The net asset value per share of the Fund is calculated once on each Valuation
Day as of the close of regular trading on the NYSE, which under normal
circumstances is 4:00 p.m., New York time. The Fund will not process orders on
any day the NYSE is closed. Orders received on such days will be priced on the
next day the Fund computes its net asset value. As such, investors may
experience a delay in purchasing or redeeming shares of the Fund. Some of the
Fund's securities are listed on foreign exchanges which trade on Saturdays or
other days when the NYSE is closed. Since the Fund does not price on these days,
the Fund's net asset value may by significantly affected on days when an
investor has no access to the Fund's assets. The net asset value per share of
the Fund is computed by dividing the value of the Fund's assets, less all
liabilities, by the total number of its shares outstanding. The Fund's
securities and other assets are valued primarily on the basis of market
quotations or, if quotations are not readily available, by a method which the
Fund's Board of Trustees believes accurately reflects fair value.
[Under procedures adopted by the Board], a net asset value for a Fund later
determined to have been inaccurate for any reason will be recalculated.
Purchases and redemptions made at a net asset value determined to have been
inaccurate will be adjusted if the difference between the original net asset
value and the recalculated net asset value divided by the recalculated net asset
value is 0.005 (1/2 of 1%) or greater and the difference between the net asset
value is equal to or greater than $0.01, unless the impact of the error to a
shareholder account was $10 or less.
PERFORMANCE INFORMATION AND REPORTS
The Fund's performance may be used from time to time in advertisements,
shareholder reports or other communications to existing or prospective owners of
the Companies' variable contracts. When performance information is provided in
advertisements, it will include the effect of all charges deducted under the
terms of the specified contract, as well as all recurring and non-recurring
charges incurred by the Fund. Performance information may include the Fund's
investment results and/or comparisons of its investment results to the EAFE(R)
Index, and the Lipper International Average or other various unmanaged indices
or results of other mutual funds or investment or savings vehicles. The Fund's
investment results as used in such communications will be calculated on a total
rate of return basis in the manner set forth below. From time to time, fund
rankings may be quoted from various sources, such as Lipper Analytical Services,
Inc., Value Line and Morningstar Inc.
The Trust may provide period and average annualized "total return" quotations
for the Fund. The Fund's "total return" refers to the change in the value of an
investment in the Fund over a stated period based on any change in net asset
value per share and including the value of any shares purchasable with any
dividends or capital gains distributed during such period. Period total return
may be annualized. An annualized total return is a compounded total return which
assumes that the period total return is generated over a one-year period, and
that all dividends and capital gain distributions are reinvested. An annualized
total return will be higher than a period total return if the period is shorter
than one year, because of the compounding effect.
Unlike some bank deposits or other investments which pay a fixed yield for a
stated period of time, the total return of the Fund will vary depending upon
interest rates, the current market value of the securities held by the Fund and
changes in the Fund's expenses. In addition, during certain periods for which
total return quotations may be provided, Bankers Trust and/or the Trust's other
service providers may have voluntarily agreed to waive portions of their
respective fees, or reimburse certain operating expenses of the Fund, on a
month-to-month basis. Such waivers will have the effect of increasing the Fund's
net income (and therefore its total return) during the period such waivers are
in effect.
Total returns are based on past results and are not an indication of future
performance.
Shareholders will receive unaudited financial reports semi-annually that include
the Fund's financial statements, including listings of investment securities
held by the Fund at those dates. Annual reports are audited by independent
accountants.
MANAGEMENT OF THE TRUST
Board of Trustees
The affairs of the Fund are managed under the supervision of the Board of
Trustees of the Trust, of which the Fund is a series. By virtue of the
responsibilities assumed by Bankers Trust, neither the Trust nor the Fund
requires employees other than the Trust's officers. None of the Trust's officers
devotes full time to the affairs of the Trust or the Fund.
For more information with respect to the Trustees of the Trust, see "Management
of the Trust" in the SAI.
Investment Manager
The Fund has retained the services of Bankers, as investment manager. Bankers
Trust, a New York banking corporation with executive offices at 130 Liberty
Street (One Bankers Trust Plaza), New York, New York 10006, is a wholly-owned
subsidiary of Bankers Trust New York Corporation. Bankers Trust conducts a
variety of general banking and trust activities and is a major wholesaler
supplier of financial services to the international and domestic institutional
markets. As of December 31, 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 90 offices in
more than 50 countries. Investment management is a core business of Bankers
Trust, built on a tradition of excellence from its roots as a trust bank founded
in 1903. The scope of Bankers Trust's investment management capability is unique
due to its leadership positions in both active and passive quantitative
management and its presence in major equity and fixed income markets around the
world. Bankers Trust is one of the nation's largest and most experienced
investment managers with approximately [$240] billion in assets under management
globally. 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 in its
role as investment manager. All orders for investment transactions on behalf of
the Fund are placed by Bankers Trust with broker-dealers and other financial
intermediaries that it selects, including those affiliated with Bankers Trust. A
Bankers Trust affiliate will be used in connection with a purchase or sale of an
investment for the Fund only if Bankers Trust believes that the affiliate's
charge for the transaction does not exceed usual and customary levels. The Fund
will not invest in obligations for which Bankers Trust or any of its affiliates
is the ultimate obligor or accepting bank. The Fund may, however, invest in the
obligations of correspondents and customers of Bankers Trust.
As compensation for its services to the Fund, Bankers Trust receives a fee from
the Fund, accrued daily and paid monthly, equal on an annual basis to 0.45% of
the average daily net assets of the Fund for its then-current fiscal year.
Bankers Trust has been advised by its counsel that, in counsel's opinion,
Bankers Trust currently may perform the services for the Trust and the Fund
described in this Prospectus and the SAI without violation of the Glass-Steagall
Act or other applicable banking laws or regulations. State laws on this issue
may differ from the interpretations of relevant Federal law, and banks and
financial institutions may be required to register as dealers pursuant to state
securities law.
Fund Manager
Richard J. Vella, Managing Director of Bankers Trust, is responsible for the
day-to-day management of the Fund. Mr. Vella has been employed by Bankers
Trust since 1985 and has ten years of trading and investment experience.
Expenses
In addition to the fees of Bankers Trust, the Fund is responsible for the
payment of all its other expenses incurred in the operation of the Fund, which
include, among other things, expenses for legal and independent auditor's
services, charges of the Fund's custodian and transfer agent, SEC fees, a pro
rata portion of the fees of the Trust's unaffiliated trustees and officers,
accounting costs for reports sent to owners of the Contracts which provide for
investment in the Fund ("Contractowners"), the Fund's pro rata portion of
membership fees in trade organizations, a pro rata portion of the fidelity bond
coverage for the Trust's officers, interest, brokerage and other trading costs,
taxes, all expenses of computing the Fund's net asset value per share, expenses
involved in registering and maintaining the registration of the Fund's shares
with the SEC and qualifying the Fund for sale in various jurisdictions and
maintaining such qualification, litigation and other extraordinary or
non-recurring expenses. However, other typical Fund expenses such as
Contractowner servicing, distribution of reports to Contractowners and
prospectus printing and postage will be borne by the relevant Company.
Administrator
First Data Investor Services Group, Inc. ("Investor Services Group"), a
subsidiary of First Data Corporation, One Exchange Place, Boston, Massachusetts
02109, serves as the Fund's administrator pursuant to an Administration
Agreement with the Trust. Under the terms of the Administration Agreement,
Investor Services Group generally assists in all aspects of the Fund's
operations, other than providing investment advice, subject to the overall
authority of the Trust's Board of Trustees. Pursuant to the terms of the
Administration Agreement, the Trust has agreed to pay Investor Services Group a
monthly fee at the annual rate of 0.02% of the value of the Trust's average
monthly net assets not exceeding $2 billion; 0.01% of the Trust's monthly
average net assets exceeding $2 billion but not exceeding $5 billion and 0.0075%
of the Trust's monthly average net assets exceeding $5 billion, in addition to a
flat fee of $70,000 per year for each portfolio of the Trust and a one-time
start-up fee for each portfolio of the Trust.
Distributor
First Data Distributors, Inc. (the "Distributor") serves as distributor of the
Fund's shares to separate accounts of the Companies, for which it receives no
separate fee from the Fund. The principal business address of the Distributor is
4400 Computer Drive, Westborough, Massachusetts 01581.
Custodian and Transfer Agent
Bankers Trust acts as custodian of the assets of the Fund and Investor Services
Group serves as the transfer agent for the Fund.
Organization of the Trust
The Trust was organized on January 19, 1996, under the laws of the Commonwealth
of Massachusetts. The Fund is a separate series of the Trust. The Trust offers
shares of beneficial interest of the Fund and the Trust's other series, par
value $0.001 per share. The shares of the other series of the Trust are offered
through separate Prospectuses. No series of shares has any preference over any
other series. All shares, when issued, will be fully paid and nonassessable. The
Trust's Board of Trustees has the authority to create additional series without
obtaining shareholder approval.
The Trust is an entity of the type commonly known as a "Massachusetts business
trust." Under Massachusetts law, shareholders of such a business trust may,
under certain circumstances, be held personally liable as partners for its
obligations. However, the risk of a shareholder incurring financial loss on
account of shareholder liability is limited to circumstances in which both
inadequate insurance existed and the Trust itself was unable to meet its
obligations.
Through its separate accounts, the Companies are the Fund's sole stockholders of
record, therefore under the 1940 Act, such Companies are deemed to be in control
of the Fund. Nevertheless, when a shareholders' meeting occurs, each Company
solicits and accepts voting instructions from its Contractowners who have
allocated or transferred monies for an investment in the Fund as of the record
date of the meeting. Each Company then votes the Fund's shares that are
attributable to its Contractowners' interests in the Fund in proportion to the
voting instructions received. Each Company will vote any share that it is
entitled to vote directly due to amounts it has contributed or accumulated in
its separate accounts in the manner described in the prospectuses for its
variable annuities and variable life insurance policies.
Each share of the Fund is entitled to one vote, and fractional shares are
entitled to fractional votes. Fund shares have non-cumulative voting rights, so
the vote of more than 50% of the shares can elect 100% of the Trustees.
The Trust is not required, and does not intend, to hold regular annual
shareholder meetings, but may hold special meetings for consideration of
proposals requiring shareholder approval.
The Fund is only available to owners of variable annuities or variable life
insurance policies issued by the Companies through their respective separate
accounts. The Fund does not currently foresee any disadvantages to
Contractowners arising from offering its shares to variable annuity and variable
life insurance policy separate accounts simultaneously, and the Board of
Trustees monitors events for the existence of any material irreconcilable
conflict between or among Contractowners. If a material irreconcilable conflict
arises, one or more separate accounts may withdraw their investment in the Fund.
This could possibly force the Fund to sell portfolio securities at
disadvantageous prices. Each Company will bear the expenses of establishing
separate portfolios for its variable annuity and variable life insurance
separate accounts if such action becomes necessary; however, ongoing expenses
that are ultimately borne by Contractowners will likely increase due to the loss
of economies of scale benefits that can be provided to mutual funds with
substantial assets.
SHAREHOLDER AND ACCOUNT POLICIES
PURCHASE AND REDEMPTION OF SHARES
Shares of the Fund will be continuously offered to each Company's separate
accounts at the net asset value per share next determined after a proper
purchase request has been received by the Company. The Company then offers to
Contractowners units in its separate accounts which directly correspond to
shares in the Fund. Each Company submits purchase and redemption orders to the
Fund based on allocation instructions for premium payments, transfer
instructions and surrender or partial withdrawal requests which are furnished to
the Company by such Contractowners. Contractowners can send such instructions
and requests to the Companies by first class mail, overnight mail or express
mail sent to the address set forth in the relevant Company's offering memorandum
included with this prospectus. The Fund and the Distributor reserve the right to
reject any purchase order for shares of the Fund.
Payment for redeemed shares will ordinarily be made within seven (7) business
days after the Fund receives a redemption order from the relevant Company. The
redemption price will be the net asset value per share next determined after the
Company receives the Contractowner's request in proper form.
The Fund may suspend the right of redemption or postpone the date of payment
during any period when trading on the NYSE is restricted, or the NYSE is closed
for other than weekends and holidays; when an emergency makes it not reasonably
practicable for the Fund to dispose of assets or calculate its net asset value;
or as permitted by the SEC.
The accompanying offering memorandum for the Company's variable annuity or
variable life insurance policy describes the allocation, transfer and withdrawal
provisions of such annuity or policy.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Fund distributes substantially all of its net income and capital gains to
shareholders each year. The Fund distributes capital gains and income dividends
annually. All dividends and capital gains distributions paid by the Fund will be
automatically reinvested, at net asset value, by the Companies' separate
accounts in additional shares of the Fund, unless an election is made by a
Contractowner to receive distributions in cash.
The Fund will be treated as a separate entity for federal income tax purposes.
The Fund intends to qualify as a "regulated investment company" under the
Internal Revenue Code of 1986, as amended (the "Code"). As a regulated
investment company the Fund will not be subject to U.S. Federal income tax on
its investment company taxable income and net capital gains (the excess of net
long-term capital gains over net short-term capital losses), if any, that it
distributes to shareholders. The Fund intends to distribute to its shareholders,
at least annually, substantially all of its investment company taxable income
and net capital gains, and therefore does not anticipate incurring a Federal
income tax liability.
The Code and Treasury Department regulations promulgated thereunder require that
mutual funds that are offered through insurance company separate accounts must
meet certain diversification requirements to preserve the tax-deferral benefits
provided by the variable contracts which are offered in connection with such
separate accounts. Bankers Trust intends to diversify the Fund's investments in
accordance with those requirements. The enclosed offering memorandum for a
Company's variable annuity or variable life insurance policies describes the
federal income tax treatment of distributions from such contracts to
Contractowners.
The foregoing is only a brief summary of important tax law provisions that
affect the Fund. Other Federal, state and local tax law provisions may also
affect the Fund and its operations. Anyone who is considering allocating,
transferring or withdrawing monies held under a variable contract to or from the
Fund should consult a qualified tax adviser.
<PAGE>
40
Investment Manager of the Fund
BANKERS TRUST COMPANY
Administrator
FIRST DATA INVESTOR SERVICES GROUP, INC.
Distributor
FIRST DATA DISTRIBUTORS, INC.
Custodian
BANKERS TRUST COMPANY
Transfer Agent
FIRST DATA INVESTOR SERVICES GROUP, INC.
Independent Accountants
ERNST & YOUNG LLP
Counsel
WILLKIE FARR & GALLAGHER
..........................................................
No person has been authorized to give any information or to make any
representation other than those contained in the Fund's Prospectus, its SAI or
the Fund's official sales literature in connection with the offering of the
Fund's shares and, if given or made, such other information or representations
must not be relied on as having been authorized by the Fund. This Prospectus
does not constitute an offer in any state in which, or to any person to whom,
such offer may not lawfully be made.
........................................................
<PAGE>
BT INSURANCE FUND TRUST
SMALL CAP INDEX FUND
PROSPECTUS
AUGUST 20, 1997
This Prospectus offers shares of the Small Cap Index Fund (the "Fund"). The Fund
is a series of BT Insurance Funds Trust (the "Trust"), which is an open-end
management investment company currently having 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
Russell 2000 Small Stock Index before the deduction of Fund expenses (the
"Expenses"). There is no assurance, however, that the Fund will achieve its
stated objective.
Bankers Trust Company ("Bankers Trust") is the investment manager (the
"Manager") of the Fund.
Please read this Prospectus carefully before investing and retain it for future
reference. It contains important information about the Fund that you should know
and can refer to in deciding whether the Fund's goals match your own.
A Statement of Additional Information ("SAI") with the same date has been filed
with the Securities and Exchange Commission ("SEC"), and is incorporated herein
by reference. You may request a free copy of the SAI by calling the Trust at the
Customer Service Center at the telephone number shown in the accompanying
offering memorandum.
Fund shares are not deposits or obligations of, or guaranteed by, Bankers Trust
or any depository institution. Shares are not insured by the Federal Deposit
Insurance Corporation, the Federal Reserve Board or any other agency.
THESESECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
BANKERS TRUST COMPANY
Investment Manager of the Fund
FIRST DATA DISTRIBUTORS, INC.
Distributor
4400 Computer Drive
Westborough, MA 01581
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Page
THE FUND.................................................................................................. 3
Financial Highlights
Who May Want to Invest
Investment Principles and Risks
THE FUND IN DETAIL........................................................................................ 5
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.......................................................................... 15
Purchase and Redemption of Shares
Dividends, Distributions and Taxes
</TABLE>
<PAGE>
THE FUND
The Fund seeks to replicate as closely as possible (before the deduction of
Expenses) the total return of the Russell 2000 Small Stock Index (the "Russell
2000"), an index consisting of 2,000 small-capitalization common stocks. The
Fund will include the common stock of companies included in the Russell 2000, on
the basis of computer-generated statistical data, that are deemed representative
of the industry diversification of the entire Russell 2000.
FINANCIAL HIGHLIGHTS
The following table provides financial highlights of the Fund for the period
presented and should be read in conjunction with the financial statements and
related notes that appear in the Trust's annual report dated December 31, 1997
(the "Annual Report") and which are incorporated by reference into the SAI. The
financial statements and related notes contained in the Annual Report have been
audited by Ernst & Young LLP, independent accountants. Additional information
concerning the performance of the Fund is included in the Annual Report which
may be obtained without charge by writing First Data Distributors, Inc., the
distributor to the Fund at the address on the cover of this Prospectus.
Small Cap Index Fund (Unaudited)
(For a Share Outstanding throughout each period)
Year Ended
12/31/97*
Net asset value, beginning of period $10.00
Income from Investment Operations:
Net investment income (a) 0.03
Net realized and unrealized gain (loss)
on investments and futures contracts 0.48
Net increase in net asset value from operations 0.51
Net asset value, end of period $10.51
======
Total Return (b) 5.10%
Ratios / Supplemental Data:
Net assets, end of period (in 000's) $12,617 Ratios to average net
assets:
Net investment income including reimbursement (c) 1.08%
Operating expenses including reimbursement (c) 0.45%
Operating expenses excluding reimbursement (c) 3.27%
Portfolio turnover rate 8%
Average commission rate paid $0.0208
- -----------------
* The Fund commenced operations on August 25, 1997.
(a) Based on average shares outstanding.
(b) Total investment return is calculated assuming an initial investment made
at the net asset value at the beginning of the period, reinvestment of all
dividends and distributions at net asset value during the period and
redemption on the last day of the period. Initial sales charge or
contingent deferred sales charge is not reflected in the calculation of
total investment return. Total return calculated for a period of less than
one year is not annualized.
(c) Annualized.
WHO MAY WANT TO INVEST
Shares of the Fund are available to the public only through the purchase of
Contracts issued by the Companies.
The Fund is not managed according to traditional methods of "active" investment
management, which involve the buying and selling of securities based upon
economic, financial and market analysis and investment judgment. Instead, the
Fund utilizes a "passive" or "indexing" investment approach and attempts to
replicate the investment performance of the Russell 2000 through statistical
procedures.
The Fund may be appropriate for investors who are willing to endure stock market
fluctuations in pursuit of potentially higher long-term returns. The Fund
invests for growth and does not pursue income as a primary objective. Over time,
stocks, although more volatile, have shown greater growth potential than other
types of securities. In the shorter term, however, stock prices can fluctuate
dramatically in response to market factors.
The Fund is intended to be a long-term investment vehicle and is not 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. Stock values
fluctuate, sometimes dramatically, in response to the activities of individual
companies and general market and economic conditions. Over time, however, stocks
have shown greater long-term growth potential than other types of securities.
Lower quality securities offer higher yields, but also carry more risk.
<PAGE>
General economic factors in the various world markets can also impact the value
of an investor's investment. When an investor sells his or her Fund shares, they
may be worth more or less than what the investors paid for them. See "Risk
Factors and Certain Securities and Investment Practices" for more information.
THE FUND IN DETAIL
INVESTMENT OBJECTIVES AND POLICIES
The following is a discussion of the various investments of and techniques
employed by the Fund. Additional information about the investment policies of
the Fund appears in "Risk Factors and Certain Securities and Investment
Practices" in this Prospectus and in the Fund's SAI. There can be no assurance
that the investment objectives of the Fund will be achieved.
The Fund seeks to replicate as closely as possible (before the deduction of
Expenses) the total return of the Russell 2000. The Russell 2000 is composed of
approximately 2,000 small-capitalization common stocks. A company's stock market
capitalization is the total market value of its floating outstanding shares. As
of [February 5, 1998], the average stock market capitalization of the Russell
2000 was [$500 million] and the weighted average stock market capitalization of
the Russell 2000 was [$650 million].
The Fund is neither sponsored by nor affiliated with the Frank Russell Company.
Frank Russell's only relationship to the Fund is the licensing of the use of the
Russell 2000. Frank Russell Company is the owner of the trademarks and
copyrights relating to the Russell indices.
The Fund invests in a statistically selected sample of the 2,000 stocks included
in the Russell 2000. The stocks of the Russell 2000 to be included in the Fund
will be selected utilizing a statistical sampling technique known as
"optimization." This process selects stocks for the Fund so that various
industry weightings, market capitalizations and fundamental characteristics
(e.g., price-to-book, price-to-earnings and debt-to-asset ratios and dividend
yields) closely approximate those of the Russell 2000. For instance, if 10% of
the capitalization of the Russell 2000 consists of utility companies with
relatively small capitalizations, then the Fund is constructed so that
approximately 10% of the Fund's assets are invested in the stocks of utility
companies with relatively small capitalizations. The stocks held by the Fund are
weighted to make the Fund's aggregate investment characteristics similar to
those of the Russell 2000 as a whole.
General
Over time, the correlation between the performance of the Fund and the Russell
2000 is expected to be 0.95 or higher before deduction of Expenses. A
correlation of 1.00 would indicate perfect correlation, which would be achieved
when the net asset value of the Fund, including the value of its dividend and
any capital gain distributions, increases or decreases in exact proportion to
changes in the Russell 2000. The Fund's ability to track the Russell 2000 may be
affected by, among other things, transaction costs, administration and other
expenses incurred by the Fund, changes in either the composition of the Russell
2000 or the assets of the Fund, and the timing and amount of Fund investor
contributions and withdrawals, if any. In the unlikely event that a high
correlation is not achieved, the Trust's Board of Trustees will consider
alternatives. Because the Fund seeks to track the Russell 2000, Bankers Trust
generally will not attempt to judge the merits of any particular stock as an
investment.
Under normal circumstances, the Fund will invest at least 80% of its assets in
the securities of the Russell 2000.
As a diversified fund, no more than 5% of the assets of the Fund may be invested
in the securities of one issuer (other than U.S. Government Securities), except
that up to 25% of the Fund's assets may be invested without regard to this
limitation. The Fund will not invest more than 25% of its assets in the
securities of issuers in any one industry. In the unlikely event that the
Russell 2000 should concentrate to an extent greater than that amount, the
Fund's ability to achieve its objective may be impaired. These are fundamental
investment policies of the Fund which may not be changed without shareholder
approval. No more than 15% of the Fund's net assets may be invested in illiquid
or not readily marketable securities (including repurchase agreements and time
deposits with maturities of more than seven days). Additional investment
policies of the Fund are contained in the SAI.
The Fund may maintain up to 25% of its assets in short-term debt securities and
money market instruments to meet redemption requests or to facilitate investment
in the securities of the Russell 2000. Securities index futures contracts and
related options, warrants and convertible securities may be used for several
reasons: to simulate full investment in the Russell 2000 while retaining a cash
balance for fund management purposes, to facilitate trading, to reduce
transaction costs or to seek higher investment returns when a futures contract,
option, warrant or convertible security is priced more attractively than the
underlying equity security or the Russell 2000. These instruments may be
considered derivatives. See "Risk Factors and Certain Securities and Investment
Practices -- Derivatives."
The use of derivatives for non-hedging purposes may be considered speculative.
While each of these securities can be used as leveraged investments, the Fund
may not use them to leverage its net assets. The Fund will not invest in such
instruments as part of a temporary defensive strategy (in anticipation of
declining stock prices) to protect the Fund against potential market declines.
The Fund may lend its investment securities and purchase securities on a
when-issued and a delayed delivery basis. See "Risk Factors and Certain
Securities and Investment Practices" for more information about the investment
practices of the Fund.
RISK FACTORS AND CERTAIN SECURITIES AND INVESTMENT PRACTICES
The following pages contain more detailed information about types of instruments
in which the Fund may invest and strategies Bankers Trust may employ in pursuit
of the Fund's investment objective. A summary of risks and restrictions
associated with these instrument types and investment practices is included as
well.
Bankers Trust may not buy all of these instruments or use all of these
techniques to the full extent permitted unless it believes that doing so will
help the Fund achieve its goal. Holdings and recent investment strategies are
described in the financial reports of the Fund, which are sent to Fund
shareholders on a semi-annual and annual basis.
Market Risk
As a mutual fund investing primarily in common stocks, the Fund is subject to
market risk --- i.e., the possibility that common stock prices will decline over
short or even extended periods. The U.S. stock market tends to be cyclical, with
periods when stock prices generally rise and periods when prices generally
decline.
Risks of Investing in Medium- and Small-Capitalization Stocks
Historically, medium- and small-capitalization stocks have been more volatile in
price than the larger-capitalization stocks included in the Standard & Poor's
500 Composite Stock Price Index. Among the reasons for the greater price
volatility of these securities are: the less certain growth prospects of smaller
firms, the lower degree of liquidity in the markets for such stocks, and the
greater sensitivity of medium- and small-size companies to changing economic
conditions. In addition to exhibiting greater volatility, medium- and small-size
company stocks may fluctuate independently of larger company stocks. Medium- and
small-size company stocks may decline in price as large company stocks rise, or
rise in price as large company stocks decline.
The Fund's investment objective is not a fundamental policy and may be changed
upon notice to, but without the approval of, the Fund's shareholders. If there
is a change in the Fund's investment objective, the Fund's shareholders should
consider whether the Fund remains an appropriate investment in light of their
then-current needs. Shareholders of the Fund will receive 30 days prior written
notice with respect to any change in the investment objective of the Fund. See
"Risk Factors and Certain Securities and Investment Practices" in the SAI for a
description of the fundamental policies of the Fund that cannot be changed
without approval by "the vote of a majority of the outstanding voting
securities" (as defined in the Investment Company Act of 1940, as amended (the
"1940 Act")) of the Fund.
For descriptions of the investment objectives, policies and restrictions of the
Fund, see "The Fund in Detail" herein and "Risk Factors and Certain Securities
and Investment Practices" herein and in the SAI. For descriptions of the
management and expenses of the Fund, see "Management of the Trust" herein and in
the SAI.
Short-Term Investments. The Fund may invest in certain short-term fixed income
securities. Such securities may be used to invest uncommitted cash balances, to
maintain liquidity to meet shareholder redemptions or to serve as collateral for
the obligations underlying the Fund's investment in securities index futures or
related options or warrants. These securities include: obligations issued or
guaranteed by the U.S. Government or any of its agencies or instrumentalities or
by any of the states, repurchase agreements, time deposits, certificates of
deposit, bankers' acceptances and commercial paper.
U.S. Government Securities are obligations of, or guaranteed by, the U.S.
Government, its agencies or instrumentalities. Some U.S. Government securities,
such as Treasury bills, notes and bonds, are supported by the full faith and
credit of the United States; others, such as those of the Federal Home Loan
Banks, are supported by the right of the issuer to borrow from the Treasury;
others, such as those of the Federal National Mortgage Association, are
supported by the discretionary authority of the U.S. Government to purchase the
agency's obligations; and still others, such as those of the Student Loan
Marketing Association, are supported only by the credit of the instrumentality.
Securities Lending. The Fund may lend its investment securities to qualified
institutional investors for either short-term or long-term purposes of realizing
additional income. Loans of securities by the Fund will be collateralized by
cash, letters of credit, or securities issued or guaranteed by the U.S.
Government or its agencies. The collateral will equal at least 100% of the
current market value of the loaned securities, and such loans may not exceed 30%
of the value of the Fund's net assets. The risks in lending portfolio
securities, as with other extensions of credit, consist of possible loss of
rights in the collateral should the borrower fail financially. In determining
whether to lend securities, Bankers Trust will consider all relevant facts and
circumstances, including the creditworthiness of the borrower.
When Issued and Delayed Delivery Securities. The Fund may purchase securities on
a when-issued or delayed delivery basis. Delivery of and payment for these
securities may take place as long as a month or more after the date of the
purchase commitment. The value of these securities is subject to market
fluctuation during this period and no income accrues to the Fund until
settlement takes place. The Fund maintains with its custodian a segregated
account containing cash or liquid portfolio securities in an amount at least
equal to these commitments.
Derivatives
The Fund may invest in various instruments that are commonly known as
"derivatives." Generally, a derivative is a financial arrangement, the value of
which is based on, or "derived" from, a traditional security, asset, or market
index. Some derivatives such as mortgage-related and other asset-backed
securities are in many respects like any other investment, although they may be
more volatile or less liquid than more traditional debt securities. There are,
in fact, many different types of derivatives and many different ways to use
them. There are a range of risks associated with those uses. Futures and options
are commonly used for traditional hedging purposes to attempt to protect the
Fund from exposure to changing interest rates, securities prices or currency
exchange rates and as a low cost method of gaining exposure to a particular
securities market without investing directly in those securities. Bankers Trust
will only use derivatives for cash management purposes. Derivatives will not be
used to increase portfolio risk above the level that would be achieved using
only traditional investment securities or to acquire exposure to changes in the
value of assets or indices that by themselves would not be purchased for the
Fund.
Securities Index Futures and Related Options. The Fund may enter into securities
index futures contracts and related options provided that not more than 5% of
its assets are required as a margin deposit for futures contracts or options and
provided that not more than 20% of the Fund's assets are invested in futures and
options at any time. When the Fund has cash from new investments in the Fund or
holds a portion of its assets in money market instruments, it may enter into
index futures or options to attempt to increase its exposure to the market.
Strategies the Fund could use to accomplish this include purchasing futures
contracts, writing put options and purchasing call options. When the Fund wishes
to sell securities, because of shareholder redemptions or otherwise, it may use
index futures or options to hedge against market risk until the sale can be
completed. These strategies could include selling futures contracts, writing
call options and purchasing put options.
Warrants. Warrants are instruments which entitle the holder to buy underlying
equity securities at a specific price for a specific period of time. A warrant
tends to be more volatile than its underlying securities and ceases to have
value if it is not exercised prior to its expiration date. In addition, changes
in the value of a warrant do not necessarily correspond to changes in the value
of its underlying securities.
Convertible Securities. The Fund may invest in convertible securities which are
a bond or preferred stock which may be converted at a stated price within a
specific period of time into a specified number of shares of common stock of the
same or different issuer. Convertible securities are senior to common stock in a
corporation's capital structure, but usually are subordinated to non-convertible
debt securities. While providing a fixed income stream -- generally higher in
yield than the income derived from a common stock but lower than that afforded
by a non-convertible debt security -- a convertible security also affords an
investor the opportunity, through its conversion feature, to participate in the
capital appreciation of common stock into which it is convertible.
In general, the market value of a convertible security is the higher of its
investment value (its value as a fixed income security) or its conversion value
(the value of the underlying shares of common stock if the security is
converted). As a fixed income security, the market value of a convertible
security generally increases when interest rates decline and generally decreases
when interest rates rise; however, the price of a convertible security generally
increases as the market value of the underlying stock increases, and generally
decreases as the market value of the underlying stock declines. Investments in
convertible securities generally entail less risk than investments in the common
stock of the same issuer.
Further risks associated with the use of futures contracts, options, warrants
and convertible securities. The risk of loss associated with futures contracts
in some strategies can be substantial due to both the low margin deposits
required and the extremely high degree of leverage involved in futures pricing.
As a result, a relatively small price movement in a futures contract may result
in an immediate and substantial loss or gain. However, the Fund will not use
futures contracts, options, warrants and convertible securities for speculative
purposes or to leverage their net assets. Accordingly, the primary risks
associated with the use of futures contracts, options, warrants and convertible
securities by the Fund are: (i) imperfect correlation between the change in
market value of the securities held by the Fund and the prices of futures
contracts, options, warrants and convertible securities; and (ii) possible lack
of a liquid secondary market for a futures contract and the resulting inability
to close a futures position prior to its maturity date. The risk of imperfect
correlation will be minimized by investing only in those contracts whose
behavior is expected to resemble that of the Fund's underlying securities. The
risk that the Fund will be unable to close out a futures position will be
minimized by entering into stock transactions on an exchange with an active and
liquid secondary market. However, options, warrants and convertible securities
purchased or sold over-the-counter may be less liquid than exchange-traded
securities. Illiquid securities, in general, may not represent more than 15% of
the net assets of the Fund.
Asset Coverage. To assure that futures and related options, as well as
when-issued and delayed-delivery securities, are not used by the Fund to achieve
excessive investment leverage, the Fund will cover such transactions, as
required under applicable interpretations of the Securities and Exchange
Commission, either by owning the underlying securities, entering into an
off-setting transaction, or by establishing a segregated account with the Fund's
custodian containing cash or liquid portfolio securities in an amount at all
times equal to or exceeding the Fund's commitment with respect to these
instruments or contracts.
Portfolio Turnover
The frequency of Fund transactions - the Fund's turnover rate - will vary from
year to year depending on market conditions and the Fund's cash flows. The
Fund's annual portfolio turnover rate is not expected to exceed 100%.
NET ASSET VALUE
The Fund is open for business each day the New York Stock Exchange ("NYSE") is
open (each such day being a "Valuation Day"). The NYSE is currently open on each
day, Monday through Friday, except: (a) January 1st, Martin Luther King Day,
Presidents' Day (the third Monday in February), Good Friday, Memorial Day (the
last Monday in May), July 4th, Labor Day (the first Monday in September),
Thanksgiving Day (the last Thursday in November) and December 25th; and (b) the
preceding Friday or the subsequent Monday when one of the calendar-determined
holidays falls on a Saturday or Sunday, respectively.
The net asset value per share of the Fund is calculated once on each Valuation
Day as of the close of regular trading on the NYSE, which under normal
circumstances is 4:00 p.m., New York time. The Fund will not process orders on
any day the NYSE is closed. Orders received on such days will be priced on the
next day the Fund computes its net asset value. The net asset value per share of
the Fund is computed by dividing the value of the Fund's assets, less all
liabilities, by the total number of its shares outstanding. The Fund's
securities and other assets are valued primarily on the basis of market
quotations or, if quotations are not readily available, by a method which the
Fund's Board of Trustees believes accurately reflects fair value.
[Under procedures adopted by the Board], a net asset value for a Fund later
determined to have been inaccurate for any reason will be recalculated.
Purchases and redemptions made at a net asset value determined to have been
inaccurate will be adjusted if the difference between the original net asset
value and the recalculated net asset value divided by the recalculated net asset
value is 0.005 (1/2 of 1%) or greater and the difference between the net asset
value is equal to or greater than $0.01, unless the impact of the error to a
shareholder account was $10 or less.
PERFORMANCE INFORMATION AND REPORTS
The Fund's performance may be used from time to time in advertisements,
shareholder reports or other communications to existing or prospective owners of
the Companies' variable contracts. When performance information is provided in
advertisements, it will include the effect of all charges deducted under the
terms of the specified contract, as well as all recurring and non-recurring
charges incurred by the Fund. Performance information may include the Fund's
investment results and/or comparisons of its investment results to the Lipper
International Average or other various unmanaged indices or results of other
mutual funds or investment or savings vehicles. The Fund's investment results as
used in such communications will be calculated on a total rate of return basis
in the manner set forth below. From time to time, fund rankings may be quoted
from various sources, such as Lipper Analytical Services, Inc., Value Line and
Morningstar Inc.
The Trust may provide period and average annualized "total return" quotations
for the Fund. The Fund's "total return" refers to the change in the value of an
investment in the Fund over a stated period based on any change in net asset
value per share and including the value of any shares purchasable with any
dividends or capital gains distributed during such period. Period total return
may be annualized. An annualized total return is a compounded total return which
assumes that the period total return is generated over a one-year period, and
that all dividends and capital gain distributions are reinvested. An annualized
total return will be higher than a period total return if the period is shorter
than one year, because of the compounding effect.
Unlike some bank deposits or other investments which pay a fixed yield for a
stated period of time, the total return of the Fund will vary depending upon
interest rates, the current market value of the securities held by the Fund and
changes in the Fund's expenses. In addition, during certain periods for which
total return quotations may be provided, Bankers Trust and/or the Trust's other
service providers may have voluntarily agreed to waive portions of their
respective fees, or reimburse certain operating expenses of the Fund, on a
month-to-month basis. Such waivers will have the effect of increasing the Fund's
net income (and therefore its total return) during the period such waivers are
in effect.
Total returns are based on past results and are not an indication of future
performance.
Shareholders will receive unaudited financial reports semi-annually that include
the Fund's financial statements, including listings of investment securities
held by the Fund at those dates. Annual reports are audited by independent
accountants.
MANAGEMENT OF THE TRUST
Board of Trustees
The affairs of the Fund are managed under the supervision of the Board of
Trustees of the Trust, of which the Fund is a series. By virtue of the
responsibilities assumed by Bankers Trust, neither the Trust nor the Fund
require employees other than the Trust's officers. None of the Trust's officers
devotes full time to the affairs of the Trust or the Fund.
For more information with respect to the Trustees of the Trust, see "Management
of the Trust" in the SAI.
Investment Manager
The Fund has retained the services of Bankers Trust, as investment manager.
Bankers Trust, a New York banking corporation with executive offices at 130
Liberty Street (One Bankers Trust Plaza), New York, New York 10006, is a
wholly-owned subsidiary of Bankers Trust New York Corporation. Bankers Trust
conducts a variety of general banking and trust activities and is a major
wholesaler supplier of financial services to the international and domestic
institutional markets. As of December 31, 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 90
offices in more than 50 countries. Investment management is a core business of
Bankers Trust, built on a tradition of excellence from its roots as a trust bank
founded in 1903. The scope of Bankers Trust's investment management capability
is unique due to its leadership positions in both active and passive
quantitative management and its presence in major equity and fixed income
markets around the world. Bankers Trust is one of the nation's largest and most
experienced investment managers with approximately [$240] billion in assets
under management globally. 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 in its role as investment manager. All orders for
investment transactions on behalf of the Fund are placed by Bankers Trust with
broker-dealers and other financial intermediaries that it selects, including
those affiliated with Bankers Trust. A Bankers Trust affiliate will be used in
connection with a purchase or sale of an investment for the Fund only if Bankers
Trust believes that the affiliate's charge for the transaction does not exceed
usual and customary levels. The Fund will not invest in obligations for which
Bankers Trust or any of its affiliates is the ultimate obligor or accepting
bank. The Fund may, however, invest in the obligations of correspondents and
customers of Bankers Trust.
As compensation for its services to the Fund, Bankers Trust receives a fee from
the Fund, accrued daily and paid monthly, equal on an annual basis to 0.35% of
the average daily net assets of the Fund for its then-current fiscal year.
Bankers Trust has been advised by its counsel that, in counsel's opinion,
Bankers Trust currently may perform the services for the Trust and the Fund
described in this Prospectus and the SAI without violation of the Glass-Steagall
Act or other applicable banking laws or regulations. State laws on this issue
may differ from the interpretations of relevant Federal law, and banks and
financial institutions may be required to register as dealers pursuant to state
securities law.
Fund Manager
Frank Salerno, Managing Director of Bankers Trust, is responsible for the
day-to-day management of the Fund. Mr. Salerno oversees administration,
management and trading of international and domestic equity index strategies. He
has been employed by Bankers Trust since 1981.
Expenses
In addition to the fees of Bankers Trust, the Fund is responsible for the
payment of all its other expenses incurred in the operation of the Fund, which
include, among other things, expenses for legal and independent auditor's
services, charges of the Fund's custodian and transfer agent, SEC fees, a pro
rata portion of the fees of the Trust's unaffiliated trustees and officers,
accounting costs for reports sent to owners of the Contracts which provide for
investment in the Fund ("Contractowners"), the Fund's pro rata portion of
membership fees in trade organizations, a pro rata portion of the fidelity bond
coverage for the Trust's officers, interest, brokerage and other trading costs,
taxes, all expenses of computing the Fund's net asset value per share, expenses
involved in registering and maintaining the registration of the Fund's shares
with the SEC and qualifying the Fund for sale in various jurisdictions and
maintaining such qualification, litigation and other extraordinary or
non-recurring expenses. However, other typical Fund expenses such as
Contractowner servicing, distribution of reports to Contractowners and
prospectus printing and postage will be borne by the relevant Company.
Administrator
First Data Investor Services Group, Inc. ("Investor Services Group"), a
subsidiary of First Data Corporation, One Exchange Place, Boston, Massachusetts
02109, serves as the Fund's administrator pursuant to an Administration
Agreement with the Trust. Under the terms of the Administration Agreement,
Investor Services Group generally assists in all aspects of the Fund's
operations, other than providing investment advice, subject to the overall
authority of the Trust's Board of Trustees. Pursuant to the terms of the
Administration Agreement, the Trust has agreed to pay Investor Services Group a
monthly fee at the annual rate of 0.02% of the value of the Trust's average
monthly net assets not exceeding $2 billion; 0.01% of the Trust's monthly
average net assets exceeding $2 billion but not exceeding $5 billion; and
0.0075% of the Trust's monthly average net assets exceeding $5 billion, in
addition to a flat fee of $70,000 per year for each portfolio of the Trust and a
one-time start-up fee for each portfolio of the Trust.
Distributor
First Data Distributors, Inc. (the "Distributor") serves as distributor of the
Fund's shares to separate accounts of the Companies, for which it receives no
separate fee from the Fund. The principal business address of the Distributor is
4400 Computer Drive, Westborough, Massachusetts 01581.
Custodian and Transfer Agent
Bankers Trust acts as custodian of the assets of the Fund and Investor Services
Group serves as the transfer agent for the Fund.
Organization of the Trust
The Trust was organized on January 19, 1996, under the laws of the Commonwealth
of Massachusetts. The Fund is a separate series of the Trust. The Trust offers
shares of beneficial interest of the Fund and the Trust's other series, par
value $0.001 per share. The shares of each of the other series of the Trust are
offered through separate Prospectuses. No series of shares has any preference
over any other series. All shares, when issued, will be fully paid and
nonassessable. The Trust's Board of Trustees has the authority to create
additional series without obtaining shareholder approval.
The Trust is an entity of the type commonly known as a "Massachusetts business
trust." Under Massachusetts law, shareholders of such a business trust may,
under certain circumstances, be held personally liable as partners for its
obligations. However, the risk of a shareholder incurring financial loss on
account of shareholder liability is limited to circumstances in which both
inadequate insurance existed and the Trust itself was unable to meet its
obligations.
Through its separate accounts, the Companies are the Fund's sole stockholders of
record, therefore 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.
<PAGE>
The Fund may suspend the right of redemption or postpone the date of payment
during any period when trading on the NYSE is restricted, or the NYSE is closed
for other than weekends and holidays; when an emergency makes it not reasonably
practicable for the Fund to dispose of assets or calculate its net asset value;
or as permitted by the SEC.
The accompanying offering memorandum for the Company's variable annuity or
variable life insurance policy describes the allocation, transfer and withdrawal
provisions of such annuity or policy.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Fund distributes substantially all of its net income and capital gains to
shareholders each year. The Fund distributes capital gains and income dividends
annually. All dividends and capital gains distributions paid by the Fund will be
automatically reinvested, at net asset value, by the Companies' separate
accounts in additional shares of the Fund, unless an election is made by a
Contractowner to receive distributions in cash.
The Fund will be treated as a separate entity for federal income tax purposes.
The Fund intends to qualify as a "regulated investment company" under the
Internal Revenue Code of 1986, as amended (the "Code"). As a regulated
investment company the Fund will not be subject to U.S. Federal income tax on
its investment company taxable income and net capital gains (the excess of net
long-term capital gains over net short-term capital losses), if any, that it
distributes to shareholders. The Fund intends to distribute to its shareholders,
at least annually, substantially all of its investment company taxable income
and net capital gains, and therefore does not anticipate incurring a Federal
income tax liability.
The Code and Treasury Department regulations promulgated thereunder require that
mutual funds that are offered through insurance company separate accounts must
meet certain diversification requirements to preserve the tax-deferral benefits
provided by the variable contracts which are offered in connection with such
separate accounts. Bankers Trust intends to diversify the Fund's investments in
accordance with those requirements. The enclosed offering memorandum for a
Company's variable annuity or variable life insurance policies describes the
federal income tax treatment of distributions from such contracts to
Contractowners.
The foregoing is only a brief summary of important tax law provisions that
affect the Fund. Other Federal, state or local tax law provisions may also
affect the Fund and its operations. Anyone who is considering allocating,
transferring or withdrawing monies held under a variable contract to or from the
Fund should consult a qualified tax adviser.
<PAGE>
g:\shared\clients\bankers\edgar\finan.doc
Investment Manager of the Fund
BANKERS TRUST COMPANY
Administrator
FIRST DATA INVESTOR SERVICES GROUP, INC.
Distributor
FIRST DATA DISTRIBUTORS, INC.
Custodian
BANKERS TRUST COMPANY
Transfer Agent
FIRST DATA INVESTOR SERVICES GROUP, INC.
Independent Accountants
ERNST & YOUNG LLP
Counsel
WILLKIE FARR & GALLAGHER
..........................................................
No person has been authorized to give any information or to make any
representation other than those contained in the Fund's Prospectus, its
Statement of Additional Information or the Fund's official sales literature in
connection with the offering of the Fund's shares and, if given or made, such
other information or representations must not be relied on as having been
authorized by the Fund. This Prospectus does not constitute an offer in any
state in which, or to any person to whom, such offer may not lawfully be made.
............................................................
<PAGE>
STATEMENT OF
ADDITIONAL INFORMATION
BT INSURANCE FUNDS TRUST
EAFE(R) EQUITY INDEX FUND
MARCH 20, 1998
BT Insurance Funds Trust (the "Trust") is currently comprised of seven
series: the EAFE(R) Equity 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
<TABLE>
<CAPTION>
<S> <C> <C>
Risk Factors and Certain Securities and Investment Practices..................................... 2
Performance Information.......................................................................... 16
Valuation of Securities; Redemption in Kind...................................................... 17
Management of the Trust.......................................................................... 18
Organization of the Trust........................................................................ 22
Taxation......................................................................................... 23
Financial Statements............................................................................. 25
</TABLE>
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 "First Data Distributors").
The Prospectus for the Fund is dated March 20, 1998. The Prospectus provides
the basic information investors should know before investing and may be obtained
without charge by calling the Trust at the Customer Service Center at the
telephone number shown in the accompanying 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.
BANKERS TRUST COMPANY
Investment Manager of the Fund
FIRST DATA DISTRIBUTORS, INC.,
Distributor
4400 Computer Drive,
Westborough, MA 01581
<PAGE>
RISK FACTORS AND CERTAIN SECURITIES AND INVESTMENT PRACTICES
Investment Objective
The investment objective of the Fund is described in the Fund's
Prospectus. There can, of course, be no assurance that the Fund will achieve its
investment objective.
Investment Practices
The following is a discussion of the various investments of and
techniques employed by the Fund:
Certificates of Deposit and Bankers' Acceptances. Certificates of
deposit are receipts issued by a depository institution in exchange for the
deposit of funds. The issuer agrees to pay the amount deposited plus interest to
the bearer of the receipt on the date specified on the certificate. The
certificate usually can be traded in the secondary market prior to maturity.
Bankers' acceptances typically arise from short-term credit arrangements
designed to enable businesses to obtain funds to finance commercial
transactions. Generally, an acceptance is a time draft drawn on a bank by an
exporter or an importer to obtain a stated amount of funds to pay for specific
merchandise. The draft is then "accepted" by a bank that, in effect,
unconditionally guarantees to pay the face value of the instrument on its
maturity date. The acceptance may then be held by the accepting bank as an
earning asset or it may be sold in the secondary market at the going rate of
discount for a specific maturity. Although maturities for acceptances can be as
long as 270 days, most acceptances have maturities of six months or less.
Commercial Paper. Commercial paper consists of short-term (usually from
1 to 270 days) unsecured promissory notes issued by corporations in order to
finance their current operations. A variable amount master demand note (which is
a type of commercial paper) represents a direct borrowing arrangement involving
periodically fluctuating rates of interest under a letter agreement between a
commercial paper issuer and an institutional lender pursuant to which the lender
may determine to invest varying amounts.
Illiquid Securities. Historically, illiquid securities have included
securities subject to contractual or legal restrictions on resale because they
have not been registered under the Securities Act of 1933, as amended (the "1933
Act"), securities which are otherwise not readily marketable and repurchase
agreements having a maturity of longer than seven days. Securities which have
not been registered under the 1933 Act are referred to as private placements or
restricted securities and are purchased directly from the issuer or in the
secondary market. Mutual funds do not typically hold a significant amount of
these restricted or other illiquid securities because of the potential for
delays on resale and uncertainty in valuation. Limitations on resale may have an
adverse effect on the marketability of portfolio securities and a mutual fund
might be unable to dispose of restricted or other illiquid securities promptly
or at reasonable prices and might thereby experience difficulty satisfying
redemptions within seven days. A mutual fund might also have to register such
restricted securities in order to dispose of them resulting in additional
expense and delay. Adverse market conditions could impede such a public offering
of securities.
In recent years, however, a large institutional market has developed
for certain securities that are not registered under the 1933 Act, including
repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be readily
resold or on an issuer's ability to honor a demand for repayment. The fact that
there are contractual or legal restrictions on resale of such investments to the
general public or to certain institutions may not be indicative of their
liquidity.
The Securities and Exchange Commission (the "SEC") has adopted Rule
144A, which allows a broader institutional trading market for securities
otherwise subject to restriction on their resale to the general public. Rule
144A establishes a "safe harbor" from the registration requirements of the 1933
Act of resales of certain securities to qualified institutional buyers. The
Manager anticipates that the market for certain restricted securities such as
institutional commercial paper will expand further as a result of this
regulation and the development of automated systems for the trading, clearance
and settlement of unregistered securities of domestic and foreign issuers, such
as the PORTAL System sponsored by the National Association of Securities
Dealers, Inc.
The Manager will monitor the liquidity of Rule 144A securities in the
Fund's portfolio under the supervision of the Trust's Board of Trustees. In
reaching liquidity decisions, the Manager will consider, among other things, the
following factors: (i) the frequency of trades and quotes for the security; (ii)
the number of dealers and other potential purchasers wishing to purchase or sell
the security; (iii) dealer undertakings to make a market in the security and
(iv) the nature of the security and of the marketplace trades (e.g., the time
needed to dispose of the security, the method of soliciting offers and the
mechanics of the transfer).
Lending of Portfolio Securities. The Fund has the authority to lend
portfolio securities to brokers, dealers and other financial organizations. The
Fund will not lend securities to Bankers Trust, the Distributor or their
affiliates. By lending its securities, the Fund can increase its income by
continuing to receive interest on the loaned securities as well as by either
investing the cash collateral in short-term securities or obtaining yield in the
form of interest paid by the borrower when U.S. Government obligations are used
as collateral. There may be risks of delay in receiving additional collateral or
risks of delay in recovery of the securities or even loss of rights in the
collateral should the borrower of the securities fail financially. The Fund will
adhere to the following conditions whenever its securities are loaned: (i) the
Fund must receive at least 100 percent cash collateral or equivalent securities
from the borrower; (ii) the borrower must increase this collateral whenever the
market value of the securities including accrued interest rises above the level
of the collateral; (iii) the Fund must be able to terminate the loan at any
time; (iv) the Fund must receive reasonable interest on the loan, as well as any
dividends, interest or other distributions on the loaned securities, and any
increase in market value; (v) the Fund may pay only reasonable custodian fees in
connection with the loan; and (vi) voting rights on the loaned securities may
pass to the borrower; provided, however, that if a material event adversely
affecting the investment occurs, the Trust's Board of Trustees must terminate
the loan and regain the right to vote the securities.
Short-Term Instruments. When the Fund experiences large cash inflows
through the sale of securities and desirable equity securities, that are
consistent with the Fund's investment objective, which are unavailable in
sufficient quantities or at attractive prices, the Fund may hold short-term
investments for a limited time pending availability of such equity securities.
Short-term instruments consist of foreign and domestic: (i) short-term
obligations of sovereign governments, their agencies, instrumentalities,
authorities or political subdivisions; (ii) other short-term debt securities
rated AA or higher by S&P or Aa or higher by Moody's or, if unrated, of
comparable quality in the opinion of Bankers Trust; (iii) commercial paper; (iv)
bank obligations, including negotiable certificates of deposit, time deposits
and bankers' acceptances; and (v) repurchase agreements. At the time the Fund
invests in commercial paper, bank obligations or repurchase agreements, the
issuer of the issuer's parent must have outstanding debt rated AA or higher by
S&P or Aa or higher by Moody's or outstanding commercial paper or bank
obligations rated A-1 by S&P or Prime-1 by Moody's; or, if no such ratings are
available, the instrument must be of comparable quality in the opinion of
Bankers Trust. These instruments may be denominated in U.S dollars or in foreign
currencies.
When-Issued and Delayed Delivery Securities. The Fund may purchase
securities on a when-issued or delayed delivery basis. For example, delivery of
and payment for these securities can take place a month or more after the date
of the purchase commitment. The purchase price and the interest rate payable, if
any, on the securities are fixed on the purchase commitment date or at the time
the settlement date is fixed. The value of such securities is subject to market
fluctuation and no interest accrues to the Fund until settlement takes place. At
the time the Fund makes the commitment to purchase securities on a when-issued
or delayed delivery basis, it will record the transaction, reflect the value
each day of such securities in determining its net asset value and, if
applicable, calculate the maturity for the purposes of average maturity from
that date. At the time of settlement a when-issued security may be valued at
less than the purchase price. To facilitate such acquisitions, the Fund will
maintain with the Fund's custodian a segregated account with liquid assets,
consisting of cash, U.S. Government securities or other appropriate securities,
in an amount at least equal to such commitments. On delivery dates for such
transactions, the Fund will meet its obligations from maturities or sales of the
securities held in the segregated account and/or from cash flow. If the Fund
chooses to dispose of the right to acquire a when-issued security prior to its
acquisition, it could, as with the disposition of any other Fund obligation,
incur a gain or loss due to market fluctuation. It is the current policy of the
Fund not to enter into when-issued commitments exceeding in the aggregate 15% of
the market value of the Fund's total assets, less liabilities other than the
obligations created by when-issued commitments.
Additional U.S. Government Obligations. The Fund may invest in
obligations issued or guaranteed by U.S. Government agencies or
instrumentalities. These obligations may or may not be backed by the "full faith
and credit" of the United States. In the case of securities not backed by the
full faith and credit of the United States, the Fund must look principally to
the federal agency issuing or guaranteeing the obligation for ultimate
repayment, and may not be able to assert a claim against the United States
itself in the event the agency or instrumentality does not meet its commitments.
Securities in which the Fund may invest that are not backed by the full faith
and credit of the United States include, but are not limited to, obligations of
the Tennessee Valley Authority, the Federal Home Loan Mortgage Corporation and
the U.S. Postal Service, each of which has the right to borrow from the U.S.
Treasury to meet its obligations, and obligations of the Federal Farm Credit
System and the Federal Home Loan Banks, both of whose obligations may be
satisfied only by the individual credits of each issuing agency. Securities
which are backed by the full faith and credit of the United States include
obligations of the Government National Mortgage Association, the Farmers Home
Administration, and the export-import Bank.
Equity Investments. The Fund may invest in equity securities listed on
any domestic or foreign securities exchange or traded in the over-the-counter
market as well as certain restricted or unlisted securities. They may or may not
pay dividends or carry voting rights. Common stock occupies the most junior
position in a company's capital structure.
Reverse Repurchase Agreements. The Fund may borrow funds for temporary
or emergency purposes, such as meeting larger than anticipated redemption
requests, and not for leverage, by among other things, agreeing to sell
portfolio securities to financial institutions such as banks and broker-dealers
and to repurchase them at a mutually agreed date and price (a "reverse
repurchase agreement"). At the time the Fund enters into a reverse repurchase
agreement it will place in a segregated custodial cash account, U.S. Government
Obligations or high-grade debt obligations having a value equal to the
repurchase price, including accrued interest. Reverse repurchase agreements
involve the risk that the market value of the securities sold by the Fund may
decline below the repurchase price of those securities. Reverse repurchase
agreements are considered to be borrowings by the Fund.
Warrants. Warrants entitle the holder to buy common stock from the
issuer at a specific price (the strike price) for a specific period of time. The
strike price of warrants sometimes is much lower than the current market price
of the underlying securities, yet warrants are subject to similar price
fluctuations. As a result, warrants may be more volatile investments than the
underlying securities.
Warrants do not entitle the holder to dividends or voting rights with
respect to the underlying securities and do not represent any rights in the
assets of the issuing company. Also, the value of the warrant does not
necessarily change with the value of the underlying securities and a warrant
ceases to have value if it is not exercised prior to the expiration date.
Convertible Securities. Convertible securities may be a debt security
or preferred stock which may be converted into common stock or carries the right
to purchase common stock. Convertible securities entitle the holder to exchange
the securities for a specified number of shares of common stock, usually of the
same company, at specified prices within a certain period of time.
The terms of any convertible security determine its ranking in a
company's capital structure. In the case of subordinated convertible debentures,
the holders' claims on assets and earnings are subordinated to the claims of
other creditors, and are senior to the claims of preferred and common
shareholders. In the case of convertible preferred stock, the holders' claims on
assets and earnings are subordinated to the claims of all creditors and are
senior to the claims of common shareholders.
[To be updated]...[Foreign Securities: Special Considerations Concerning Hong
Kong, Malaysia, Singapore and Japan. Many Asian countries may be subject to a
greater degree of social, political and economic instability than is the case in
the United States and European countries. Such instability may result from (i)
authoritarian governments or military involvement in political and economic
decision-making; (ii) popular unrest associated with demands for improved
political, economic and social conditions; (iii) internal insurgencies; (iv)
hostile relations with neighboring countries; and (v) ethnic, religious and
racial disaffection.]
The economies of most of the Asian countries are heavily dependent upon
international trade and are accordingly affected by protective trade barriers
and the economic conditions of their trading partners, principally, the United
States, Japan, China and the European Community. The enactment by the United
States or other principal trading partners of protectionist trade legislation,
reduction of foreign investment in the local economies and general declines in
the international securities markets could have a significant adverse effect
upon the securities markets of the Asian countries.
[Hong Kong's impending return to Chinese dominion in 1997 has not
initially had a positive effect on its economic growth which was vigorous in the
1980s.] However, authorities in Beijing have agreed to maintain a capitalist
system for 50 years that, along with Hong Kong's economic growth, continued to
further strong stock market returns. In preparation for 1997, Hong Kong has to
develop trade with China, where it is the largest foreign investor, while also
maintaining its long-standing export relationship with the United States.
Spending on infrastructure improvements is a significant priority of the
colonial government while the private sector continues to diversify abroad based
on its position as an established international trade center in the Far East.
The Hong Kong stock market is undergoing a period of growth and change
which may result in trading volatility and difficulties in the settlement and
recording of transactions, and in interpreting and applying the relevant law and
regulations.
[The Malaysian economy continued to perform well, growing at an average
annual rate of 9% from 1987 through 1991. This placed Malaysia as one of the
fastest growing economies in the Asian-Pacific region. Malaysia has become the
world's third-largest producer of semiconductor devices (after the US and Japan)
and the world's largest exporter of semiconductor devices. More remarkable is
the country's ability to achieve rapid economic growth with relative price
stability (2% inflation over the past five years) as the government followed
prudent fiscal/monetary policies. Malaysia's high export dependence level leaves
it vulnerable to a recession in the Organization for Economic Cooperation and
Development countries or a fall in world commodity prices.]
Singapore has an open entrepreneurial economy with strong service and
manufacturing sectors and excellent international trading links derived from its
history. During the 1970s and early 1980s, the economy expanded rapidly,
achieving an average annual growth rate of 9%. Per capita GDP is among the
highest in Asia.
Singapore holds a position as a major oil refining and services center.
Investing in Japanese securities may involve the risks associated with
investing in foreign securities generally. In addition, because it invests in
Japan, the Fund will be subject to the general economic and political conditions
in Japan.
Share prices of companies listed on Japanese stock exchanges and on the
Japanese OTC market reached historical peaks (which were later referred to as
the "bubble") as well as historically high trading volumes in 1989 and 1990.
Since then, stock prices in both markets decreased significantly, with listed
stock prices reaching their lowest levels in the third quarter of 1992 and OTC
stock prices reaching their lowest levels in the fourth quarter of 1992. [During
the period from January 1, 1989 through December 31, 1994, the highest Nikkei
stock average and Nikkei OTC average were 38,915.87 and 4,149.20, respectively,
and the lowest for each were 14,309.41 and 1,099.32, respectively.] There can be
no assurance that additional market corrections will not occur.
The common stocks of many Japanese companies continue to trade at high
price earnings ratios in comparison with those in the United States, even after
the recent market decline. Differences in accounting methods make it difficult
to compare the earnings of Japanese companies with those of companies in other
countries, especially the United States.
Since the Fund invests in securities denominated in yen, changes in
exchange rates between the U.S. dollar and the yen affect the U.S. dollar value
of the Fund's assets. Such rate of exchange is determined by forces of supply
and demand on the foreign exchange markets. These forces are in turn affected by
the international balance of payments and other economic, political and
financial conditions, government intervention, speculation and other factors.
Japanese securities held by the Fund are not registered with the SEC
nor are the issuers thereof subject to its reporting requirements. There may be
less publicly available information about issuers of Japanese securities than
about U.S. companies and such issuers may not be subject to accounting, auditing
and financial reporting standards and requirements comparable to those to which
U.S. companies are subject.
Although the Japanese economy has grown substantially over the past
four decades, recently the rate of growth had slowed substantially. [During
1991, 1992 and 1993, the Japanese economy grew at rates of 4.3%, 1.1% and 0.1%,
respectively, as measured by real gross domestic product.]
Japan's success in exporting its products has generated a sizable trade
surplus. Such trade surplus has caused tensions at times between Japan and some
of its trading partners. In particular, Japan's trade relations with the United
States have recently been the subject of discussion and negotiation between the
two nations. The United States has imposed certain measures designed to address
trade issues in specific industries. These measures and similar measures in the
future may adversely affect the performance of the Fund.
Japan's economy has typically exhibited low inflation and low interest
rates. There can be no assurance that low inflation and low interest rates will
continue, and it is likely that a reversal of such factors would adversely
affect the Japanese economy. Moreover, the Japanese economy may differ,
favorably or unfavorably, from the U.S. economy in such respects as growth of
gross national product, rate of inflation, capital reinvestment, resources,
self-sufficiency and balance of payments position.
Japan has a parliamentary form of government. In 1993 a coalition
government was formed which, for the first time since 1955, did not include the
Liberal Democratic Party. Since mid-1993, there have been several changes in
leadership in Japan. What, if any, effect the current political situation will
have on prospective regulatory reforms of the economy in Japan cannot be
predicted. Recent and future developments in Japan and neighboring Asian
countries may lead to changes in policy that might adversely affect the Fund.
Futures Contracts and Options on Futures Contracts
General. The successful use of such instruments draws upon the
Manager's skill and experience with respect to such instruments. When futures
are purchased to hedge against a possible increase in the price of securities
before the Fund is able to invest its cash (or cash equivalents) in an orderly
fashion, it is possible that the market may decline instead; if the Fund then
concludes not to invest its cash at that time because of concern as to possible
further market decline or for other reasons, the Fund will realize a loss on the
futures contract that is not offset by a reduction in the price of the
instruments that were to be purchased. Successful use of futures to hedge
against foreign exchange risk depends on the Manager's ability to forecast
currency exchange rate movements correctly. Should exchange rates move in an
unexpected manner, the Fund may not achieve the anticipated benefits of futures
contracts or options on futures contracts or may realize losses and thus will be
in a worse position than if such strategies had not been used. In addition, the
correlation between movements in the price of futures contracts or options on
futures contracts and movements in the price of the securities and currencies
hedged or used for cover will not be perfect and could produce unanticipated
losses.
Successful use of the futures contract and related options are subject
to special risk considerations. A liquid secondary market for any futures or
options contract may not be available when a futures or options position is
sought to be closed. In addition, there may be an imperfect correlation between
movements in the securities or currency in the Fund. Successful use of futures
or options contracts is further dependent on Bankers Trust's ability to
correctly predict movements in the securities or foreign currency markets and no
assurance can be given that its judgment will be correct. Successful use of
options on securities or stock indices are subject to similar risk
considerations. In addition, by writing covered call options, the Fund gives up
the opportunity, while the option is in effect, to profit from any price
increase in the underlying securities above the options exercise price.
Futures Contracts. The Fund may enter into contracts for the purchase
or sale for future delivery of foreign currencies or contracts based on the EAFE
Index. U.S. futures contracts have been designed by exchanges which have been
designated "contracts markets" by the CFTC, and must be executed through a
futures commission merchant, or brokerage firm, which is a member of the
relevant contract market. Futures contracts trade on a number of exchange
markets, and, through their clearing corporations, the exchanges guarantee
performance of the contracts as between the clearing members of the exchange.
At the same time a futures contract is purchased or sold, the Fund must
allocate cash or securities as a deposit payment ("initial deposit"). It is
expected that the initial deposit would be approximately 1 1/2% to 5% of a
contract's face value. Daily thereafter, the futures contract is valued and the
payment of "variation margin" may be required, since each day the Fund would
provide or receive cash that reflects any decline or increase in the contract's
value.
Although futures contracts by their terms call for the actual delivery
or acquisition of securities, in most cases the contractual obligation is
fulfilled before the date of the contract without having to make or take
delivery of the securities. The offsetting of a contractual obligation is
accomplished by buying (or selling, as the case may be) on a commodities
exchange an identical futures contract calling for delivery in the same month.
Such a transaction, which is effected through a member of an exchange, cancels
the obligation to make or take delivery of the securities. Since all
transactions in the futures market are made, offset or fulfilled through a
clearinghouse associated with the exchange on which the contracts are traded,
the Fund will incur brokerage fees when it purchases or sells futures contracts.
The ordinary spreads between prices in the cash and futures market, due
to differences in the nature of those markets, are subject to distortions.
First, all participants in the futures market are subject to initial deposit and
variation margin requirements. Rather than meeting additional variation margin
requirements, investors may close futures contracts through offsetting
transactions which could distort the normal relationship between the cash and
futures markets. Second, the liquidity of the futures market depends on
participants entering into offsetting transactions rather than making or taking
delivery. To the extent participants decide to make or take delivery, liquidity
in the futures market could be reduced, thus producing distortion. Third, from
the point of view of speculators, the margin deposit requirements in the futures
market are less onerous than margin requirements in the securities market.
Therefore, increased participation by speculators in the futures market may
cause temporary price distortions.
In addition, futures contracts entail risks. The Manager believes that
use of such contracts will benefit the Fund. The successful use of futures
contracts, however, depends on the degree of correlation between the futures and
securities markets.
Options on Futures Contracts. A futures option gives the holder, in
return for the premium paid, the right to buy (call) from or sell (put) to the
writer of the option a futures contract at a specified price at any time during
the period of the option. Upon exercise, the writer of the option is obligated
to pay the difference between the cash value of the futures contract the
exercise price. Like the buyer or seller of a futures contract, the holder, or
writer, of an option has the right to terminate its position prior to the
scheduled expiration of the option by selling, or purchasing an option of the
same series, at which time the person entering into the closing transaction will
realize a gain or loss. The Fund will be required to deposit initial margin and
variation margin with respect to put and call options on futures contracts
written by its pursuant to brokers' requirements similar to those described
above. Net option premiums received will be included as initial margin deposits.
In anticipation of a decline in interest rates, the Fund may purchase call
options on futures contracts as a substitute for the purchase of futures
contracts to hedge against a possible increase in the price of securities which
the Fund intends to purchase. Similarly, if the value of the securities held by
the Fund is expected to decline as a result of an increase in interest rates,
the Fund might purchase put options or sell call options on futures contracts
rather than sell futures contracts.
Investments in futures options involve some of the same considerations
that are involved in connection with investments in futures contracts (for
example, the existence of a liquid secondary market). In addition, the purchase
or sale of an option also entails the risk that changes in the value of the
underlying futures contract will not correspond to changes in the value of the
option purchased. Depending on the pricing of the option compared to either the
futures contract upon which it is based, or upon the price of the securities
being hedged, an option may or may not be less risky than ownership of the
futures contract or such securities. In general, the market prices of options
can be expected to be more volatile than the market prices on the underlying
futures contract. Compared to the purchase or sale of futures contracts,
however, the purchase of call or put options on futures contracts may frequently
involved less potential risk to the Fund because the maximum amount at risk is
the premium paid for the options (plus transaction costs). The writing of an
option on a futures contract involves risks similar to those risks relating to
the sale of futures contracts.
.........
The Board of Trustees has also adopted a restriction that the Fund will
not enter into any futures contracts or options on futures contracts if
immediately thereafter the amount of margin deposits on all the futures
contracts of the Fund and premiums paid on outstanding options on futures
contracts owned by the Fund (other than those entered into for bona fide hedging
purposes) would exceed 5% of the market value of the total assets of the Fund.
Additional Risks of Options on Futures Contracts and Forward Contracts.
Unlike transactions entered into by the Fund in futures contracts, forward
contracts are not traded on contract markets regulated by the CFTC or (with the
exception of certain foreign currency options) by the SEC. To the contrary, such
instruments are traded through financial institutions acting as market-makers.
The Fund's ability to terminate over-the-counter options will be more
limited than with exchange-traded options. It is also possible that
broker-dealers participating in over-the-counter options transactions will not
fulfill their obligations. Until such time as the staff of the SEC changes its
position, the Fund will treat purchased over-the-counter options and assets used
to cover written over-the-counter options as illiquid securities. With respect
to options written with primary dealers in U.S. Government securities pursuant
to an agreement requiring a closing purchase transaction at a formula price, the
amount of illiquid securities may be calculated with reference to the repurchase
formula.
Futures contracts, options on futures contracts and forward contracts
may be traded on foreign exchanges. Such transactions are subject to the risk of
governmental actions affecting trading in or the prices of foreign currencies or
securities. The value of such positions also could be adversely affected by: (i)
other complex foreign political and economic factors; (ii) lesser availability
than in the United States of data on which to make trading decisions; (iii)
delays in the Fund's ability to act upon economic events occurring in foreign
markets during nonbusiness hours in the United States; (iv) the imposition of
different exercise and settlement terms and procedures and margin requirements
than in the United States; and (v) lesser trading volume.
Options on Securities Indices. The Fund may purchase and write (sell)
call and put options on securities indices. Such options give the holder the
right to receive a cash settlement during the term of the option based upon the
difference between the exercise price and the value of the index.
Options on securities indices entail certain risks. The absence of a
liquid secondary market to close out options positions on securities indices may
occur, although the Fund generally will only purchase or write such an option if
the Manager believes the option can be closed out.
Use of options on securities indices also entails the risk that trading
in such options may be interrupted if trading in certain securities included in
the index is interrupted. The Fund will not purchase such options unless the
Manager believes the market is sufficiently developed such that the risk of
trading in such options is no greater than the risk of trading in options on
securities.
Price movements in the Fund's portfolio may not correlate precisely
with movements in the level of an index and, therefore, the use of options on
indices cannot serve as a complete hedge. Because options on securities indices
require settlement in cash, the Manager may be forced to liquidate portfolio
securities to meet settlement obligations.
Forward Foreign Currency Exchange Contracts. Because the Fund may buy
and sell securities denominated in currencies other than the U.S. dollar and
receives interest, dividends and sale proceeds in currencies other than the U.S.
dollar, the Fund from time to time may enter into foreign currency exchange
transactions to convert to and from different foreign currencies and to convert
foreign currencies to and from the U.S. dollar. The Fund either enters into
these transactions on a spot (i.e., cash) basis at the spot rate prevailing in
the foreign currency exchange market or uses forward contracts to purchase or
sell foreign currencies.
A forward foreign currency exchange contract is an obligation by a fund
to purchase or sell a specific currency at a future date, which may be any fixed
number of days from the date of the contract. Forward foreign currency exchange
contracts establish an exchange rate at a future date. These contracts are
transferable in the interbank market conducted directly between currency traders
(usually large commercial banks) and their customers. A forward foreign currency
exchange contract generally has no deposit requirement and is traded at a net
price without commission. The Fund maintains with its custodian a segregated
account of cash and liquid portfolio assets in an amount at least equal to its
obligations under each forward foreign currency exchange contract. Neither spot
transactions nor forward foreign currency exchange contracts eliminate
fluctuations in the prices of the Fund's securities or in foreign exchange
rates, or prevent loss if the prices of these securities should decline.
The Fund may enter into foreign currency hedging transactions in an
attempt to protect against changes in foreign currency exchange rates that would
adversely affect the portfolio position or an anticipated investment position.
Since consideration of the prospect for currency parities will be incorporated
into Bankers Trust's long-term investment decisions, the Fund will not routinely
enter into foreign currency hedging transactions with respect to security
transactions; however, Bankers Trust believes that it is important to have the
flexibility to enter into foreign currency hedging transactions when it
determines that the transactions would be in the Fund's best interest. Although
these transactions tend to minimize the risk of loss due to a decline in the
value of the hedged currency, at the same time they tend to limit any potential
gain that might be realized should the value of the hedged currency increase.
The precise matching of the forward contract amounts and the value of the
securities involved will not generally be possible because the future value of
such securities in foreign currencies will change as a consequence of market
movements in the value of such securities between the date the forward contract
is entered into and the date it matures. The projection of currency market
movements is extremely difficult, and the successful execution of a hedging
strategy is highly uncertain.
While these contracts are not presently regulated by the CFTC, the CFTC
may in the future assert authority to regulate forward contracts. In such event
the Fund's ability to utilize forward contracts in the manner set forth in the
Prospectus may be restricted. Forward contracts may reduce the potential gain
from a positive change in the relationship between the U.S. dollar and foreign
currencies. Unanticipated changes in currency prices may result in poorer
overall performance for the Fund than if it had not entered into such contracts.
The use of foreign currency forward contracts may not eliminate fluctuations in
the underlying U.S. dollar equivalent value of the prices of or rates of return
on the Fund's foreign currency denominated portfolio securities and the use of
such techniques will subject the Fund to certain risks.
The matching of the increase in value of a forward contract and the
decline in the U.S. dollar equivalent value of the foreign currency denominated
asset that is the subject of the hedge generally will not be precise. In
addition, the Fund may not always be able to enter into foreign currency forward
contracts at attractive prices and this will limit the Fund's ability to use
such contracts to hedge its assets.
Investment Restrictions
The following investment restrictions are "fundamental policies" of the
Fund and may not be changed without the approval of a "majority of the
outstanding voting securities" of the Fund. "Majority of the outstanding voting
securities" under the 1940 Act, and as used in this 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 (as an operating policy, the Funds may not engage in
dollar roll transactions);
(2) underwrite securities issued by other persons except insofar as
the Trust or the Fund may technically be deemed an underwriter
under the 1933 Act in selling a portfolio security;
(3) make loans to other persons except: (a) through the lending of the
Fund's portfolio securities and provided that any such loans not
exceed 30% of the Fund's total assets (taken at market value); or
(b) through the use of repurchase agreements or the purchase of
short-term obligations;
(4) purchase or sell real estate (including limited partnership
interests but excluding securities secured by real estate or
interests therein), in the ordinary course of business (except
that the Trust may hold and sell, for the Fund's portfolio, real
estate acquired as a result of the Fund's ownership of
securities);
(5) concentrate its investments in any particular industry (excluding
U.S. Government securities), but if it is deemed appropriate for
the achievement of the Fund's investment objective(s), up to 25%
of its total assets may be invested in any one industry;
(6) issue any senior security (as that term is defined in the 1940
Act) if such issuance is specifically prohibited by the 1940 Act
or the rules and regulations promulgated thereunder, (except to
the extent permitted in investment restriction No. 1), provided
that collateral arrangements with respect to options and futures,
including deposits of initial deposit and variation margin, are
not considered to be the issuance of a senior security for
purposes of this restriction; and
(7) purchase the securities of any one issuer if as a result more than
5% of the value of its total assets would be invested in the
securities of such issuer or the Fund would own more than 10% of
the outstanding voting securities of such issuer, except that up
to 25% of the value of its total assets may be invested without
regard to these 5% limitation and provided that there is no
limitation with respect to investments in U.S. Government
securities.
Additional investment restrictions adopted by the Fund, which may be
changed by the Board of Trustees, provide that the Fund may not:
(i) purchase any security or evidence of interest therein on
margin, except that such short-term credit as may be necessary
for the clearance of purchases and sales of securities may be
obtained and except that deposits of initial deposit and
variation margin may be made in connection with the purchase,
ownership, holding or sale of futures;
(ii) invest for the purpose of exercising control or
management;
(iii) purchase for the Fund securities of any investment company if
such purchase at the time thereof would cause: (a) more than
10% of the Fund's total assets (taken at the greater of cost
or market value) to be invested in the securities of such
issuers; (b) more than 5% of the Fund's total assets (taken at
the greater of cost or market value) to be invested in any one
investment company; or (c) more than 3% of the outstanding
voting securities of any such issuer to be held for the Fund
(as an operating policy, the Fund will not invest in another
open-end registered investment company); or
(iv) invest more than 15% of the Fund's net assets (taken at the
greater of cost or market value) in securities that are
illiquid or not readily marketable not including (a) Rule 144A
securities that have been determined to be liquid by the Board
of Trustees; and (b) commercial paper that is sold under
section 4(2) of the 1933 Act which is not traded flat or in
default as to interest or principal.
There will be no violation of any investment restriction if that
restriction is complied with at the time the relevant action is taken
notwithstanding a later change in market value of an investment, in net or total
assets, in the securities rating of the investment, or any other later change.
The Fund will comply with the state securities laws and regulations of
all states in which it is registered.
Portfolio Transactions and Brokerage Commissions
The Manager is responsible for decisions to buy and sell securities,
futures contracts and options on such securities and futures for the Fund, the
selection of brokers, dealers and futures commission merchants to effect
transactions and the negotiation of brokerage commissions, if any.
Broker-dealers may receive brokerage commissions on fund transactions, including
options, futures and options on futures transactions and the purchase and sale
of underlying securities upon the exercise of options. Orders may be directed to
any broker-dealer or futures commission merchant, including to the extent and in
the manner permitted by applicable law, Bankers Trust or its subsidiaries or
affiliates. Purchases and sales of certain fund securities on behalf of the Fund
are frequently placed by the Manager with the issuer or a primary or secondary
market-maker for these securities on a net basis, without any brokerage
commission being paid by the Fund. Trading does, however, involve transaction
costs. Transactions with dealers serving as market-makers reflect the spread
between the bid and asked prices. Transaction costs may also include fees paid
to third parties for information as to potential purchasers or sellers of
securities. Purchases of underwritten issues may be made which will include an
underwriting fee paid to the underwriter.
The Manager seeks to evaluate the overall reasonableness of the
brokerage commissions paid (to the extent applicable) in placing orders for the
purchase and sale of securities for the Fund taking into account such factors as
price, commission (negotiable in the case of national securities exchange
transactions), if any, size of order, difficulty of execution and skill required
of the executing broker-dealer through familiarity with commissions charged on
comparable transactions, as well as by comparing commissions paid by the Fund to
reported commissions paid by others. The Manager reviews on a routine basis
commission rates, execution and settlement services performed, making internal
and external comparisons.
The Manager is authorized, consistent with Section 28(e) of the
Securities Exchange Act of 1934, as amended, when placing portfolio transactions
for the Fund with a broker to pay a brokerage commission (to the extent
applicable) in excess of that which another broker might have charged for
effecting the same transaction on account of the receipt of research, market or
statistical information. The term "research, market or statistical information"
includes advice as to the value of securities; the advisability of investing in,
purchasing or selling securities; the availability of securities or purchasers
or sellers of securities; and furnishing analyses and reports concerning
issuers, industries, securities, economic factors and trends, portfolio strategy
and the performance of accounts.
Consistent with the policy stated above, the Rules of Fair Practice of
the National Association of Securities Dealers, Inc. and such other policies as
the Trustees of the Trust may determine, the Manager may consider sales of
shares of a Fund as a factor in the selection of broker-dealers to execute
portfolio transactions. Bankers Trust will make such allocations if commissions
are comparable to those charged by nonaffiliated, qualified broker-dealers for
similar services.
Higher commissions may be paid to firms that provide research services
to the extent permitted by law. Bankers Trust may use this research information
in managing the Fund's assets, as well as the assets of other clients.
Except for implementing the policies stated above, there is no
intention to place portfolio transactions with particular brokers or dealers or
groups thereof. In effecting transactions in over-the-counter securities, orders
are placed with the principal market-makers for the security being traded
unless, after exercising care, it appears that more favorable results are
available otherwise.
Although certain research, market and statistical information from
brokers and dealers can be useful to the Fund and to the Manager, it is the
opinion of the management of the Trust that such information is only
supplementary to the Manager's own research effort, since the information must
still be analyzed, weighed and reviewed by the Manager's staff. Such information
may be useful to the Manager in providing services to clients other than the
Fund, and not all such information is used by the Manager in connection with the
Fund. Conversely, such information provided to the Manager by brokers and
dealers through whom other clients of the Manager effect securities transactions
may be useful to the Manager in providing services to the Fund.
In certain instances there may be securities which are suitable for the
Fund as well as for one or more of the Manager's other clients. Investment
decisions for the Fund and for the Manager's other clients are made with a view
to achieving their respective investment objectives. It may develop that a
particular security is bought or sold for only one client even though it might
be held by, or bought or sold for, other clients. Likewise, a particular
security may be bought for one or more clients when one or more clients are
selling that same security. Some simultaneous transactions are inevitable when
several clients receive investment advice from the same investment adviser,
particularly when the same security is suitable for the investment objectives of
more than one client. When two or more clients are simultaneously engaged in the
purchase or sale of the same security, the securities are allocated among
clients in a manner believed to be equitable to each. It is recognized that in
some cases this system could have a detrimental effect on the price or volume of
the security as far as the Fund is concerned. However, it is believed that the
ability of the Fund to participate in volume transactions will produce better
executions for the Fund.
PERFORMANCE INFORMATION
Standard Performance Information
From time to time, quotations of the Fund's performance may be included
in advertisements, sales literature or shareholder reports. These performance
figures are calculated in the following manner:
Total Return: The Fund's average annual total return is calculated for
certain periods by determining the average annual compounded rates of
return over those periods that would cause an investment of $1,000
(made at the maximum public offering price with all distributions
reinvested) to reach the value of that investment at the end of the
periods. The Fund may also calculate total return figures which
represent aggregate performance over a period or year-by-year
performance.
Performance Results: Any total return quotation provided for the Fund
should not be considered as representative of the performance of the
Fund in the future since the net asset value and offering price of
shares of the Fund will vary based not only on the type, quality and
maturities of the securities held in the Fund, but also on changes in
the current value of such securities and on changes in the expenses of
the Fund. These factors and possible differences in the methods used to
calculate total return should be considered when comparing the total
return of the Fund to total returns published for other investment
companies or other investment vehicles. Furthermore, total return does
not reflect charges or deductions against a Contractowner's separate
account. Accordingly, total return does not illustrate actual
investment performance under a contract. Total return reflects the
performance of both principal and income.
For the period from commencement of operations on August 22, 1997
through December 31, 1997, the aggregate total return of the Fund was ___%.
Comparison of Fund Performance
Comparison of the quoted nonstandardized performance of various
investments is valid only if performance is calculated in the same manner. Since
there are different methods of calculating performance, investors should
consider the effect of the methods used to calculate performance when comparing
performance of the Fund with performance quoted with respect to other investment
companies or types of investments.
In connection with communicating its performance to current or
prospective shareholders, the Fund also may compare these figures to the
performance of other mutual funds tracked by mutual fund rating services or to
unmanaged indices which may assume reinvestment of dividends but generally do
not reflect deductions for administrative and management costs.
Evaluations of the Fund's performance made by independent sources may
also be used in advertisements concerning the Fund. Sources for the Fund's
performance information could include the following: Asian Wall Street Journal,
Barron's, Business Week, Changing Times, The Kiplinger Magazine, Consumer
Digest, Financial Times, Financial World, Forbes, Fortune, Global Investor,
Investor's Daily, Lipper Analytical Services, Inc.'s Mutual Fund Performance
Analysis, Money, Morningstar Inc., New York Times, Personal Investing News,
Personal Investor, Success, U.S. News and World Report, Value Line, Wall Street
Journal, Weisenberger Investment Companies Services and Working Women.
VALUATION OF SECURITIES; REDEMPTION IN KIND
Equity and debt securities (other than short-term debt obligations
maturing in 60 days or less), including listed securities and securities for
which price quotations are available, will normally be valued on the basis of
market valuations furnished by a pricing service. Short-term debt obligations
and money market securities maturing in 60 days or less are valued at amortized
cost, which approximates market.
Securities for which market quotations are not available are valued by
Bankers Trust under the supervision of the Trust's Board of Trustees. It is
generally agreed that securities for which market quotations are not readily
available should not be valued at the same value as that carried by an
equivalent security which is readily marketable.
The problems inherent in making a good faith determination of value are
recognized in the codification effected by SEC Financial Reporting Release No. 1
("FRR 1" (formerly Accounting Series Release No. 113)) which concludes that
there is "no automatic formula" for calculating the value of restricted
securities. It recommends that the best method simply is to consider all
relevant factors before making any calculation. According to FRR 1 such factors
would include consideration of the:
type of security involved, financial statements, cost at date
of purchase, size of holding, discount from market value of
unrestricted securities of the same class at the time of
purchase, special reports prepared by analysts, information as
to any transactions or offers with respect to the security,
existence of merger proposals or tender offers affecting the
security, price and extent of public trading in similar
securities of the issuer or comparable companies, and other
relevant matters.
To the extent that the Fund purchases securities which are restricted
as to resale or for which current market quotations are not available, the
Manager of the Fund will value such securities based upon all relevant factors
as outlined in FRR 1.
The Trust, on behalf of the Fund, reserves the right, if conditions
exist which make cash payments undesirable, to honor any request for redemption
or repurchase order by making payment in whole or in part in readily marketable
securities chosen by the Trust, and valued as they are for purposes of computing
the Fund's net asset value (a redemption in kind). If payment is made to a Fund
shareholder in securities, the shareholder may incur transaction expenses in
converting these securities into cash. The Trust, on behalf of the Fund, and the
Fund have elected, however, to be governed by Rule 18f-1 under the 1940 Act as a
result of which the Fund is obligated to redeem shares with respect to any one
investor during any 90-day period, solely in cash up to the lesser of $250,000
or 1% of the net asset value of the Fund at the beginning of the period.
MANAGEMENT OF THE TRUST
The Board of Trustees of the Trust is composed of persons experienced
in financial matters who meet throughout the year to oversee the activities of
the Fund. In addition, the Trustees review contractual arrangements with
companies that provide services to the Fund and review the Fund's performance.
The Trustees and officers of the Trust and their principal occupations
during the past five years are set forth below. Their titles may have varied
during that period. Asterisks indicate those Trustees who are "interested
persons" (as defined in the 1940 Act) of the Trust. Unless otherwise indicated,
the address of each Trustee and officer is One Exchange Place, Boston,
Massachusetts.
<TABLE>
<CAPTION>
<S> <C> <C>
Trustees and Officers
Principal Occupations During
Name, Address and Age Position Held with the Trust Past 5 Years
- --------------------- ---------------------------- ------------
Robert R. Coby, 46 Trustee President of Lynch & Mayer, Inc., since
118 North Drive December 1996; Formerly President of
North Massapequa, NY 11758 Leadership Capital Inc. (1995-1996);
Chief Operating Officer of CS First
Boston Investment Management, Inc.
(1994-1995); President of Blackhawk
L.P. (1993-1994); Chief Financial
Officer of Equitable Capital prior to
February 1993.
Desmond G. FitzGerald, 54 Trustee Chairman of North American Properties
2015 West Main Street Group since January 1987.
Stamford, CT 06902
James S. Pasman, Jr., 67 Trustee Retired; President and Chief Operations
29 The Trillium Officer of National Intergroup Inc.
Pittsburgh, PA 15238 (1989-1991).
*William E. Small, 56 Trustee and President Independent Consultant (1996-present);
Formerly Executive Vice President of
First Data Investor Services Group Inc.
("Investor Services Group") (1993-1996).
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.
Elizabeth A. Russell, 35 Vice President and Secretary Counsel of Investor Services Group
since 1994; Assistant Vice President
and Counsel, The Boston Company
Advisors, Inc. (1993-1994).
Brigid O. Bieber, 37 Vice President and Assistant Counsel of Investor Services Group
Secretary since 1994; Vice President and
Associate General Counsel, The Boston
Company Advisors, Inc. (prior to May
1994).
</TABLE>
Mr. Kardok and Msses. Bieber and Russell also hold similar positions for other
investment companies for which First Data Distributors, an affiliate of Investor
Service Group, or an affiliate serves as the principal underwriter.
No person who is an officer or director of Bankers Trust is an officer
or Trustee of the Trust. No director, officer or employee of First Data
Distributors or any of its affiliates will receive any compensation from the
Trust for serving as an officer or Trustee of the Trust.
As of February 10, 1998, the Trustees and officers of the Trust owned
in the aggregate less than 1% of the shares of the Fund or the Trust (all series
taken together).
Investment Manager
Under the terms of the Fund's investment management agreement with
Bankers Trust (the "Management Agreement"), Bankers Trust manages the Fund
subject to the supervision and direction of the Board of Trustees of the Trust.
Bankers Trust will: (i) act in strict conformity with the Trust's Declaration of
Trust, the 1940 Act and the Investment Advisers Act of 1940, as the same may
from time to time be amended; (ii) manage the Fund in accordance with the Fund's
investment objectives, restrictions and policies; (iii) make investment
decisions for the Fund; (iv) place purchase and sale orders for securities and
other financial instruments on behalf of the Fund; (v) oversee the
administration of all aspects of the Trust's business and affairs; and (vi)
supervise the performance of professional services provided by others.
Bankers Trust bears all expenses in connection with the performance of
services under the Management Agreement. The Fund bears certain other expenses
incurred in its operation, including: taxes, interest, brokerage fees and
commissions, if any; fees of Trustees of the Trust who are not officers,
directors or employees of Bankers Trust, First Data Distributors or any of their
affiliates; SEC fees and state Blue Sky qualification fees; charges of
custodians and transfer and dividend disbursing agents; certain insurance
premiums; outside auditing and legal expenses; cost of maintenance of corporate
existence; costs attributable to investor services, including, without
limitation, telephone and personnel expenses; costs of preparing and printing
prospectuses and statements of additional information for regulatory purposes
and for distribution to existing shareholders; costs of shareholders' reports
and meetings of shareholders, officers and Trustees of the Trust; and any
extraordinary expenses.
Bankers Trust may have deposit, loan and other commercial banking
relationships with the issuers of obligations which may be purchased on behalf
of the Fund, including outstanding loans to such issuers which could be repaid
in whole or in part with the proceeds of securities so purchased. Such
affiliates deal, trade and invest for their own accounts in such obligations and
are among the leading dealers of various types of such obligations. Bankers
Trust, in making its investment decisions, does not obtain or use material
inside information in its possession or in the possession of any of its
affiliates. In making investment recommendations for the Fund, Bankers Trust
will not inquire or take into consideration whether an issuer of securities
proposed for purchase or sale by the Fund is a customer of Bankers Trust, its
parent or its subsidiaries or affiliates and in dealing with its customers,
Bankers Trust, its parent, subsidiaries and affiliates will not inquire or take
into consideration whether securities of such customers are held by any fund
managed by Bankers Trust or any such affiliate.
The Fund's prospectus contains disclosure as to the amount of Bankers
Trust's investment advisory and administration and services fees.
Bankers Trust has agreed that if in any fiscal year the aggregate
expenses of the Fund (including fees pursuant to the Management Agreement, but
excluding interest, taxes, brokerage and, if permitted by the relevant state
securities commissions, extraordinary expenses) exceed the expense limitation of
any state having jurisdiction over the Fund, Bankers Trust will reimburse the
Fund for the excess expense to the extent required by state law.
Administrator
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, 130 Liberty Stree (One Bankers Trust Plaza), New York,
New York 10006, serves as custodian for the Fund. As custodian, it holds the
Fund's assets. Bankers Trust will comply with the self-custodian provisions of
Rule 17f-2 under the 1940 Act.
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 Statement of Additional Information without violation of the
Glass-Steagall Act or other applicable banking laws or regulations. However,
counsel has pointed out that future changes in either Federal or state statutes
and regulations concerning the permissible activities of banks or trust
companies, as well as future judicial or administrative decisions or
interpretations of present and future statutes and regulations, might prevent
Bankers Trust from continuing to perform those services for the Trust and the
Fund. State laws on this issue may differ from the interpretations of relevant
Federal law and banks and financial institutions may be required to register as
dealers pursuant to state securities law. If the circumstances described above
should change, the Boards of Trustees would review the relationships with
Bankers Trust and consider taking all actions necessary in the circumstances.
Counsel and Independent Accountants
Willkie Farr & Gallagher, One Citicorp Center, 153 East 53rd Street,
New York, New York 10022-4669, serves as Counsel to the Trust and the Fund.
Ernst & Young LLP, 787 Seventh Avenue, New York, New York 10019, acts as
independent accountants of the Trust and the Fund.
ORGANIZATION OF THE TRUST
Shares of the Trust do not have cumulative voting rights, which means
that holders of more than 50% of the shares voting for the election of Trustees
can elect all Trustees. Shares are transferable but have no preemptive,
conversion or subscription rights. Shareholders generally vote by Fund, except
with respect to the election of Trustees and the ratification of the selection
of independent accountants.
Through its separate accounts the Companies are the Fund's sole
stockholders of record, so under the 1940 Act, the Companies are deemed to be in
control of the Fund. Nevertheless, when a shareholders' meeting occurs, each
Company solicits and accepts voting instructions from its Contractowners who
have allocated or transferred monies for a investment in the Fund as of the
record date of the meeting. Each Company then votes the Fund's shares that are
attributable to its Contractowners' interest in the Fund in proportion to the
voting instructions received. Each Company will vote any share that it is
entitled to vote directly due to amounts it has contributed or accumulated in
its separate accounts in the manner described in the offering memoranda for its
variable annuities and variable life insurance policies.
Massachusetts law provides that shareholders could under certain
circumstances be held personally liable for the obligations of the Trust.
However, the Trust's Declaration of Trust disclaims shareholder liability for
acts or obligations of the Trust and requires that notice of this disclaimer be
given in each agreement, obligation or instrument entered into or executed by
the Trust or a Trustee. The Declaration of Trust provides for indemnification
from the Trust's property for all losses and expenses of any shareholder held
personally liable for the obligations of the Trust. Thus, the risk of a
shareholder's incurring financial loss on account of shareholder liability is
limited to circumstances in which the Trust itself would be unable to meet its
obligations, a possibility that the Trust believes is remote. Upon payment of
any liability incurred by a Trust, the shareholder paying the liability will be
entitled to reimbursement from the general assets of the Trust. The Trustees
intend to conduct the operations of the Trust in a manner so as to avoid, as far
as possible, ultimate liability of the shareholders for liabilities of the
Trust.
The Trust was organized on January 19, 1996.
TAXATION
Taxation of the Funds
The Trust intends to qualify annually and to elect the Fund to be
treated as a regulated investment company under the Code.
As a regulated investment company, the Fund will not be subject to U.S.
Federal income tax on its investment company taxable income and net capital
gains (the excess of net long-term capital gains over net short-term capital
losses), if any, that it distributes to its shareholders, that is, the
Companies' separate accounts. The Fund intends to distribute to its
shareholders, at least annually, substantially all of its investment company
taxable income and net capital gains and, therefore, does not anticipate
incurring Federal income tax liability.
The Code and Treasury Department regulations promulgated thereunder
require that mutual funds that are offered through insurance company separate
accounts must meet certain diversification requirements to preserve the
tax-deferred benefits provided by the variable contracts which are offered in
connection with such separate accounts. The Manager intends to diversify the
Fund's investments in accordance with those requirements. The offering memoranda
for each Company's variable annuities and variable life insurance policies
describe the federal income tax treatment of distributions from such contracts.
To comply with regulations under Section 817(h) of the Code, the Fund
will be required to diversify its investments so that on the last day of each
calendar quarter no more than 55% of the value of its assets is represented by
any one investment, no more than 70% is represented by any two investments, no
more than 80% is represented by any three investments and no more than 90% is
represented by any four investments. Generally, all securities of the same
issuer are treated as a single investment. For the purposes of Section 817(h) of
the Code, obligations of the U.S. Treasury and each U.S. Government
instrumentality are treated as securities of separate issuers. The Treasury
Department has indicated that it may issue future pronouncements addressing the
circumstances in which a variable annuity contract owner's control of the
investments of a separate account may cause the variable contract owner, rather
than the separate account's sponsoring insurance company, to be treated as the
owner of the assets held by the separate account. If the variable annuity
contract owner is considered the owner of the securities underlying the separate
account, income and gains produced by those securities would be included
currently in the variable annuity contract owner's gross income. It is not known
what standards will be set forth in such pronouncements or when, if at all,
these pronouncements may be issued. In the event that rules or regulations are
adopted, there can be no assurance that the Fund will be able to operate as
described currently in the Prospectus or that the Fund will not have to change
its investment policies or goals.
The foregoing is only a brief summary of important tax law provisions
that affect the Fund. Other Federal, state or local tax law provisions may also
affect the Fund and its operations. Anyone who is considering allocating,
transferring or withdrawing monies held under a variable contract to or from the
Fund should consult a qualified tax adviser.
<PAGE>
Distributions
All dividends and capital gains distributions paid by the Fund will be
automatically reinvested, at net asset value, by the Companies' separate
accounts in additional shares of the Fund. There is no fixed dividend rate, and
there can be no assurance that the Fund will pay any dividends to realize any
capital gains. However, the Fund currently intents to pay dividends and capital
gains distributions, if any, on an annual basis. The offering memorandum for a
Company's variable annuity or variable life insurance policies describes the
frequency of distributions to Contractowners and the Federal income tax
treatment of distributions from such contracts to Contractowners.
Sale of Shares
Any gain or loss realized by a shareholder upon the sale or other
disposition of shares of the Fund, or upon receipt of a distribution in complete
liquidation of the Fund, generally will be a capital gain or loss which will be
long-term or short-term, generally depending upon the shareholder's holding
period for the shares. Any loss realized on a sale or exchange will be
disallowed to the extent the shares disposed of are replaced (including shares
acquired pursuant to a dividend reinvestment plan) within a period of 61 days
beginning 30 days before and ending 30 days after disposition of the shares. In
such a case, the basis of the shares acquired will be adjusted to reflect the
disallowed loss. Any loss realized by a shareholder on a disposition of fund
shares held by the shareholder for six months or less will be treated as a
long-term capital loss to the extent of any distributions of net capital gains
received by the shareholder with respect to such shares.
Shareholders will be notified annually as to the U.S. Federal tax
status of distributions.
Foreign Withholding Taxes
Income received by the Fund from sources within foreign countries may
be subject to withholding and other taxes imposed by such countries.
Backup Withholding
The Fund may be required to withhold U.S. Federal income tax at the
rate of 31% of all taxable distributions payable to shareholders who fail to
provide the Fund with their correct taxpayer identification number or to make
required certifications, or who have been notified by the Internal Revenue
Service that they are subject to backup withholding. Corporate shareholders and
certain other shareholders specified in the Code generally are exempt from such
backup withholding. Backup withholding is not an additional tax. Any amounts
withheld may be credited against the shareholder's U.S. Federal income tax
liability.
Other Taxation
The Trust is organized as a Massachusetts business trust and, under
current law, neither the Trust nor the Fund is viable for any income or
franchise tax in the Commonwealth of Massachusetts, provided that the Fund
continues to qualify as a regulated investment company under Subchapter M of the
Code.
Fund shareholders may be subject to state and local taxes on their fund
distributions. Shareholders are advised to consult their own tax advisers with
respect to the particular tax consequences to them of an investment in the Fund.
Financial Statements
EAFE Equity Index Fund
FINANCIAL HIGHLIGHTS
For a share outstanding throughout the period
Period from
8/22/97 thru 12/31/97
Net asset value, beginning of period $10.00
Income from Investment Operations:
Net investment income (a) 0.02
Net realized and unrealized gain
(loss) on investments and futures
contracts (0.68)
Net decrease in net asset value
from operations 0.02
Net asset value, end of period $10.02
Total Return (b) -6.60%
Ratios / Supplemental Data
Net assets, end of period (in 000s) $14,409 Ratios to average net assets:
Net investment income including reimbursement (c) 0.72%
Operating expenses including reimbursement (c) 0.65%
Operating expenses excluding reimbursement (c) 2.75%
Portfolio turnover rate 0%
Average commission rate paid $0.0196
(a) Based on average shares outstanding
(b) Total investment return is calculated assuming an initial investment made at
the net asset value at the beginning of the period, reinvestment of all
dividends and distributions at net asset value during the period and redemption
on teh last day of the period. Initial sales charge or contingent deferred sales
charge is not reflected in teh calculation of total investment return. Total
return calculated for a period of less than one year is not annualized (c)
Annualized
BT INSURANCE FUNDS TRUST
STATEMENT OF OPERATIONS
For the period ended December 31, 1997
<TABLE>
<CAPTION>
<S> <C> <C> <C>
EAFE Equity Small Cap Equity 500
Index (A) Index (A) Index (A)
INVESTMENT INCOME:
Interest $17,832 $4,049 $6,064
Dividends 60,466 52,275 41,799
Less foreign taxes withheld (8,331) 0 (2)
Miscellaneous 0 3,039 0
Total Investment Income 69,967 59,363 47,861
EXPENSES:
Investment advisory fee (Note E) 23,060 13,629 5,294
Administration fee (Note E) 25,701 25,263 17,758
Fund accounting fees 10,787 13,037 2,568
Custodian fees 26,959 28,129 10,881
Audit fees 27,000 25,000 22,000
Trustees fees 12,757 9,457 4,597
Amortization of organizational costs 1,147 1,138 800
Transfer agent fees 2,891 2,869 2,008
Legal fees 2,361 1,756 883
Printing fees 8,326 7,033 6,779
Miscellaneous 176 176 124
Total expenses before reimbursement 141,165 127,487 73,692
Less reimbursement by Advisor (107,853) (110,002) (65,771)
Total expenses net of reimbursement 33,312 17,485 7,921
NET INVESTMENT INCOME 36,655 41,878 39,940
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on investments sold 4,840 81,129 (7,239)
Net realized gain (loss) on futures contracts (24,440) 7,288 17,353
Net realized gain on foreign currency transactions 18,702 0 0
Net change in unrealized appreciation
(depreciation) on futures contracts (4,053) 20 0
Net change in unrealized appreciation
(depreciation) on foreign currency transactions (2,436) 0 0
Net change in unrealized appreciation
(depreciation) on investments (1,012,021) 383,885 202,483
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS (1,019,408) 472,322 212,597
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS ($982,753) $514,200 $252,537
</TABLE>
(A) EAFE Equity Index, Small Cap Index and Equity 500 Index commenced operations
on 8/22/97, 8/25/97 and 10/1/97, respectively.
See accompanying Notes to Financial Statements
BT INSURANCE FUNDS TRUST
<TABLE>
<CAPTION>
<S> <C> <C> <C>
STATEMENT
OF
CHANGES
IN
NET
ASSETS
For
the
period
ended
December
31,
1997
EAFE Equity Small Cap Equity 500
Index (A) Index (A) Index (A)
Increase (decrease) in net assets resulting from operations:
Net investment income $36,655 $41,878 $39,940
Net realized gain (loss) on investments sold,
futures contracts and foreign currency
transactions (898) 88,417 10,114
Net change in unrealized appreciation (depreciation)
of investments and assets and liabilities in
foreign currency and futures contracts (1,018,510) 383,905 202,483
Net increase (decrease) in net assets resulting
from operations (982,753) 514,200 252,537
Share transactions:
Net proceeds from sale of shares 15,424,726 12,189,027 13,196,045
Costs of shares repurchased (32,912) (86,207) (1,688,459)
Net increase in net assets from share
transactions 15,391,814 12,102,820 11,507,586
Net increase in net assets 14,409,061 12,617,020 11,760,123
NET ASSETS at beginning of period 0 0 0
NET ASSETS at end of period $14,409,061 $12,617,020 $11,760,123
Accumulated undistributed net investment income $55,357 $41,878 $39,940
OTHER INFORMATION:
Share transactions:
Sold 1,545,473 1,208,494 1,320,455
Repurchased (3,560) (8,295) (166,272)
Net increase in shares outstanding 1,541,913 1,200,199 1,154,183
</TABLE>
(A) EAFE Equity Index, Small Cap Index and Equity 500 Index commenced
operations on 8/22/97, 8/25/97 and 10/1/97, respectively.
See accompanying Notes to Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997
<TABLE>
<CAPTION>
<S> <C> <C> <C>
EAFE Equity Small Cap Equity 500
Index Index Index
ASSETS:
Investments (Note D):
Investments at cost $15,348,466 $12,195,875 $12,051,366
Net unrealized appreciation (depreciation) (1,010,303) 383,885 202,483
Total investments at value 14,338,163 12,579,760 12,253,849
Cash at value (Cost $18,429, 337,644 and
45,417, respectively) (Note A-4) 18,369 337,644 45,417
Receivable for investment securities sold 0 58,696 3,097
Receivable for shares sold 0 9,998 25,537
Interest and dividends receivable
(net of taxes payable $7,995, 0, and 0, respectively) 47,349 12,114 15,570
Dividend withholding tax receivable 3,068 0 31
Deferred organizational costs 15,090 15,099 15,437
Receivable from Investment Advisor 84,793 96,373 60,477
Variation margin receivable on futures contracts 0 19 0
Total Assets 14,506,832 13,109,703 12,419,415
LIABILITIES:
Payable for investment securities purchased 0 399,107 593,972
Payable for shares repurchased 224 15 29
Variation margin payable on futures contracts 623 0 0
Net unrealized depreciation on forward foreign
currency contracts (Note A-3) 2,377 0 0
Accrued expenses and other payables 94,547 93,561 65,291
Total Liabilities 97,771 492,683 659,292
NET ASSETS $14,409,061 $12,617,020 $11,760,123
Composition of Net Assets:
Shares at par value $1,541 $1,200 $1,154
Paid-in-capital in excess of par value 15,390,273 12,101,620 11,506,432
Undistributed net investment income 55,357 41,878 39,940
Accumulated net realized gain (loss) on
investments sold, foreign currency
transactions and futures contracts (19,600) 88,417 10,114
Net unrealized appreciation (depreciation)
of investments, assets and liabilities in foreign
currency and futures contracts (1,018,510) 383,905 202,483
TOTAL NET ASSETS $14,409,061 $12,617,020 $11,760,123
Shares of beneficial interest outstanding 1,541,913 1,200,199 1,154,183
NET ASSET VALUE
offering and redemption price per share
(Net Assets / Shares Outstanding) $9.34 $10.51 $10.19
</TABLE>
See accompanying Notes to Financial Statements
<PAGE>
BT INSURANCE EAFE EQUITY INDEX FUND DECEMBER 31,
1997
Shares Value
COMMON STOCK - 97.16%
<TABLE>
<CAPTION>
<S> <C> <C>
Australia - 2.43%
2,200 Amcor Ltd. (Packaging & Container) $9,678
4,200 Boral Ltd. (Buildings Materials) 10,621
700 Brambles Industries Ltd. (Transportation) 13,892
5,200 Broken Hill Proprietary Co. Ltd. (Metals) 48,295
2,400 Coca Cola Amatil Ltd. (Beverages) 17,935
3,600 Coles Myer Ltd. (Retail) 17,292
3,600 CSR Ltd. (Buildings Materials) 12,201
5,600 Foster's Brewing Group Ltd. (Brewery) 10,657
1,100 ICI Australia Ltd. (Chemicals) 7,707
800 Lend Lease Corp. Ltd. (Financial Services) 15,642
3,600 National Australia Bank (Financial Services) 50,281
4,900 News Corporation Ltd. (Services) 27,050
4,100 Pacific Dunlop Ltd. (Holding Companies) 8,685
1,100 Rio Tinto Ltd. (Metals & Mining) 12,835
20,400 Telstra Corp. Ltd. (Telecom Services) 43,079
5,000 Westpac Banking Corp. Ltd. (Banks) 31,987
3,500 WMC Ltd. (Metals & Mining) 12,204
350,041
Austria - 0.27%
260 Bank Austria AG (Banks) 13,173
110 OMV AG (Oil/Gas) 15,240
70 VA Technologie AG (Oil/Gas) 10,629
39,042
Belgium - 1.34%
50 Barco NV (Diversified Operations) 9,176
150 Electrabel SA (Utilities) 34,695
100 Fortis AG (Insurance) 20,862
50 Generale De Banque SA (Banks) 21,761
50 Kredietbank NV (Banks) 20,985
50 PetroFina SA (Oil/Gas) 18,454
50 Royale Belge (Insurance) 14,237
500 Solvay SA (Chemicals) 31,443
250 Tractobel (Utilities) 21,794
193,407
Denmark - 1.02%
189 Danisco AS (Food Processing) 10,482
200 Den Danske Bank (Banks) 26,650
1 D/S 1912-B (Transportation) 46,119
253 Novo-Nordisk AS-B (Biopharmaceuticals) 36,186
448 Tele Danmark AS-B (Utilities) 27,787
147,224
Finland - 0.69%
3,400 Merita Ltd.-A (Banks) 18,594
600 Nokia AB-A (Telecommunications Equipment) 41,951
200 Nokia AB-K (Telecommunications Equipment) 14,314
600 Outokumpu Oy-A (Metals & Mining) 7,102
900 UPM-Kymmene Corp. (Forest Products) 18,168
100,129
Shares Value
France - 7.92%
100 Accor SA (Hotel/Motel) 18,588
200 L' Air Liquide (Industrial Gases) 31,296
400 Alcatel Alsthom (Telecommunications Equipment) 50,831
800 AXA-UAP (Insurance) 61,887
500 Banque Nationale de Paris (Banks) 26,570
100 Beghin-SAY (Services) 15,631
150 BIC (Office Supplies) 10,946
100 Canal Plus (Broadcasting) 18,588
100 Carrefour Suparmarche SA (Retail) 52,159
300 Cie Financiale (Financial Services) 26,062
100 Compagnie Bancaire SA (Financial Services) 16,196
200 Compagnie de Saint Gobain (Building Materials) 28,405
200 Danone (Food Processing) 35,714
350 Eaux (Manufacturing) 48,837
50 Essilor International (Optical) 14,950
2,100 France Telecom SA (Telecommunications) 76,151
200 Havas SA (Advertising) 14,385
250 Lafarge SA (Building Materials) 16,400
100 Legrand SA (Electronics) 19,917
250 L'OREAL (Household Products) 97,799
200 LVMH (Moet-Hennessy Lois Vuiton) (Wine and Spirits) 33,189
300 Lyonnause des Eaux SA (Diversified) 33,189
350 Michelin-B (Tire & Rubber) 17,616
150 Peugeot SA (Autos & Truck) 18,912
50 Pinault-Printemps-Redoute SA (Retail) 26,669
50 Promodes (Retail) 20,739
800 Rhone-Poulenc-A (Chemicals) 35,827
250 Sanofi SA (Pharmaceuticals) 27,824
350 Schneider SA (Electronics) 19,000
250 Societe Generale (Banks) 34,053
900 Societe National Elf Aquitaine (Electric & Gas) 104,651
600 Total SA-B (Oil/Gas) 65,282
600 Usinor Sacilor (Steel) 8,661
200 Valeo SA (Auto Related) 13,561
1,140,485
Germany - 9.32%
100 Adidas AG (Consumer Goods) 13,152
550 Allianz AG (Insurance) 142,468
1,500 BASF AG (Chemicals) 53,155
1,750 Bayer AG (Chemicals) 65,370
650 Bayerische Hypotheken-und Wechsel-Bank A.G. (Banks) 31,723
696 Bayerische Vereinsbank AG (Banks) 45,564
1,250 Daimler-Benz AG (Auto & Trucks) 87,688
250 Degussa AG (Metals & Mining) 12,507
1,650 Deutsche Bank AG (Banks) 116,481
5,300 Deutsche Telekom (Telecommunications) 99,725
1,200 Dresdner Bank AG (Banks) 55,364
50 Karstadt AG (Retail) 17,068
50 Linde AG (Machinery) 30,517
950 Lufthansa AG (Airlines) 18,218
50 MAN AG (Diversified) 14,480
100 Mannesmann AG (Machinery) 50,528
400 Merck KGAA (Pharmaceuticals) 13,452
550 Metro AG (Retail) 19,719
200 Muenchener Rueckversicherungs-Gesellschaft AG (Insurance) 75,375
50 Preussag AG (Steel) 15,258
800 RWE AG PN (Oil/Gas) 42,913
550 RWE AG (Oil/Gas) 23,235
Shares Value
Germany (continued)
150 SAP AG (Software) 45,567
150 Schering AG (Pharmaceuticals) 14,466
1,350 Siemens AG (Electrical Equipment) 79,919
100 Thyssen AG (Steel) 21,401
1,200 VEBA AG (Oil/Gas) 81,712
50 Viag AG (Metals & Mining) 26,932
50 Volkswagen AG (Consumer Goods) 28,127
1,342,084
Hong Kong - 2.73%
4,200 Bank of East Asia Ltd. (Banks) 9,837
12,000 Cathay Pacific Airways (Transportation) 9,756
6,000 Cheung Kong Holdings Ltd. (Real Estate) 39,295
7,000 China Light & Power Co. Ltd. (Utilities) 38,844
5,100 Hang Seng Bank Ltd. (Banks) 49,197
30,800 Hong Kong Telecommunications Ltd. (Telecommunications) 63,397
9,000 Hong Kong and China Gas Co. Ltd. (Utilities) 17,422
10,000 Hutchinson Whampoa Ltd. (Diversified) 62,718
6,000 New World Development Co. Ltd. (Real Estate) 20,751
6,000 Sun Hung Kai Properties Ltd. (Real Estate) 41,812
4,500 Swire Pacific Ltd.-A (Conglomerate) 24,681
7,000 Wharf Holdings Ltd. (Diversified) 15,357
393,067
Ireland - 0.32%
2,365 Allied Irish Banks Plc. (Banks) 22,890
1,183 CRH Plc. (Building Materials) 13,841
3,447 Jefferson Smurfit Group Plc. (Packaging & Container) 9,714
46,445
Italy - 3.93%
2,372 Assicurazioni Generali (Insurance) 58,261
6,273 Banca Commerciale Italiana (Banks) 21,808
5,994 Banco Ambrosiano Veneto SPA (Commercial Banks) 22,939
7,471 Credito Italiano SPA (Financial Services) 23,038
2,603 Edison SPA (Utilities) 15,745
20,181 ENI SPA (Oil/Gas) 114,424
10,423 Fiat SPA PN (Auto and Trucks) 30,314
2,656 Instituto Bancario San Paolo di Torino (Banks) 25,374
2,003 Instituto Mobiliare Italiano SPA (Financial Services) 23,778
12,997 Istituto Nazionale delle Assicurazioni (Insurance) 26,339
3,977 Mediaset SPA (Broadcasting) 19,537
20,059 Montedison SPA (Chemicals) 18,018
6,909 Parmalat Finanziaria SPA (Financial Services) 9,881
5,376 Pirelli SPA (Tire & Rubber) 14,374
17,532 Telecom Italia Mobile SPA (Telecommunications) 80,921
9,730 Telecom Italia SPA (Telecommunications) 62,153
566,904
Shares Value
Japan - 25.07%
1,000 Acom Company Ltd. (Financial Services) 55,151
2,000 Ajinomoto Co., Inc. (Food Processing) 19,456
1,000 Alps Electric Co. (Electric) 9,422
6,000 Asahi Bank Ltd. (Banks) 24,358
1,000 Asahi Breweries Ltd. (Brewery) 14,554
4,000 Asahi Chemical Industry Co. Ltd. (Textiles) 13,543
3,000 Asahi Glass Co. Ltd. (Building Materials) 14,247
12,000 Bank of Tokyo-Mitsubishi Ltd. (Banks) 165,454
3,000 Bank of Yokohama Ltd. (Banks) 7,905
2,000 Bridgestone Corp. (Tire & Rubber) 43,355
2,000 Canon, Inc. (Capital Equipment) 46,572
2,000 Chiba Bank Ltd. (Banks) 6,205
500 Credit Saison Co. Ltd. (Retail) 12,332
2,000 Dai Nippon Printing Co. Ltd. (Publishing/Printing) 37,534
1,000 Daichi Pharmaceutical (Pharmaceuticals) 11,260
2,000 Daiei, Inc. (Retail) 8,273
3,000 Dainippon Ink & Chemicals, Inc. (Chemicals) 7,583
2,000 Daiwa House Industry Co. Ltd. (Industrial) 10,571
4,000 Daiwa Securities Co. Ltd. (Financial Services) 13,788
2,000 Denso Corp. (Electrical Equipment) 36,002
10 East Japan Railway Co. (Transportation) 45,117
1,000 Ebara Corp. (Machinery) 10,571
1,000 Eisai Co. Ltd. (Pharmaceuticals) 15,243
600 Fanuc (Electronics) 22,704
7,000 Fuji Bank Ltd. (Banks) 28,311
1,000 Fuji Photo Film Co. (Chemicals) 38,300
5,000 Fujitsu Ltd. (Computers) 53,619
2,000 Furukawa Electric Co. Ltd. (Metals & Mining) 8,564
2,000 Gunma Bank (Banks) 13,022
3,000 Hankyu Corp. (Railroads) 14,041
8,000 Hitachi Ltd. (Capital Equipment) 56,990
3,000 Hitachi Zosen Corp. (Steel) 4,803
3,000 Honda Motor Co. Ltd. (Autos & Trucks) 110,073
1,000 House Foods Industry (Foods) 13,022
6,000 Industrial Bank of Japan (Banks) 42,742
4,000 Itochu Corp. (Distribution/Wholesale) 6,281
1,000 Ito-Yokado Co. Ltd. (Retail) 50,938
5,000 Japan Airlines (Transportation) 13,596
3,000 Joyo Bank (Banks) 10,571
1,000 JUSCO Co. (Retail) 14,094
3,000 Kajima Corp. (Engineering & Construction) 7,560
2,500 Kansai Electric Power Co., Inc. (Utilities) 42,321
2,000 Kao Corp. (Household Products) 28,801
4,000 Kawasaki Heavy Industries Ltd. (Engineering & Construction) 6,189
9,000 Kawasaki Steel Corp. (Steel) 12,271
1,000 Kinden Corp. (Engineering & Construction) 10,647
4,000 Kinki Nippon Railway (Transportation) 21,356
3,000 Kirin Brewery Co. Ltd. (Brewery) 21,831
1,000 Kokuyo (Office Equipment & Computers) 17,235
3,000 Komatsu Ltd. (Machinery) 15,052
4,000 Kubota Corp. (Machinery) 10,540
1,000 Kurita Water Industries (Capital Equipment) 10,188
1,000 Kyocera Corp. (Capital Equipment) 45,347
2,000 Kyowa Hakko Kogyo (Chemicals) 8,656
1,000 Marui Co. Ltd. (Retail) 15,550
5,000 Matsushita Electric Industrial Co. Ltd. (Electronics) 73,152
1,000 Minabea Co. Ltd. (Electronics) 10,724
6,000 Mitsubishi Chemical Corp. (Chemicals) 8,594
4,000 Mitsubishi Corp. (Distribution/Wholesale) 31,559
6,000 Mitsubishi Electric Corp. (Capital Equipment) 15,350
Shares Value
Japan (continued)
3,000 Mitsubishi Estate Co. Ltd. (Financial Services) 32,631
9,000 Mitsubishi Heavy Industries Ltd. (Aerospace) 37,503
4,000 Mitsubishi Materials Corp. (Metals & Mining) 6,434
3,000 Mitsubishi Trust & Banking Corp. (Banks) 30,103
2,000 Mitsui Fudosan Co. Ltd. (Real Estate) 19,303
2,000 Mitsui Marine & Fire Insurance Co. Ltd. (Insurance) 10,203
3,000 Mitsui Trust & Banking Co. Ltd. (Banks) 5,814
4,000 Mitsui & Co. (Distribution/Wholesale) 23,654
2,000 Mitsukoshi Ltd. (Retail) 5,316
1,000 Murata Manufacturing Co. Ltd. (Electrical Equipment) 25,124
1,000 Mycal Corp. (Foods) 8,349
4,000 NEC Corp. (Electronics) 42,589
1,000 Nikon Corp. (Manufacturing) 9,881
1,000 Nippon Comsys Corp. (Telecommunications) 12,332
3,000 Nippon Express Co. Ltd. (Trucking & Leasing) 14,937
1,000 Nippon Meat Packers, Inc. (Food Processing) 13,635
4,000 Nippon Oil Co. Ltd. (Oil/Gas) 10,326
3,000 Nippon Paper Industries Co. (Forest Products) 11,766
18,000 Nippon Steel Corp. (Steel) 26,610
31 Nippon Telegraph & Telephone Corp. (Telecommunications) 265,952
4,000 Nippon Yusen Kabushiki Kaisha (Transportation) 10,969
6,000 Nissan Motor Co. Ltd. (Autos & Trucks) 24,818
1,000 Nissin Food Products Co. Ltd. (Food Processing) 18,154
1,000 Nitto Denko Corp. (Electrical Equipment) 17,235
10,000 NKK Corp. (Steel) 7,966
5,000 Nomura Securities Co. Ltd. (Financial Services) 66,641
1,000 NGK Insulators (Construction) 8,885
2,000 Obayashi Corp. (Capital Equipment) 6,802
2,000 Odakyu Electric Railway (Transportation) 8,640
3,000 Oji Paper Co. Ltd. (Forest Products) 11,926
1,000 Omron Corp. (Electronics) 15,626
1,000 Onward Kashiyama Co. Ltd. (Textiles) 11,566
7,000 Osaka Gas Co. Ltd. (Utilities) 15,979
1,000 Pioneer Electronic Corp. (Telecommunications) 15,396
9,000 Sakura Bank Ltd. (Banks) 25,714
1,000 Sankyo Co. Ltd. (Pharmaceuticals) 22,597
5,000 Sanyo Electric Co. Ltd. (Electronics) 12,218
2,000 Sekisui Chemical Co. Ltd. (Chemicals) 10,157
2,000 Sekisui House Ltd. (Manufactured Housing) 12,853
3,000 Sharp Corp. (Electronics) 20,636
1,000 Shimano, Inc. (Bicycles) 18,384
2,000 Shimizu Corp. (Engineering & Construction) 4,627
1,000 Shin-Etsu Chemical Co. Ltd. (Chemicals) 19,073
1,000 Shiseido Co. Ltd. (Household Products) 13,635
2,000 Shizuoka Bank (Banks) 21,448
1,000 Sony Corp. (Electronics) 88,855
8,000 Sumitomo Bank Ltd. (Banks) 91,306
5,000 Sumitomo Chemical Co. (Chemicals) 11,490
3,000 Sumitomo Corp. (Distribution/Wholesale) 16,775
2,000 Sumitomo Electric Industries (Electrical Equipment) 27,269
2,000 Sumitomo Marine & Fire Insurance Co. (Insurance) 10,571
9,000 Sumitomo Metal Industries (Steel) 11,513
2,000 Sumitomo Metal Mining Co. (Metals & Mining) 6,588
3,000 Taisei Corp. (Engineering & Construction) 4,918
Shares Value
Japan (continued)
1,000 Taisho Pharmaceutical Co. (Pharmaceuticals) 25,507
1,000 Takashimaya Co. Ltd. (Retail) 6,051
2,000 Takeda Chemical Industries (Pharmaceuticals) 56,990
3,000 Teijin Ltd. (Textiles) 6,273
3,000 Tobu Railway Co. Ltd. (Transportation) 9,376
110 Toho Co. (Entertainment) 11,712
1,400 Tohoku Electric Power (Utilities) 21,233
5,000 Tokai Bank (Banks) 23,286
4,000 Tokio Marine & Fire Insurance Co. (Insurance) 45,347
1,000 Tokyo Dome Corp. (Entertainment) 6,649
3,400 Tokyo Electric Power Co. (Utilities) 61,984
1,000 Tokyo Electron Ltd. (Electronics) 32,018
6,000 Tokyo Gas Co. Ltd. (Utilities) 13,604
3,000 Tokyu Corp. (Transportation) 11,582
2,000 Toppan Printing Co. Ltd. (Publishing/Printing) 26,044
4,000 Toray Industries, Inc. (Chemicals) 17,924
1,000 Tostem Corp. (Building Materials) 10,724
1,000 Toto Ltd. (Industrial) 6,388
1,000 Toyo Seikan Kaisha (Packaging & Container) 14,247
1,000 Toyoda Automatic Loom Works (Machinery) 18,384
9,000 Toyota Motor Corp. (Consumer Goods) 257,832
1,000 Uny Co. Ltd. (Retail) 13,711
1,000 Wacoal Corp. (Textiles) 9,958
1,000 Yamaha Corp. (Diversified) 11,337
1,000 Yamanouchi Pharmaceutical Co. Ltd. (Pharmaceuticals) 21,448
1,000 Yamato Transport Co. Ltd. (Trucking & Leasing) 13,405
1,000 Yamazaki Baking Co. Ltd. (Food Processing) 9,728
3,000 Yasuda Trust & Banking (Banks) 2,987
3,612,511
Malaysia - 0.96%
4,200 Malayan Banking BHD (Banks) 12,202
8,000 Malaysia International Shipping BHD (Transportation) 11,724
7,000 Resorts World BHD (Entertainment) 11,788
8,000 RHB Capital BHD (Banks) 3,867
2,000 Rothmans of Pall Mall BHD (Tobacco) 15,555
10,000 Sime Darby BHD (Holding Companies) 9,616
11,000 Telekom Malaysia BHD (Telecommunications) 32,523
11,000 Tenaga Nasional BHD (Utilities) 23,473
4,000 United Engineers Ltd. (Engineering & Construction) 3,332
10,500 YTL Corp. BHD (Engineering & Construction) 14,173
138,253
Netherlands - 5.42%
3,367 ABN Amro Holdings NV (Banks) 65,590
1,249 Ahold (Food Stores) 32,585
185 Akzo Nobel (Chemicals) 31,896
1,616 Elsevier NV (Publishing/Printing) 26,140
122 Heineken NV (Brewery) 21,239
2,449 ING Groep NV (Financial Services) 103,144
1,140 Koninklijke Ahold NV (Retail) 47,563
856 Philips Electronics NV (Electronics) 51,334
5,186 Royal Dutch Petroleum Company (Oil/Gas) 284,658
1,548 Unilever NV-CVA (Food Processing) 95,428
164 Wolters Kluwer NV-CVA (Publishing/Printing) 21,182
780,759
Shares Value
New Zealand - 0.31%
12,304 Brierley Investments Ltd. (Investment Companies) 8,788
6,498 Carter Holt Harvey Ltd. (Forest Products) 10,036
5,427 Telecom Corp. of New Zealand Ltd. (Telecommunications) 26,312
45,136
Norway - 0.31%
650 Norsk Hydro ASA (Paper) 31,729
150 Orkla ASA-A (Manufacturing) 12,956
44,685
Portugal - 0.56%
500 Banco Espirito Santo e Comercial de Lisboa SA (Banks) 14,879
500 Cimpor-Cimentos de Portugal SA (Building Products) 13,105
1,300 Electricidade de Portugal SA (Electric) 24,616
600 Portugal Telecom SPA (Telecommunications) 27,840
80,440
Singapore - 0.87%
3,000 City Developments Ltd. (Real Estate) 13,883
5,000 DBS Land Ltd. (Real Estate) 7,654
2,000 Development Bank of Singapore Ltd. (Banks) 17,087
3,000 Oversea-Chinese Banking Corp. Ltd. (Banks) 17,443
3,000 Singapore Airlines Ltd. (Transportation) 19,579
1,000 Singapore Press Holdings Ltd. (Publishing/Printing) 12,519
20,000 Singapore Telecommunications Ltd. (Utilities) 37,259
125,424
Spain - 2.41%
364 Argentaria CMN (Banks) 22,148
879 Autopistas Concesionana Espanola SA (Engineering & Construction) 11,799
1,743 Banco Bilbao Vizcaya SA (Banks) 56,403
792 Banco Central Hispanoamericano (Banks) 19,287
1,039 Banco Santander SA (Banks) 34,713
2,680 Empresa Nacional de Electridad SA (Utilities) 47,584
361 Gas Natural SDG SA (Utilities) 18,719
2,480 Iberdrola SA (Utilities) 32,639
812 Repsol SA (Oil/Gas) 34,644
2,403 Telefonica de Espana (Telecommunications) 68,612
346,548
Sweden - 2.36%
1,900 ABB AB-A (Machinery) 22,494
3,500 Astra AB-A (Pharmaceuticals) 60,612
200 Electrolux AB-Ser. B (Furniture) 13,879
2,400 Ericsson Telecommunications-B (Telecommunications) 90,228
600 Hennes & Mauritz AB-B (Retail) 26,449
400 Skandia Forsakrings AB (Insurance) 18,867
1,700 Skandinaviska Enskilda Banken-A (Banks) 21,518
400 Skanska AB-B (Engineering) 16,398
900 Stora Kopparberg-Bergslags-Aktiebolag-A (Forest Products) 11,335
600 Svenska Cellulosa AB-B (Forest Products) 13,489
600 Svenska Handelsbanken-A (Banks) 20,743
900 Volvo AB-B (Autos & Trucks) 24,144
340,156
Shares Value
Switzerland - 7.72%
20 ABB AG-Bearer (Machinery) 25,109
50 Adecco SA (Commercial Services) 14,487
700 Credit Suisse Group (Banks) 108,234
100 Nestle SA (Foods) 149,762
150 Novartis AG (Medical) 243,218
15 Novartis AG-Bearer (Medical) 24,373
4 Roche Holdings AG-Bearer (Pharmaceuticals) 61,574
17 Roche Holdings AG-Genuscheine (Pharmaceuticals) 168,703
10 Sairgroup * (Airlines) 13,683
35 Schweizerische Ruckversicherungs-Gesellschaft (Insurance) 65,419
200 Schweizercher Bankverein (Banks) 62,122
70 Schweizerische Bankgeselschaft * (Banks) 101,146
50 UBS (Banks) 14,402
125 Zurich Versicherungsgesellschaft (Insurance) 59,521
1,111,753
United Kingdom - 21.20%
3,842 Abbey National Plc. (Banks) 68,841
2,899 Associated British Foods Plc. (Food Processing) 25,234
3,940 Barclays Plc. (Banks) 104,698
2,574 Bass Plc. (Brewery) 39,569
10,643 BG Plc. (Oil/Gas) 47,894
12,062 BG Plc.-B (Oil/Gas) 6,042
2,651 Blue Circle Industries Plc. (Building Materials) 14,868
1,378 BOC Group Plc. (Chemicals) 22,654
2,647 Boots Co. Plc. (Retail) 38,104
1,294 British Aerospace Plc. (Aerospace) 36,872
2,849 British Airways Plc. (Transportation) 26,203
1,767 British Land Co. Plc. (Real Estate) 19,763
14,145 British Petroleum Co. Plc. (Oil/Gas) 185,848
4,987 British Sky Broadcasting Group Plc. (Broadcasting) 37,348
6,485 British Steel Plc. (Steel) 13,899
16,317 British Telecommunications Plc. (Telecommunications) 128,229
11,547 BTR Plc. (Holding Companies) 34,894
847 Burmah Castrol Plc. (Oil/Gas) 14,704
8,216 B.A.T. Industries Plc. (Tobacco) 74,754
5,582 Cable & Wireless Plc. (Telecommunications) 49,047
2,268 Cadbury Schweppes Plc. (Beverages) 22,852
2,125 Carlton Communications Plc. (Holding Companies) 16,403
14,759 Centrica Plc. * (Oil/Gas) 21,694
1,776 Commercial Union Plc. (Insurance) 24,764
11,016 Diageo Plc. (Food and Kindred Products) 101,225
1,392 EMI Group Plc. (Entertainment) 11,614
7,639 General Electric Co. Plc. (Electronics) 49,494
1,159 GKN Plc. (Auto Related) 23,736
8,865 Glaxo Wellcome Plc. (Pharmaceuticals) 209,656
2,511 Granada Group Plc. (Leisure Time) 38,353
3,004 Great Universal Stores Plc. (Retail) 37,841
2,797 Hanson Plc. (Holding Companies) 12,518
2,289 HSBC Holdings Plc. (Banks) 58,646
4,503 HSBC Holdings Plc. (Banks) 111,376
2,105 Imperial Chemical Industries Plc. (Chemicals) 32,877
890 Kingfisher Plc. (Retail) 12,395
4,290 Ladbroke Group Plc. (Leisure Time) 18,601
1,646 Land Securities Plc. (Real Estate) 26,222
3,836 Legal & General Group Plc. (Insurance) 33,516
13,432 Lloyds TSB Group Plc. (Banks) 173,612
Shares Value
United Kingdom (continued)
5,270 LucasVarity Plc. (Auto Related) 18,609
7,475 Marks & Spencer Plc. (Retail) 73,537
708 Mercury Asset Management Group Plc. (Financial Services) 19,744
5,503 National Grid Group Plc. (Utilities) 26,119
3,609 National Power Plc. (Utilities) 35,563
1,044 Peninsular and Orient Steam Navigation Co. (Transportation) 11,874
5,262 Prudential Corp. Plc. (Insurance) 63,433
1,677 Railtrack Group Plc. (Transportation) 26,633
3,400 Reed International Plc. (Publishing/Printing) 34,062
4,649 Reuters Holdings Plc. (Publishing/Printing) 50,775
2,863 Rio Tinto Plc. (Metals & Mining) 35,218
969 RMC Group Plc. (Building Materials) 13,527
3,910 Rolls-Royce Plc. (Aerospace) 15,091
4,414 Royal & Sun Alliance Insurance Group Plc. (Insurance) 44,438
3,582 Safeway Plc. (Retail) 20,178
5,278 Sainsbury (J.) Plc. (Retail) 44,122
1,000 Schroders Plc. (Banks) 30,794
1,273 Scottish & Newcastle Plc. (Brewery) 15,586
13,462 SmithKline Beachman Plc. (Pharmaceuticals) 137,741
6,142 Tesco Plc. (Retail) 49,932
1,360 Thames Water Plc. (Utilities) 20,248
8,672 Unilever Plc. (Foods) 74,203
1,795 United Utilities Plc. (Utilities) 22,995
6,828 Vodafone Group Plc. (Telecommunications) 49,734
Wolseley Plc. (Building Materials) 2,166 17,182
2,196 Zeneca Group Plc. (Pharmaceuticals) 77,073
3,055,271
Total Common Stocks 13,999,764
(Cost $15,019,567)
PREFERRED STOCK - 0.54%
100 SAP AG-Vorzug Non Voting Preferred (Germany) (Software) 32,713
4,800 The News Corp. Ltd. Voting Preferred Shares (Australia) (Services) 23,757
50 Volkswagen AG Non Voting Preferred (Germany) (Auto & Trucks) 21,456
Total Preferred Stocks 77,926
(Cost $68,426)
U.S. GOVERNMENT OBLIGATIONS - 1.81%
United States
325,000 U.S. Treasury-Bill Due 04/30/1998 260,473
Total U.S. Government Obligations 260,473
(Cost $260,473)
Total Investments - 99.51% 14,338,163
(Cost $15,348,466)
Net Other Assets and Liabilities - .49% 70,898
Net Assets - 100.00% ###########
</TABLE>
* Non-income producing security
ADR American Depositary Receipt
Industry Concentration of Common and Preferred Stocks
as Percentage of Net Assets Value
Banks 15.50% ##########
Telecommunications 9.01% 1,298,727
Oil/Gas 6.89% 992,649
Pharmaceuticals 6.66% 960,332
Industrial 5.50% 792,467
Food 4.44% 640,166
Retail 4.37% 630,032
Utilities 4.00% 576,007
Electronics 3.18% 458,267
Financial Services 3.16% 455,977
Chemicals 2.92% 420,724
Auto Related 2.59% 373,311
Consumer Goods 2.08% 299,111
Transportation 1.99% 286,416
Medical 1.86% 267,591
Publishing/Printing 1.45% 208,256
Real Estate 1.31% 188,683
Electrical Equipment 1.29% 185,549
Machinery 1.27% 183,195
Capital Equipment 1.26% 181,249
Metals and Mining 1.23% 176,679
Electric and Gas 1.18% 169,985
Building Materials 1.15% 165,121
Diversified 1.02% 146,257
Household Products 0.97% 140,235
Brewery 0.86% 123,436
Steel 0.85% 122,382
Tobacco 0.63% 90,309
<TABLE>
<CAPTION>
<S> <C> <C>
Aerospace 0.62% 89,466
Engineering and 0.61% 88,528
Construction
Manufacturing 0.59% 84,527
Holding Companies 0.57% 82,116
Services 0.56% 80,925
Software 0.54% 78,280
Distribution/Wholesale 0.54% 78,269
Forest Products 0.53% 76,720
Broadcasting 0.52% 75,473
Tire and Rubber 0.52% 75,345
Leisure Time 0.40% 56,954
Computers 0.37% 53,619
Entertainment 0.29% 41,763
Textiles 0.29% 41,340
Beverages 0.28% 40,787
Packaging and Container 0.23% 33,639
Airlines 0.22% 31,901
Paper 0.22% 31,729
Trucking and Leasing 0.20% 28,342
Office Equipment and 0.20% 28,181
Supplies
Conglomerate 0.17% 24,681
Hotel/Motel 0.13% 18,588
Bicycles 0.13% 18,384
Advertising 0.10% 14,385
Railroads 0.10% 14,041
Furniture 0.10% 13,879
Investment Companies 0.06% 8,788
Total 97.70% ##########
</TABLE>
At December 31, 1997, the Fund's open futures contracts were as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Number of
Contracts Contract Expiration Opening Current
Purchased Type Date Position Market Value
1 Australian 03/31/98 $41,973 $42,950
1 EuroTop 03/24/98 228,933 232,850
100
5 Nikkei 03/18/98 93,849 90,885
300
$364,755 $366,685
Forward Foreign Currency Contracts Sold:
Currency Contracts Settlement Contracts At In Exchange
to
Value Deliver Dates Value For U.S. $
19,000 GBP 01/16/98 $31,213 $31,309
113,000 ECU 01/16/98 124,084 126,159
8,157,000 JPY 01/16/98 62,629 62,836
$217,926 $220,304
GBP British Pound
ECU European Currency Unit
JPY Japanese Yen
</TABLE>
<PAGE>
BT Insurance Funds Trust
Notes to Financial Statements December 31, 1997
----------------------------- -----------------
Note (A) Significant Accounting Policies
The BT Insurance Funds Trust (the "Trust"), is currently comprised of seven
series: EAFE Equity Index Fund, Small Cap Index Fund, Equity 500 Index Fund,
International Equity Fund, Small Cap Fund, U.S. Bond Index Fund, and the Managed
Assets Fund, (each a "Fund", collectively, the "Funds"). The Trust is an
open-end management investment company which is registered under the Investment
Company Act of 1940 as amended (the "Act"). The Trust was organized as a
Massachusetts business trust on January 19, 1996.
The accompanying financial statement and financial highlights are those of the
EAFE Equity Index Fund, the Small Cap Index Fund and the Equity 500 Index Fund
which commenced operations on August 22, 1997, August 25, 1997 and October 1,
1997, respectively.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting period. Actual
results could differ from those estimates. The following is a summary of the
significant accounting policies consistently followed by each Fund in the
preparation of its financial statements. These policies are in conformity with
generally accepted accounting principles.
1. Portfolio Valuation: Investments in securities which are traded on a
recognized stock exchange or for which price quotations are available, will
normally be valued on the basis of market valuations furnished by a pricing
service which has been approved by the Board of Trustees. Short-term obligations
that mature in 60 days or less are valued at amortized cost, which constitutes
fair value. All other securities are appraised at their fair value as determined
in good faith by and under the general supervision of the Board of Trustees.
2. Security Transactions and Investment Income: Security transactions are
accounted for on a trade date basis. Net realized gains or losses on sales of
securities are determined by the identified cost method. Interest income is
recorded on the accrual basis. Dividend income is recorded on the ex-dividend
date.
3. Forward Foreign Currency Exchange Contracts: The EAFE Equity Index Fund may
enter into forward foreign currency exchange contracts. A forward foreign
currency exchange contract is an obligation to purchase or sell a specific
currency at a specified price at a future date. These contracts are used in an
attempt to protect against fluctuations in foreign currency exchange rates that
would adversely affect the portfolio position or an anticipated investment
position. Forward foreign currency exchange contract are valued at the daily
forward exchange rate of the underlying currency. Purchases and sales of forward
foreign currency exchange contracts having the same settlement date and broker
are offset and presented on a net basis in the Statement of Assets and
Liabilities. Gains or losses on the purchase or sale of forward foreign currency
exchange contracts having the same settlement date and broker are recognized on
the date of offset, otherwise gains or losses are recognized on the settlement
date.
4. Foreign Currency Translations: Assets and liabilities denominated in foreign
currencies and commitments under forward exchange currency contracts are
translated into U.S. dollars at the mean of the quoted bid and asked prices of
such currencies against the U.S. dollar. Purchases and sales of portfolio
securities are translated into U.S. dollars at the rates of exchange prevailing
when such securities were acquired or sold. Income and expenses are translated
into U.S. dollars at rates of exchange prevailing when earned or accrued.
The Funds isolate that portion of the result of operations resulting from
changes in foreign exchange rates on investments from the fluctuations arising
from changes in market prices of securities held.
Net foreign exchange gains of $18,702 on the EAFE Equity Index Fund represent
exchange gains and losses from sales and maturities of securities, holding of
foreign currencies, exchange gains or losses realized between the trade and
settlement dates on security transactions, and the difference between the
amounts of interest and dividends recorded on the Funds's books and the U.S.
dollar equivalent of the amounts actually received or paid.
Net currency gains and losses from valuing foreign currency denominated assets
and liabilities at year end exchange rates are reflected as a component of net
unrealized appreciation (depreciation) of investments, assets and liabilities in
foreign currency and futures contracts.
5. Federal Income Taxes. The Funds intend to elect to be treated as "regulated
investment companies" under Sub-chapter M of the Internal Revenue Code Dan to
distribute substantially all of their respective net taxable income.
Accordingly, no provisions for federal income taxes have been made in the
accompanying financial statements. The Funds intend to utilize provisions of the
federal income tax laws which allow them to carry a realized capital loss
forward for eight years following the year of the loss and offset such losses
against any future realized capital gains. At December 31, 1997, the capital
loss carryforward amounted to $19,581 for the EAFE Equity Index Fund and will
expire 12/31/2005.
6. Expenses. The Trust accounts separately for the assets, liabilities and
operations of each Fund. Expenses directly attributable to a Fund are charged to
the Fund, while the expenses which are attributable to more than one Fund of the
Trust are allocated based upon the relative net assets of each Fund.
7. Organization Costs: The Funds will reimburse Bankers Trust Global Investment
Management (the "Advisor": a unit of Bankers Trust Company) for certain costs
incurred in connection with the Funds' organization. The costs are being
amortized on a straight-line basis over five years commencing on August 25, 1997
for the EAFE Equity Index Fund, August 26, 1997 for the Small Cap Index Fund and
October 3, 1997 for the Equity 500 Index Fund.
Note (B) Dividends from Net Investment Income and Distributions of Capital
Gains: With respect to the EAFE Equity Index, Small Cap Index and Equity 500
Index Funds, dividends from net investment income and net realized gains from
investment transactions, if any, are distributed to shareowners annually.
Dividends and distributions to shareholders are recorded on the ex-dividend
date. Income and capital gains distributions are determined in accordance with
federal regulations and may differ from those determined in accordance with
generally accepted accounting principles. To the extent these differences are
permanent, such amounts are reclassified within the capital accounts based on
their federal tax basis treatment; temporary differences do not require such
reclassification. During the current fiscal year, permanent differences on the
EAFE Equity Index Fund, primarily due to currency transactions, resulted in a
net increase in undistributed net investment income and a corresponding decrease
in accumulated net realized gain (loss) on investments sold, foreign currency
transactions and futures contracts. This reclassification had no effect on net
assets.
Distributions from net realized gains for book purposes may involve short-term
capital gains, which are included as ordinary income for tax purposes.
Note (C) Shares of Beneficial Interest: Each Fund is authorized to issue an
unlimited number of shares of beneficial interest with a par value of $0.001 per
share.
Note (D) Investment Transactions: Aggregate purchases and proceeds from sales of
investment securities (other than short-term investments) for the year ended
December 31, 1997 were:
<TABLE>
<CAPTION>
<S> <C> <C>
Aggregate Proceeds from
Purchases Sales
EAFE Equity Index Fund $15,103,673 $55,967
Small Cap Index Fund 12,336,440 737,931
Equity 500 Index Fund 11,865,694 519,716
</TABLE>
The aggregate gross unrealized appreciation and depreciation, net unrealized
appreciation (depreciation) and cost of securities as computed on a federal
income tax basis, at December 31, 1997 for each Fund is as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Tax
Appreciation (Depreciation) Net Cost
EAFE Equity Index Fund $ 977,725 $(1,937,578) $(1,010,322) $15,398,916
Small Cap Index Fund 1,201,783 (816,745) 383,885 12,197,028
Equity 500 Index Fund 689,529 (468,395) 202,483 12,070,017
</TABLE>
Note (E) Advisory, Administration and Distribution Services Agreements: Under
the Advisory Agreement with the Advisor, the Funds will pay advisory fees at the
following annual percentage rates of the average daily net assets of each Fund:
0.45% for the EAFE Equity Index Fund, 0.35% for the Small Cap Index Fund, and
0.20% for the Equity 500 Index Fund. These fees are accrued daily and paid
monthly. The Advisor has voluntarily undertaken to waive their fees and to
reimburse the Funds for certain expenses so that the EAFE Equity Index, Small
Cap Index and Equity 500 Index Funds' total operating expenses will not exceed
0.65%, 0.45% and 0.30%, respectively. Such expense reimbursements may be
terminated at the discretion of the Advisor. For the year ended December 31,
1997, the Advisor waived and/or reimbursed expenses of $107,853 for the EAFE
Equity Index Fund, $110,002 for the Small Cap Index Fund and $65,771 for the
Equity 500 Index Fund.
First Data Investor Services Group, Inc. ("Investor Services Group") serves as
administrator of the Funds. For services provided as the Funds' Administrator,
Investor Services Group receives the following fees, accrued daily and paid
monthly.
Administration Fees
<PAGE>
30
<TABLE>
<CAPTION>
<S> <C> <C>
Fee (% of each Funds' aggregate
daily net assets) Average Daily Net Assets
0.02% less than $2 billion
0.01% $2 billion but less than $5 billion
0.0075% over $5 billion
</TABLE>
Investor Services Group also receives a $70,000 flat fee per year, per Fund,
paid monthly.
The Funds do not compensate its officers or affiliated trustees at First Data
Investor Services Group, Inc. Each independent trustee is paid $1,250 per Board
of Trustees meeting attended Dan a quarterly retainer of $2,500.
<PAGE>
Investment Manager of the Fund
BANKERS TRUST COMPANY
Administrator
FIRST DATA INVESTOR SERVICES GROUP, INC.
Distributor
FIRST DATA DISTRIBUTORS, INC.
Custodian
BANKERS TRUST COMPANY
Transfer Agent
FIRST DATA INVESTOR SERVICES GROUP, INC.
Independent Accountants
ERNST & YOUNG LLP
Counsel
WILLKIE FARR & GALLAGHER
No person has been authorized to give any information or to make any
representations other than those contained in the Fund's Prospectuses, the
Statement of Additional Information or the Trust's official sales literature in
connection with the offering of the Fund's shares and, if given or made, such
other information or representations must not be relied on as having been
authorized by the Trust. Neither the Prospectus nor this Statement of Additional
Information constitutes an offer in any state in which, or to any person to
whom, such offer may not lawfully be made.
<PAGE>
STATEMENT OF
ADDITIONAL INFORMATION
BT INSURANCE FUNDS TRUST
SMALL CAP INDEX FUND
MARCH 20, 1998
BT Insurance Funds Trust (the "Trust") is currently comprised of seven
series: the Small Cap 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
<TABLE>
<CAPTION>
<S> <C> <C>
Risk Factors and Certain Securities and Investment Practices..................................... 2
Performance Information.......................................................................... 12
Valuation of Securities; Redemption in Kind...................................................... 13
Management of the Trust.......................................................................... 14
Organization of the Trust........................................................................ 18
Taxation......................................................................................... 19
Financial Statements............................................................................. 21
</TABLE>
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 "First Data Distributors").
The Prospectus for the Fund is dated March 20, 1998. The Prospectus provides
the basic information investors should know before investing and may be obtained
without charge by calling the Trust at the Customer Service Center at the
telephone number shown in the accompanying 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.
BANKERS TRUST COMPANY
Investment Manager of the Fund
FIRST DATA DISTRIBUTORS, INC.,
Distributor
4400 Computer Drive,
Westborough, MA 01581
<PAGE>
RISK FACTORS AND CERTAIN SECURITIES AND INVESTMENT PRACTICES
Investment Objective
The investment objective of the Fund is described in the Fund's
Prospectus. There can, of course, be no assurance that the Fund will achieve its
investment objective.
Investment Practices
The following is a discussion of the various investments of and
techniques employed by the Fund:
Certificates of Deposit and Bankers' Acceptances. Certificates of
deposit are receipts issued by a depository institution in exchange for the
deposit of funds. The issuer agrees to pay the amount deposited plus interest to
the bearer of the receipt on the date specified on the certificate. The
certificate usually can be traded in the secondary market prior to maturity.
Bankers' acceptances typically arise from short-term credit arrangements
designed to enable businesses to obtain funds to finance commercial
transactions. Generally, an acceptance is a time draft drawn on a bank by an
exporter or an importer to obtain a stated amount of funds to pay for specific
merchandise. The draft is then "accepted" by a bank that, in effect,
unconditionally guarantees to pay the face value of the instrument on its
maturity date. The acceptance may then be held by the accepting bank as an
earning asset or it may be sold in the secondary market at the going rate of
discount for a specific maturity. Although maturities for acceptances can be as
long as 270 days, most acceptances have maturities of six months or less.
Commercial Paper. Commercial paper consists of short-term (usually from
1 to 270 days) unsecured promissory notes issued by corporations in order to
finance their current operations. A variable amount master demand note (which is
a type of commercial paper) represents a direct borrowing arrangement involving
periodically fluctuating rates of interest under a letter agreement between a
commercial paper issuer and an institutional lender pursuant to which the lender
may determine to invest varying amounts.
Illiquid Securities. Historically, illiquid securities have included
securities subject to contractual or legal restrictions on resale because they
have not been registered under the Securities Act of 1933, as amended (the "1933
Act"), securities which are otherwise not readily marketable and repurchase
agreements having a maturity of longer than seven days. Securities which have
not been registered under the 1933 Act are referred to as private placements or
restricted securities and are purchased directly from the issuer or in the
secondary market. Mutual funds do not typically hold a significant amount of
these restricted or other illiquid securities because of the potential for
delays on resale and uncertainty in valuation. Limitations on resale may have an
adverse effect on the marketability of portfolio securities and a mutual fund
might be unable to dispose of restricted or other illiquid securities promptly
or at reasonable prices and might thereby experience difficulty satisfying
redemptions within seven days. A mutual fund might also have to register such
restricted securities in order to dispose of them resulting in additional
expense and delay. Adverse market conditions could impede such a public offering
of securities.
In recent years, however, a large institutional market has developed
for certain securities that are not registered under the 1933 Act, including
repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be readily
resold or on an issuer's ability to honor a demand for repayment. The fact that
there are contractual or legal restrictions on resale of such investments to the
general public or to certain institutions may not be indicative of their
liquidity.
The Securities and Exchange Commission (the "SEC") has adopted Rule
144A, which allows a broader institutional trading market for securities
otherwise subject to restriction on their resale to the general public. Rule
144A establishes a "safe harbor" from the registration requirements of the 1933
Act of resales of certain securities to qualified institutional buyers. The
Manager anticipates that the market for certain restricted securities such as
institutional commercial paper will expand further as a result of this
regulation and the development of automated systems for the trading, clearance
and settlement of unregistered securities of domestic and foreign issuers, such
as the PORTAL System sponsored by the National Association of Securities
Dealers, Inc.
The Manager will monitor the liquidity of Rule 144A securities in the
Fund's portfolio under the supervision of the Trust's Board of Trustees. In
reaching liquidity decisions, the Manager will consider, among other things, the
following factors: (i) the frequency of trades and quotes for the security; (ii)
the number of dealers and other potential purchasers wishing to purchase or sell
the security; (iii) dealer undertakings to make a market in the security and
(iv) the nature of the security and of the marketplace trades (e.g., the time
needed to dispose of the security, the method of soliciting offers and the
mechanics of the transfer).
Lending of Portfolio Securities. The Fund has the authority to lend
portfolio securities to brokers, dealers and other financial organizations. The
Fund will not lend securities to Bankers Trust, the Distributor or their
affiliates. By lending its securities, the Fund can increase its income by
continuing to receive interest on the loaned securities as well as by either
investing the cash collateral in short-term securities or obtaining yield in the
form of interest paid by the borrower when U.S. Government obligations are used
as collateral. There may be risks of delay in receiving additional collateral or
risks of delay in recovery of the securities or even loss of rights in the
collateral should the borrower of the securities fail financially. The Fund will
adhere to the following conditions whenever its securities are loaned: (i) the
Fund must receive at least 100 percent cash collateral or equivalent securities
from the borrower; (ii) the borrower must increase this collateral whenever the
market value of the securities including accrued interest rises above the level
of the collateral; (iii) the Fund must be able to terminate the loan at any
time; (iv) the Fund must receive reasonable interest on the loan, as well as any
dividends, interest or other distributions on the loaned securities, and any
increase in market value; (v) the Fund may pay only reasonable custodian fees in
connection with the loan; and (vi) voting rights on the loaned securities may
pass to the borrower; provided, however, that if a material event adversely
affecting the investment occurs, the Trust's Board of Trustees must terminate
the loan and regain the right to vote the securities.
Short-Term Instruments. When the Fund experiences large cash inflows
through the sale of securities and desirable equity securities, that are
consistent with the Fund's investment objective, which are unavailable in
sufficient quantities or at attractive prices, the Fund may hold short-term
investments for a limited time pending availability of such equity securities.
Short-term instruments consist of: (i) short-term obligations issued or
guaranteed by the U.S. government or any of its agencies or instrumentalities or
by any of the states; (ii) other short-term debt securities rated AA or higher
by S&P or Aa or higher by Moody's or, if unrated, of comparable quality in the
opinion of Bankers Trust; (iii) commercial paper; (iv) bank obligations,
including negotiable certificates of deposit, time deposits and bankers'
acceptances; and (v) repurchase agreements. At the time the Fund invests in
commercial paper, bank obligations or repurchase agreements, the issuer of the
issuer's parent must have outstanding debt rated AA or higher by S&P or Aa or
higher by Moody's or outstanding commercial paper or bank obligations rated A-1
by S&P or Prime-1 by Moody's; or, if no such ratings are available, the
instrument must be of comparable quality in the opinion of Bankers Trust.
When-Issued and Delayed Delivery Securities. The Fund may purchase
securities on a when-issued or delayed delivery basis. For example, delivery of
and payment for these securities can take place a month or more after the date
of the purchase commitment. The purchase price and the interest rate payable, if
any, on the securities are fixed on the purchase commitment date or at the time
the settlement date is fixed. The value of such securities is subject to market
fluctuation and no interest accrues to the Fund until settlement takes place. At
the time the Fund makes the commitment to purchase securities on a when-issued
or delayed delivery basis, it will record the transaction, reflect the value
each day of such securities in determining its net asset value and, if
applicable, calculate the maturity for the purposes of average maturity from
that date. At the time of settlement a when-issued security may be valued at
less than the purchase price. To facilitate such acquisitions, the Fund will
maintain with the Fund's custodian a segregated account with liquid assets,
consisting of cash, U.S. Government securities or other appropriate securities,
in an amount at least equal to such commitments. On delivery dates for such
transactions, the Fund will meet its obligations from maturities or sales of the
securities held in the segregated account and/or from cash flow. If the Fund
chooses to dispose of the right to acquire a when-issued security prior to its
acquisition, it could, as with the disposition of any other Fund obligation,
incur a gain or loss due to market fluctuation. It is the current policy of the
Fund not to enter into when-issued commitments exceeding in the aggregate 15% of
the market value of the Fund's total assets, less liabilities other than the
obligations created by when-issued commitments.
Additional U.S. Government Obligations. The Fund may invest in
obligations issued or guaranteed by U.S. Government agencies or
instrumentalities. These obligations may or may not be backed by the "full faith
and credit" of the United States. In the case of securities not backed by the
full faith and credit of the United States, the Fund must look principally to
the federal agency issuing or guaranteeing the obligation for ultimate
repayment, and may not be able to assert a claim against the United States
itself in the event the agency or instrumentality does not meet its commitments.
Securities in which the Fund may invest that are not backed by the full faith
and credit of the United States include, but are not limited to, obligations of
the Tennessee Valley Authority, the Federal Home Loan Mortgage Corporation and
the U.S. Postal Service, each of which has the right to borrow from the U.S.
Treasury to meet its obligations, and obligations of the Federal Farm Credit
System and the Federal Home Loan Banks, both of whose obligations may be
satisfied only by the individual credits of each issuing agency. Securities
which are backed by the full faith and credit of the United States include
obligations of the Government National Mortgage Association, the Farmers Home
Administration, and the export-import Bank.
Equity Investments. The Fund may invest in equity securities listed on
any domestic securities exchange or traded in the over-the-counter market as
well as certain restricted or unlisted securities. They may or may not pay
dividends or carry voting rights. Common stock occupies the most junior position
in a company's capital structure.
Reverse Repurchase Agreements. The Fund may borrow funds for temporary
or emergency purposes, such as meeting larger than anticipated redemption
requests, and not for leverage, by among other things, agreeing to sell
portfolio securities to financial institutions such as banks and broker-dealers
and to repurchase them at a mutually agreed date and price (a "reverse
repurchase agreement"). At the time the Fund enters into a reverse repurchase
agreement it will place in a segregated custodial cash account, U.S. Government
Obligations or high-grade debt obligations having a value equal to the
repurchase price, including accrued interest. Reverse repurchase agreements
involve the risk that the market value of the securities sold by the Fund may
decline below the repurchase price of those securities. Reverse repurchase
agreements are considered to be borrowings by the Fund.
Warrants. Warrants entitle the holder to buy common stock from the
issuer at a specific price (the strike price) for a specific period of time. The
strike price of warrants sometimes is much lower than the current market price
of the underlying securities, yet warrants are subject to similar price
fluctuations. As a result, warrants may be more volatile investments than the
underlying securities.
Warrants do not entitle the holder to dividends or voting rights with
respect to the underlying securities and do not represent any rights in the
assets of the issuing company. Also, the value of the warrant does not
necessarily change with the value of the underlying securities and a warrant
ceases to have value if it is not exercised prior to the expiration date.
Convertible Securities. Convertible securities may be a debt security
or preferred stock which may be converted into common stock or carries the right
to purchase common stock. Convertible securities entitle the holder to exchange
the securities for a specified number of shares of common stock, usually of the
same company, at specified prices within a certain period of time.
The terms of any convertible security determine its ranking in a
company's capital structure. In the case of subordinated convertible debentures,
the holders' claims on assets and earnings are subordinated to the claims of
other creditors, and are senior to the claims of preferred and common
shareholders. In the case of convertible preferred stock, the holders' claims on
assets and earnings are subordinated to the claims of all creditors and are
senior to the claims of common shareholders.
Futures Contracts and Options on Futures Contracts
General. The successful use of such instruments draws upon the
Manager's skill and experience with respect to such instruments. When futures
are purchased to hedge against a possible increase in the price of securities
before the Fund is able to invest its cash (or cash equivalents) in an orderly
fashion, it is possible that the market may decline instead; if the Fund then
concludes not to invest its cash at that time because of concern as to possible
further market decline or for other reasons, the Fund will realize a loss on the
futures contract that is not offset by a reduction in the price of the
instruments that were to be purchased. In addition, the correlation between
movements in the price of futures contracts or options on futures contracts and
movements in the price of the securities hedged will not be perfect and could
produce unanticipated losses.
Successful use of the futures contract and related options are subject
to special risk considerations. A liquid secondary market for any futures or
options contract may not be available when a futures or options position is
sought to be closed. In addition, there may be an imperfect correlation between
movements in the securities in the Fund. Successful use of futures or options
contracts is further dependent on Bankers Trust's ability to correctly predict
movements in the securities markets and no assurance can be given that its
judgment will be correct. Successful use of options on securities or stock
indices are subject to similar risk considerations. In addition, by writing
covered call options, the Fund gives up the opportunity, while the option is in
effect, to profit from any price increase in the underlying securities above the
options exercise price.
Futures Contracts. The Fund may enter into securities index futures
contracts. U.S. futures contracts have been designed by exchanges which have
been designated "contracts markets" by the CFTC, and must be executed through a
futures commission merchant, or brokerage firm, which is a member of the
relevant contract market. Futures contracts trade on a number of exchange
markets, and, through their clearing corporations, the exchanges guarantee
performance of the contracts as between the clearing members of the exchange.
These investments will be made by the Fund solely for cash management
purposes. Such investments will only be made if they are economically
appropriate to the reduction of risks involved in the management of the Fund. In
this regard, the Fund may enter into futures contracts or options on futures
related to the Russell 2000 Index.
At the same time a futures contract is purchased or sold, the Fund must
allocate cash or securities as a deposit payment ("initial deposit"). It is
expected that the initial deposit would be approximately 1 1/2% to 5% of a
contract's face value. Daily thereafter, the futures contract is valued and the
payment of "variation margin" may be required, since each day the Fund would
provide or receive cash that reflects any decline or increase in the contract's
value.
Although futures contracts by their terms call for the actual delivery
or acquisition of securities, in most cases the contractual obligation is
fulfilled before the date of the contract without having to make or take
delivery of the securities. The offsetting of a contractual obligation is
accomplished by buying (or selling, as the case may be) on a commodities
exchange an identical futures contract calling for delivery in the same month.
Such a transaction, which is effected through a member of an exchange, cancels
the obligation to make or take delivery of the securities. Since all
transactions in the futures market are made, offset or fulfilled through a
clearinghouse associated with the exchange on which the contracts are traded,
the Fund will incur brokerage fees when it purchases or sells futures contracts.
The ordinary spreads between prices in the cash and futures market, due
to differences in the nature of those markets, are subject to distortions.
First, all participants in the futures market are subject to initial deposit and
variation margin requirements. Rather than meeting additional variation margin
requirements, investors may close futures contracts through offsetting
transactions which could distort the normal relationship between the cash and
futures markets. Second, the liquidity of the futures market depends on
participants entering into offsetting transactions rather than making or taking
delivery. To the extent participants decide to make or take delivery, liquidity
in the futures market could be reduced, thus producing distortion. Third, from
the point of view of speculators, the margin deposit requirements in the futures
market are less onerous than margin requirements in the securities market.
Therefore, increased participation by speculators in the futures market may
cause temporary price distortions.
In addition, futures contracts entail risks. The Manager believes that
use of such contracts will benefit the Fund. The successful use of futures
contracts, however, depends on the degree of correlation between the futures and
securities markets.
Options on Futures Contracts. The Fund may use stock index futures on a
continual basis to equitize cash so that the Fund may maintain 100% equity
exposure. The Board of Trustees has adopted a restriction that the Fund will not
enter into any futures contracts or options on futures contracts if immediately
thereafter the amount of margin deposits on all the futures contracts of the
Fund and premiums paid on outstanding options on futures contracts owned by the
Fund (other than those entered into for bona fide hedging purposes) would exceed
5% of the market value of the total assets of the Fund.
The Fund may purchase and write options on the futures contract
described above. A futures option gives the holder, in return for the premium
paid, the right to buy (call) from or sell (put) to the writer of the option a
futures contract at a specified price at any time during the period of the
option. Upon exercise, the writer of the option is obligated to pay the
difference between the cash value of the futures contract and the exercise
price. Like the buyer or seller of a futures contract, the holder, or writer, of
an option has the right to terminate its position prior to the scheduled
expiration of the option by selling, or purchasing an option of the same series,
at which time the person entering into the closing transaction will realize a
gain or loss. The Fund will be required to deposit initial margin and variation
margin with respect to put and call options on futures contracts written by it
pursuant to brokers' requirements similar to those described above. Net option
premiums received will be included as initial margin deposits. In anticipation
of a decline in interest rates, the Fund may purchase call options on futures
contracts as a substitute for the purchase of futures contracts to hedge against
a possible increase in the price of securities which the Fund intends to
purchase. Similarly, if the value of the securities held by the Fund is expected
to decline as a result of an increase in interest rates, the Fund might purchase
put options or sell call options on futures contracts rather than sell futures
contracts.
Investments in futures options involve some of the same considerations
that are involved in connection with investments in futures contracts (for
example, the existence of a liquid secondary market). In addition, the purchase
or sale of an option also entails the risk that changes in the value of the
underlying futures contract will not correspond to changes in the value of the
option purchased. Depending on the pricing of the option compared to either the
futures contract upon which it is based, or upon the price of the securities
being hedged, an option may or may not be less risky than ownership of the
futures contract or such securities. In general, the market prices of options
can be expected to be more volatile than the market prices on the underlying
futures contracts. Compared to the purchase or sale of futures contracts,
however, the purchase of call or put options on futures contracts may frequently
involve less potential risk to the Fund because the maximum amount at risk is
the premium paid for the options (plus transaction costs). The writing of an
option on a futures contract involves risks similar to those risks relating to
the sale of futures contracts.
The Fund's ability to terminate over-the-counter options will be more
limited than with exchange-traded options. It is also possible that
broker-dealers participating in over-the-counter options transactions will not
fulfill their obligations. Until such time as the staff of the SEC changes its
position, the Fund will treat purchased over-the-counter options and assets used
to cover written over-the-counter options as illiquid securities. With respect
to options written with primary dealers in U.S. Government securities pursuant
to an agreement requiring a closing purchase transaction at a formula price, the
amount of illiquid securities may be calculated with reference to the repurchase
formula.
Options on Securities Indices. The Fund may purchase and write (sell)
call and put options on securities indices. Such options give the holder the
right to receive a cash settlement during the term of the option based upon the
difference between the exercise price and the value of the index.
Options on securities indices entail certain risks. The absence of a
liquid secondary market to close out options positions on securities indices may
occur, although the Fund generally will only purchase or write such an option if
the Manager believes the option can be closed out.
Use of options on securities indices also entails the risk that trading
in such options may be interrupted if trading in certain securities included in
the index is interrupted. The Fund will not purchase such options unless the
Manager believes the market is sufficiently developed such that the risk of
trading in such options is no greater than the risk of trading in options on
securities.
Price movements in the Fund's portfolio may not correlate precisely
with movements in the level of an index and, therefore, the use of options on
indices cannot serve as a complete hedge. Because options on securities indices
require settlement in cash, the Manager may be forced to liquidate portfolio
securities to meet settlement obligations.
Investment Restrictions
The following investment restrictions are "fundamental policies" of the
Fund and may not be changed without the approval of a "majority of the
outstanding voting securities" of the Fund. "Majority of the outstanding voting
securities" under the 1940 Act, and as used in this Statement of Additional
Information and the Prospectus, means, with respect to the Fund, the lesser of
(i) 67% or more of the outstanding voting securities of the Fund present at a
meeting, if the holders of more than 50% of the outstanding voting securities of
the Fund are present or represented by proxy or (ii) more than 50% of the
outstanding voting securities of the Fund.
As a matter of fundamental policy, the Fund may not:
(1) borrow money or mortgage or hypothecate assets of the Fund, except
that in an amount not to exceed 1/3 of the current value of the
Fund's assets, it may borrow money as a temporary measure for
extraordinary or emergency purposes and enter into reverse
repurchase agreements or dollar roll transactions, and except that
it may pledge, mortgage or hypothecate not more than 1/3 of such
assets to secure such borrowings (it is intended that money would
be borrowed only from banks and only either to accommodate
requests for the withdrawal of beneficial interests (redemption of
shares) while effecting an orderly liquidation of portfolio
securities or to maintain liquidity in the event of an
unanticipated failure to complete a portfolio security transaction
or other similar situations) or reverse repurchase agreements,
provided that collateral arrangements with respect to options and
futures, including deposits of initial deposit and variation
margin, are not considered a pledge of assets for purposes of this
restriction (as an operating policy, the Funds may not engage in
dollar roll transactions);
(2) underwrite securities issued by other persons except insofar as
the Trust or the Fund may technically be deemed an underwriter
under the 1933 Act in selling a portfolio security;
(3) make loans to other persons except: (a) through the lending of the
Fund's portfolio securities and provided that any such loans not
exceed 30% of the Fund's total assets (taken at market value); or
(b) through the use of repurchase agreements or the purchase of
short-term obligations;
(4) purchase or sell real estate (including limited partnership
interests but excluding securities secured by real estate or
interests therein), in the ordinary course of business (except
that the Trust may hold and sell, for the Fund's portfolio, real
estate acquired as a result of the Fund's ownership of
securities);
(5) concentrate its investments in any particular industry (excluding
U.S. Government securities), but if it is deemed appropriate for
the achievement of the Fund's investment objective(s), up to 25%
of its total assets may be invested in any one industry;
(6) issue any senior security (as that term is defined in the 1940
Act) if such issuance is specifically prohibited by the 1940 Act
or the rules and regulations promulgated thereunder (except to the
extent permitted in investment restriction No. 1), provided that
collateral arrangements with respect to options and futures,
including deposits of initial deposit and variation margin, are
not considered to be the issuance of a senior security for
purposes of this restriction; and
(7) purchase the securities of any one issuer if as a result more than
5% of the value of its total assets would be invested in the
securities of such issuer or the Fund would own more than 10% of
the outstanding voting securities of such issuer, except that up
to 25% of the value of its total assets may be invested without
regard to these 5% limitation and provided that there is no
limitation with respect to investments in U.S. Government
securities.
Additional investment restrictions adopted by the Fund, which may be
changed by the Board of Trustees, provide that the Fund may not:
(i) purchase any security or evidence of interest therein on
margin, except that such short-term credit as may be necessary
for the clearance of purchases and sales of securities may be
obtained and except that deposits of initial deposit and
variation margin may be made in connection with the purchase,
ownership, holding or sale of futures;
(ii) invest for the purpose of exercising control or
management;
(iii) purchase for the Fund securities of any investment company if
such purchase at the time thereof would cause: (a) more than
10% of the Fund's total assets (taken at the greater of cost
or market value) to be invested in the securities of such
issuers; (b) more than 5% of the Fund's total assets (taken at
the greater of cost or market value) to be invested in any one
investment company; or (c) more than 3% of the outstanding
voting securities of any such issuer to be held for the Fund
(as an operating policy, the Fund will not invest in another
open-end registered investment company); or
(iv) invest more than 15% of the Fund's net assets (taken at the
greater of cost or market value) in securities that are
illiquid or not readily marketable not including (a) Rule 144A
securities that have been determined to be liquid by the Board
of Trustees; and (b) commercial paper that is sold under
section 4(2) of the 1933 Act which is not traded flat or in
default as to interest or principal.
There will be no violation of any investment restriction if that
restriction is complied with at the time the relevant action is taken
notwithstanding a later change in market value of an investment, in net or total
assets, in the securities rating of the investment, or any other later change.
The Fund will comply with the state securities laws and regulations of
all states in which it is registered.
Portfolio Transactions and Brokerage Commissions
The Manager is responsible for decisions to buy and sell securities,
futures contracts and options on such securities and futures for the Fund, the
selection of brokers, dealers and futures commission merchants to effect
transactions and the negotiation of brokerage commissions, if any.
Broker-dealers may receive brokerage commissions on fund transactions, including
options, futures and options on futures transactions and the purchase and sale
of underlying securities upon the exercise of options. Orders may be directed to
any broker-dealer or futures commission merchant, including to the extent and in
the manner permitted by applicable law, Bankers Trust or its subsidiaries or
affiliates. Purchases and sales of certain fund securities on behalf of the Fund
are frequently placed by the Manager with the issuer or a primary or secondary
market-maker for these securities on a net basis, without any brokerage
commission being paid by the Fund. Trading does, however, involve transaction
costs. Transactions with dealers serving as market-makers reflect the spread
between the bid and asked prices. Transaction costs may also include fees paid
to third parties for information as to potential purchasers or sellers of
securities. Purchases of underwritten issues may be made which will include an
underwriting fee paid to the underwriter.
The Manager seeks to evaluate the overall reasonableness of the
brokerage commissions paid (to the extent applicable) in placing orders for the
purchase and sale of securities for the Fund taking into account such factors as
price, commission (negotiable in the case of national securities exchange
transactions), if any, size of order, difficulty of execution and skill required
of the executing broker-dealer through familiarity with commissions charged on
comparable transactions, as well as by comparing commissions paid by the Fund to
reported commissions paid by others. The Manager reviews on a routine basis
commission rates, execution and settlement services performed, making internal
and external comparisons.
The Manager is authorized, consistent with Section 28(e) of the
Securities Exchange Act of 1934, as amended, when placing portfolio transactions
for the Fund with a broker to pay a brokerage commission (to the extent
applicable) in excess of that which another broker might have charged for
effecting the same transaction on account of the receipt of research, market or
statistical information. The term "research, market or statistical information"
includes advice as to the value of securities; the advisability of investing in,
purchasing or selling securities; the availability of securities or purchasers
or sellers of securities; and furnishing analyses and reports concerning
issuers, industries, securities, economic factors and trends, portfolio strategy
and the performance of accounts.
Consistent with the policy stated above, the Rules of Fair Practice of
the National Association of Securities Dealers, Inc. and such other policies as
the Trustees of the Trust may determine, the Manager may consider sales of
shares of a Fund as a factor in the selection of broker-dealers to execute
portfolio transactions. Bankers Trust will make such allocations if commissions
are comparable to those charged by nonaffiliated, qualified broker-dealers for
similar services.
Higher commissions may be paid to firms that provide research services
to the extent permitted by law. Bankers Trust may use this research information
in managing the Fund's assets, as well as the assets of other clients.
Except for implementing the policies stated above, there is no
intention to place portfolio transactions with particular brokers or dealers or
groups thereof. In effecting transactions in over-the-counter securities, orders
are placed with the principal market-makers for the security being traded
unless, after exercising care, it appears that more favorable results are
available otherwise.
Although certain research, market and statistical information from
brokers and dealers can be useful to the Fund and to the Manager, it is the
opinion of the management of the Trust that such information is only
supplementary to the Manager's own research effort, since the information must
still be analyzed, weighed and reviewed by the Manager's staff. Such information
may be useful to the Manager in providing services to clients other than the
Fund, and not all such information is used by the Manager in connection with the
Fund. Conversely, such information provided to the Manager by brokers and
dealers through whom other clients of the Manager effect securities transactions
may be useful to the Manager in providing services to the Fund.
In certain instances there may be securities which are suitable for the
Fund as well as for one or more of the Manager's other clients. Investment
decisions for the Fund and for the Manager's other clients are made with a view
to achieving their respective investment objectives. It may develop that a
particular security is bought or sold for only one client even though it might
be held by, or bought or sold for, other clients. Likewise, a particular
security may be bought for one or more clients when one or more clients are
selling that same security. Some simultaneous transactions are inevitable when
several clients receive investment advice from the same investment adviser,
particularly when the same security is suitable for the investment objectives of
more than one client. When two or more clients are simultaneously engaged in the
purchase or sale of the same security, the securities are allocated among
clients in a manner believed to be equitable to each. It is recognized that in
some cases this system could have a detrimental effect on the price or volume of
the security as far as the Fund is concerned. However, it is believed that the
ability of the Fund to participate in volume transactions will produce better
executions for the Fund.
PERFORMANCE INFORMATION
Standard Performance Information
From time to time, quotations of the Fund's performance may be included
in advertisements, sales literature or shareholder reports. These performance
figures are calculated in the following manner:
Total Return: The Fund's average annual total return is calculated for
certain periods by determining the average annual compounded rates of
return over those periods that would cause an investment of $1,000
(made at the maximum public offering price with all distributions
reinvested) to reach the value of that investment at the end of the
periods. The Fund may also calculate total return figures which
represent aggregate performance over a period or year-by-year
performance.
Performance Results: Any total return quotation provided for the Fund
should not be considered as representative of the performance of the
Fund in the future since the net asset value and offering price of
shares of the Fund will vary based not only on the type, quality and
maturities of the securities held in the Fund, but also on changes in
the current value of such securities and on changes in the expenses of
the Fund. These factors and possible differences in the methods used to
calculate total return should be considered when comparing the total
return of the Fund to total returns published for other investment
companies or other investment vehicles. Furthermore, total return does
not reflect charges or deductions against a Contractowner's separate
account. Accordingly, total return does not illustrate the actual
investment performance under a contract. Total return reflects the
performance of both principal and income.
For the period from commencement of operations on August 25, 1997
through December 31, 1997, the aggregate total return of the Fund was ___%.
Comparison of Fund Performance
Comparison of the quoted nonstandardized performance of various
investments is valid only if performance is calculated in the same manner. Since
there are different methods of calculating performance, investors should
consider the effect of the methods used to calculate performance when comparing
performance of the Fund with performance quoted with respect to other investment
companies or types of investments.
In connection with communicating its performance to current or
prospective shareholders, the Fund also may compare these figures to the
performance of other mutual funds tracked by mutual fund rating services or to
unmanaged indices which may assume reinvestment of dividends but generally do
not reflect deductions for administrative and management costs.
Evaluations of the Fund's performance made by independent sources may
also be used in advertisements concerning the Fund. Sources for the Fund's
performance information could include the following: Barron's, Business Week,
Changing Times, The Kiplinger's Magazine, Consumer Digest, Financial Times,
Financial World, Forbes, Fortune, Investor's Daily, Lipper Analytical Services,
Inc.'s Mutual Fund Performance Analysis, Money, Morningstar Inc., New York
Times, Personal Investing News, Personal Investor, Success, U.S. News and World
Report, Value Line, Wall Street Journal, Weisenberger Investment Companies
Services and Working Women.
VALUATION OF SECURITIES; REDEMPTION IN KIND
Equity and debt securities (other than short-term debt obligations
maturing in 60 days or less), including listed securities and securities for
which price quotations are available, will normally be valued on the basis of
market valuations furnished by a pricing service. Short-term debt obligations
and money market securities maturing in 60 days or less are valued at amortized
cost, which approximates market.
Securities for which market quotations are not available are valued by
Bankers Trust under the supervision of the Trust's Board of Trustees. It is
generally agreed that securities for which market quotations are not readily
available should not be valued at the same value as that carried by an
equivalent security which is readily marketable.
The problems inherent in making a good faith determination of value are
recognized in the codification effected by SEC Financial Reporting Release No. 1
("FRR 1" (formerly Accounting Series Release No. 113)) which concludes that
there is "no automatic formula" for calculating the value of restricted
securities. It recommends that the best method simply is to consider all
relevant factors before making any calculation. According to FRR 1 such factors
would include consideration of the:
type of security involved, financial statements, cost at date
of purchase, size of holding, discount from market value of
unrestricted securities of the same class at the time of
purchase, special reports prepared by analysts, information as
to any transactions or offers with respect to the security,
existence of merger proposals or tender offers affecting the
security, price and extent of public trading in similar
securities of the issuer or comparable companies, and other
relevant matters.
To the extent that the Fund purchases securities which are restricted
as to resale or for which current market quotations are not available, the
Manager of the Fund will value such securities based upon all relevant factors
as outlined in FRR 1.
The Trust, on behalf of the Fund, reserves the right, if conditions
exist which make cash payments undesirable, to honor any request for redemption
or repurchase order by making payment in whole or in part in readily marketable
securities chosen by the Trust, and valued as they are for purposes of computing
the Fund's net asset value (a redemption in kind). If payment is made to a Fund
shareholder in securities, the shareholder may incur transaction expenses in
converting these securities into cash. The Trust, on behalf of the Fund, and the
Fund have elected, however, to be governed by Rule 18f-1 under the 1940 Act as a
result of which the Fund is obligated to redeem shares with respect to any one
investor during any 90-day period, solely in cash up to the lesser of $250,000
or 1% of the net asset value of the Fund at the beginning of the period.
MANAGEMENT OF THE TRUST
The Board of Trustees of the Trust is composed of persons experienced
in financial matters who meet throughout the year to oversee the activities of
the Fund. In addition, the Trustees review contractual arrangements with
companies that provide services to the Fund and review the Fund's performance.
The Trustees and officers of the Trust and their principal occupations
during the past five years are set forth below. Their titles may have varied
during that period. Asterisks indicate those Trustees who are "interested
persons" (as defined in the 1940 Act) of the Trust. Unless otherwise indicated,
the address of each Trustee and officer is One Exchange Place, Boston,
Massachusetts.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Trustees and Officers
Principal Occupations During
Name, Address and Age Position Held with the Trust Past 5 Years
- --------------------- ---------------------------- ------------
Robert R. Coby, 46 Trustee President of Lynch & Mayer, Inc., since
118 North Drive December 1996; Formerly President of
North Massapequa, NY 11758 Leadership Capital Inc. (1995-1996);
Chief Operating Officer of CS First
Boston Investment Management, Inc.
(1994-1995); President of Blackhawk
L.P. (1993-1994); Chief Financial
Officer of Equitable Capital prior to
February 1993.
Desmond G. FitzGerald, 54 Trustee Chairman of North American Properties
2015 West Main Street Group since January 1987.
Stamford, CT 06902
James S. Pasman, Jr., 67 Trustee Retired; President and Chief Operations
29 The Trillium Officer of National Intergroup Inc.
Pittsburgh, PA 15238 (1989-1991).
*William E. Small, 56 Trustee and President Independent Consultant (1996-present);
Formerly Executive Vice President of
First Data Investor Services Group Inc.
("Investor Services Group") (1993-1996).
Michael Kardok, 38 Vice President and Treasurer Vice President of First Data since May
1994; Vice President of The Boston
Company Advisors Inc. prior to May 1994.
Elizabeth Russell, 35 Vice President and Secretary Counsel of Investor Services Group
since 1994; Assistant Vice President
and Counsel, The Boston Company
Advisors, Inc. (1993-1994).
Brigid O. Bieber, 37 Vice President and Assistant Counsel of Investor Services Group
Secretary since 1994; Vice President and
Associate General Counsel, The Boston
Company Advisors, Inc. (prior to May
1994).
</TABLE>
Mr. Kardok, Msses. Bieber and Russell also hold similar positions for other
investment companies for which First Data Distributors, an affiliate of Investor
Services Group, or an affiliate serves as the principal underwriter.
No person who is an officer or director of Bankers Trust is an officer
or Trustee of the Trust. No director, officer or employee of First Data
Distributors or any of its affiliates will receive any compensation from the
Trust for serving as an officer or Trustee of the Trust.
As of February 10, 1998 the Trustees and officers of the Trust owned in
the aggregate less than 1% of the shares of the Fund or the Trust (all series
taken together).
Investment Manager
Under the terms of the Fund's investment management agreement with
Bankers Trust (the "Management Agreement"), Bankers Trust manages the Fund
subject to the supervision and direction of the Board of Trustees of the Trust.
Bankers Trust will: (i) act in strict conformity with the Trust's Declaration of
Trust, the 1940 Act and the Investment Advisers Act of 1940, as the same may
from time to time be amended; (ii) manage the Fund in accordance with the Fund's
investment objectives, restrictions and policies; (iii) make investment
decisions for the Fund; (iv) place purchase and sale orders for securities and
other financial instruments on behalf of the Fund; (v) oversee the
administration of all aspects of the Trust's business and affairs; and (vi)
supervise the performance of professional services provided by others.
Bankers Trust bears all expenses in connection with the performance of
services under the Management Agreement. The Fund bears certain other expenses
incurred in its operation, including: taxes, interest, brokerage fees and
commissions, if any; fees of Trustees of the Trust who are not officers,
directors or employees of Bankers Trust, First Data Distributors or any of their
affiliates; SEC fees and state Blue Sky qualification fees; charges of
custodians and transfer and dividend disbursing agents; certain insurance
premiums; outside auditing and legal expenses; cost of maintenance of corporate
existence; costs attributable to investor services, including, without
limitation, telephone and personnel expenses; costs of preparing and printing
prospectuses and statements of additional information for regulatory purposes
and for distribution to existing shareholders; costs of shareholders' reports
and meetings of shareholders, officers and Trustees of the Trust; and any
extraordinary expenses.
Bankers Trust may have deposit, loan and other commercial banking
relationships with the issuers of obligations which may be purchased on behalf
of the Fund, including outstanding loans to such issuers which could be repaid
in whole or in part with the proceeds of securities so purchased. Such
affiliates deal, trade and invest for their own accounts in such obligations and
are among the leading dealers of various types of such obligations. Bankers
Trust, in making its investment decisions, does not obtain or use material
inside information in its possession or in the possession of any of its
affiliates. In making investment recommendations for the Fund, Bankers Trust
will not inquire or take into consideration whether an issuer of securities
proposed for purchase or sale by the Fund is a customer of Bankers Trust, its
parent or its subsidiaries or affiliates and in dealing with its customers,
Bankers Trust, its parent, subsidiaries and affiliates will not inquire or take
into consideration whether securities of such customers are held by any fund
managed by Bankers Trust or any such affiliate.
The Fund's prospectus contains disclosure as to the amount of Bankers
Trust's investment advisory and administration and services fees.
Bankers Trust has agreed that if in any fiscal year the aggregate
expenses of the Fund (including fees pursuant to the Management Agreement, but
excluding interest, taxes, brokerage and, if permitted by the relevant state
securities commissions, extraordinary expenses) exceed the expense limitation of
any state having jurisdiction over the Fund, Bankers Trust will reimburse the
Fund for the excess expense to the extent required by state law.
Administrator
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, 130 Liberty Stree (One Bankers Trust Plaza), New York,
New York 10006, serves as custodian for the Fund. As custodian, it holds the
Fund's assets. Bankers Trust will comply with the self-custodian provisions of
Rule 17f-2 under the 1940 Act.
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 Statement of Additional Information without violation of the
Glass-Steagall Act or other applicable banking laws or regulations. However,
counsel has pointed out that future changes in either Federal or state statutes
and regulations concerning the permissible activities of banks or trust
companies, as well as future judicial or administrative decisions or
interpretations of present and future statutes and regulations, might prevent
Bankers Trust from continuing to perform those services for the Trust and the
Fund. State laws on this issue may differ from the interpretations of relevant
Federal law and banks and financial institutions may be required to register as
dealers pursuant to state securities law. If the circumstances described above
should change, the Boards of Trustees would review the relationships with
Bankers Trust and consider taking all actions necessary in the circumstances.
Counsel and Independent Accountants
Willkie Farr & Gallagher, One Citicorp Center, 153 East 53rd Street,
New York, New York 10022-4669, serves as Counsel to the Trust and the Fund.
Ernst & Young LLP, 787 Seventh Avenue, New York, New York 10019, acts as
independent accountants of the Trust and the Fund.
ORGANIZATION OF THE TRUST
Shares of the Trust do not have cumulative voting rights, which means
that holders of more than 50% of the shares voting for the election of Trustees
can elect all Trustees. Shares are transferable but have no preemptive,
conversion or subscription rights. Shareholders generally vote by Fund, except
with respect to the election of Trustees and the ratification of the selection
of independent accountants.
Through its separate accounts the Companies are the Fund's sole
stockholders of record, so under the 1940 Act, the Companies are deemed to be in
control of the Fund. Nevertheless, when a shareholders' meeting occurs, each
Company solicits and accepts voting instructions from its Contractowners who
have allocated or transferred monies for a investment in the Fund as of the
record date of the meeting. Each Company then votes the Fund's shares that are
attributable to its Contractowners' interests in the Fund in proportion to the
voting instructions received. Each Company will vote any share that it is
entitled to vote directly due to amounts it has contributed or accumulated in
its separate accounts in the manner described in the offering memoranda for its
variable annuities and variable life insurance policies.
Massachusetts law provides that shareholders could under certain
circumstances be held personally liable for the obligations of the Trust.
However, the Trust's Declaration of Trust disclaims shareholder liability for
acts or obligations of the Trust and requires that notice of this disclaimer be
given in each agreement, obligation or instrument entered into or executed by
the Trust or a Trustee. The Declaration of Trust provides for indemnification
from the Trust's property for all losses and expenses of any shareholder held
personally liable for the obligations of the Trust. Thus, the risk of a
shareholder's incurring financial loss on account of shareholder liability is
limited to circumstances in which the Trust itself would be unable to meet its
obligations, a possibility that the Trust believes is remote. Upon payment of
any liability incurred by a Trust, the shareholder paying the liability will be
entitled to reimbursement from the general assets of the Trust. The Trustees
intend to conduct the operations of the Trust in a manner so as to avoid, as far
as possible, ultimate liability of the shareholders for liabilities of the
Trust.
The Trust was organized on January 19, 1996.
TAXATION
Taxation of the Funds
The Trust intends to qualify annually and to elect the Fund to be
treated as a regulated investment company under the Code.
As a regulated investment company, the Fund will not be subject to U.S.
Federal income tax on its investment company taxable income and net capital
gains (the excess of net long-term capital gains over net short-term capital
losses), if any, that it distributes to its shareholders, that is, the
Companies' separate accounts. The Fund intends to distribute to its
shareholders, at least annually, substantially all of its investment company
taxable income and net capital gains and, therefore, does not anticipate
incurring Federal income tax liability.
The Code and Treasury Department regulations promulgated thereunder
require that mutual funds that are offered through insurance company separate
accounts must meet certain diversification requirements to preserve the
tax-deferred benefits provided by the variable contracts which are offered in
connection with such separate accounts. The Manager intends to diversify the
Fund's investments in accordance with those requirements. The offering memoranda
for each Company's variable annuities and variable life insurance policies
describe the federal income tax treatment of distributions from such contracts.
To comply with regulations under Section 817(h) of the Code, the Fund
will be required to diversify its investments so that on the last day of each
calendar quarter no more than 55% of the value of its assets is represented by
any one investment, no more than 70% is represented by any two investments, no
more than 80% is represented by any three investments and no more than 90% is
represented by any four investments. Generally, all securities of the same
issuer are treated as a single investment. For the purposes of Section 817(h) of
the Code, obligations of the U.S. Treasury and each U.S. Government
instrumentality are treated as securities of separate issuers. The Treasury
Department has indicated that it may issue future pronouncements addressing the
circumstances in which a variable annuity contract owner's control of the
investments of a separate account may cause the variable contract owner, rather
than the separate account's sponsoring insurance company, to be treated as the
owner of the assets held by the separate account. If the variable annuity
contract owner is considered the owner of the securities underlying the separate
account, income and gains produced by those securities would be included
currently in the variable annuity contract owner's gross income. It is not known
what standards will be set forth in such pronouncements or when, if at all,
these pronouncements may be issued. In the event that rules or regulations are
adopted, there can be no assurance that the Fund will be able to operate as
described currently in the Prospectus or that the Fund will not have to change
its investment policies or goals.
The foregoing is only a brief summary of important tax law provisions
that affect the Fund. Other Federal, state or local tax law provisions may also
affect the Fund and its operations. Anyone who is considering allocating,
transferring or withdrawing monies held under a variable contract to or from the
Fund should consult a qualified tax adviser.
Distributions
All dividends and capital gains distributions paid by the Fund will be
automatically reinvested, at net asset value, by the Companies' separate
accounts in additional shares of the Fund. There is no fixed dividend rate, and
there can be no assurance that the Fund will pay any dividends or realize any
capital gains. However, the Fund currently intends to pay dividends and capital
gains distributions, if any, on an annual basis. The offering memorandum for a
Company's variable annuity or variable life insurance policies describes the
frequency of distributions to Contractowners and the Federal income tax
treatment of distributions from such contracts to Contractowners.
Sale of Shares
Any gain or loss realized by a shareholder upon the sale or other
disposition of shares of the Fund, or upon receipt of a distribution in complete
liquidation of the Fund, generally will be a capital gain or loss which will be
long-term or short-term, generally depending upon the shareholder's holding
period for the shares. Any loss realized on a sale or exchange will be
disallowed to the extent the shares disposed of are replaced (including shares
acquired pursuant to a dividend reinvestment plan) within a period of 61 days
beginning 30 days before and ending 30 days after disposition of the shares. In
such a case, the basis of the shares acquired will be adjusted to reflect the
disallowed loss. Any loss realized by a shareholder on a disposition of fund
shares held by the shareholder for six months or less will be treated as a
long-term capital loss to the extent of any distributions of net capital gains
received by the shareholder with respect to such shares.
Shareholders will be notified annually as to the U.S. Federal tax
status of distributions.
Backup Withholding
The Fund may be required to withhold U.S. Federal income tax at the
rate of 31% of all taxable distributions payable to shareholders who fail to
provide the Fund with their correct taxpayer identification number or to make
required certifications, or who have been notified by the Internal Revenue
Service that they are subject to backup withholding. Corporate shareholders and
certain other shareholders specified in the Code generally are exempt from such
backup withholding. Backup withholding is not an additional tax. Any amounts
withheld may be credited against the shareholder's U.S. Federal income tax
liability.
Other Taxation
The Trust is organized as a Massachusetts business trust and, under
current law, neither the Trust nor the Fund is viable for any income or
franchise tax in the Commonwealth of Massachusetts, provided that the Fund
continues to qualify as a regulated investment company under Subchapter M of the
Code.
Fund shareholders may be subject to state and local taxes on their fund
distributions. Shareholders are advised to consult their own tax advisers with
respect to the particular tax consequences to them of an investment in the Fund.
Financial Statements
Small Cap Index Fund
FINANCIAL HIGHLIGHTS
For a share outstanding throughout the period
Period from
8/25/97 thru 12/31/97
Net asset value, beginning of period $10.00
Income from Investment Operations:
Net investment income (a) 0.03
Net realized and unrealized gain (loss)
on investments and futures contracts 0.48
Net increase in net asset value from operations 0.51
Net asset value, end of period $10.51
Total Return (b) 5.10%
Ratios / Supplemental Data:
Net assets, end of period (in 000s) $12,617 Ratios to average net assets:
Net investment income including reimbursement (c) 1.08%
Operating expenses including reimbursement (c) 0.45%
Operating expenses excluding reimbursement (c) 3.27%
Portfolio turnover rate 8%
Average commission rate paid $0.0208
(a) Based on average shares outstanding
(b) Total investment return is calculated assuming an initial investment made at
the net asset value at the beginning of the period, reinvestment of all
dividends and distributions at net asset value during the period and redemption
on teh last day of the period. Initial sales charge or contingent deferred sales
charge is not reflected in teh calculation of total investment return. Total
return calculated for a period of less than one year is not annualized. (c)
Annualized
BT INSURANCE FUNDS TRUST
STATEMENT OF OPERATIONS
For the period ended December 31, 1997
<TABLE>
<CAPTION>
<S> <C> <C> <C>
EAFE Equity Small Cap Equity 500
Index (A) Index (A) Index (A)
INVESTMENT INCOME:
Interest $17,832 $4,049 $6,064
Dividends 60,466 52,275 41,799
Less foreign taxes withheld (8,331) 0 (2)
Miscellaneous 0 3,039 0
Total Investment Income 69,967 59,363 47,861
EXPENSES:
Investment advisory fee (Note E) 23,060 13,629 5,294
Administration fee (Note E) 25,701 25,263 17,758
Fund accounting fees 10,787 13,037 2,568
Custodian fees 26,959 28,129 10,881
Audit fees 27,000 25,000 22,000
Trustees fees 12,757 9,457 4,597
Amortization of organizational costs 1,147 1,138 800
Transfer agent fees 2,891 2,869 2,008
Legal fees 2,361 1,756 883
Printing fees 8,326 7,033 6,779
Miscellaneous 176 176 124
Total expenses before reimbursement 141,165 127,487 73,692
Less reimbursement by Advisor (107,853) (110,002) (65,771)
Total expenses net of reimbursement 33,312 17,485 7,921
NET INVESTMENT INCOME 36,655 41,878 39,940
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on investments sold 4,840 81,129 (7,239)
Net realized gain (loss) on futures contracts (24,440) 7,288 17,353
Net realized gain on foreign currency transactions 18,702 0 0
Net change in unrealized appreciation
(depreciation) on futures contracts (4,053) 20 0
Net change in unrealized appreciation
(depreciation) on foreign currency transactions (2,436) 0 0
Net change in unrealized appreciation
(depreciation) on investments (1,012,021) 383,885 202,483
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS (1,019,408) 472,322 212,597
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS ($982,753) $514,200 $252,537
</TABLE>
(A) EAFE Equity Index, Small Cap Index and Equity 500 Index commenced operations
on 8/22/97, 8/25/97 and 10/1/97, respectively.
See accompanying Notes to Financial Statements
BT INSURANCE FUNDS TRUST
<TABLE>
<CAPTION>
<S> <C> <C> <C>
STATEMENT
OF
CHANGES
IN
NET
ASSETS
For
the
period
ended
December
31,
1997
EAFE Equity Small Cap Equity 500
Index (A) Index (A) Index (A)
Increase (decrease) in net assets resulting from operations:
Net investment income $36,655 $41,878 $39,940
Net realized gain (loss) on investments sold,
futures contracts and foreign currency
transactions (898) 88,417 10,114
Net change in unrealized appreciation (depreciation)
of investments and assets and liabilities in
foreign currency and futures contracts (1,018,510) 383,905 202,483
Net increase (decrease) in net assets resulting
from operations (982,753) 514,200 252,537
Share transactions:
Net proceeds from sale of shares 15,424,726 12,189,027 13,196,045
Costs of shares repurchased (32,912) (86,207) (1,688,459)
Net increase in net assets from share
transactions 15,391,814 12,102,820 11,507,586
Net increase in net assets 14,409,061 12,617,020 11,760,123
NET ASSETS at beginning of period 0 0 0
NET ASSETS at end of period $14,409,061 $12,617,020 $11,760,123
Accumulated undistributed net investment income $55,357 $41,878 $39,940
OTHER INFORMATION:
Share transactions:
Sold 1,545,473 1,208,494 1,320,455
Repurchased (3,560) (8,295) (166,272)
Net increase in shares outstanding 1,541,913 1,200,199 1,154,183
</TABLE>
(A) EAFE Equity Index, Small Cap Index and Equity 500 Index commenced
operations on 8/22/97, 8/25/97 and 10/1/97, respectively.
See accompanying Notes to Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997
<TABLE>
<CAPTION>
<S> <C> <C> <C>
EAFE Equity Small Cap Equity 500
Index Index Index
ASSETS:
Investments (Note D):
Investments at cost $15,348,466 $12,195,875 $12,051,366
Net unrealized appreciation (depreciation) (1,010,303) 383,885 202,483
Total investments at value 14,338,163 12,579,760 12,253,849
Cash at value (Cost $18,429, 337,644 and
45,417, respectively) (Note A-4) 18,369 337,644 45,417
Receivable for investment securities sold 0 58,696 3,097
Receivable for shares sold 0 9,998 25,537
Interest and dividends receivable
(net of taxes payable $7,995, 0, and 0, respectively) 47,349 12,114 15,570
Dividend withholding tax receivable 3,068 0 31
Deferred organizational costs 15,090 15,099 15,437
Receivable from Investment Advisor 84,793 96,373 60,477
Variation margin receivable on futures contracts 0 19 0
Total Assets 14,506,832 13,109,703 12,419,415
LIABILITIES:
Payable for investment securities purchased 0 399,107 593,972
Payable for shares repurchased 224 15 29
Variation margin payable on futures contracts 623 0 0
Net unrealized depreciation on forward foreign
currency contracts (Note A-3) 2,377 0 0
Accrued expenses and other payables 94,547 93,561 65,291
Total Liabilities 97,771 492,683 659,292
NET ASSETS $14,409,061 $12,617,020 $11,760,123
Composition of Net Assets:
Shares at par value $1,541 $1,200 $1,154
Paid-in-capital in excess of par value 15,390,273 12,101,620 11,506,432
Undistributed net investment income 55,357 41,878 39,940
Accumulated net realized gain (loss) on
investments sold, foreign currency
transactions and futures contracts (19,600) 88,417 10,114
Net unrealized appreciation (depreciation)
of investments, assets and liabilities in foreign
currency and futures contracts (1,018,510) 383,905 202,483
TOTAL NET ASSETS $14,409,061 $12,617,020 $11,760,123
Shares of beneficial interest outstanding 1,541,913 1,200,199 1,154,183
NET ASSET VALUE
offering and redemption price per share
(Net Assets / Shares Outstanding) $9.34 $10.51 $10.19
</TABLE>
See accompanying Notes to Financial Statements
<PAGE>
BT Insurance Funds Trust
Notes to Financial Statements December 31, 1997
- ----------------------------- -----------------
Note (A) Significant Accounting Policies
The BT Insurance Funds Trust (the "Trust"), is currently comprised of seven
series: EAFE Equity Index Fund, Small Cap Index Fund, Equity 500 Index Fund,
International Equity Fund, Small Cap Fund, U.S. Bond Index Fund, and the Managed
Assets Fund, (each a "Fund", collectively, the "Funds"). The Trust is an
open-end management investment company which is registered under the Investment
Company Act of 1940 as amended (the "Act"). The Trust was organized as a
Massachusetts business trust on January 19, 1996.
The accompanying financial statement and financial highlights are those of the
EAFE Equity Index Fund, the Small Cap Index Fund and the Equity 500 Index Fund
which commenced operations on August 22, 1997, August 25, 1997 and October 1,
1997, respectively.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting period. Actual
results could differ from those estimates. The following is a summary of the
significant accounting policies consistently followed by each Fund in the
preparation of its financial statements. These policies are in conformity with
generally accepted accounting principles.
1. Portfolio Valuation: Investments in securities which are traded on a
recognized stock exchange or for which price quotations are available, will
normally be valued on the basis of market valuations furnished by a pricing
service which has been approved by the Board of Trustees. Short-term obligations
that mature in 60 days or less are valued at amortized cost, which constitutes
fair value. All other securities are appraised at their fair value as determined
in good faith by and under the general supervision of the Board of Trustees.
2. Security Transactions and Investment Income: Security transactions are
accounted for on a trade date basis. Net realized gains or losses on sales of
securities are determined by the identified cost method. Interest income is
recorded on the accrual basis. Dividend income is recorded on the ex-dividend
date.
3. Forward Foreign Currency Exchange Contracts: The EAFE Equity Index Fund may
enter into forward foreign currency exchange contracts. A forward foreign
currency exchange contract is an obligation to purchase or sell a specific
currency at a specified price at a future date. These contracts are used in an
attempt to protect against fluctuations in foreign currency exchange rates that
would adversely affect the portfolio position or an anticipated investment
position. Forward foreign currency exchange contract are valued at the daily
forward exchange rate of the underlying currency. Purchases and sales of forward
foreign currency exchange contracts having the same settlement date and broker
are offset and presented on a net basis in the Statement of Assets and
Liabilities. Gains or losses on the purchase or sale of forward foreign currency
exchange contracts having the same settlement date and broker are recognized on
the date of offset, otherwise gains or losses are recognized on the settlement
date.
4. Foreign Currency Translations: Assets and liabilities denominated in foreign
currencies and commitments under forward exchange currency contracts are
translated into U.S. dollars at the mean of the quoted bid and asked prices of
such currencies against the U.S. dollar. Purchases and sales of portfolio
securities are translated into U.S. dollars at the rates of exchange prevailing
when such securities were acquired or sold. Income and expenses are translated
into U.S. dollars at rates of exchange prevailing when earned or accrued.
The Funds isolate that portion of the result of operations resulting from
changes in foreign exchange rates on investments from the fluctuations arising
from changes in market prices of securities held.
Net foreign exchange gains of $18,702 on the EAFE Equity Index Fund represent
exchange gains and losses from sales and maturities of securities, holding of
foreign currencies, exchange gains or losses realized between the trade and
settlement dates on security transactions, and the difference between the
amounts of interest and dividends recorded on the Funds's books and the U.S.
dollar equivalent of the amounts actually received or paid.
Net currency gains and losses from valuing foreign currency denominated assets
and liabilities at year end exchange rates are reflected as a component of net
unrealized appreciation (depreciation) of investments, assets and liabilities in
foreign currency and futures contracts.
5. Federal Income Taxes. The Funds intend to elect to be treated as "regulated
investment companies" under Sub-chapter M of the Internal Revenue Code Dan to
distribute substantially all of their respective net taxable income.
Accordingly, no provisions for federal income taxes have been made in the
accompanying financial statements. The Funds intend to utilize provisions of the
federal income tax laws which allow them to carry a realized capital loss
forward for eight years following the year of the loss and offset such losses
against any future realized capital gains. At December 31, 1997, the capital
loss carryforward amounted to $19,581 for the EAFE Equity Index Fund and will
expire 12/31/2005.
6. Expenses. The Trust accounts separately for the assets, liabilities and
operations of each Fund. Expenses directly attributable to a Fund are charged to
the Fund, while the expenses which are attributable to more than one Fund of the
Trust are allocated based upon the relative net assets of each Fund.
7. Organization Costs: The Funds will reimburse Bankers Trust Global Investment
Management (the "Advisor": a unit of Bankers Trust Company) for certain costs
incurred in connection with the Funds' organization. The costs are being
amortized on a straight-line basis over five years commencing on August 25, 1997
for the EAFE Equity Index Fund, August 26, 1997 for the Small Cap Index Fund and
October 3, 1997 for the Equity 500 Index Fund.
Note (B) Dividends from Net Investment Income and Distributions of Capital
Gains: With respect to the EAFE Equity Index, Small Cap Index and Equity 500
Index Funds, dividends from net investment income and net realized gains from
investment transactions, if any, are distributed to shareowners annually.
Dividends and distributions to shareholders are recorded on the ex-dividend
date. Income and capital gains distributions are determined in accordance with
federal regulations and may differ from those determined in accordance with
generally accepted accounting principles. To the extent these differences are
permanent, such amounts are reclassified within the capital accounts based on
their federal tax basis treatment; temporary differences do not require such
reclassification. During the current fiscal year, permanent differences on the
EAFE Equity Index Fund, primarily due to currency transactions, resulted in a
net increase in undistributed net investment income and a corresponding decrease
in accumulated net realized gain (loss) on investments sold, foreign currency
transactions and futures contracts. This reclassification had no effect on net
assets.
Distributions from net realized gains for book purposes may involve short-term
capital gains, which are included as ordinary income for tax purposes.
Note (C) Shares of Beneficial Interest: Each Fund is authorized to issue an
unlimited number of shares of beneficial interest with a par value of $0.001 per
share.
Note (D) Investment Transactions: Aggregate purchases and proceeds from sales of
investment securities (other than short-term investments) for the year ended
December 31, 1997 were:
<TABLE>
<CAPTION>
<S> <C> <C>
Aggregate Proceeds from
Purchases Sales
EAFE Equity Index Fund $15,103,673 $55,967
Small Cap Index Fund 12,336,440 737,931
Equity 500 Index Fund 11,865,694 519,716
</TABLE>
The aggregate gross unrealized appreciation and depreciation, net unrealized
appreciation (depreciation) and cost of securities as computed on a federal
income tax basis, at December 31, 1997 for each Fund is as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Tax
Appreciation (Depreciation) Net Cost
EAFE Equity Index Fund $ 977,725 $(1,937,578) $(1,010,322) $15,398,916
Small Cap Index Fund 1,201,783 (816,745) 383,885 12,197,028
Equity 500 Index Fund 689,529 (468,395) 202,483 12,070,017
</TABLE>
Note (E) Advisory, Administration and Distribution Services Agreements: Under
the Advisory Agreement with the Advisor, the Funds will pay advisory fees at the
following annual percentage rates of the average daily net assets of each Fund:
0.45% for the EAFE Equity Index Fund, 0.35% for the Small Cap Index Fund, and
0.20% for the Equity 500 Index Fund. These fees are accrued daily and paid
monthly. The Advisor has voluntarily undertaken to waive their fees and to
reimburse the Funds for certain expenses so that the EAFE Equity Index, Small
Cap Index and Equity 500 Index Funds' total operating expenses will not exceed
0.65%, 0.45% and 0.30%, respectively. Such expense reimbursements may be
terminated at the discretion of the Advisor. For the year ended December 31,
1997, the Advisor waived and/or reimbursed expenses of $107,853 for the EAFE
Equity Index Fund, $110,002 for the Small Cap Index Fund and $65,771 for the
Equity 500 Index Fund.
First Data Investor Services Group, Inc. ("Investor Services Group") serves
as administrator of the Funds. For services provided as the Funds'
Administrator, Investor Services Group receives the following fees, accrued
daily and paid monthly.
Administration Fees
<PAGE>
26
Fee (% of each Funds' aggregate
daily net assets) Average Daily Net Assets
0.02% less than $2 billion
0.01% $2 billion but less than $5 billion
0.0075% over $5 billion
Investor Services Group also receives a $70,000 flat fee per year, per Fund,
paid monthly.
The Funds do not compensate its officers or affiliated trustees at First Data
Investor Services Group, Inc. Each independent trustee is paid $1,250 per Board
of Trustees meeting attended Dan a quarterly retainer of $2,500.
<PAGE>
Investment Manager of the Fund
BANKERS TRUST COMPANY
Administrator
FIRST DATA INVESTOR SERVICES GROUP, INC.
Distributor
FIRST DATA DISTRIBUTORS, INC.
Custodian
BANKERS TRUST COMPANY
Transfer Agent
FIRST DATA INVESTOR SERVICES GROUP, INC.
Independent Accountants
ERNST & YOUNG LLP
Counsel
WILLKIE FARR & GALLAGHER
No person has been authorized to give any information or to make any
representations other than those contained in the Fund's Prospectuses, the
Statement of Additional Information or the Trust's official sales literature in
connection with the offering of the Fund's shares and, if given or made, such
other information or representations must not be relied on as having been
authorized by the Trust. Neither the Prospectus nor this Statement of Additional
Information constitutes an offer in any state in which, or to any person to
whom, such offer may not lawfully be made.
<PAGE>
Part C
Information required to be included in Part C is set forth under the appropriate
Item, so number, in Part C of this Registration Statement.
<PAGE>
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
Included in Part A
Financial Highlights
(Small Cap Index Fund and EAFE Equity Index Fund)
Included in Part B
Unaudited Financial Statements for the period ended
December 31, 1997
(Small Cap Index Fund and EAFE Equity Index Fund)
(b) Exhibits:
Exhibit
Number Description
<TABLE>
<CAPTION>
<S> <C> <C>
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
Number Description
(d) The form of Investment Management Agreement
between U.S. Bond Index Fund and Bankers
Trust Company is incorporated by reference
to Post-Effective Amendment No. 2 filed with
the Securities and Exchange Commission via
EDGAR on July 18, 1997.
6 The form of Distribution Agreement between Registrant and 440
Financial Distributors, Inc. is incorporated by reference to
Pre-Effective Amendment No. 1 filed with the Securities and Exchange
Commission via EDGAR on September 20, 1996.
7 Not Applicable.
8 The Custodian Agreement between Registrant
and Bankers Trust Company is incorporated by
reference to Amendment No. 1 filed with the
Securities and Exchange Commission via EDGAR
on September 18, 1996.
9(a) The form of Transfer Agency Agreement
between Registrant and First Data Investor
Services Group, Inc. is incorporated by
reference to Amendment No. 1 filed with the
Securities and Exchange Commission via EDGAR
on September 18, 1996.
(b) The form of Administration Agreement between Registrant and First
Data Investor Services Group, Inc. is incorporated by reference to
Pre-Effective Amendment No. 1 filed with the Securities and Exchange
Commission via EDGAR on September 20, 1996.
10 Not Applicable.
11(a) Consent of Independent Auditors.*
11(b) 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>
* To be filed by Amendment
Item 25. Persons Controlled by or Under Common Control with Registrant
Not Applicable.
Item 26. Number of Holders of Securities
EAFE Equity Index Fund 3
Small Cap Index Fund 3
Equity 500 Index Fund 3
Small Cap Fund 0
International Equity Fund 0
U.S. Bond Index 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 Company ("Bankers Trust") serves as investment
adviser to the Trust. Bankers Trust, a New York banking corporation, is a wholly
owned subsidiary of Bankers Trust New York Corporation. Bankers Trust conducts a
variety of commercial banking and trust activities and is a major wholesale
supplier of financial services to the international institutional market.
To the knowledge of the Trust, none of the directors or officers
of Bankers Trust, except those set forth below, is engaged in any other
business, profession, vocation or employment of a substantial nature, except
that certain directors and officers also hold various positions with and engage
in business for Bankers Trust New York Corporation. Set forth below are the
names and principal businesses of the directors and officers of Bankers Trust
who are engaged in any other business, profession, vocation or employment of a
substantial nature.
NAME AND PRINCIPAL BUSINESS ADDRESS, PRINCIPAL OCCUPATION AND OTHER INFORMATION
George B. Beitzel, International Business Machines Corporation, Old Orchard
Road, Armonk, NY 10504. Director, Bankers Trust Company; Retired senior vice
president and Director, International Business machines Corporation; Director,
Computer Task Group; Director, Phillips Petroleum Company; Director, Caliber
Systems, Inc. (formerly, Roadway Services Inc.); Director, Rohm and Haas
Company; Director, TIG Holdings; Chairman emeritus of Amherst College; and
Chairman of the Colonial Willimsburg Foundation.
Richard H. Daniel, Bankers Trust Company, 130 Liberty Street, New York, New York
10006. Vice chairman and chief financial officer, Bankers Trust Company and
Bankers Trust New York Corporation; Beneficial owner, general partner, Daniel
Brothers, Daniel Lingo & Assoc., Daniel Pelt & Assoc.; Beneficial owner, Rhea C.
Daniel Trust.
Philip A. Griffiths, Bankers Trust Company, 130 Liberty Street, New York, New
York 10006. Director, Institute for Advanced Study; Director, Bankers Trust
Company; Chairman, Committee on Science, Engineering and Public Policy of the
National Academies of Sciences and Engineering & the Institute of Medicine; and
Chairman and member, Nominations Committee and Committee on Science and
Engineering Indicators, National Science Board; Trustee, North Carolina School
of Science and Mathematics and the Woodward Academy.
William R. Howell, J.C. Penney Company, Inc., P.O. Box 10001, Plano, TX
75301-0001. Chairman Emeritus, J.C. Penney Company, Inc.; Director, Bankers
Trust Company; Director, Exxon Corporation; Director, Halliburton Company;
Director, Warner-Lambert Corporation; Director, The Williams Companies, Inc.;
and Director, National Retail Federation.
Vernon E. Jordan, Jr., Akin, Gump, Strauss, Hauer & Feld, LLP, 1333 New
Hampshire Ave., N.W., Washington, DC 20036. Senior Partner, Akin, Gump, Strauss,
Hauer & Feld, LLP; Director, Bankers Trust Company; Director, American Express
Company; Director, Dow-Jones, Inc.; Director, J.C. Penney Company, Inc.;
Director, Revlon Group Incorporated; Director, Ryder System, Inc.; Director,
Sara Lee Corporation; Director, Union Carbide Corporation; Director, Xerox
Corporation; Trustee, Brookings Institution; Trustee, The Ford Foundation; and
Trustee, Howard University.
David Marshall, 130 Liberty Street, New York, New York 10006. Chief Information
Officer and Executive Vice President, Bankers Trust New York Corporation; Senior
Managing Director, Bankers Trust Company.
Hamish Maxwell, Philip Morris Companies Inc., 120 Park Avenue, New York, NY
10006. Retired Chairman and Chief Executive Officer, Philip Morris Companies
Inc.; Director, Bankers Trust Company; Director, The News Corporation Limited;
Director, Sola International Inc.; and Chairman, WWP Group pic.
Frank N. Newman, Bankers Trust Company, 130 Liberty Street, New York, New York
10006. Chairman of the Board, Chief Executive Officer and President, Bankers
Trust New York Corporation and Bankers Trust Company; Director, Bankers Trust
Company; Director, Dow-Jones, Inc.; and Director, Carnegie Hall.
N.J. Nicholas Jr., 745 Fifth Avenue, New York, NY 10020. Director, Bankers
Trust Company; Director, Boston Scientific Corporation; and Director, Xerox
Corporation.
Russell E. Palmer, The Palmer Group, 3600 Market Street, Suite 530,
Philadelphia, PA 19104. Chairman and Chief Executive Officer of The Palmer
Group; Director, Bankers Trust Company; Director, Allied-Signal Inc.; Director,
Federal Home Loan Mortgage Corporation; Director, GTE Corporation; Director, The
May Department Stores Company; Director, Safeguard Scientifics, Inc.; and
Trustee, University of Pennsylvania.
Donald L. Staheli, Bankers Trust Company, 130 Liberty Street, New York, New York
10006. Chairman of the Board and Chief Executive Officer, Continental Grain
Company; Director, Bankers Trust Company; Director, ContiFinancial Corporation;
Director, Prudential Life Insurance Company of America; Director, Fresenius
Medical Care, A.g.; Director, America-China Society; Director, National
Committee on United States-China Relations; Director, New York City Partnership;
Chairman, U.S.-China Business Council; Chairman, Council on Foreign Relations;
Chairman, National Advisor Council of Brigham Young University's Marriott School
of Management; Vice Chairman, The Points of Light Foundation; and Trustee,
American Graduate School of International Management.
Patricia Carry Stewart, c/o Office of the Secretary, 130 Liberty Street,
New York, NY 10006. Director, Bankers Trust Company; Director, CVS Corporation;
Director, Community Foundation for Palm Beach and Martin Counties; Trustee
Emerita, Cornell University.
George J. Vojta, Bankers Trust Company, 130 Liberty Street, New York, NY 10006.
Vice Chairman, Bankers Trust New York Corporation and Bankers Trust Company;
Director, bankers Trust Company; Director; Alicorp S.A.; Director; Northwest
Airlines; Director, Private Export Funding Corp.; Director, New York State
Banking Board; Director, St. Lukes-Roosevelt Hospital Center; Partner, New York
City Partnership; and Chairman, Wharton Financial Services Center.
Paul A. Volcker, Bankers Trust Company, 130 Liberty Street, New York, New York
10006. Director, Bankers Trust Company; Director, American Stock Exchange;
Director, Nestle S.A.; Director, Prudential Insurance Company; Director, UAL
Corporation; Chairman, Group of 30; North American Chairman, Trilateral
Commission; Co-Chairman, Bretton Woods Committee; Co-Chairman, U.S./Hong Kong
Economic Cooperation Committee; Director, American Council on Germany; Director,
Aspen Institute; Director, Council on Foreign Relations; Director, The Japan
Society; and Trustee, The American Assembly.
Melvin A. Yellin, Bankers Trust Company, 130 Liberty Street, New York, New York
10006. Senior Managing Director and General Counsel of Bankers Trust New York
Corporation and Bankers Trust Company; Director, 1136 Tenants Corporation; and
Director, ABA Securities Association.
Item 29. Principal Underwriters
(a) In addition to BT Insurance Funds Trust, First Data Distributors, Inc.
(the "Distributor") currently acts as distributor for First Choice Funds Trust,
The Galaxy Fund, The Galaxy VIP Fund, Galaxy Fund II, Panorama Trust, CT&T
Funds, Wilshire Target Funds, Inc., Potomac Funds, Undiscovered Managers Funds
and the LKCM Funds. 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 with respect to the
Equity 500 Index Fund and the U.S. Bond Index Fund.
(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
<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. 5 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. 5 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Boston and the Commonwealth of Massachusetts on this
20th day of February, 1998.
BT Insurance Funds Trust
By: *
William E. Small
* By:
/s/ Elizabeth A. Russell
Elizabeth A. Russell
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 February 20, 1998
- ------------------------------
William E. Small
* Treasurer and Vice President February 20, 1998
- ------------------------------
Michael Kardok
* Trustee February 20, 1998
- ------------------------------
Robert R. Coby
* Trustee February 20, 1998
- ------------------------------
Desmond G. Fitzgerald
* Trustee February 20, 1998
- ------------------------------
James S. Pasman
</TABLE>
* By:
/s/ Elizabeth A. Russell
Elizabeth A. Russell
as Attorney-in-Fact
* 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>
