BT INSURANCE FUNDS TRUST /MA/, 485BPOS, 1999-04-29

BT INSURANCE FUNDS TRUST /MA/
485BPOS, 1999-04-29

Previous: INTRUST FUNDS TRUST, NSAR-B, 1999-04-29

Next: ROYCE CAPITAL FUND, 497J, 1999-04-29

As filed with the Securities and Exchange Commission on April 29, 1999
Securities Act File No. 333-00479
Investment Company Act File No. 811-07507

==============================================================================

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. 8
X

REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
X
Amendment No. 10
X

BT Insurance Funds Trust
(Exact Name of Registrant as Specified in Charter)

101 Federal Street
Boston, Massachusetts 02110
(Address of Principal Executive Offices) (Zip Code)

Registrant's Telephone Number, including Area Code: (617) 535-0532

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
101 Federal Street 787 Seventh Avenue
Boston, Massachusetts 02110 New York, NY 10019-6099

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 April 30, 1999 pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a)(1), or _ on April
30, 1999 pursuant to paragraph (a)(1)
___ 75 days after filing pursuant to paragraph (a)(2) on __________
pursuant to paragraph (a)(2) of Rule 485

<PAGE>

shared\clients\bankers\peas\peano._\partc\pea6.doc

BT INSURANCE FUNDS TRUST

The purpose of this Post-Effective Amendment No. 8 is to bring the
financial statements and other information up to date under Section 10(a)(3) of
the Securities Act of 1933, as amended, for the Small Cap Fund, International
Equity Fund, Small Cap Index Fund, EAFE(R) Equity Index Fund, Equity 500 Index
Fund and U.S. Bond Index Fund.

The Prospectus and Statement of Additional Information of the Managed
Assets Fund is hereby incorporated by reference in its entirety to Amendment No.
1 filed with the Securities and Exchange Commission via EDGAR on September 18,
1996.

<PAGE>
PROSPECTUS: APRIL 30, 1999

EAFE(R) Equity
Index Fund

With the goal of matching the performance of the
Morgan Stanley Capital International Europe,
Australasia, Far East ("EAFE(R)") Index,* which
is an index of equity securities of companies
outside the United States

LOGO

BT Mutual Funds

TRUST: BT INSURANCE FUNDS TRUST

INVESTMENT ADVISER: BANKERS TRUST COMPANY

[Like shares of all mutual funds, 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 of Morgan Stanley and has been licensed for
use by Bankers Trust Company.

<PAGE>

Goal:The Fund seeks to match, as closely as possible, before expenses, the
performance of the Morgan Stanley Capital International (MSCI) EAFE(R) Index
("EAFE(R) Index") which emphasizes stocks of companies in major markets in
Europe, Australia and the Far East performance. Core Strategy: The Investment
Adviser attempts to invest in stocks and other securities that are
representative of the EAFE(R) Index as a whole.

EAFE(R) Equity Index Fund

Overview EAFE(R) Equity Index Fund

3 Goal

3 Core Strategy

3 Investment Policies and Strategies

4 Principal Risks of Investing in the Fund

4 Who Should Consider Investing in the
Fund

5 Total Returns, After Fees and Expenses

A Detailed Look at the EAFE(R) Equity Index Fund

6 Objective

6 Index Versus Active Management

6 Strategy

6 Principal Investments

6 Investment Process

6 Risks

8 Information Regarding the Index

8 Management of the Fund

9 Calculating the Fund's Share
Price

9 Dividends and Distributions

10 Tax Considerations

10 Buying and Selling Shares

11 Financial Highlights

INVESTMENT POLICIES AND STRATEGIES
The Fund seeks to match, before expenses, the risk and return characteristics of
the EAFE(R) Index. The Fund will invest primarily in common stocks of companies
that compose the EAFE(R) Index, in approximately the same weightings as the
EAFE(R) Index. The Fund may also use stock index futures and options.

The EAFE(R) Index of major markets in Europe, Australia and the Far East is a
widely accepted benchmark of international stock performance. It is a model, not
an actual portfolio. It tracks equity securities in Australia, Austria, Belgium,
Denmark, Finland, France, Germany, Hong Kong, Ireland, Italy, Japan, the
Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden,
Switzerland and the United Kingdom. The Index is "capitalization weighted,"
which means that a company whose securities have a high market value will
contribute proportionately more to the Index's performance results than a
company whose securities have a lower market value. Overview

of the EAFE(R) Equity Index Fund

PRINCIPAL RISKS OF INVESTING IN THE FUND An investment in the Fund could lose
money, or the Fund's performance could trail that of other investments. For
example: The stock market could perform poorly in one or more of the countries
in which the Fund has invested. Adverse political, economic or social
developments could undermine the value of the Fund's investments or prevent the
Fund from realizing their full value. Accounting and financial reporting
standards differ from those in the U.S. and could convey incomplete information
when compared to information typically provided by U.S. companies. The currency
of a country in which the Fund invests may fluctuate in value relative to the
U.S. dollar, which could affect the value of the investment itself to U.S.
investors. Stocks could decline generally or could underperform other
investments. The Fund may not be able to track closely the performance of the
EAFE(R) Index for a number of reasons: the Fund's cost of buying and selling
securities, the flow of money into and out of the Fund, and the underperformance
of stocks selected by the Investment Adviser. The Fund could suffer losses if
its futures and options positions are not well correlated with those of other
investments or it cannot close out its positions. WHO SHOULD CONSIDER INVESTING
IN THE FUND The Fund sells its shares only to separate accounts of various
insurance companies (the "Companies"). Shares are available to the public
through the purchase of certain variable annuity and variable life insurance
contracts ("Contract(s)") issued by the Companies. As a Contract owner, your
premium payments are allocated to the Fund through these separate accounts in
accordance with your Contract. Please see the Contract prospectus that
accompanies this Prospectus for a detailed explanation of your Contract.

You should consider investing in the Fund if you are seeking the following:
capital appreciation over the long term; exposure to the equity market as
represented by companies outside the U.S.; and investment returns that track
the performance of the EAFE(R) Index.

There is, of course, no guarantee that the Fund will realize its goal.

You should not consider investing in the EAFE(R) Index Fund if you are: pursuing
a short-term financial goal; seeking regular income and stability of principal;
unable to tolerate fluctuations in the value of your investments; or seeking to
outperform the EAFE(R) Index.

The Fund by itself does not constitute a balanced investment program. It can,
however, provide exposure to investment opportunities not available to someone
who invests in U.S. securities alone. Diversifying your investments may also
improve your long-run investment return and lower the volatility of your overall
investment portfolio.

An investment in the EAFE(R) Equity Index Fund is not a deposit of Bankers Trust
Company or any other bank, and is not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government agency.
Overview of the EAFE(R) Equity Index Fund Year-by-Year Returns (for each
full calendar year since inception)

LOGO

Since inception, the Fund's highest return in any calendar quarter was 19.68%
(fourth quarter 1998) and its lowest quarterly return was --13.10% (third
quarter 1998). Past performance offers no indication of how the Fund will
perform in the future.
TOTAL RETURNS, AFTER FEES AND EXPENSES
The bar chart and table on this page can help you evaluate the potential risk
and rewards of investing in the Fund by showing changes in the Fund's
performance year to year. The bar chart shows the Fund's actual return for the
full calendar year since the Fund began selling shares on August 22, 1997 (its
inception date). The table compares the Fund's average annual return with the
EAFE(R) Index over the last year and since the Fund's inception. An index is a
group of securities whose overall performance is used as a standard to measure
investment performance. It does not factor in the costs of buying, selling and
holding stock -- costs that are reflected in the Fund's performance results.
These figures also do not include the effect of Contract charges, which would
lower the return shown.

Average Annual Returns
(as of December 31, 1998)

Since Inception
1 year (August 22, 1997)
EAFE(R)Equity Index Fund 21.60% 9.82%
EAFE(R)Index 20.00% 9.57%

(A Note on Fees)

As an investor in the Fund, you would incur various operating costs, including
management expenses. You also would incur fees associated with the Contracts you
purchase. Detailed information about the cost of investing in the Fund is
presented in the accompanying prospectus for the Contracts through which the
Fund's shares are offered to you.

Overview of the EAFE(R) Equity Index Fund

OBJECTIVE
The Fund seeks to match, as closely as possible, before the deduction of
expenses, the performance of the EAFE(R) Index.

The Fund invests for capital appreciation, not income; any dividend and interest
income is incidental to the pursuit of its objective. While we give priority to
matching the Index's performance, we cannot offer any assurance of achieving
this objective. The Fund's objective is not a fundamental policy. We must notify
shareholders before we change it, but we are not required to seek their approval
to do so.

INDEX VERSUS ACTIVE MANAGEMENT
Active management involves the investment adviser buying and selling securities
based on research and analysis. Unlike a fund that is actively managed, an index
fund tries to match, as closely as possible, the performance of a target index
by holding either all, or a representative sample, of the securities in the
index. Indexing appeals to many investors for the following reasons:
indexing provides simplicity because it is a straightforward market-matching
strategy; index funds generally provide diversification by investing in a wide
variety of companies and industries; an index fund's performance is predictable
in that the Fund's value is expected to move in the same direction, up or down,
as the
target index;
index funds tend to have lower costs because they do not have many of the
expenses of actively managed funds, such as research; index funds usually have
relatively low trading activity and therefore brokerage commissions tend to be
lower; and index funds generally have low realization of capital gains.

STRATEGY
To attempt to match the country, industry and risk characteristics of the
EAFE(R) Index as closely as possible, the Fund invests in a statistically
selected sample of the securities found in the EAFE(R) Index.

PRINCIPAL INVESTMENTS
Under normal circumstances, we pursue the Fund's objective by investing at least
80% of the Fund's assets in a statistically selected sample of the equity
securities of the roughly 1,100 companies that comprise the Index.

The Fund may hold up to 25% of its assets in short-term debt securities, money
market instruments, stock index futures and options. Futures and options are
considered derivatives because they "derive" their value from a traditional
security (like a stock or bond), asset or index. The Fund intends to buy futures
in anticipation of buying stocks. INVESTMENT PROCESS The Fund normally does
not hold every one of the roughly 1,100 stocks in the EAFE(R) Index. In an
effort to run an efficient and effective strategy, the Fund uses the process of
"optimization," a statistical sampling technique. First, the Fund buys the
stocks that make up the larger portions of the EAFE(R) Index's value in roughly
the same proportion as the EAFE(R) Index. Second, smaller stocks are analyzed
and selected. In choosing smaller stocks, the Investment Adviser tries to match
the industry and risk characteristics of all of the smaller companies in the
EAFE(R) Index without buying all of those stocks. This approach attempts to
maximize the Fund's liquidity and returns while minimizing its costs. RISKS
Below we set forth some of the prominent risks associated with investing in
general, with investing in stocks outside the United States and with index
investing.

Primary Risks

Market Risk. Deteriorating market conditions might cause an overall weakness in
the market that reduces the absolute level of stock prices in that market.

Futures and options on futures contracts are used as a low-cost method of
gaining exposure to a particular securities market without investing directly in
those securities. The Fund also invests in derivatives to keep cash on hand to
meet shareholder redemptions or other needs while maintaining exposure to the
stock market.

Portfolio Turnover. The annual portfolio turnover rate measures the frequency
that the Fund sells and replaces the value of its securities within a given
period. Historically, this Fund has had a low portfolio turnover rate. A
detailed look

at the EAFE(R) Equity Index Fund

Tracking Error Risk. There are several reasons that the Fund's performance may
not match the EAFE(R) Index exactly: Unlike the EAFE(R) Index, the Fund incurs
administrative expenses and transaction costs in trading stocks. The
composition of the EAFE(R) Index and the stocks held by the Fund may
occasionally diverge. The timing and magnitude of cash inflows from investors
buying shares could create balances of uninvested cash. Conversely, the
timing and magnitude of cash outflows to investors selling shares could require
ready reserves of uninvested cash. Either situation would likely cause the
Fund's performance to deviate from the "fully invested" EAFE(R) Index.

Information Risk. Financial reporting standards for companies based in foreign
markets differ from those in the United States.

Foreign Stock Market Risk. From time to time, foreign capital markets have
exhibited more volatility than those in the United States. Trading stocks on
some foreign exchanges is inherently more difficult than trading in the United
States for reasons that include: Liquidity Risk. Stocks that trade less can be
more difficult or more costly to buy or sell than more liquid or active stocks.
This liquidity risk is a factor of the trading volume of a particular stock, as
well as the size and liquidity of the entire local market. On the whole, foreign
exchanges are smaller and less liquid than the U.S. market. This can make buying
and selling certain shares more difficult and costly. Relatively small
transactions in some instances can have a disproportionately large effect on the
price and supply of shares. In extreme situations, it may become virtually
impossible to sell a stock in an orderly fashion at a price that approaches our
estimate of its value. Regulatory Risk. Some foreign governments regulate their
exchanges less stringently, and the rights of shareholders may not be as firmly
established.

Currency Risk. The Fund invests in foreign securities denominated in foreign
currencies. This creates the possibility that changes in foreign exchange rates
will affect the value of foreign securities or the U.S. dollar amount of income
or gain received on these securities.

Futures and Options. The Fund may invest, to a limited extent, in stock index
futures or options, which are types of derivatives. The Fund will not use these
derivatives for speculative purposes or as leveraged investments that magnify
the gains or losses of an investment. The Fund invests in derivatives to keep
cash on hand to meet shareholder redemptions or other needs while maintaining
exposure to the stock market. Risks associated with derivatives include: the
risk that the derivative will not fully offset the underlying positions; the
risk that derivatives used for risk management may not have the intended effects
and may result in losses or missed opportunities; and the risk that the Fund
cannot sell the derivative because of an illiquid secondary market;

If the Fund invests in futures contracts and options on futures contracts for
non-hedging purposes, the margin and premiums required to make those investments
will not exceed 5% of the Fund's net asset value after taking into account
unrealized profits and losses on the contracts. Futures contracts and options on
futures contracts used for non-hedging purposes involve greater risks than stock
investments.

Secondary Risks

Euro Risk. On January 1, 1999, eleven countries of the European Economic and
Monetary Union (EMU) began implementing a plan to replace their national
currencies with a new currency, the euro. Full conversion to the euro is slated
to occur by July 1, 2002.

Although it is impossible to predict the impact of the conversion to the euro on
the Fund, the risks may include: changes in the relative strength and value of
the U.S. dollar or other major currencies; adverse effects on the business or
financial condition of European issuers that the Fund holds in its portfolio;
the possibility that the systems used to purchase and sell euro-denominated
securities may not work; uncertainty about how existing financial contracts
will be treated after euro implementation; and unpredictable effects on trade
and commerce generally.

These and other factors could increase volatility in financial markets worldwide
and could adversely affect the value of securities held by the Fund.

our ability to service your Fund account, including our ability to meet your
requests to buy and sell Fund shares; and our ability to trade securities held
by the Fund or to accurately price securities held by the Fund.

Pricing Risk. We value securities in the Fund at their stated market value if
price quotations are available and, if not, by the method that most accurately
reflects their current worth in the judgment of the Board of Trustees. This
procedure implies an unavoidable risk -- the risk that our prices are higher or
lower than the prices that the securities might actually command if we sold
them. If we have valued the securities too highly, you may end up paying too
much for Fund shares when you buy. If we underestimate their price, you may not
receive the full market value for your Fund shares when you sell.

INFORMATION REGARDING THE INDEX

This 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 this Fund or any member of the public regarding the advisability of investing
in securities generally or the ability of the EAFE(R) Index to track general
stock market performance.

Morgan Stanley is the licensor 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 this Fund, or
to this Fund itself. Morgan Stanley has no obligation to take the needs of the
issuer of this Fund or the owners of this 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,
prices or quantities of this Fund to be issued, or in the determination or
calculation of the equation by which this Fund is redeemable for cash. Morgan
Stanley has no obligation or liability to owners of this Fund in connection with
the administration, marketing or trading of this Fund. This 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 indexes from sources that 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 indexes 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 indexes 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.

MANAGEMENT OF THE FUND

Board of Trustees. The Fund's shareholders, voting in proportion to the number
of shares each owns, elect a Board of Trustees, and the Trustees supervise all
the Fund's activities on their behalf. The separate accounts of the Companies
are the shareholders of record of the Fund's shares. Any reference to the
shareholder in this Prospectus technically refers to the Companies' separate
accounts and not to you, the Contract owner.

funds, retail and commercial banking, investment banking and insurance. The
transaction is contingent upon various regulatory approvals, and continuation of
the Fund's advisory relationship with Bankers Trust thereafter is subject to the
approval of Fund shareholders. If the transaction is approved and completed,
Deutsche Bank AG, as Bankers Trust's new parent company, will control its
operations as investment adviser. Bankers Trust believes that, under this new
arrangement, the services provided to the Fund will be maintained at their
current level. Portfolio Managers. The following portfolio managers are
responsible for the day-to-day management of the Fund's investments:

Richard J. Vella, Managing Director of Bankers Trust and Co-manager of the Fund:
Joined Bankers Trust in 1985 and the Fund at its inception in 1997.
14 years of trading and investment experience.
Bachelor of Science degree in Mechanical Engineering from Rutgers University,
MBA from University of Washington.

Steven Wetter, Vice President of Bankers Trust and Co-Manager of the Fund:
Joined Bankers Trust in 1992 and the Fund at its inception in 1997.
11 years of trading and investment experience.
Bachelor's degree from the University of California at Berkeley, MBA from the
New York University Stern School.

On March 11, 1999, Bankers Trust announced that it had reached an agreement with
the United States Attorney's Office in the Southern District of New York to
resolve an investigation concerning inappropriate transfers of unclaimed funds
and related record-keeping problems that occurred between 1994 and early 1996.
Pursuant to its agreement with the U.S. Attorney's Office, Bankers Trust pleaded
guilty to misstating entries in the bank's books and records and agreed to pay a
$60 million fine to federal authorities. Separately, Bankers Trust agreed to pay
a $3.5 million fine to the State of New York. The events leading up to the
guilty pleas did not arise out of the investment advisory or mutual fund
management activities of Bankers Trust or its affiliates.

As a result of the plea, absent an order from the SEC, Bankers Trust would not
be able to continue to provide investment advisory services to the Fund. The SEC
has granted a temporary order to permit Bankers Trust and its affiliates to
continue to provide investment advisory services to registered investment
companies. There is no assurance that the SEC will grant a permanent order.

CALCULATING THE FUND'S SHARE PRICE
We calculate the price of the Fund's shares (also known as the "Net Asset Value"
or "NAV") in accordance with the standard formula for valuing mutual fund shares
at the close of regular trading on the New York Stock Exchange every day the
Exchange is open for business.

The formula calls for deducting all of the Fund's liabilities from the total
value of its assets -- the market value of the securities it holds, plus its
cash reserves -- and dividing the result by the number of shares outstanding.
(Note that prices for securities that trade on foreign exchanges can change
significantly on days when the New York Stock Exchange is closed and you cannot
buy or sell Fund shares. Such price changes in the securities the Fund owns may
ultimately affect the price of Fund shares when the New York Stock Exchange
reopens.)

The Exchange is open every week, Monday through Friday, except when the
following holidays are celebrated: New Year's Day, Martin Luther King, Jr. Day
(the third Monday in January), 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 fourth Thursday in November)
and Christmas Day.

A Detailed Look at the EAFE(R) Equity Index Fund

TAX CONSIDERATIONS
Because shares of the Fund may be purchased only through Contracts, income
dividends or capital gains distributions from the Fund are taxable, if at all,
to the participating Companies and will be exempt from current taxation of the
Contract owner if left to accumulate within the Contract.

Please see the Contract prospectus accompanying this Prospectus for a
description of the Fund's federal tax impact on you as a Contract owner.

Because each investor's tax circumstances are unique and because the tax laws
are subject to change, we recommend that you consult your tax adviser about your
investment.

BUYING AND SELLING FUND SHARES
The Fund does not sell its shares directly to the public. The Fund continuously
sells its shares to each Company's separate accounts, without a sales charge, at
the next net asset value per share determined after a proper purchase order is
placed with the Company. The Company offers to Contract owners 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 of their Contract owners, as set forth in the
accompanying prospectus for the Contracts. Redemption orders are effected at the
next net asset value per share determined after a proper redemption order is
placed with the Company.

Please see the Contract prospectus that accompanies this Prospectus for a
detailed description of your Contract and its allocation, transfer and
withdrawal provisions.
A Detailed Look at the EAFE(R) Equity Index Fund

<PAGE>

information has been audited by Ernst & Young LLP, whose report, along with the
Fund's financial statements, is included in the Fund's annual report. The annual
report is available free of charge by calling the customer service center at the
telephone number shown in the accompanying Contract prospectus.

Financial Highlights

<TABLE>
<CAPTION>
<S> <C> <C>
For the period
August 22, 19971
Year ended through
December 31, December 31,
1998 1997
For a Share Outstanding Throughout Each Period

Net Asset Value, Beginning of Period $ $
9.34 10.00
Income (Loss) From Investment Operations:

Net Investment Income2 0.12 0.02
Net Realized and Unrealized Gain (Loss) on Investments, Futures Contracts and
Foreign 1.89 (0.68)
Currency Transactions
Net Increase (Decrease) in Net Asset Value From Operations 2.01 (0.66)
Less Distributions:

Distributions From Net Investment Income (0.16) 0.00
Distributions From Net Realized Gain on Investments (0.01) 0.00
Total Distributions (0.17) 0.00
Net Asset Value, End of Period $ $
11.18 9.34
Total Return4 21.60% (6.60)%
Ratios/Supplemental Data

Net Assets, End of Period (in 000s) $ $
35,956 14,409
Ratios to Average Net Assets:

Net Investment Income Including Reimbursement/Waiver 1.20% 0.72%3
Operating Expenses Including Reimbursement/Waiver 0.65% 0.65%3

Operating Expenses Excluding Reimbursement/Waiver 1.66% 2.75%3
Portfolio Turnover Rate 7% 0%5

1 Commencement of operations.
2 Based on average shares outstanding.
3 Annualized.
4Total 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.
5 Less than 1%.
</TABLE>

<PAGE>

LOGO

Additional information about the Fund's investments is available in the
Fund's annual and semi-annual reports to shareholders. In the Fund's annual
report, you will find a discussion of the market conditions and investment
strategies that significantly affected the Fund's performance during its last
fiscal year.

You can find more detailed information about the Fund in the current
Statement of Additional Information, dated April 30, 1999, which we have
filed electronically with the Securities and Exchange Commission (SEC) and
which is incorporated by reference into this Prospectus. To receive your free
copy of the Statement of Additional Information, the annual or semi-annual
report, or if you have questions about investing in the Fund, call the
customer service center at the telephone number shown in the accompanying
Contract prospectus.

You can find reports and other information about the Fund on the SEC website
(http://www.sec.gov), or you can get copies of this information, after
payment of a duplicating fee, by writing to the Public Reference Section of
the SEC, Washington, D.C. 20549-6009. Information about the Fund, including
its Statement of Additional Information, can be reviewed and copied at the
SEC's Public Reference Room in Washington, D.C. For information on the Public
Reference Room, call the SEC at 1-800-SEC-0330.

EAFE(R) Equity Index Fund
BT Insurance Funds Trust

CUSIP #505576E508
INS5PRO (4/99)
811-07507

<PAGE>

PROSPECTUS: April 30, 1999

Equity 500
Index Fund

With the goal of matching the performance of the
Standard & Poor's 500 Composite Stock Price
Index, which emphasizes stocks of large U.S.
companies

LOGO

BT Mutual Funds

TRUST: BT INSURANCE FUNDS TRUST

INVESTMENT ADVISER: BANKERS TRUST COMPANY

<PAGE>

Goal: The Fund seeks to match, as closely as possible, before expenses, the
performance of the Standard & Poor's 500 Composite Stock Price Index (the
"S&P 500 Index"), which emphasizes stocks of large U.S. companies.

Core Strategy: The Investment Adviser invests in a statistically selected sample
of the securities found in the S&P 500 Index.

Equity 500 Index Fund

Overview of the Equity 500 Index Fund

3 Goal

3 Core Strategy

3 Investment Policies and Strategies

4 Principal Risks of Investing in the Fund

4 Who Should Consider Investing in the
Fund

5 Total Returns, After Fees and Expenses

A Detailed Look at the Equity 500 Index Fund

6 Objective

6 Index Versus Active Management

6 Strategy

6 Principal Investments

6 Investment Process

7 Risks

8 Information Regarding the Index

8 Management of the Fund

9 Calculating the Fund's Share Price

9 Dividends and Distributions

9 Tax Considerations

9 Buying and Selling Fund Shares

10 Financial Highlights

INVESTMENT POLICIES AND STRATEGIES
The Fund seeks to match, before expenses, the risk and return characteristics of
the S&P 500 Index. The Fund will invest primarily in common stocks of companies
that comprise the S&P 500 Index, in approximately the same weightings as the S&P
500 Index. The Fund may also use stock index futures and options.

The S&P 500 Index is a well-known stock market index that includes common stocks
of 500 companies from several industrial sectors representing a significant
portion of the market value of all stocks publicly traded in the United States,
most of which are traded on the New York Stock Exchange. It is a model, not an
actual portfolio. Stocks in the S&P 500 Index are weighted according to their
market capitalization (the number of shares outstanding multiplied by the
stock's current price). Overview

of the Equity 500 Index Fund

WHO SHOULD CONSIDER INVESTING IN THE FUND
The Fund sells its shares only to separate accounts of various insurance
companies (the "Companies"). Shares are available to the public through the
purchase of certain variable annuity and variable life insurance contracts
("Contract(s)") issued by the Companies. As a Contract owner, your premium
payments are allocated to the Fund through these separate accounts in accordance
with your Contract. Please see the Contract prospectus that accompanies this
Prospectus for a detailed explanation of your Contract.

You should consider investing in the Fund if you are seeking the following:
capital appreciation over the long term; exposure to the U.S. equity market as
represented by larger companies; and investment returns that track the
performance of the S&P 500 Index.

There is, of course, no guarantee that the Fund will realize its goals.

You should not consider investing in the Fund if you are: pursuing a short-term
financial goal; seeking regular income and stability of principal; unable to
tolerate fluctuations in the value of your investments; or seeking to
outperform the S&P 500 Index.

The Fund by itself does not constitute a balanced investment program. It can,
however, afford exposure to investment opportunities not available to an
investor in small- and medium-sized company stocks. Diversifying your
investments may improve your long-run investment return and lower the volatility
of your overall investment portfolio.

An investment in the Fund is not a deposit of Bankers Trust Company or any other
bank and is not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency. Overview of the Equity 500 Index
Fund

Year-by-Year Returns
(for each full calendar year since inception)

LOGO

Since inception, the Fund's highest return in any calendar quarter was 21.22%
(fourth quarter 1998) and its lowest quarterly return was -10.06% (third quarter
1998). Past performance offers no indication of how the Fund will perform in the
future.

TOTAL RETURNS, AFTER FEES AND EXPENSES
The bar chart and table on this page can help you evaluate the potential risk
and rewards of investing in the Fund by showing changes in the Fund's
performance year to year. The bar chart shows the Fund's actual return for the
full calendar year since the Fund began selling shares on October 1, 1997 (its
inception date). The table compares the Fund's average annual return with the
S&P 500 Index over the last calendar year and since its inception. An index is a
group of securities whose overall performance is used as a standard to measure
investment performance. It does not factor in the costs of buying, selling and
holding stock -- costs which are reflected in the Fund's performance results.
These figures also do not include the effect of Contract charges, which would
lower the return shown.

<PAGE>

Average Annual Returns
(as of December 31, 1998)

Since Inception
1 year (October 1,
1997)1
Equity 500 Index Fund 28.71% 24.25%
S&P 500 Index 28.58% 25.09%

1 The performance of the S&P 500 Index is calculated from September 30, 1997.

(A Note on Fees)

Overview of the Equity 500 Index Fund

OBJECTIVE
The Fund seeks to match, as closely as possible, before the deduction of
expenses, the performance of the S&P 500 Index, which emphasizes stocks of large
U.S. companies.

STRATEGY
To attempt to match the risk and return characteristics of the S&P 500 Index as
closely as possible, the Fund invests in a statistically selected sample of the
securities found in the S&P 500 Index, using a process known as "optimization."
This process selects stocks for the Fund so that industry weightings, market
capitalizations and fundamental characteristics (price-to-book ratios,
price-to-earnings ratios, debt-to-asset ratios and dividend yields), closely
match those of the securities in the S&P 500 Index. Over the long term, the
Investment Adviser seeks a correlation between the performance of the Fund,
before expenses, and the S&P 500 Index of 98% or better. (A figure of 100% would
indicate perfect correlation.)

PRINCIPAL INVESTMENTS
The Fund will invest at least 80% of its assets in stocks of companies included
in the S&P 500 Index, except Bankers Trust Corporation. The Fund's securities
are weighted to attempt to make the Fund's total investment characteristics
similar to those of the S&P 500 Index as a whole. The Investment Adviser may
exclude or remove any S&P stock from the Fund, if the Investment Adviser
believes that the stock is illiquid or has impaired financial conditions or
other extraordinary events.

INVESTMENT PROCESS
The Fund normally does not hold every one of the 500 stocks in the S&P 500
Index. In an effort to run an efficient and effective strategy, the Fund uses
the process of "optimization," a statistical sampling technique. First, the Fund
buys the stocks that make up the larger portions of the Index's value in roughly
the same proportion as the Index. Second, the smaller stocks in the S&P 500
Index are analyzed and selected. In selecting smaller stocks, the Investment
Adviser tries to match the industry and risk characteristics of all of the
smaller companies in the S&P 500 Index without buying all of those stocks. This
approach attempts to maximize the Fund's liquidity and returns while minimizing
its costs. Futures and options on futures contracts are used as a low-cost
method of gaining exposure to a particular securities market without investing
directly in those securities. The Fund also invests in derivatives to keep cash
on hand to meet shareholder redemptions or other needs while maintaining
exposure to the stock market.

Portfolio Turnover. The annual portfolio turnover rate measures the frequency
that the Portfolio sells and replaces the value of its securities within a given
period. Historically, this Fund has had a low portfolio turnover rate. A
detailed look

at the Equity 500 Index Fund

RISKS
Below we set forth some of the prominent risks associated with investing in
general, with index investing and with investing in large-cap stocks.

Primary Risks

Market Risk. Deteriorating market conditions might cause an overall weakness in
the market that reduces the absolute level of stock prices in that market.

Futures and Options. The Fund may invest, to a limited extent, in stock index
futures or options, which are types of derivatives. The Fund will not use these
derivatives for speculative purposes or as leveraged investments that magnify
the gains or losses of an investment. The Fund invests in derivatives to keep
cash on hand to meet shareholder redemptions or other needs while maintaining
exposure to the stock market. Risks associated with derivatives include:
the risk that the derivative will not fully offset the underlying positions;
derivatives used for risk management may not have the intended effects and may
result in losses or missed opportunities; and the risk that the Fund cannot
sell the derivative because of an illiquid secondary market.

Tracking Error Risk. There are several reasons that the Fund's performance may
not match the S&P 500 Index exactly: Unlike the S&P 500 Index, the Fund incurs
administrative expenses and transaction costs in trading stocks. The
composition of the S&P 500 Index and the stocks held by the Fund may
occasionally diverge.

The timing and magnitude of cash inflows from investors buying shares could
create large balances of uninvested cash. Conversely, the timing and magnitude
of cash outflows to investors selling shares could require large ready reserves
of uninvested cash. Either situation would likely cause the Fund's performance
to deviate from the "fully invested" S&P 500 Index.

Secondary Risks

Pricing Risk. We value securities in the Fund at their stated market value if
price quotations are available and, if not, by the method that most accurately
reflects their current worth in the judgment of the Board of Trustees. This
procedure implies an unavoidable risk, the risk that our prices are higher or
lower than the prices that the securities might actually command if we sold
them. If we have valued the securities too highly, you may end up paying too
much for Fund shares when you buy. If we underestimate their price, you may not
receive the full market value for your Fund shares when you sell.

Year 2000 Risk. As with most businesses, the Fund faces the risk that the
computer systems of its Investment Adviser and other companies on which it
relies for service or in which it invests will not accommodate the changeovers
necessary from dates in the year 1999 to dates in the year 2000. These risks
could adversely affect: The companies in which the Fund invests, which could
impact the value of the Fund's investments; Our ability to service your Fund
account, including our ability to meet your requests to buy and sell Fund
shares; and Our ability to trade securities held by the Fund or to accurately
price securities held by the Fund. A Detailed Look at the Equity 500 Index Fund

We are working both internally and with our business partners and service
providers to address this problem. If we -- or our business partners, service
providers, government agencies or other market participants -- do not succeed,
it could materially affect shareholder services or it could affect the value of
the Fund's shares. INFORMATION REGARDING THE INDEX The Fund is not
sponsored, endorsed, sold or promoted by Standard & Poor's ("S&P"). S&P makes no
representation or warranty, express or implied, to the owners of this Fund or
any member of the public regarding the advisability of investing in securities
generally or in the Fund particularly or the ability of the S&P 500 Index to
track general stock market performance. S&P's only relationship to this Fund is
the licensing of certain trademarks and trade names of S&P and of the S&P 500
Index, which is determined, composed and calculated without regard to the Fund.
S&P does not guarantee the accuracy and/or completeness of the S&P 500 Index or
any data included herein. S&P makes no warranty, express or implied, as to
the results to be obtained by the Fund, owners of the Fund, or any other person
or entity from the use of the S&P 500 or any data included therein. S&P makes no
express or implied warranties and hereby expressly disclaims all such warranties
of merchantability or fitness for a particular purpose or use with respect to
the S&P 500 or any data included therein.

MANAGEMENT OF THE FUND
Board of Trustees. The Fund's shareholders, voting in proportion to the number
of shares each owns, elect a Board of Trustees, and the Trustees supervise all
the Fund's activities on their behalf. The separate accounts of the Companies
are the shareholders of record of the Fund's shares. Any reference to the
shareholder in this Prospectus technically refers to the Companies' separate
accounts and not to you, the Contract owner.

Investment Adviser. Under the supervision of the Board of Trustees, Bankers
Trust Company, with headquarters at 130 Liberty Street, New York, NY 10006, acts
as the Fund's Investment Adviser. As Investment Adviser, Bankers Trust makes the
Fund's investment decisions and assumes responsibility for the securities the
Fund owns. It buys and sells securities for the Fund and conducts the research
that leads to the purchase and sale decisions. Bankers Trust received a fee of
0.20% of the Fund's average daily net assets for its services in the last fiscal
year.

As of December 31, 1998, Bankers Trust was the eighth largest bank holding
company in the United States with total assets of approximately $156 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 96 offices in more than 43 countries.

Bankers Trust's officers bring wide experience to managing the Fund. The firm's
own record dates back to its founding as a trust company in 1903. It has
invested retirement assets on behalf of the nation's largest corporations and
institutions for more than 50 years. Today, the assets under its global
management total $338 billion. The scope of the firm's capability is broad: It
is a leader in both the active and passive quantitative investment disciplines
and maintains a major presence in stock and bond markets worldwide. The
Investment Adviser is a wholly owned subsidiary of Bankers Trust Corporation. On
November 30, 1998, Bankers Trust Corporation entered into an Agreement and Plan
of Merger with Deutsche Bank AG under which Bankers Trust Corporation would
merge with and into a subsidiary of Deutsche Bank AG. Deutsche Bank AG is a
major global banking institution that is engaged in a wide range of financial
services, including investment management, mutual funds, retail and commercial
banking, investment banking and insurance. The transaction is contingent upon
various regulatory approvals, and continuation of the Fund's advisory
relationship with Bankers Trust thereafter is subject to the approval of Fund
shareholders. If the transaction is approved and completed, Deutsche Bank AG, as
Bankers Trust's new parent company, will control its operations as investment
adviser. Bankers Trust believes that, under this new arrangement, the services
provided to the Fund will be maintained at their current level. Portfolio
Manager. Frank Salerno, Managing Director of Bankers Trust, is responsible for
the day-to-day management of the Fund's investments:
Joined Bankers Trust in 1981 and the Fund at its inception in 1997.
16 years of investment industry experience.
Bachelor's degree from Syracuse University, MBA from New York University.

to pay a $60 million fine to federal authorities. Separately, Bankers Trust
agreed to pay a $3.5 million fine to the State of New York. The events leading
up to the guilty pleas did not arise out of the investment advisory or mutual
fund management activities of Bankers Trust or its affiliates.

We value the securities in the Fund at their stated market value if price
quotations are available. When price quotations for a particular security are
not readily available, we determine their value by the method that most
accurately reflects their current worth in the judgment of the Board of
Trustees. DIVIDENDS AND DISTRIBUTIONS If the Fund earns investment income or
recognizes taxable net capital gains, it is the Fund's policy to distribute to
the Companies' separate accounts substantially all of that taxable income or
capital gain on an annual basis. These distributions are automatically made in
the form of additional shares of the Fund and not cash, unless a Company elects
to have distributions made in cash. The result of automatic reinvestment of
distributions is that the Fund's performance, including the effect of dividends,
is reflected in the cash value of the Contracts you own. Please see the Contract
prospectus accompanying this Prospectus for more information. The Exchange
is open every week, Monday through Friday, except when the following holidays
are celebrated: New Year's Day, Martin Luther King, Jr. Day (the third Monday in
January), 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 fourth Thursday in November) and Christmas
Day. TAX CONSIDERATIONS Because shares of the Fund may be purchased only through
Contracts, income dividends or capital gains distributions from the Fund are
taxable, if at all, to the participating Companies and will be exempt from
current taxation of the Contract owner if left to accumulate within the
Contract.

Please see the Contract prospectus accompanying this Prospectus for a
description of the Fund's federal tax impact on you as a Contract owner.

Because each investor's tax circumstances are unique and because the tax laws
are subject to change, we recommend that you consult your tax adviser about your
investment.

Please see the Contract prospectus that accompanies this Prospectus for a
detailed description of your Contract and its allocation, transfer and
withdrawal provisions.

A Detailed Look at the Equity 500 Index Fund

<PAGE>

The table below provides a picture of the Fund's financial performance since
inception. The information selected reflects financial results for a single Fund
share. The total returns in the table represent the rate of return that an
investor would have earned on an investment in the Fund, assuming reinvestment
of all dividends and distributions. This information has been audited by Ernst &
Young LLP, whose report, along with the Fund's financial statements, is included
in the Fund's annual report. The annual report is available free of charge by
calling the customer service center at the telephone number shown in the
accompanying Contract prospectus.

Financial Highlights

<TABLE>
<CAPTION>
<S> <C> <C>
For the period
October 1, 1997 1
Year ended through
December 31, 1998 December 31, 1997

For a Share Outstanding Throughout Each Period

Net Asset Value, Beginning of Period $ $
10.19 10.00
Income From Investment Operations:

Net Investment Income 0.07 0.03 2
Net Realized and Unrealized Gain on Investments and Futures 2.84 0.16
Contracts
Net Increase in Net Asset Value From Operations 2.91 0.19
Less Distributions:

Distributions From Net Investment Income (0.05) 0.00
Distributions From Net Realized Gain on Investments (0.32) 0.00
Total Distributions (0.37) 0.00
Net Asset Value, End of Period $ $
12.73 10.19
Total Return (4) 28.71% 1.90%
Ratios/Supplemental Data

Net Assets, End of Period (in 000s) $ $
49,691 11,760
Ratios to Average Net Assets:

Net Investment Income Including Reimbursement/Waiver 1.37% 1.51% 3
Operating Expenses Including Reimbursement/Waiver 0.30% 0.30% 3

Operating Expenses Excluding Reimbursement/Waiver 1.19% 2.78% 3
Portfolio Turnover Rate 36% 7%

1 Commencement of operations.
2 Based on average shares outstanding.
3 Annualized.
4 Total investment return is calculated assuming an initial investment made at
the net asset 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. Total return calculated for a period of less than
one year is not annualized. A Detailed Look at the Equity 500 Index Fund

</TABLE>

<PAGE>

(THIS PAGE INTENTIONALLY LEFT BLANK)

<PAGE>

LOGO

Additional information about the Fund's investments and performance is
available in the Fund's annual and semi-annual reports to shareholders. In
the Fund's annual report, you will find a discussion of the market conditions
and investment strategies that significantly affected the Fund's performance
during its last fiscal year.

Equity 500 Index Fund
BT Insurance Funds Trust

CUSIP#605576E607
INS6PRO (4/99)
811-07507

<PAGE>

PROSPECTUS: APRIL 30, 1999

Small Cap
Index Fund

With the goal of matching the performance of the Russell 2000 Small Stock Index,
which emphasizes stocks of small U.S. companies

LOGO

BT Mutual Funds

TRUST: BT INSURANCE FUNDS TRUST

INVESTMENT ADVISER: BANKERS TRUST COMPANY

<PAGE>

Goal: The Fund seeks to match, as closely as possible, before expenses, the
performance of the Russell 2000 Small Stock Index (the "Russell 2000 Index"),
which emphasizes stocks of small U.S. companies.

Core Strategy: The Investment Adviser invests in a statistically selected sample
of the securities found in the Russell 2000 Index.

Small Cap Index Fund

Overview of the Small Cap Index Fund

Goal
3

3 Core Strategy

3 Investment Policies and Strategies

4 Principal Risks of Investing in the Fund

4 Who Should Consider Investing in the
Fund

5 Total Returns, After Fees and Expenses

A Detailed Look at the Small Cap Index Fund

6 Objective

6 Index Versus Active Management

6 Strategy

6 Principal Investments

6 Investment Process

7 Risks

7 Management of the Fund

8 Calculating the Fund's Share
Price

9 Dividends and Distributions

9 Tax Considerations

9 Buying and Selling Shares

10 Financial Highlights

INVESTMENT POLICIES AND STRATEGIES
The Fund seeks to match, before expenses, the risk and return characteristics of
the Russell 2000 Index. The Fund will invest primarily in common stocks of
companies that compose the Russell 2000 Index, in approximately the same
weightings as the Russell 2000 Index. The Fund may also use stock index futures
and options.

The Russell 2000 Index is a widely accepted benchmark of small company stock
performance. It is a model, not an actual portfolio and is a subset of the
Russell 3000 Index. The Russell 2000 tracks the 2000 smallest companies in the
Russell 3000. As of December 31, 1998, the weighted average market
capitalization of the companies in the Russell 2000 was $.88 billion. That
compares to $72 billion for the companies in the Russell 3000. Overview

of the Small Cap Index Fund

PRINCIPAL RISKS OF INVESTING IN THE FUND
An investment in the Fund could lose money, or the Fund's performance could
trail that of other investments. For example: Stocks could decline generally or
could underperform other investments. Returns on small U.S. companies' stock,
in which the Fund invests, could trail the returns from stocks of medium or
large companies.
Each type of stock tends to go through cycles of overperformance and
underperformance in comparison to the overall stock market. The Fund may not be
able to track closely the performance of the Russell 2000 Index for a number of
reasons, including the Fund's
costs of buying and selling securities, the flow of money into and out of the
Fund, and the underperformance of stocks selected by the Investment Adviser.
The Fund could suffer losses if its futures and options positions are not well
correlated with those of other investments or it cannot close out its positions.
WHO SHOULD CONSIDER INVESTING IN THE FUND
The Fund sells its shares only to separate accounts of various insurance
companies (the "Companies"). Shares are available to the public through the
purchase of certain variable annuity and variable life insurance contracts
("Contract(s)") issued by the Companies. As a Contract owner, your premium
payments are allocated to the Fund through these separate accounts in accordance
with your Contract. Please see the Contract prospectus that accompanies this
Prospectus for a detailed explanation of your Contract.

You should consider investing in the Fund if you are seeking the following:
capital appreciation over the long term; exposure to the U.S. equity market as
represented by smaller companies; and investment returns that track the
performance of the Russell 2000 Index.

There is, of course, no guarantee that the Fund will realize its goal.

You should not consider investing in the Small Cap Index Fund if you are:
pursuing a short-term financial goal; seeking regular income and stability of
principal; unable to tolerate fluctuations in the value of your investments; or
seeking to outperform the Russell 2000 Index.

The Fund by itself does not constitute a balanced investment program. It can,
however, provide exposure to investment opportunities not available to an
investor in large- and medium-sized company stocks. Diversifying your
investments may also improve your long-run investment return and lower the
volatility of your overall investment portfolio.

An investment in the Small Cap Index Fund is not a deposit of Bankers Trust
Company or any other bank, and is not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government agency.

Overview of the Small Cap Index Fund

Year-by-Year Returns
(each full calendar year since inception)

LOGO

Since inception, the Fund's highest return in any calendar quarter was 16.43%
(fourth quarter 1998) and its lowest quarterly return was^-19.43% (third quarter
1998). Past performance offers no indication of how the Fund will perform in the
future.

TOTAL RETURNS, AFTER FEES AND EXPENSES
The bar chart and table on this page can help you evaluate the potential risk
and rewards of investing in the Fund by showing changes in the Fund's
performance year to year. The bar chart shows the Fund's actual return for the
full 1998 calendar year since the Fund began selling shares on August 25, 1997
(its inception date). The table compares the Fund's average annual return with
the Russell 2000 Index over the last calendar year and since its inception. An
index is a group of securities whose overall performance is used as a standard
to measure investment performance. It does not factor in the costs of buying,
selling and holding stock -- costs that are reflected in the Fund's performance
results. These figures also do not include the effect of Contract charges, which
would lower the return shown. Average Annual Returns (as of December 31, 1998)

Since Inception
1 year(August 25, 1997)*
Small Cap Index Fund -2.18% 2.07%
Russell 2000 Index -2.55% 1.77%

* The performance of the Russell 2000 Index is calculated from August 31, 1997.

(A Note on Fees)

OBJECTIVE
The Fund seeks to match, as closely as possible (before the deduction of
expenses) the performance of the Russell 2000 Index, which emphasizes stocks of
small U.S. companies.

The Fund invests for capital appreciation, not income; any dividend and interest
income is incidental to the pursuit of its objective. While we give priority to
matching the Index's total return, we cannot offer any assurance of achieving
this objective. The Fund's objective is not a fundamental policy. We must notify
shareholders before we change it, but we are not required to seek their approval
to do so.

INDEX VERSUS ACTIVE MANAGEMENT
Active management involves the investment adviser buying and selling securities
based on research and analysis. Unlike a fund that is actively managed, an index
fund tries to match, as closely as possible, the performance of a target index
by holding either all, or a representative sample, of the securities in the
index. Indexing appeals to many investors for the following reasons:
indexing provides simplicity because it is a straightforward market-matching
strategy; index funds generally provide diversification by investing in a wide
variety of companies and industries; an index fund's performance is predictable
in that the Fund's value is expected to move in the same direction, up or down,
as the
target index;
index funds tend to have lower costs because they do not have many of the
expenses of actively managed funds such as research; index funds usually have
relatively low trading activity and therefore brokerage commissions tend to be
lower; and index funds generally have low realization of capital gains.

STRATEGY
To attempt to match the risk and return characteristics of the Russell 2000
Index as closely as possible, the Fund invests in a statistically selected
sample of the securities found in the Russell 2000 Index, using a process known
as "optimization." This process selects stocks for the Fund so that industry
Portfolio Turnover. The annual portfolio turnover rate measures the frequency
that the Portfolio sells and replaces its securities within a given period.
Historically, this Fund has had a low portfolio turnover rate. weightings,
market capitalizations and fundamental characteristics (price-to-book ratios,
price-to-earnings ratios, debt-to-asset ratios and dividend yields) closely
match those of the securities in the Russell 2000 Index. Over the long term, the
Investment Adviser seeks a correlation between the performance of the Fund,
before expenses, and the Russell 2000 Index of 95% or better. (A figure of 100%
would indicate perfect correlation.)

PRINCIPAL INVESTMENTS
The Fund will invest at least 80% of its assets in stocks of companies included
in the Russell 2000 Index. The Fund's securities are weighted to attempt to make
the Fund's total investment characteristics similar to those of the Russell 2000
Index as a whole. The Investment Adviser may exclude or remove any Russell 2000
stock from the Fund, if the Investment Adviser believes that the stock is
illiquid or has impaired financial conditions brought on by extraordinary
events.

The Fund may hold up to 25% of its assets in short-term debt securities, money
market instruments and stock index futures and options. Futures and options are
considered derivatives because they "derive" their value from a traditional
security (like a stock or bond), asset or index. The Fund intends to buy futures
in anticipation of buying stocks.

INVESTMENT PROCESS
The Fund normally does not hold every one of the 2,000 stocks in the Russell
2000 Index. In an effort to run an efficient and effective strategy, the Fund
uses the process of "optimization," a statistical sampling technique. In
choosing stocks, the Investment Adviser tries to match the industry and risk
characteristics of all the companies in the Russell 2000 Index without buying
all of those stocks. This approach attempts to maximize the Fund's liquidity and
returns while minimizing its costs.

A detailed look

at the Small Cap Index Fund

RISKS
Below we set forth some of the prominent risks associated with investing in
general, with index investing and with investing in small-cap stocks.

Primary Risks

Market Risk. Deteriorating market conditions might cause an overall weakness in
the market that reduces the absolute level of stock prices in that market.

Tracking Error. There are several reasons that the Fund's performance may not
match the Russell 2000 Index exactly: Unlike the Russell 2000 Index, the Fund
incurs administrative expenses and transaction costs in trading stocks. The
composition of the Russell 2000 Index and the stocks held by the Fund may
occasionally diverge. The timing and magnitude of cash inflows from investors
buying shares could create balances of uninvested cash. Conversely, the
timing and magnitude of cash outflows to investors selling shares could require
ready reserves of uninvested cash. Either situation would likely cause the
Fund's performance to deviate from the "fully invested" Russell 2000 Index.

Small Company Risk. Small company stocks tend to experience steeper fluctuations
in price -- down as well as up-- than the stocks of larger companies. A shortage
of reliable information -- the same information gap that creates opportunity in
small company investing -- can also pose added risk. Industry wide reversals
have had a greater impact on small companies, since they lack a large company's
financial resources to deal with setbacks. Small company managers typically have
less experience coping with adversity or capitalizing on an opportunity than
their counterparts at larger companies. Finally, small company stocks are
typically less liquid than large company stocks: when things are going poorly,
it is harder to find a buyer for a small company's shares.

Secondary Risk

Pricing Risk. We value securities in the Fund at their stated market value if
price quotations are available and, if not, by the method that most accurately
reflects their current worth in the judgment of the Board of Trustees. This
procedure implies an unavoidable risk, the risk that our prices are higher or
lower than the prices that the securities might actually command if we sold
them. If we have valued the securities too highly, you may end up paying too
much for Fund shares when you buy. If we underestimate their price, you may not
receive the full market value for your Fund shares when you sell.

Year 2000 Risk. As with most businesses, the Fund faces the risk that the
computer systems of its Investment Adviser and other companies on which it
relies for service or in which it invests will not accommodate the changeover
necessary from dates in the year 1999 to dates in the year 2000. These risks
could adversely affect: The companies in which the Fund invests, which could
impact the value of the Fund's investments; Our ability to service your Fund
account, including our ability to meet your requests to buy and sell Fund
shares; and Our ability to trade securities held by the Fund or to accurately
price securities held by the Fund.

the shareholders of record of the Fund's shares. Any reference to the
shareholder in this Prospectus technically refers to the Companies' separate
accounts and not to you, the Contract owner.

Investment Adviser. Under the supervision of the Board of Trustees, Bankers
Trust Company, with headquarters at 130 Liberty Street, New York, NY 10006, acts
as the Fund's Investment Adviser. As Investment Adviser, Bankers Trust makes the
Fund's investment decisions and assumes responsibility for the securities the
Fund owns. It buys and sells securities for the Fund and conducts the research
that leads to the purchase and sale decisions. Bankers Trust received a fee of
0.35% of the Fund's average daily net assets for its services in the last fiscal
year.

As of December 31, 1998, Bankers Trust was the eighth largest bank holding
company in the United States, with total assets of approximately $156 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 96 offices in more than 43 countries.

Bankers Trust is a wholly owned subsidiary of Bankers Trust Corporation. On
November 30, 1998, Bankers Trust Corporation entered into an Agreement and Plan
of Merger with Deutsche Bank AG under which Bankers Trust Corporation would
merge with and into a subsidiary of Deutsche Bank AG. Deutsche Bank AG is a
major global banking institution that is engaged in a wide range of financial
services, including investment management, mutual funds, retail and commercial
banking, investment banking and insurance. The transaction is contingent upon
various regulatory approvals, and continuation of the Fund's advisory
relationship with Bankers Trust thereafter is subject to the approval of Fund
shareholders. If the transaction is approved and completed, Deutsche Bank AG, as
Bankers Trust's new parent company, will control its operations as investment
adviser. Bankers Trust believes that, under this new arrangement, the services
provided to the Fund will be maintained at their current level. Portfolio
Manager. Frank Salerno, Managing Director of Bankers Trust, is responsible for
the day-to-day management of the Fund's investments:

Joined Bankers Trust in 1981 and the Fund at its commencement in 1997.
16 years of investment industry experience.
Bachelor's degree from Syracuse University, MBA from New York University.

CALCULATING THE FUND'S SHARE PRICE
We calculate the daily price of the Fund's shares (also known as the "Net Asset
Value" or "NAV") in accordance with the standard formula for valuing mutual fund
shares at the close of regular trading on the New York Stock Exchange every day
the Exchange is open for business. The formula calls for deducting all of the
Fund's liabilities from the total value of its assets -- the market value of the
securities it holds, plus its cash reserves -- and dividing the result by the
number of shares outstanding.

We value the securities in the Fund at their stated market value if price
quotations are available. When price quotations The Exchange is open every week,
Monday through Friday, except when the following holidays are celebrated: New
Year's Day, Martin Luther King, Jr. Day (the third Monday in January),
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 fourth Thursday in November) and Christmas Day. A Detailed
Look at the Small Cap Index Fund

for a particular security are not readily available, we estimate their value by
the method that most accurately reflects their current worth in the judgment of
the Board of Trustees.

DIVIDENDS AND DISTRIBUTIONS
If the Fund earns investment income or recognizes taxable net capital gains, it
is the Fund's policy to distribute to the Companies' separate accounts
substantially all of that taxable income or capital gain on an annual basis.
These distributions are automatically made in the form of additional shares of
the Fund and not cash, unless a Company elects to have distributions made in
cash. The result of automatic reinvestment of distributions is that the Fund's
performance, including the effect of dividends, is reflected in the cash value
of the Contracts you own. Please see the Contract prospectus accompanying this
Prospectus for more information.

Please see the Contract prospectus accompanying this Prospectus for a
description of the Fund's federal tax impact on you as a Contract owner.

Because each investor's tax circumstances are unique and because the tax laws
are subject to change, we recommend that you consult your tax adviser about your
investment.

BUYING AND SELLING SHARES
The Fund does not sell its shares directly to the public. The Fund continuously
sells its shares to each Company's separate accounts, without a sales charge, at
the next net asset value per share determined after a proper purchase order is
placed with the Company. The Company offers to Contract owners 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 of their Contract owners, as set forth in the
accompanying prospectus for the Contracts. Redemption orders are effected at the
next net asset value per share determined after a proper redemption order is
placed with the Company.

Please see the Contract prospectus that accompanies this Prospectus for a
detailed description of your Contract and its allocation, transfer and
withdrawal provisions.

A Detailed Look at the Small Cap Index Fund

<PAGE>

The table below provides a picture of the Fund's financial performance since
inception. The information selected reflects financial results for a single Fund
share. The total returns in the table represent the rates of return that an
investor would have earned on an investment in the Fund, assuming reinvestment
of all dividends and distributions. This information has been audited by Ernst &
Young LLP, whose report, along with the Fund's financial statements, is included
in the Fund's annual report. The annual report is available free of charge by
calling the customer service center at the telephone number shown in the
accompanying Contract prospectus.

Financial Highlights

<TABLE>
<CAPTION>
<S> <C> <C>
For the period
August 25, 19971
Year ended through
December 31, 1998 December 31, 1997
For a Share Outstanding Throughout Each Period

Net Asset Value, Beginning of Period $ $
10.51 10.00
Income (Loss) From Investment Operations:

Net Investment Income 0.06 0.032
Net Realized and Unrealized Gain (Loss) on Investments and Futures (0.30) 0.48
Contracts
Net Increase in Net Asset Value From Operations (0.24) 0.51
Less Distributions:

Distributions From Net Investment Income (0.05) 0.00
Distributions From Net Realized Gain on Investments (0.16) 0.00
Total Distributions (0.21) 0.00
Net Asset Value, End of Period $ $
10.06 10.51
Total Return4 (2.18)% 5.10%
Ratios/Supplemental Data

Net Assets, End of Period (in 000s) $ $
36,744 12,617
Ratios to Average Net Assets:

Net Investment Income Including Reimbursement/Waiver 1.18% 1.08%3
Operating Expenses Including Reimbursement/Waiver 0.45% 0.45%3

Operating Expenses Excluding Reimbursement/Waiver 1.58% 3.27%3
Portfolio Turnover Rate 30% 8%

1Commencement of operations.
2Based on average shares outstanding.
3Annualized.
4Total investment return is calculated assuming an initial investment made at
the net asset 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. Total return calculated for a period of less than
one year is not annualized. A Detailed Look at the Small Cap Index Fund
</TABLE>

<PAGE>

(THIS PAGE INTENTIONALLY LEFT BLANK)

LOGO

Small Cap Index Fund
BT Insurance Funds Trust
CUSIP#405576E409
INS4PRO (4/99)
811-07507

<PAGE>

PROSPECTUS: APRIL 30, 1999

U.S. Bond
Index Fund

With the goal of matching the performance of the
Lehman Brothers Aggregate Bond Index, which is an
index of government and corporate investment
grade debt securities

LOGO

BT Mutual Funds

TRUST: BT INSURANCE FUNDS TRUST

INVESTMENT ADVISER: BANKERS TRUST COMPANY

<PAGE>

Goal: The Fund seeks to match, as closely as possible, before expenses, the
performance of the Lehman Brothers Aggregate Bond Index (the "Lehman Bond
Index"), which emphasizes government mortgage-backed securities and corporate
investment grade debt securities.

Core Strategy: The Investment Adviser intends to invest in debt and other
securities that are representative of the Lehman Bond Index as a whole.

U.S. Bond Index Fund

Overview of the U.S. Bond Index Fund

2 Goal

2 Core Strategy

2 Investment Policies and Strategies

3 Principal Risks of Investing in the Fund

3 Who Should Consider Investing in the
Fund

A Detailed Look at the U.S. Bond Index Fund

4 Objective

4 Index Versus Active Management

4 Strategy

4 Principal Investments

4 Investment Process

5 Risks

6 Management of the Fund

6 Calculating the Fund's Share Price

7 Dividends and Distributions

7 Tax Considerations

7 Buying and Selling Shares

7 Financial Highlights
INVESTMENT POLICIES AND STRATEGIES
The Fund seeks to match, before expenses, the risk and return characteristics of
the Lehman Bond Index. The Fund will invest primarily in debt securities of
companies that comprise the Lehman Bond Index, in approximately the same
weightings as the Lehman Bond Index. The Fund may also invest in securities
index futures contracts and related options.

The Lehman Brothers Aggregate Bond Index is one of the most widely accepted
benchmarks of bond market total return. It includes more than 6,000 taxable
securities, divided into four classes: U.S. Treasury and agency securities,
corporate bonds, bonds issued outside the United States but payable in U.S.
dollars, and mortgage-backed securities. It is a model, not an actual portfolio.
All of the bonds on the Lehman Bond Index have maturities of one year or more at
the time of their issue. Overview

of the U.S. Bond Index Fund

PRINCIPAL RISKS OF INVESTING IN THE FUND An investment in the Fund could lose
money, or the Fund's performance could trail that of other investments. For
example: The performance of the bonds that the Investment Adviser has selected
could underperform that of the Lehman Bond Index. The bond market could decline
in value as a result of a rise in interest rates. The Fund may not be able to
track closely the performance of the Lehman Bond Index for a number of reasons,
including the Fund's costs of buying and selling securities and the flow of
money into and out of the Fund. The Fund could suffer losses if its futures and
options positions are not well correlated with those of other investments or it
cannot close out its positions. The creditworthiness of a bond issuer could
decline, which could cause the value of the bond to decline.

You should consider investing in the Fund if you want to invest in the fixed
income market generally without regard to particular types of issuers, sectors,
or debt securities. Such investments in the past have offered current income.
There is, of course, no guarantee that the Fund will realize its goal.

You should not consider investing in the U.S. Bond Index Fund if you are
pursuing a short-term financial goal or are investing to achieve capital
appreciation.

The Fund by itself does not constitute a balanced investment program. It can,
however, provide a complementary investment for investors seeking a more
balanced asset mix. Diversifying your investments may improve your long-run
investment return and lower the volatility of your overall investment portfolio.

An index is a group of securities whose overall performance is used as a
standard to measure investment performance. It does not factor in the costs of
buying, selling and holding bonds-- costs that are reflected in the Fund's
performance results.

An investment in the U.S. Bond Index Fund is not a deposit of Bankers Trust
Company or any other bank, and is not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government agency.

(A Note on Fees)
As an investor in the Fund, you would incur various operating costs, including
management expenses. You also would incur fees associated with the Contracts you
purchase. Detailed information about the cost of investing in the Fund is
presented in the accompanying prospectus for the Contracts through which the
Fund's shares are offered to you.

The Fund has not commenced operations as of the date of this Prospectus;
therefore, no performance information is being presented to you.

Overview of the U.S. Bond Index Fund

<PAGE>

OBJECTIVE
The Fund seeks to match, as closely as possible, before expenses, the
performance of the Lehman Bond Index. While we give priority to matching the
Index's performance, we cannot offer any assurance of achieving this objective.
The Fund's objective is not a fundamental policy. We must notify shareholders
before we change it, but we are not required to seek their approval to do so.

INDEX VERSUS ACTIVE MANAGEMENT

Active management involves the investment adviser buying and selling securities
based on research and analysis. Unlike a fund that is actively managed, an index
fund tries to match, as closely as possible, the performance of a target index
by holding either all, or a representative sample, of the securities in the
index. Indexing appeals to many investors for the following reasons:
indexing provides simplicity because it is a straightforward market-matching
strategy; index funds generally provide diversification by investing in a wide
variety of companies and industries; an index fund's performance is predictable
in that the Fund's value is expected to move in the same direction, up or down,
as the
target index;
index funds tend to have lower costs because they do not have many of the
expenses of actively managed funds such as research; and index funds generally
have low realization of capital gains.

STRATEGY
The Fund attempts to match the investment performance of the Lehman Bond Index
over time by investing in a statistically selected sample of the securities in
the Lehman Bond Index.

PRINCIPAL INVESTMENTS
Under normal circumstances, we pursue the Fund's objective by investing at least
80% of the Fund's assets in securities that are included in the Lehman Bond
Index. The Fund's securities are weighted to make the Fund's total investment
characteristics similar to those of the Lehman Bond Index as a whole. Over the
long term, the Investment Adviser seeks a correlation between the performance of
the Fund, before expenses, and the Lehman Bond Index of 95% or better. (A figure
of 100% would indicate perfect correlation.)

The Fund may hold up to 25% of its assets in short-term debt securities, money
market instruments, stock index futures and options. Futures and options are
considered derivatives because they "derive" their value from a traditional
security (like a stock or bond), asset or index. The Fund intends to buy futures
in anticipation of buying stocks. INVESTMENT PROCESS The Fund normally does
not hold every one of the 6,000 securities in the Lehman Bond Index. Instead it
invests in a representative sample of the securities that make up the Lehman
Bond Index, which tracks four major classes of investment grade fixed-income
securities. The chart below shows the proportion of the market value of the
Index as of December 31, 1998 that each class of securities has recently
constituted. The Fund also attempts to match the Lehman Bond Index's duration,
an intermediate term. This duration has tended to make the Fund's returns higher
but more volatile than short-term securities found in money market funds
although less volatile than long-term bonds.

Class of securities % of Market Value of
Index
U.S. Treasury and agency 49
securities
Mortgage-backed securities 30
Corporate bonds 16
Bonds issued outside the U.S. but
payable in U.S. dollars 4
Other debt securities 1

at the U.S. Bond Index Fund

RISKS
Below we set forth some of the prominent risks associated with investing in
general, with index investing and with investing in bonds.

Primary Risks

Market Risk. Deteriorating market conditions might cause an overall weakness in
the market that reduces the absolute level of securities prices in that market.
Developments in a particular class of bonds or the stock market could also
adversely affect the Fund by reducing the relative attractiveness of bonds as an
investment. Investment grade debt securities similar to those held by the Fund
have experienced a moderate level of short-term price fluctuation.

Tracking Error. There are several reasons that the Fund's performance may not
match the Lehman Bond Index exactly: Unlike the Lehman Bond Index, the Fund
incurs administrative expenses and transaction costs in trading bonds. The
composition of the Lehman Bond Index and the bonds held by the Fund may
occasionally diverge. The timing and magnitude of cash inflows from investors
buying shares could create balances of uninvested cash. Conversely, the
timing and magnitude of cash outflows to investors selling shares could require
ready reserves of uninvested cash. Either situation would likely cause the
Fund's performance to deviate from the "fully invested" Lehman Bond Index.

Interest Rate Risk. Interest rate risk is the risk that fixed-income securities
will decline in value because of changes in interest rates. Generally,
investments subject to interest rate risk will decrease in value when interest
rates rise and increase in value when interest rates decline.

Credit Risk. An investor purchasing bonds faces the risk that the
creditworthiness of the issuer may decline, causing the value of its bonds to
decline. In addition, the issuers may not be able to make timely payments on the
interest and principal on the bonds they have issued.

Prepayment Risk. When a bond issuer, such as an issuer of mortgage-backed
securities, retains the right to pay off a high yielding bond before it comes
due, the Fund may have no choice but to reinvest the proceeds at lower interest
rates. Thus, prepayment may reduce the Fund's income. It may also create a
capital gains tax liability, because bond issuers usually pay a premium for the
right to pay off bonds early.

Portfolio Turnover. The annual portfolio turnover rate measures the frequency
that the Fund sells and replaces the value of its securities within a given
period. We anticipate that the Fund will have a low portfolio turnover rate.

Futures and Options. The Fund may invest, to a limited extent, in securities
index futures or options, which are types of derivatives. The Fund will not use
these derivatives for speculative purposes or as leveraged investments that
magnify the gains or losses of an investment. The Fund invests in derivatives to
keep cash on hand to meet shareholder redemptions or other needs while
maintaining exposure to the stock market. Risks associated with derivatives
include: the risk that the derivative will not fully offset the underlying
positions; the risk that derivatives used for risk management may not have the
intended effects and may result in losses or missed opportunities; and the risk
that the Fund cannot sell the derivative because of an illiquid secondary
market.

If the fund invests in futures contracts and options on futures contracts for
nonhedging purposes, the margin and premiums required to make those investments
will not exceed 5% of the Fund's net asset value after taking into account
unrealized profits and losses on the contracts. Futures contracts and options on
futures contracts used for nonhedging purposes involve greater risks than other
investments.

Secondary Risks

Pricing Risk. We value securities in the Fund at their stated market value if
price quotations are available and, if not, by the method that most accurately
reflects their current worth in the judgment of the Board of Trustees. This
procedure implies an unavoidable risk, the risk that our prices are higher or
lower than the prices that the securities might actually command if we sold
them. If we have valued the securities too highly, you may end up paying too
much for Fund shares when you buy. If we underestimate their price, you may not
receive the full market value for your Fund shares when you sell.

Year 2000 Risk. As with most businesses, the Fund faces the risk that the
computer systems of its Investment Adviser and other companies on which it
relies for service or in which it invests will not accommodate the changeover
necessary from dates in the year 1999 to dates in the year 2000. These risks
could adversely affect: the companies in which the Fund invests, which could
impact the value of the Fund's investments; our ability to service your Fund
account, including our ability to meet your requests to buy and sell Fund
shares; and our ability to trade securities held by the Fund or to accurately
price securities held by the Fund.

We are working both internally and with our business partners and service
providers to address this problem. If we -- or A Detailed
Look at the U.S. Bond Index Fund

our business partners, service providers, government agencies or other market
participants -- do not succeed, it could materially affect shareholder services
or the value of the Fund's shares.

Investment Adviser. Under the supervision of the Board of Trustees, Bankers
Trust Company, with headquarters at 130 Liberty Street, New York, NY 10006, acts
as the Fund's Investment Adviser. As Investment Adviser, Bankers Trust makes the
Fund's investment decisions and assumes responsibility for the securities the
Fund owns. It buys and sells securities for the Fund and conducts the research
that leads to the purchase and sale decisions. Bankers Trust is entitled to
receive a fee of 0.15% of the Fund's average daily net assets for its services.

The Investment Adviser is a wholly owned subsidiary of Bankers Trust
Corporation. On November 30, 1998, Bankers Trust Corporation entered into an
Agreement and Plan of Merger with Deutsche Bank AG under which Bankers Trust
Corporation would merge with and into a subsidiary of Deutsche Bank AG. Deutsche
Bank AG is a major global banking institution that is engaged in a wide range of
financial services, including investment management, mutual funds, retail and
commercial banking, investment banking and insurance. The transaction is
contingent upon various regulatory approvals, and continuation of the Fund's
advisory relationship with Bankers Trust thereafter is subject to the approval
of Fund shareholders. If the transaction is approved and completed, Deutsche
Bank AG, as Bankers Trust's new parent company, will control its operations as
investment adviser. Bankers Trust believes that, under this new arrangement, the
services provided to the Fund will be maintained at their current level.

Portfolio Manager. Louis R. D'Arienzo, Principal of Bankers Trust, is
responsible for the day-to-day management of the Fund. Joined Bankers Trust in
1981 16 years of investment experience Bachelor's degree in Finance from New
York University

On March 11, 1999, Bankers Trust announced that it had reached an agreement
with the United States Attorney's Office in the Southern District of New York to
resolve an investigation concerning inappropriate transfers of unclaimed funds
and related record-keeping problems that occurred between 1994 and early 1996.
Pursuant to its agreement with the U.S. Attorney's Office, Bankers Trust pleaded
guilty to misstating entries in the bank's books and records and agreed to pay a
$60 million fine to federal authorities. Separately, Bankers Trust agreed to pay
a $3.5 million fine to the State of New York. The events leading up to the
guilty pleas did not arise out of the investment advisory or mutual fund
management activities of Bankers Trust or its affiliates.

CALCULATING THE FUND'S SHARE PRICE
We calculate the daily price of the Fund's shares (also known as the "Net Asset
Value" or "NAV") in accordance with the standard formula for valuing mutual fund
shares at the close of regular trading on the New York Stock Exchange every day
the Exchange is open for business. The Exchange is open every week, Monday
through Friday, except when the following holidays are celebrated: New Year's
Day, Martin Luther King, Jr. Day (the third Monday in January), 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
fourth Thursday in November) and Christmas Day. A Detailed Look at the U.S. Bond
Index Fund

Please see the Contract prospectus accompanying this Prospectus for a
description of the Fund's federal tax impact on you as a Contract owner.

Because each investor's tax circumstances are unique and because the tax laws
are subject to change, we recommend that you consult your tax adviser about your
investment.

Please see the Contracts prospectus that accompanies this Prospectus for a
detailed description of your Contract and its allocation, transfer and
withdrawal provisions.

FINANCIAL HIGHLIGHTS Because the Fund has not yet commenced operations, it has
no financial performance information to present to you in this Prospectus. A
Detailed Look at the U.S. Bond Index Fund

<PAGE>

LOGO

After the Fund commences operations, additional information about the Fund's
investments will be available in the Fund's annual and semi-annual reports to
shareholders. In the Fund's annual report, you will find a discussion of the
market conditions and investment strategies that significantly affected the
Fund's performance during its last fiscal year.

U.S. Bond Index Fund
BT Insurance Funds Trust
CUSIP #05576L700
511PRO (4/99)
811-07507

<PAGE>

PROSPECTUS: April 30, 1999

Small Cap
Fund

With the goal of achieving long-term capital
growth through investment in stocks and other
equity securities of small companies

LOGO

BT Mutual Funds

TRUST: BT INSURANCE FUNDS TRUST

INVESTMENT ADVISER: BANKERS TRUST COMPANY

<PAGE>

Goal: The Fund invests for long-term capital growth.
Core Strategy: The Fund invests primarily in stocks and other equity
securities of companies with market capitalizations, at the time we purchase
the stock, within the market capitalization range of the Russell 2000 Index.

SMALL CAP Fund

Overview of the Small Cap Fund

2 Goal

2 Core Strategy

2 Investment Policies and Strategies

3 Principal Risks of Investing in the Fund

3 Who Should Consider Investing in the
Fund

A Detailed Look at the Small Cap Fund

4 Objective

4 Strategy

4 Principal Investments

4 Investment Process

4 Risks

5 Management of the Fund

6 Calculating the Fund's Share Price

6 Dividends and Distributions

7 Tax Considerations

7 Buying and Selling Shares

7 Financial Highlights

INVESTMENT POLICIES AND STRATEGIES The Fund seeks to achieve its objective by
investing in companies with small market capitalizations. The Fund searches for
small companies whose share price does not reflect its prospects by looking at
factors such as the company's financial strength and technological
opportunities. Overview

of the Small Cap Fund

PRINCIPAL RISKS OF INVESTING IN THE FUND An investment in the Fund could lose
money, or the Fund's performance could trail that of other investments. For
example: Stocks that the Investment Adviser has selected could perform poorly;
Small company stock returns could trail stock market returns generally because
of the liquidity risks specific to small company investing: greater share-price
volatility and fewer buyers for small company shares in periods of economic or
stock market stress. Such lack of liquidity may accelerate a prevailing downward
price trend and limit the Fund's ability to exit from an unsuccessful
investment; or The stock market could decline or could underperform other
investments.

WHO SHOULD CONSIDER INVESTING IN THE FUND
The Fund sells its shares only to separate accounts of various insurance
companies (the "Companies"). Shares are available to the public through the
purchase of certain variable annuity and variable life insurance contracts
("Contract(s)") issued by the Companies. As a Contract owner, your premium
payments are allocated to the Fund through these separate accounts in accordance
with your contract. Please see the Contract prospectus that accompanies this
Prospectus for a detailed explanation of your Contract.

You should consider investing in the Small Cap Fund if you are seeking long-term
capital growth. There is, of course, no guarantee that the Fund will realize its
goal. Moreover, you should be willing to accept greater short-term fluctuation
in the value of your investment than you would typically experience investing in
bond or money market funds.

You should not consider investing in the Small Cap Fund if you are pursuing a
short-term financial goal, if you seek regular income or if you cannot tolerate
fluctuations in the value of your investments.

The Fund by itself does not constitute a balanced investment program. It can,
however, afford you exposure to investment opportunities not available to
someone who invests in large company and medium-sized company stocks.

An investment in the Small Cap Fund is not a deposit of Bankers Trust Company or
any other bank and is not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.

(A Note on Fees)

The Fund has not commenced operations as of the date of this Prospectus;
therefore, no performance information is being presented to you.

Overview of the Small Cap Fund

OBJECTIVE
The Small Cap Fund seeks long-term capital growth. Under normal circumstances,
the Fund invests at least 65% of its total assets in common stocks, and other
securities with equity characteristics, of companies with market
capitalizations, at the time we first purchase the shares, within the market
capitalization range of the Russell 2000 Index.

The Fund invests for long-term growth, not income; any dividend and interest
income is incidental to the pursuit of its objective. While we give priority to
long-term capital growth, we cannot offer any assurance of achieving this
objective. The Fund's objective is not a fundamental policy. We must notify
shareholders before we change it, but we do not require their approval to do so.

STRATEGY
We invest for the long term. We are looking for small companies that have
reached a pivotal point -- companies that are ready to reap the benefits of
technological change, companies that have begun to increase their market share,
companies that have completed a turnaround or whose pace of growth is starting
to accelerate. Normally, their share prices do not reflect their strong
prospects -- most investors have not yet discovered them. Two financial
attributes set these companies apart:
Evidence of above-average growth in revenues and earnings; and
A balance sheet that can support this growth potential with sufficient working
capital and manageable levels of debt.

PRINCIPAL INVESTMENTS The Fund normally owns stock in approximately 90 to 110
small companies at any one time. The Fund focuses principally on companies with
market capitalizations within the market capitalization range of the Russell
2000 Index.

The Fund may also invest up to 25% of its assets in the stocks of non-U.S.
companies and up to 35% of its assets in large caps. Under normal conditions,
these two tactics would not comprise major elements of its strategy.

"Market Capitalization," or "Market Cap," provides a ready gauge of a company's
size. It multiplies the total number of a company's outstanding shares by the
current price of its stock to arrive at an estimate of its current value.

INVESTMENT PROCESS
The Fund's process begins with a methodical search for industries poised to take
off. Before identifying individual companies, we seek to identify the industries
that are undergoing positive change or that stand to benefit from broad
demographic and cultural trends.

Once we have identified a likely industry, the exhaustive search begins for the
most promising small companies within the industry. The Small Cap research team
meets frequently with the managements of investment candidates to gather a
first-hand impression of their prospects. The team's investigative work relies
on the analytical and forecasting tools that Bankers Trust has long applied and
is continuously enhancing. The work demands intensive research: visits to a
company's plants and frequent contact with its management, suppliers, customers
and competitors.

RISKS
Below we set forth some of the prominent risks associated with investing in
small company securities, as well as investing in general. Although we attempt
to assess the likelihood that these risks may actually occur and to limit them,
we make no guarantee that we will succeed.

Primary Risks

Market Risk. Although individual stocks can outperform their local markets,
deteriorating market conditions might cause an overall weakness in the stock
prices of the entire market.

Stock Selection. A risk that pervades all investing is the risk that the
securities an investor has selected will not perform to expectations. We manage
this risk in the Small Cap Fund by closely monitoring the Fund's investments for
the following signs of negative change:
Decelerating revenue or earnings growth;

Portfolio Turnover. The portfolio turnover rate measures the frequency that the
Portfolio sells and replaces the securities it holds within a given period. High
turnover can increase the Fund's transaction costs, thereby lowering its
returns. It may also increase your tax liability. We anticipate that the Fund
will have a high portfolio turnover rate.

A detailed look

at the Small Cap Fund

Loss of market share;
Increasing levels of debt or decreasing levels of cash flow and working
capital; and A stock price that lags behind competitors'.

Small Company Risk. Small company stocks tend to experience steeper fluctuations
in price -- down as well as up-- than the stocks of larger companies. A shortage
of reliable information -- the same information gap that creates opportunity in
small company investing -- can also pose added risk. Industry-wide reversals
have had a greater impact on small companies, since they lack a large company's
financial resources. Small company managers typically have less experience
coping with adversity or capitalizing on opportunity than their counterparts at
larger companies. Finally, small company stocks are typically less liquid than
large company stocks: when things are going poorly, it is harder to find a buyer
for a small company's shares.

Foreign Investment Risk. To the extent that the Fund holds companies based
outside the United States, it faces the risks inherent in foreign investing.
Adverse political, economic or social developments could undermine the value of
the Fund's investments or prevent the Fund from realizing their full value.
Accounting and financial reporting standards differ from those in the U.S. and
could convey incomplete information when compared to information typically
provided by U.S. companies. Finally, the currency of the country in which the
Fund has invested could decline relative to the value of the U.S. dollar, which
would depreciate the value of an investment itself to U.S. investors.

Secondary Risks

Pricing Risk. When price quotations for securities are not readily available, we
determine their value by the method that most accurately reflects their current
worth in the judgment of the Board of Trustees. This procedure implies an
unavoidable risk, the risk that our prices are higher or lower than the prices
that the securities might actually command if we sold them. If we have valued
the securities too highly, you may end up paying too much for Fund shares when
you buy. If we underestimate their price, you may not receive the full market
value for your Fund shares when you sell.

Temporary Defensive Position. For temporary defensive purposes, we may invest up
to 100% of the Fund's assets in the common stock of larger companies, in
fixed-income securities, or short-term money market securities. To the extent we
find it necessary to invest in such securities, the Fund may not meet its goal
of long-term capital growth.

MANAGEMENT OF THE FUND
Board of Trustees. The Fund's shareholders, voting in proportion to the number
of shares each owns, elects a Board of Trustees, and the Trustees supervise all
of the Fund's activities on their behalf. The separate accounts of the Companies
are the shareholders of record of the Fund's shares. Any reference to the
shareholder in this Prospectus technically refers to the Companies' separate
accounts and not to you, the Contract owner.

Investment Adviser. Under the supervision of the Board of Trustees, Bankers
Trust Company, with headquarters at 130 Liberty Street, New York, NY 10006, acts
as the Fund's Investment Adviser. As Investment Adviser, Bankers Trust makes the
Fund's investment decisions and assumes responsibility for the securities the
Fund owns. It buys and sells securities for the Fund and conducts the research
that leads to the purchase and sale decisions. Bankers Trust is entitled to
receive a fee of 0.80% of the Fund's average daily net assets for its services.

A Detailed Look at the Small Cap Fund

Bankers Trust's officers bring wide experience to managing both the Fund and its
Portfolio. The firm's own record dates back to its founding as a trust company
in 1903. It has invested retirement assets on behalf of the nation's largest
corporations and institutions for more than 50 years. Today, the assets under
its global management exceed $338 billion. The scope of the firm's capability is
broad: It is a leader in both the active and passive quantitative investment
disciplines and maintains a major presence in stock and bond markets worldwide.
Bankers Trust is a wholly owned subsidiary of Bankers Trust Corporation. On
November 30, 1998, Bankers Trust Corporation entered into an Agreement and Plan
of Merger with Deutsche Bank AG under which Bankers Trust Corporation would
merge with and into a subsidiary of Deutsche Bank AG. Deutsche Bank AG is a
major global banking institution that is engaged in a wide range of financial
services, including investment management, mutual funds, retail and commercial
banking, investment banking and insurance. The transaction is contingent upon
various regulatory approvals, and continuation of the Fund's advisory
relationship with Bankers Trust thereafter is subject to the approval of Fund
shareholders. If the transaction is approved and completed, Deutsche Bank AG, as
Bankers Trust's new parent company, will control its operations as investment
adviser. Bankers Trust believes that, under this new arrangement, the services
provided to the Fund will be maintained at their current level.

Portfolio Manager. Timothy Woods, Principal of Bankers Trust, is responsible for
the day-to-day management of the Fund's investments: Joined Bankers Trust in
1992 and the Fund in 1994. 14 years of investment and financial experience.
Bachelors degree from Florida A&M University, MBA from The Wharton School,
University of Pennsylvania, Chartered Financial Analyst.

CALCULATING THE FUND'S SHARE PRICE

The formula calls for deducting all of the Fund's liabilities from the total
value of its assets - the market value of the securities it holds, plus its cash
reserves - and dividing the result by the number of shares outstanding. (Note
that prices for securities that trade on foreign exchanges can change
significantly on days when the New York Stock Exchange is closed and you cannot
buy or sell Fund shares. Price changes in the securities the Fund owns may
ultimately affect the price of Fund shares the next time the NAV is calculated.)

We value the securities in the Fund at their stated market value if price
quotations are available. When price quotes for a particular security are not
readily available, we determine their value by the method that most accurately
reflects their current worth in the judgment of the Board of Trustees.
DIVIDENDS AND DISTRIBUTIONS If the Fund earns investment income or recognizes
taxable net capital gains, it is the Fund's policy to distribute to the
Companies' separate accounts substantially all of that taxable income or capital
gain on an annual basis. These distributions are automatically made in the form
of additional shares of the Fund and not cash, unless a Company elects to have
distributions made in cash. The result of automatic reinvestment of
distributions is that the Fund's performance, including the effect of dividends,
is reflected in the cash value of the Contracts you own. Please see the Contract
prospectus accompanying this Prospectus for more information.

Please see the Contract prospectus accompanying this Prospectus for a
description of the Fund's federal tax impact on you as a Contract owner.

Because each investor's tax circumstances are unique and because the tax laws
are subject to change, we recommend that you consult your tax adviser about your
investment.

Please see the Contract prospectus that accompanies this Prospectus for a
detailed description of your Contract and its allocation, transfer and
withdrawal provisions.

FINANCIAL HIGHLIGHTS

Because the Fund has not yet commenced operations, it has no financial
performance information to present to you in this Prospectus.

A Detailed Look at the Small Cap Fund

<PAGE>

LOGO

After the Fund commences operations, additional information about the Fund's
investments will be available in the Fund's annual and semiannual reports to
shareholders. In the Fund's annual report, you will find a discussion of the
market conditions and investment strategies that significantly affected the
Fund's performance during its last fiscal year.

You can find more detailed information about the Fund in the current
Statement of Additional Information, dated April 30, 1999, which we have
filed electronically with the Securities and Exchange Commission (SEC) and
which is incorporated by reference into this Prospectus. To receive your free
copy of the Statement of Additional Information, the annual or semiannual
report, or if you have questions about investing in the Fund, call the
customer service center at the telephone number shown in the accompanying
Contract prospectus.

Small Cap Fund

BT Insurance Funds Trust

CUSIP # 205576E102
INS2PRO (4/99)
811-07507

<PAGE>

PROSPECTUS: APRIL 30, 1999

International
Equity Fund

With the goal of long-term capital appreciation
primarily through investment in stocks and other
equity securities of companies in developed
countries outside the United States

LOGO

BT Mutual Funds

TRUST: BT INSURANCE FUNDS TRUST

INVESTMENT ADVISER: BANKERS TRUST COMPANY

[Like shares of all mutual funds, these
securities have not been approved or disapproved
by the Securities and Exchange 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.]

<PAGE>

Goal: The Fund invests for long-term capital appreciation.

Core Strategy: The Fund invests primarily in the stocks and other equity
securities of companies in developed countries outside the United States.

International Equity Fund

Overview of the International Equity Fund

3 Goal

3 Core Strategy

3 Investment Policies and Strategies

4 Principal Risks of Investing in the Fund

4 Who Should Consider Investing in the
Fund

A Detailed Look at the International Equity Fund

5 Objective

5 Strategy

5 Principal Investments

6 Investment Process

6 Risks

8 Management of the Fund

9 Calculating the Fund's Share Price

9 Dividends and Distributions

9 Tax Considerations

9 Buying and Selling Fund Shares

10 Financial Highlights

INVESTMENT POLICIES AND STRATEGIES

The Fund seeks to achieve its objective by investing primarily in companies in
developed foreign countries. The Fund may also invest a portion of its assets in
companies based in emerging markets. The companies are selected by an extensive
tracking system plus the input of experts from various financial disciplines.
Overview

of the International Equity Fund

PRINCIPAL RISKS OF INVESTING IN THE FUND
An investment in the Fund could lose money, or the Fund's performance could
trail that of other investments. For example: Stocks that the Investment
Adviser has selected could perform poorly; or The stock market could perform
poorly in one or more of the countries in which the Fund has invested.

Beyond the risks common to all stock investing, an investment in the Fund could
also lose money or underperform alternative investments as a result of risks in
the foreign countries in which the Fund invests: Adverse political, economic or
social developments could undermine the value of the Fund's investments or
prevent the Fund from realizing their full value; Accounting and financial
reporting standards differ from those in the U.S. and could convey incomplete
information when compared to information typically provided by U.S. companies;
or The currency of a country in which the Fund invests may decrease in value
relative to the U.S. dollar, which could affect the value of the investment to
U.S. investors.

WHO SHOULD CONSIDER INVESTING IN THE FUND
The Fund sells its shares only to separate accounts of various insurance
companies (the "Companies"). Shares are available to the public through the
purchase of certain variable annuity and variable life insurance contracts
("Contract(s)") issued by the Companies. As a Contract owner, your premium
payments are allocated to the Fund through these separate accounts in accordance
with your contract. Please see the Contract prospectus that accompanies this
Prospectus for a detailed explanation of your Contract.

You should consider investing in the International Equity Fund if you are
seeking long-term capital appreciation. There is, of course, no guarantee that
the Fund will realize its goal. Moreover, you should be willing to accept
greater short-term fluctuation in the value of your investment than you would
typically experience investing in bond or money market funds.

You should not consider investing in the International Equity Fund if you are
pursuing a short-term financial goal, if you seek regular income or if you
cannot tolerate fluctuations in the value of your investments.

The Fund by itself does not constitute a balanced investment program. It can,
however, provide exposure to investment opportunities not available to someone
who invests in U.S. securities alone. Diversifying your investments may improve
your long-run investment return and lower the volatility of your overall
investment portfolio.

An investment in the International Equity Fund is not a deposit of Bankers Trust
Company or any other bank and is not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government agency.

(A Note on Fees)

The Fund has not commenced operations as of the date of this Prospectus;
therefore, no performance information is being presented to
you.
Overview of the International Equity Fund

OBJECTIVE
The Fund seeks long-term capital appreciation. Under normal circumstances, the
Fund invests at least 65% of its total assets in the stocks and other securities
with equity characteristics of companies in developed countries outside the
United States.

The Fund invests for capital appreciation, not income; any dividend and interest
income is incidental to the pursuit of its objective. While we give priority to
capital appreciation, we cannot offer any assurance of achieving this objective.
The Fund's objective is not a fundamental policy. We must notify shareholders
before we change it, but we do not require their approval to do so.

STRATEGY
The Fund invests for the long term. We employ a strategy of growth at a
reasonable price. We seek to identify companies outside the United States that
combine strong potential for earnings growth with reasonable investment value.
Such companies typically exhibit increasing rates of profitability and cash
flow, yet their share prices compare favorably to other stocks in a given market
and to their global peers. In evaluating stocks, we consider factors such as
sales, earnings, cash flow and enterprise value. Enterprise value is a company's
market capitalization plus the value of its net debt. We further consider the
relationship between these and other quantitative factors. Together, these
indicators of growth and value may identify companies with improving prospects
before the market in general has taken notice.

PRINCIPAL INVESTMENTS
Almost all the companies in which the Fund invests are based in the developed
foreign countries that make up the Morgan Stanley Capital International (MSCI)
EAFE(R) Index ("EAFE(R) Index"), plus Canada. The Fund may also invest a portion
of its assets in companies based in the emerging markets of Latin America, the
Middle East, Europe, Asia and Africa if we believe that their return potential
more than compensates for the extra risks associated with these markets. While
we have invested in emerging markets in the past, under normal market conditions
we do not consider this a central element of the Fund's strategy. Typically, we
would not hold more than 15% of net assets in emerging markets.

Best/Worst Performing Stock Markets

LOGO
Returns in U.S. dollars

This chart does not represent the performance of the International Equity Fund
or any of the BT Insurance Funds. Past performance is not a guarantee of future
results.

From 1988 to 1998, the difference in annual returns between the strongest
performing markets and the weakest averaged 81%, according to Factset. And the
United States, notwithstanding some outstanding years during this period, never
posted the best annual return. Thus, by maintaining a presence across the
developed markets, investors can potentially improve their returns compared to
investing solely in U.S. stocks. A detailed look

at the International Equity Fund

<PAGE>

INVESTMENT PROCESS
Company research lies at the heart of our investment process, as it does with
many stock mutual funds. We track several thousand companies to arrive at the
approximately 100 stocks the Fund normally holds. But our process brings an
added dimension to this fundamental research. It draws on the insight of experts
from a range of financial disciplines --regional stock market specialists,
global industry specialists, economists and quantitative analysts. They
challenge, refine and amplify each other's ideas. Their close collaboration is a
critical element of our investment process.

RISKS
Below we set forth some of the prominent risks associated with international
investing, as well as investing in general, and we detail our approaches to
containing them. Although we attempt to assess the likelihood that these risks
may actually occur and to limit them, we make no guarantee that we will succeed.

Primary Risks

Market Risk. Although individual stocks can outperform their local markets,
deteriorating market conditions might cause an overall weakness in the stock
prices of the entire market.

Stock Selection Risk. A risk that pervades all investing is the risk that the
securities an investor has selected will not perform to expectations. To
minimize this risk, we monitor each of the stocks in the Fund according to three
basic quantitative criteria.

We subject a stock to intensive review if:
its rate of price appreciation begins to trail that of its national stock index;
the financial analysts who follow the stock both within Bankers Trust and
outside, cut their estimates of the stock's future earnings; or
the stock's price approaches the downside target we set when we first bought
the stock (and may since have modified to reflect changes in market and economic
conditions).

In this review, we seek to learn if the deteriorating performance accurately
reflects deteriorating prospects or if, in our view, it merely reflects investor
overreaction to temporary circumstances.

Portfolio Turnover. The portfolio turnover rate measures the frequency that the
Portfolio sells and replaces the securities it holds within a given period. We
anticipate that the Fund will have a low portfolio turnover rate.

Political Risk. Some foreign governments have limited the outflow of profits to
investors abroad, extended diplomatic disputes to include trade and financial
relations, and imposed high taxes on corporate profits. While these political
risks have not occurred recently in the major countries in which the Fund
invests, we analyze countries and regions to try to anticipate these risks.

Information Risk. Financial reporting standards for companies based in foreign
markets differ from those in the United States. Since the "numbers" themselves
sometimes mean different things, the Investment Adviser devotes much of its
research effort to understanding and assessing the impact of these differences
upon a company's financial conditions and prospects.

Foreign Stock Market Risk. From time to time, foreign capital markets have
exhibited more volatility than those in the United States. Trading stocks on
some foreign exchanges is inherently more difficult than trading in the United
States for reasons including: Liquidity Risk. Stocks that trade less can be more
difficult or more costly to buy, or to sell, than more liquid or active stocks.
This liquidity risk is a factor of the trading volume of a particular stock, as
well as the size and liquidity of the entire local market. On the whole, foreign
exchanges are smaller and less liquid than the U.S. market. This can make buying
and selling certain shares more difficult and costly. Relatively small
transactions in some instances can have a disproportionately large effect on the
price and supply of shares. In certain situations, it may become virtually
impossible to sell a stock in an orderly fashion at a price that approaches our
estimate of its value. Regulatory Risk. Some foreign governments regulate their
exchanges less stringently, and the rights of shareholders may not be as firmly
established.

The management of certain foreign companies may be less focused on short-term
earnings than some U.S. companies. For example, they may pay lower dividends.

In an effort to reduce these foreign stock market risks, the Fund diversifies
its investments, just as you may spread your investments among a range of
securities so that a setback in one need not overwhelm your entire strategy. In
this way, a reversal in one market or stock need not undermine the pursuit of
long-term capital appreciation. A Detailed Look at the International Equity Fund

Emerging Market Risk. To the extent that the Fund invests in emerging markets to
enhance overall returns, it may face higher political, information and stock
market risks. In addition, profound social changes and business practices that
depart from norms in developed countries' economies have hindered the orderly
growth of emerging economies and their stock markets in the past. High levels of
debt tend to make emerging economies heavily reliant on foreign capital and
vulnerable to capital flight. For all these reasons, the Fund carefully limits
and balances its commitment to these markets.

Secondary Risks

Small Company Risk. Although the Fund generally invests in the shares of large,
well-established companies, it may occasionally take advantage of exceptional
opportunities presented by smaller companies. Such opportunities pose unique
risks, which we take into account in considering an investment. Small company
stocks tend to experience steeper fluctuations in price -- down as well as up --
than the stocks of larger companies. A shortage of reliable information, the
same information gap that creates opportunity in small company investing, can
also pose added risk. Industry wide reversals have had a greater impact on small
companies, since they lack a large company's financial resources. Small company
managers typically have less experience coping with adversity or capitalizing on
opportunity than their counterparts at larger companies. Finally, small company
stocks are typically less liquid than large company stocks: when things are
going poorly, it is hard to find a buyer for a small company's shares.

Pricing Risk. When price quotations for securities are not readily available, we
determine their value by the method that most accurately reflects their current
worth in the judgment of the Board of Trustees. This procedure implies an
Currency management is used to offset investment risk ("hedging") and, where
possible, to add to investment returns. Currency management activities include
the use of forward contracts and may include the use of other instruments. There
is no guarantee that these currency management activities will work and they
could cause losses to the Fund. unavoidable risk, the risk that our prices are
higher or lower than the prices that the securities might actually command if we
sold them. If we have valued the securities too highly, you may end up paying
too much for Fund shares when you buy. If we underestimate their price, you may
not receive the full market value for your Fund shares when you sell.

Futures and Options. Although not one of its principal investment strategies,
the Fund may invest in futures contracts and options on futures contracts. These
investments, when made, are for hedging purposes. If the Fund invests in futures
contracts and options on futures contracts for non-hedging purposes, the margin
and premiums required to make those investments will not exceed 5% of the Fund's
net asset value after taking into account unrealized profits and losses on the
contracts. Futures contracts and options on futures contracts used for
non-hedging purposes involve greater risks than stock investments.

These and other factors could increase volatility in financial markets worldwide
and could adversely affect the value of securities held by the Fund.

Futures contracts and options on futures contracts are used as a low cost method
of gaining exposure to a particular securities market without investing directly
in those securities.

A Detailed Look at the International Equity Fund

Our ability to service your Fund account, including our ability to meet your
requests to buy and sell Fund shares; and Our ability to trade securities held
by the Fund or to accurately price securities held by the Fund.

Temporary Defensive Position. We may from time to time adopt a temporary
defensive position in response to extraordinary adverse political, economic or
stock market events. We could place up to 100% of the Fund's assets in U.S. or
foreign government money market investments, or other short-term bonds that
offer comparable safety, if the situation warranted. To the extent we might
adopt such a position and over the course of its duration, the Fund may not meet
its goal of long-term capital appreciation.

MANAGEMENT OF THE FUND
Board of Trustees. The Fund's shareholders, voting in proportion to the number
of shares each owns, elect a Board of Trustees, and the Trustees supervise all
of the Fund's activities on their behalf. The separate accounts of the Companies
are the shareholders of record of the Fund's shares. Any reference to the
shareholder in this Prospectus technically refers to the Companies' separate
accounts and not to you, the Contract owner.

Investment Adviser. Under the supervision of the Board of Trustees, Bankers
Trust Company, with headquarters at 130 Liberty Street, New York, NY 10006, acts
as the Fund's investment adviser. As investment adviser, Bankers Trust makes the
Fund's investment decisions and assumes responsibility for the securities the
Fund owns. It buys and sells securities for the Fund and conducts the research
that leads to the purchase and sale decisions. Bankers Trust is entitled to
receive a fee of 1.00% of the Fund's average daily net assets for its services.

Bankers Trust's officers bring wide experience to managing both the Fund and its
Portfolio. The firm's own record dates back to its founding as a trust company
in 1903. It has invested retirement assets on behalf of the nation's largest
corporations and institutions for more than 50 years. Today, the assets under
its global management exceed $338 billion. The scope of the firm's capability is
broad: It is a leader in both the active and passive quantitative investment
disciplines and maintains a major presence in stock and bond markets worldwide.
The Investment Adviser is a wholly owned subsidiary of Bankers Trust
Corporation. On November 30, 1998, Bankers Trust Corporation entered into an
Agreement and Plan of Merger with Deutsche Bank AG under which Bankers Trust
Corporation would merge with and into a subsidiary of Deutsche Bank AG. Deutsche
Bank AG is a major global banking institution that is engaged in a wide range of
financial services, including investment management, mutual funds, retail and
commercial banking, investment banking and insurance. The transaction is
contingent upon various regulatory approvals, and continuation of the Fund's
advisory relationship with Bankers Trust thereafter is subject to the approval
of Fund shareholders. If the transaction is approved and completed, Deutsche
Bank AG, as Bankers Trust's new parent company, will control its operations as
investment adviser. Bankers Trust believes that, under this new arrangement, the
services provided to the Fund will be maintained at their current level.

Portfolio Managers. The following portfolio managers are responsible for the
day-to-day management of the Fund's investments:

Michael Levy, Managing Director of Bankers Trust and Co-Lead Manager of the
Fund.
Joined Bankers Trust in 1993.
Bankers Trust's international equity strategist, overseeing the design and
implementation of the firm's proprietary stock selection process.
27 years of business experience, 17 of them as an investment professional.
Degrees in mathematics and geophysics from the University of Michigan.

Robert Reiner, Managing Director of Bankers Trust and Co-Lead Manager of the
Fund. Joined Bankers Trust in 1994. Specializes in Japanese and European stock
and market analysis. Served as a Senior Financial Analyst at Scudder, Stevens &
Clark from 1993 to 1994.
A Detailed Look at the International Equity Fund

17 years of investment industry experience.
Degrees from the University of Southern California and Harvard University.

Julie Wang, Principal of Bankers Trust and Co-Manager of the Fund. Joined
Bankers Trust in 1994. Focuses on the Fund's Asia-Pacific investments and its
emerging markets exposure. Served as Investment Manager for American
International Group's Southeast Asia portfolio from 1991 to 1994. 10 years of
investment management experience. Bachelors degree in economics from Yale
University, MBA from The Wharton School, University of Pennsylvania.

<PAGE>

CALCULATING THE FUND'S SHARE PRICE

We calculate the daily price of the Fund's shares (also known as the "Net Asset
Value" or "NAV") in accordance with the standard formula for valuing mutual fund
shares at the close of regular trading on the New York Stock Exchange every day
the Exchange is open for business. The formula calls for The Exchange is open
every week, Monday through Friday, except when the following holidays are
celebrated: New Year's Day, Martin Luther King, Jr. Day (the third Monday in
January), 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 fourth Thursday in November) and Christmas
Day. deducting all of the Fund's liabilities from the total value of its assets
- -- the market value of the securities it holds, plus its cash reserves -- and
dividing the result by the number of shares outstanding. (Note that prices for
securities that trade on foreign exchanges can change significantly on days when
the New York Stock Exchange is closed and you cannot buy or sell Fund shares.
Price changes in the securities the Fund owns may ultimately affect the price of
Fund shares the next time the NAV is calculated.)

Please see the Contract prospectus accompanying this Prospectus for a
description of the Fund's federal tax impact on you as a Contract owner.

Because each investor's tax circumstances are unique and because the tax laws
are subject to change, we recommend that you consult your tax adviser about your
investment.

instructions for premium payments, transfer instructions and surrender or
partial withdrawal requests of their Contract owners, as set forth in the
accompanying prospectus for the Contracts. Redemption orders are effected at the
next net asset value per share determined after a proper redemption order is
placed with the Company.

Please see the Contracts prospectus that accompanies this Prospectus for a
detailed description of your Contract and its allocation, transfer and
withdrawal provisions.

FINANCIAL HIGHLIGHTS
Because the Fund has not yet commenced operations, it has no financial
performance information to present to you in this Prospectus.

A Detailed Look at the International Equity Fund

[THIS PAGE INTENTIONALLY LEFT BLANK]

<PAGE>

LOGO

International Equity Fund
CUSIP # 105576E201
BT Insurance Funds Trust
INS1PRO (4/99)
811-07507

STATEMENT OF ADDITIONAL INFORMATION

April 30, 1999

BT INSURANCE FUNDS TRUST

Equity 500 Index Fund
U.S. Bond Index Fund
Small Cap Index Fund
EAFE(R) Equity Index Fund

BT Insurance Funds Trust (the "Trust") is comprised of several funds. The funds
listed above (each, a "Fund" and together the "Funds") are each a series of the
Trust. This Statement of Additional Information describes the Funds' Shares.

Shares of the Funds 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 Funds is Bankers Trust Company (the "Adviser" or "Bankers Trust"). The
distributor of the Funds' shares is First Data Distributors, Inc. (the
"Distributor" or "First Data Distributors").

The Prospectus for each Fund, dated April 30, 1999, provides the basic
information investors should know before investing. This Statement of Additional
Information ("SAI"), which is not a Prospectus, is intended to provide
additional information regarding the activities and operations of the Trust and
should be read in conjunction with the Prospectuses. You may request a copy of a
Prospectus or a paper copy of this SAI, if you have received it electronically,
free of charge by calling the Customer Service Center at the telephone number
shown in the Contract prospectus. This SAI is not an offer of any Fund for which
an investor has not received a Prospectus. Capitalized terms not otherwise
defined in this Statement of Additional Information have the meanings accorded
to them in each Fund's Prospectus. The financial statements for each Fund (other
than U.S. Bond Index Fund which has not commenced operations as of the date of
this SAI) for the fiscal year ended December 31, 1998, are incorporated herein
by reference to the Annual Report to shareholders for each Fund dated December
31, 1998. A copy of each Fund's Annual Report may be obtained without charge by
calling the Customer Service Center at the telephone number shown in the
Contract prospectus.

[GRAPHIC OMITTED]

BANKERS TRUST COMPANY
Investment Adviser of each Fund

FIRST DATA DISTRIBUTORS, INC.
Distributor
4400 Computer Drive
Westborough, MA 01581

<PAGE>

TABLE OF CONTENTS

INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS................................................................05

Investment Objectives........................................................................................05

Investment Policies..........................................................................................05
Equity Securities..........................................................................................05
Debt Securities.......................................................................................... 05
Medium- and Small-Capitalization Stocks...................................................................05
Convertible Securities....................................................................................05
U.S. Government Obligations...............................................................................06
Short-Term Instruments....................................................................................06
Certificates of Deposit and Bankers' Acceptances..........................................................06
Commercial Paper..........................................................................................06
Derivatives...............................................................................................07
Illiquid Securities...................................................................................... 07
When-Issued and Delayed Delivery Securities...............................................................08
Lending of Portfolio Securities...........................................................................08
Repurchase Agreements.....................................................................................08
Reverse Repurchase Agreements.............................................................................08
Warrants..................................................................................................08
Swap Agreements...........................................................................................09
Ginnie Mae Certificates...................................................................................10
Fannie Mae Certificates...................................................................................10
Freddie Mac Certificates..................................................................................10
Adjustable Rate Mortgages - Interest Rate Indices.........................................................10
Asset-Backed Securities...................................................................................11
Mortgage-Backed Securities and Asset-Backed Securities--Types of Credit Support............................11
Stripped Mortgage-Backed Securities.......................................................................12
Options on Securities.....................................................................................12
Options on Securities Indices............................................................................ 13
Currency Exchange Transactions............................................................................14
Forward Currency Exchange Contracts.......................................................................14
Options on Foreign Currencies.............................................................................15

Futures Contracts and Options on Futures Contracts...........................................................16
General...................................................................................................16
Futures Contracts.........................................................................................16
Options on Futures Contracts..............................................................................17
Asset Coverage............................................................................................18

Additional Risk Factors......................................................................................18
Fixed Income Security Risk.................................................................................18
Foreign Securities: Special Considerations Concerning the Pacific Basin...................................18
Options on Futures Contracts, Forward Contracts and Options on Foreign Currencies.........................19
Rating Services...........................................................................................20

Investment Restrictions......................................................................................20
Fundamental Policies......................................................................................20
Additional Restrictions...................................................................................22

Portfolio Transactions and Brokerage Commissions.............................................................23

PERFORMANCE INFORMATION.........................................................................................25

Standard Performance Information.............................................................................25

Comparison of Fund Performance...............................................................................26

Economic and Market Information..............................................................................27

VALUATION OF SECURITIES; REDEMPTIONS AND PURCHASES IN KIND......................................................27

Valuation of Securities......................................................................................27

Purchase and Redemption of Shares............................................................................28

Redemptions and Purchases in Kind............................................................................28

Trading in Foreign Securities................................................................................29

MANAGEMENT OF THE TRUST.........................................................................................29

Trustees and Officers.........................................................................................30

Investment Adviser...........................................................................................32

Administrator................................................................................................34

Distributor..................................................................................................35

Custodian and Transfer Agent.................................................................................35

Expenses.....................................................................................................35

Use of Name..................................................................................................35

Banking Regulatory Matters...................................................................................35

Counsel and Independent Auditors .......................................................................36

ORGANIZATION OF THE TRUST.......................................................................................36

TAXATION........................................................................................................37

Taxation of the Funds........................................................................................37

Distributions................................................................................................38

Other Taxation...............................................................................................38

Foreign Withholding Taxes....................................................................................38

FINANCIAL STATEMENTS............................................................................................38

APPENDIX........................................................................................................39

</TABLE>

<PAGE>

INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS

Investment Objectives

The following is a description of each Fund's investment objective. There can,
of course, be no assurance that any Fund will achieve its investment objective.

Equity 500 Index Fund seeks to match, as closely as possible, before the
deduction of expenses, the performance of the Standard & Poor's 500 Composite
Stock Price Index (the "S&P 500"), which emphasizes stocks of large U.S.
companies.

U.S. Bond Index Fund seeks to match, as closely as possible, before the
deduction of expenses, the performance of the Lehman Brothers Aggregate Bond
Index (the "Aggregate Bond Index").

Small Cap Index Fund seeks to match, as closely as possible, before the
deduction of expenses, the performance of the Russell 2000 Small Stock Index
(the "Russell 2000"), which emphasizes stocks of small U.S. companies.

EAFE(R) Equity Index Fund seeks to match, as closely as possible, before the
deduction of expenses, the performance of the Morgan Stanley Capital
International Europe, Australasia, Far East (EAFE(R)) Index (the "EAFE(R)
Index").

Investment Policies

The following is a discussion of the various investments of and techniques
employed by each Fund.

Equity Securities. With the exception of the U.S. Bond Index Fund, each 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. As used herein, "equity securities" are defined as
common stock, preferred stock, trust or limited partnership interests, rights
and warrants to subscribe to or purchase such securities, sponsored or
unsponsored ADRs, EDRs, GDRs, and convertible securities, consisting of debt
securities or preferred stock that may be converted into common stock or that
carry the right to purchase common stock. Common stocks, the most familiar type,
represent an equity (ownership) interest in a corporation. They may or may not
pay dividends or carry voting rights. Common stock occupies the most junior
position in a company's capital structure. Although equity securities have a
history of long-term growth in value, their prices fluctuate based on changes in
a company's financial condition and on overall market and economic conditions.
Smaller companies are especially sensitive to these factors.

Debt Securities. Bonds and other debt instruments are used by issuers to borrow
money from investors. The issuer pays the investor a fixed or variable rate of
interest, and must repay the amount borrowed at maturity. Some debt securities,
such as zero coupon bonds, do not pay current interest, but are purchased at a
discount from their face values. Debt securities, loans, and other direct debt
have varying degrees of quality and varying levels of sensitivity to changes in
interest rates. Longer-term bonds are generally more sensitive to interest rate
changes than short-term bonds.

Medium- and Small-Capitalization Stocks. The Small Cap Index Fund may invest 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 "S&P 500". 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
larger company stocks rise, or rise in prices as large company stock decline.

Convertible Securities. A convertible security is 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.

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.

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.

U.S. Government Obligations. Each 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, each 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 each 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 Farm Credit Banks and the Federal Home Loan Banks, both
of whose obligations may be satisfied only by the individual credits of each
issuing agency. Securities which are backed by the full faith and credit of the
United States include obligations of the Government National Mortgage
Association, the Farmers Home Administration, and the Export-Import Bank.

Short-Term Instruments. When a 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 (or shares of
money market mutual funds) 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 Standard & Poor's Ratings Group ("S&P") or
Aa or higher by Moody's Investors Service, Inc. ("Moody's") or, if unrated, of
comparable quality in the opinion of Bankers Trust; (iii) commercial paper; (iv)
bank obligations, including negotiable certificates of deposit, time deposits
and banker's 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.

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.

For a description of commercial paper ratings, see Appendix A to this SAI.

Derivatives. Each Fund may invest in various instruments that are commonly known
as "derivatives." Generally, a derivative is a financial arrangement, the value
of which is based on, or "derived" from, a traditional security, asset, or
market index. Some derivatives such as mortgage-related and other asset-backed
securities are in many respects like any other investment, although they may be
more volatile or less liquid than more traditional debt securities. There are,
in fact, many different types of derivatives and many different ways to use
them. There are a range of risks associated with those uses. Futures and options
are commonly used for traditional hedging purposes to attempt to protect a fund
from exposure to changing interest rates, securities prices, or currency
exchange rates and as a low cost method of gaining exposure to a particular
securities market without investing directly in those securities. However, some
derivatives are used for leverage, which tends to magnify the effects of an
instrument's price changes as market conditions change. Leverage involves the
use of a small amount of money to control a large amount of financial assets,
and can in some circumstances, lead to significant losses. The Adviser will use
derivatives only in circumstances where they offer the most efficient means of
improving the risk/reward profile of the Fund and when consistent with the
Fund's investment objective and policies. The use of derivatives for non-hedging
purposes may be considered speculative.

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.

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 Adviser 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.

Rule 144A Securities are securities in the United States that are not registered
for sale under federal securities laws but which can be resold to institutions
under SEC Rule 144A. Provided that a dealer or institutional trading market in
such securities exists, these restricted securities are treated as exempt from
each Fund's 15% limit on illiquid securities. Under the supervision of the Board
of Trustees of the Funds, the Adviser determines the liquidity of restricted
securities and, through reports from the Adviser, the Board will monitor trading
activity in restricted securities. If institutional trading in restricted
securities were to decline, the liquidity of the Funds could be adversely
affected.

In reaching liquidity decisions, the Adviser 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).

When-Issued and Delayed Delivery Securities. Each Fund may purchase securities
on a when-issued or delayed delivery basis. 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 a Fund until settlement takes place. At
the time a 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, each Fund identifies, as part
of a segregated account, cash or liquid securities, in an amount at least equal
to such commitments. On delivery dates for such transactions, each Fund will
meet its obligations from maturities or sales of the securities held in the
segregated account and/or from cash flow. If a 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 portfolio obligation, incur a gain or loss due
to market fluctuation. It is the current policy of each 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.

Lending of Portfolio Securities. Each Fund has the authority to lend up to 30%
of the total value of its portfolio securities to brokers, dealers and other
financial organizations. By lending its securities, a Fund may increase its
income by continuing to receive payments in respect of dividends and 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 a fee paid by the
borrower when irrevocable letters of credit and U.S. Government Obligations are
used as collateral. Each Fund will adhere to the following conditions whenever
its securities are loaned: (i) the Fund must receive at least 100% collateral
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 substitute payments in respect of all dividends,
interest or other distributions on the loaned securities; and (v) voting rights
on the loaned securities may pass to the borrower; provided, however, that if a
material event adversely affecting the investment occurs, the Board of Trustees
must retain the right to terminate the loan and recall and vote the securities.
Cash collateral may be invested in a money market fund managed by Bankers Trust
(or its affiliates) and Bankers Trust may serve as a Fund's lending agent and
may share in revenue received from securities lending transactions as
compensation for this service.

Repurchase Agreements. In a repurchase agreement, a Fund buys a security at one
price and simultaneously agrees to sell it back at a higher price at a future
date. In the event of the bankruptcy of the other party to a repurchase
agreement, the Fund could experience delays in recovering either its cash or
selling securities subject to the repurchase agreement. To the extent that, in
the meantime, the value of the securities repurchased had decreased or the value
of the securities had increased, the Fund could experience a loss. In all cases,
the Adviser must find the creditworthiness of the other party to the transaction
satisfactory.

Reverse Repurchase Agreements. The Funds 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 a Fund enters into a reverse repurchase agreement it
will place in a segregated custodial account cash, 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 a Fund may decline below the
repurchase price of those securities. Reverse repurchase agreements are
considered to be borrowings by a Fund. Warrants. Each Fund (except the Equity
500 Index Fund) may invest in warrants with respect to 5% of its assets (2% with
respect to warrants not listed on the New York Stock Exchange or American Stock
Exchange). 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.

Swap Agreements. Each Fund (except the Equity 500 Index Fund) may enter into
swap agreements to the extent that obligations under such agreements represent
not more than 10% of the Fund's total assets. Swap agreements are contracts
entered into by two parties, primarily institutional investors, for periods
ranging from a few weeks to more than one year. In a standard swap transaction,
two parties agree to exchange the returns (or differentials in rates of return)
earned or realized on particular predetermined investments or instruments. The
gross returns to be exchanged or swapped between the parties are calculated with
respect to a notional amount, i.e., the return on or increase in value of a
particular dollar amount invested at a particular interest rate, in a particular
foreign currency, or in a basket of securities representing a particular index.
The notional amount of the swap agreement is only a fictive basis on which to
calculate the obligations which the parties to a swap agreement have agreed to
exchange. A Fund's obligations (or rights) under a swap agreement will generally
be equal only to the net amount to be paid or received under the agreement based
on the relative values of the positions held by each party to the agreement (the
"net amount"). A Fund's obligations under a swap agreement will be accrued daily
(offset against any amounts owing to the Fund) and any accrued but unpaid net
amounts owed to a swap counterparty will be covered by the maintenance of a
segregated account consisting of cash, U.S. Government securities, or high grade
debt obligations, to avoid any potential leveraging of the Fund's portfolio.

Whether the use of swap agreements will be successful in furthering its
investment objective will depend on the Adviser's ability to correctly predict
whether certain types of investments are likely to produce greater returns than
other investments. Swap agreements may be considered to be illiquid because they
are two party contracts and because they may have terms of greater than seven
days. Moreover, a Fund bears the risk of loss of the amount expected to be
received under a swap agreement in the event of the default or bankruptcy of a
swap agreement counterparty. A Fund will minimize this risk by entering into
agreements that mark to market no less frequently than quarterly. In addition, a
Fund will enter into swap agreements only with counterparties that would be
eligible for consideration as repurchase agreement counterparties under the
Fund's repurchase agreement guidelines. The swaps market is a relatively new
market and is largely unregulated. It is possible that developments in the swaps
market, including potential government regulation, could adversely affect a
Fund's ability to terminate existing swap agreements or to realize amounts to be
received under such agreements. Swap agreements also bear the risk that a Fund
will not be able to meet its obligation to the counterparty. This risk will be
mitigated by investing the Fund in the specific asset for which it is obligated
to pay a return.

Certain swap agreements are exempt from most provisions of the Commodity
Exchange Act (the "CEA") and, therefore, are not regulated as futures or
commodity option transactions under the CEA, pursuant to regulations approved by
the Commodity Futures Trading Commission (the "CFTC"). To qualify for this
exemption, a swap agreement must be entered into by eligible participants, which
includes the following, provided the participant's total assets exceed
established levels: a bank or trust company, savings association or credit
union, insurance company, investment company subject to regulation under the
Investment Company Act of 1940, as amended (the "1940 Act"), commodity pool,
corporation, partnership, proprietorship, organization, trust or other entity,
employee benefit plan, governmental entity, broker-dealer, futures commission
merchant, natural person, or regulated foreign person. To be eligible, natural
persons and most other entities must have total assets exceeding $10 million;
commodity pools and employee benefit plans must have assets exceeding $5
million. In addition, an eligible swap transaction must meet three conditions.
First, the swap agreement may not be part of a fungible class of agreements that
are standardized as to their material economic terms. Second, the
creditworthiness of parties with actual or potential obligations under the swap
agreement must be a material consideration in entering into or determining the
terms of the swap agreement, including pricing, cost or credit enhancement
terms. Third, swap agreements may not be entered into and traded on or through a
multilateral transaction execution facility.

This exemption is not exclusive, and participants may continue to rely on
existing exclusions for swaps, such as the Policy Statement issued in July 1989
which recognized a "safe harbor" for swap transactions from regulation as
futures or commodity option transactions under the CEA or its regulations. The
Policy Statement applies to swap transactions settled in cash that: (i) have
individually tailored terms; (ii) lack exchange style offset and the use of a
clearing organization or margin system; (iii) are undertaken in conjunction with
a line of business; and (iv) are not marketed to the public.

Ginnie Mae Certificates. The Government National Mortgage Association ("Ginnie
Mae") is a wholly-owned corporate instrumentality of the United States within
the Department of Housing and Urban Development. The National Housing Act of
1934, as amended (the "Housing Act"), authorizes Ginnie Mae to guarantee the
timely payment of the principal of and interest on certificates that are based
on and backed by a pool of mortgage loans insured by the Federal Housing
Administration under the Housing Act, or Title V of the Housing Act of 1949
("FHA Loans"), or guaranteed by the Department of Veterans Affairs under the
Servicemen's Readjustment Act of 1944, as amended ("VA Loans"), or by pools of
other eligible mortgage loans. The Housing Act provides that the full faith and
credit of the U.S. government is pledged to the payment of all amounts that may
be required to be paid under any Ginnie Mae guaranty. In order to meet its
obligations under such guaranty, Ginnie Mae is authorized to borrow from the
U.S. Treasury with no limitations as to amount.

The Ginnie Mae Certificates in which the U.S. Bond Index Fund will invest will
represent a pro rata interest in one or more pools of the following types of
mortgage loans: (i) fixed-rate level payment mortgage loans; (ii) fixed-rate
graduated payment mortgage loans; (iii) fixed-rate growing equity mortgage
loans; (iv) fixed-rate mortgage loans secured by manufactured (mobile) homes;
(v) mortgage loans on multifamily residential properties under construction;
(vi) mortgage loans on completed multifamily projects; (vii) fixed-rate mortgage
loans as to which escrowed funds are used to reduce the borrower's monthly
payments during the early years of the mortgage loans ("buydown" mortgage
loans); (viii) mortgage loans that provide for adjustments in payments based on
periodic changes in interest rates or in other payment terms of the mortgage
loans; and (ix) mortgage-backed serial notes. All of these mortgage loans will
be FHA Loans or VA Loans and, except as otherwise specified above, will be
fully-amortizing loans secured by first liens on one- to four-family housing
units.

Fannie Mae Certificates. The Federal National Mortgage Association ("Fannie
Mae") is a federally chartered and privately owned corporation organized and
existing under the Federal National Mortgage Association Charter Act of 1938.
The obligations of Fannie Mae are not backed by the full faith and credit of the
U.S. government.

Each Fannie Mae Certificate will represent a pro rata interest in one or more
pools of FHA Loans, VA Loans or conventional mortgage loans (i.e., mortgage
loans that are not insured or guaranteed by any governmental agency) of the
following types: (i) fixed-rate level payment mortgage loans; (ii) fixed-rate
growing equity mortgage loans; (iii) fixed-rate graduated payment mortgage
loans; (iv) variable rate mortgage loans; (v) other adjustable rate mortgage
loans; and (vi) fixed-rate and adjustable mortgage loans secured by multifamily
projects.

Freddie Mac Certificates. The Federal Home Loan Mortgage Corporation ("Freddie
Mac") is a corporate instrumentality of the United States created pursuant to
the Emergency Home Finance Act of 1970, as amended (the "FHLMC Act"). The
obligations of Freddie Mac are obligations solely of Freddie Mac and are not
backed by the full faith and credit of the U.S. government.

Freddie Mac Certificates represent a pro rata interest in a group of mortgage
loans (a "Freddie Mac Certificate group") purchased by Freddie Mac. The mortgage
loans underlying the Freddie Mac Certificates will consist of fixed-rate or
adjustable rate mortgage loans with original terms to maturity of between ten
and thirty years, substantially all of which are secured by first liens on one-
to four-family residential properties or multifamily projects. Each mortgage
loan must meet the applicable standards set forth in the FHLMC Act. A Freddie
Mac Certificate group may include whole loans, participating interests in whole
loans and undivided interests in whole loans and participations comprising
another Freddie Mac Certificate group.

Adjustable Rate Mortgages - Interest Rate Indices. Adjustable rate mortgages in
which the U.S. Bond Index Fund invests may be adjusted on the basis of one of
several indices. The One Year Treasury Index is the figure derived from the
average weekly quoted yield on U.S. Treasury securities adjusted to a constant
maturity of one year. The Cost of Funds Index reflects the monthly weighted
average cost of funds of savings and loan associations and savings banks whose
home offices are located in Arizona, California and Nevada (the "FHLB Eleventh
District") that are member institutions of the Federal Home Loan Bank of San
Francisco (the "FHLB of San Francisco"), as computed from statistics tabulated
and published by the FHLB of San Francisco. The FHLB of San Francisco normally
announces the Cost of Funds Index on the last working day of the month following
the month in which the cost of funds was incurred.

A number of factors affect the performance of the Cost of Funds Index and may
cause the Cost of Funds Index to move in a manner different from indices based
upon specific interest rates, such as the One Year Treasury Index. Because of
the various origination dates and maturities of the liabilities of members of
the FHLB Eleventh District upon which the Cost of Funds Index is based, among
other things, at any time the Cost of Funds Index may not reflect the average
prevailing market interest rates on new liabilities of similar maturities. There
can be no assurance that the Cost of Funds Index will necessarily move in the
same direction or at the same rate as prevailing interest rates since as longer
term deposits or borrowings mature and are renewed at market interest rates, the
Cost of Funds Index will rise or fall depending upon the differential between
the prior and the new rates on such deposits and borrowings. In addition,
dislocations in the thrift industry in recent years have caused and may continue
to cause the cost of funds of thrift institutions to change for reasons
unrelated to changes in general interest rate levels. Furthermore, any movement
in the Cost of Funds Index as compared to other indices based upon specific
interest rates may be affected by changes instituted by the FHLB of San
Francisco in the method used to calculate the Cost of Funds Index. To the extent
that the Cost of Funds Index may reflect interest changes on a more delayed
basis than other indices, in a period of rising interest rates, any increase may
produce a higher yield later than would be produced by such other indices, and
in a period of declining interest rates, the Cost of Funds Index may remain
higher than other market interest rates which may result in a higher level of
principal prepayments on mortgage loans which adjust in accordance with the Cost
of Funds Index than mortgage loans which adjust in accordance with other
indices.

LIBOR, the London interbank offered rate, is the interest rate that the most
creditworthy international banks dealing in U.S. dollar-denominated deposits and
loans charge each other for large dollar-denominated loans. LIBOR is also
usually the base rate for large dollar-denominated loans in the international
market. LIBOR is generally quoted for loans having rate adjustments at one,
three, six or twelve month intervals.

Asset-Backed Securities. The asset-backed securities in which the U.S. Bond
Index Fund may invest are limited to those which are readily marketable,
dollar-denominated and rated BBB or higher by S&P or Baa or higher by Moody's.
Asset-backed securities present certain risks that are not presented by
mortgage-backed securities. Primarily, these securities do not have the benefit
of the same type of security interest in the related collateral. Credit card
receivables are generally unsecured and the debtors are entitled to the
protection of a number of state and federal consumer credit laws, many of which
give such debtors the right to avoid payment of certain amounts owed on the
credit cards, thereby reducing the balance due. Most issuers of automobile
receivables permit the servicer to retain possession of the underlying
obligations. If the servicer were to sell these obligations to another party,
there is a risk that the purchaser would acquire an interest superior to that of
the holders of the related automobile receivables. In addition, because of the
large number of vehicles involved in a typical issuance and technical
requirements under state laws, the trustee for the holders of the automobile
receivables may not have a proper security interest in all of the obligations
backing such receivables. Therefore, there is the possibility that recoveries on
repossessed collateral may not, in some cases, be available to support payments
on these securities.

Mortgage-Backed Securities and Asset-Backed Securities--Types of Credit Support.
The mortgage-backed securities in which the U.S. Bond Index Fund may invest are
limited to those relating to residential mortgages. Mortgage-backed securities
and asset-backed securities are often backed by a pool of assets representing
the obligations of a number of different parties. To lessen the effect of
failure by obligors on underlying assets to make payments, such securities may
contain elements of credit support. Such credit support falls into two
categories: (i) liquidity protection and (ii) protection against losses
resulting from ultimate default by an obligor on the underlying assets.
Liquidity protection refers to the provision of advances, generally by the
entity administering the pool of assets, to ensure that the pass-through of
payments due on the underlying pool occurs in a timely fashion. Protection
against losses resulting from ultimate default enhances the likelihood of
ultimate payment of the obligations on at least a portion of the assets in the
pool. Such protection may be provided through guarantees, insurance policies or
letters of credit obtained by the issuer or sponsor from third parties, through
various means of structuring the transaction or through a combination of such
approaches. The U.S. Bond Index Fund will not pay any additional fees for such
credit support, although the existence of credit support may increase the price
of a security.

The ratings of mortgage-backed securities and asset-backed securities for which
third-party credit enhancement provides liquidity protection or protection
against losses from default are generally dependent upon the continued
creditworthiness of the provider of the credit enhancement. The ratings of such
securities could be subject to reduction in the event of deterioration in the
creditworthiness of the credit enhancement provider even in cases where the
delinquency and loss experience on the underlying pool of assets is better than
expected.

Examples of credit support arising out of the structure of the transaction
include "senior-subordinated securities" (multiple class securities with one or
more classes subordinate to other classes as to the payment of principal thereof
and interest thereon, with the result that defaults on the underlying assets are
borne first by the holders of the subordinated class), creation of "reserve
funds" (where cash or investments, sometimes funded from a portion of the
payments on the underlying assets, are held in reserve against future losses)
and "over-collateralization" (where the scheduled payments on, or the principal
amount of, the underlying assets exceed those required to make payment of the
securities and pay any servicing or other fees). The degree of credit support
provided for each issue is generally based on historical information with
respect to the level of credit risk associated with the underlying assets.
Delinquency or loss in excess of that which is anticipated could adversely
affect the return on an investment in such a security.

Stripped Mortgage-Backed Securities. The cash flows and yields on IO and PO
classes are extremely sensitive to the rate of principal payments (including
prepayments) on the related underlying mortgage assets. For example, a rapid or
slow rate of principal payments may have a material adverse effect on the yield
to maturity of IOs or POs, respectively. If the underlying mortgage assets
experience greater than anticipated prepayments of principal, an investor may
fail to recoup fully its initial investment in an IO class of a stripped
mortgage-backed security, even if the IO class is rated AAA or Aaa. Conversely,
if the underlying mortgage assets experience slower than anticipated prepayments
of principal, the yield on a PO class will be affected more severely than would
be the case with a traditional mortgage-backed security.

Options on Securities. Each Fund may write (sell) covered call and put options
to a limited extent on its portfolio securities ("covered options") in an
attempt to increase income. However, the Fund may forgo the benefits of
appreciation on securities sold or may pay more than the market price on
securities acquired pursuant to call and put options written by the Fund.

When a Fund writes a covered call option, it gives the purchaser of the option
the right to buy the underlying security at the price specified in the option
(the "exercise price") by exercising the option at any time during the option
period. If the option expires unexercised, the Fund will realize income in an
amount equal to the premium received for writing the option. If the option is
exercised, a decision over which the Fund has no control, the Fund must sell the
underlying security to the option holder at the exercise price. By writing a
covered call option, the Fund forgoes, in exchange for the premium less the
commission ("net premium"), the opportunity to profit during the option period
from an increase in the market value of the underlying security above the
exercise price.

When a Fund writes a covered put option, it gives the purchaser of the option
the right to sell the underlying security to the Fund at the specified exercise
price at any time during the option period. If the option expires unexercised,
the Fund will realize income in the amount of the premium received for writing
the option. If the put option is exercised, a decision over which the Fund has
no control, the Fund must purchase the underlying security from the option
holder at the exercise price. By writing a covered put option, the Fund, in
exchange for the net premium received, accepts the risk of a decline in the
market value of the underlying security below the exercise price. A Fund will
only write put options involving securities for which a determination is made at
the time the option is written that the Fund wishes to acquire the securities at
the exercise price.

A Fund may terminate its obligation as the writer of a call or put option by
purchasing an option with the same exercise price and expiration date as the
option previously written. This transaction is called a "closing purchase
transaction." A Fund will realize a profit or loss for a closing purchase
transaction if the amount paid to purchase an option is less or more, as the
case may be, than the amount received from the sale thereof. To close out a
position as a purchaser of an option, a Fund may make a "closing sale
transaction" which involves liquidating the Fund's position by selling the
option previously purchased. Where the Fund cannot effect a closing purchase
transaction, it may be forced to incur brokerage commissions or dealer spreads
in selling securities it receives or it may be forced to hold underlying
securities until an option is exercised or expires.

When a Fund writes an option, an amount equal to the net premium received by the
Fund is included in the liability section of the Fund's Statement of Assets and
Liabilities as a deferred credit. The amount of the deferred credit will be
subsequently marked to market to reflect the current market value of the option
written. The current market value of a traded option is the last sale price or,
in the absence of a sale, the mean between the closing bid and asked price. If
an option expires on its stipulated expiration date or if a Fund enters into a
closing purchase transaction, the Fund will realize a gain (or loss if the cost
of a closing purchase transaction exceeds the premium received when the option
was sold), and the deferred credit related to such option will be eliminated. If
a call option is exercised, the Fund will realize a gain or loss from the sale
of the underlying security and the proceeds of the sale will be increased by the
premium originally received. The writing of covered call options may be deemed
to involve the pledge of the securities against which the option is being
written. Securities against which call options are written will be segregated on
the books of the custodian for the Fund.

A Fund may purchase call and put options on any securities in which it may
invest. A Fund would normally purchase a call option in anticipation of an
increase in the market value of such securities. The purchase of a call option
would entitle the Fund, in exchange for the premium paid, to purchase a security
at a specified price during the option period. A Fund would ordinarily have a
gain if the value of the securities increased above the exercise price
sufficiently to cover the premium and would have a loss if the value of the
securities remained at or below the exercise price during the option period.

A Fund would normally purchase put options in anticipation of a decline in the
market value of securities in its portfolio ("protective puts") or securities of
the type in which it is permitted to invest. The purchase of a put option would
entitle a Fund, in exchange for the premium paid, to sell a security, which may
or may not be held in the Fund's portfolio, at a specified price during the
option period. The purchase of protective puts is designed merely to offset or
hedge against a decline in the market value of the Fund's portfolio securities.
Put options also may be purchased by a Fund for the purpose of affirmatively
benefiting from a decline in the price of securities which the Fund does not
own. A Fund would ordinarily recognize a gain if the value of the securities
decreased below the exercise price sufficiently to cover the premium and would
recognize a loss if the value of the securities remained at or above the
exercise price. Gains and losses on the purchase of protective put options would
tend to be offset by countervailing changes in the value of underlying portfolio
securities.

The hours of trading for options on securities may not conform to the hours
during which the underlying securities are traded. To the extent that the option
markets close before the markets for the underlying securities, significant
price and rate movements can take place in the underlying securities markets
that cannot be reflected in the option markets. It is impossible to predict the
volume of trading that may exist in such options, and there can be no assurance
that viable exchange markets will develop or continue.

A Fund may engage in over-the-counter options transactions with broker-dealers
who make markets in these options. The ability to terminate over-the-counter
option positions is more limited than with exchange-traded option positions
because the predominant market is the issuing broker rather than an exchange,
and may involve the risk that broker-dealers participating in such transactions
will not fulfill their obligations. To reduce this risk, a Fund will purchase
such options only from broker-dealers who are primary government securities
dealers recognized by the Federal Reserve Bank of New York and who agree to (and
are expected to be capable of) entering into closing transactions, although
there can be no guarantee that any such option will be liquidated at a favorable
price prior to expiration. The Adviser will monitor the creditworthiness of
dealers with whom a Fund enters into such options transactions under the general
supervision of the Fund's Trustees. Unless the Board of Trustees conclude
otherwise, each Fund intends to treat OTC options as not readily marketable and
therefore subject to each Fund's 15% limit on investments in illiquid
securities.

Options on Securities Indices. In addition to options on securities, each Fund
may also 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. Such options will be used for the purposes described above
under "Options on Securities."

EAFE(R) Equity Index Fund may, to the extent allowed by Federal and state
securities laws, invest in securities indices instead of investing directly in
individual foreign securities.

Options on securities indices entail risks in addition to the risks of options
on securities. The absence of a liquid secondary market to close out options
positions on securities indices is more likely to occur, although a Fund
generally will only purchase or write such an option if the Adviser 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. A Fund will not purchase such options unless the Adviser
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 a 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 Adviser may be forced to liquidate portfolio securities
to meet settlement obligations.

Currency Exchange Transactions. Because each 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, each Fund
from time to time may enter into currency exchange transactions to convert to
and from different currencies and to convert currencies to and from the U.S.
dollar. A Fund either enters into these transactions on a spot (i.e., cash)
basis at the spot rate prevailing in the currency exchange market or uses
forward contracts to purchase or sell foreign currencies.

Forward Currency Exchange Contracts. A forward 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
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 brokerages) and their
customers. A forward currency exchange contract may not have a deposit
requirement and may be traded at a net price without commission. Each Fund
maintains with its custodian a segregated account of high grade liquid assets in
an amount at least equal to its obligations under each forward currency exchange
contract. Neither spot transactions nor forward currency exchange contracts
eliminate fluctuations in the prices of the Fund's securities or in exchange
rates, or prevent loss if the prices of these securities should decline.

Each Fund may enter into currency hedging transactions in an attempt to protect
against changes in currency exchange rates between the trade and settlement
dates of specific securities transactions or changes in currency exchange rates
that would adversely affect a portfolio position or an anticipated investment
position. Since consideration of the prospect for currency parities will be
incorporated into Bankers Trust's long-term investment decisions, a Fund will
not routinely enter into currency hedging transactions with respect to security
transactions; however, the Adviser believes that it is important to have the
flexibility to enter into 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 a
Fund's ability to utilize forward contracts 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 currency forward contracts may not eliminate
fluctuations in the underlying U.S. dollar equivalent value of the prices of or
rates of return on a Fund's foreign currency denominated portfolio securities
and the use of such techniques will subject a 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, a Fund
may not always be able to enter into currency forward contracts at attractive
prices and this will limit the Fund's ability to use such contract to hedge or
cross-hedge its assets. Also, with regard to a Fund's use of cross-hedges, there
can be no assurance that historical correlations between the movement of certain
foreign currencies relative to the U.S. dollar will continue. Thus, at any time
poor correlation may exist between movements in the exchange rates of the
foreign currencies underlying a Fund's cross-hedges and the movements in the
exchange rates of the foreign currencies in which the Fund's assets that are the
subject of such cross-hedges are denominated.

Options on Foreign Currencies. The EAFE(R) Equity Index Fund may purchase and
write options on foreign currencies for hedging purposes in a manner similar to
that in which futures contracts on foreign currencies, or forward contracts,
will be utilized. For example, a decline in the dollar value of a foreign
currency in which portfolio securities are denominated will reduce the dollar
value of such securities, even if their value in the foreign currency remains
constant. In order to protect against such diminutions in the value of portfolio
securities, the Fund may purchase put options on the foreign currency. If the
value of the currency does decline, the Fund will have the right to sell such
currency for a fixed amount in dollars and will thereby offset, in whole or in
part, the adverse effect on its portfolio which otherwise would have resulted.

Conversely, where a rise in the dollar value of a currency in which securities
to be acquired are denominated is projected, thereby increasing the cost of such
securities, the EAFE(R) Equity Index Fund may purchase call options thereon. The
purchase of such options could offset, at least partially, the effects of the
adverse movements in exchange rates. As in the case of other types of options,
however, the benefit to the Fund deriving from purchases of foreign currency
options will be reduced by the amount of the premium and related transaction
costs. In addition, where currency exchange rates do not move in the direction
or to the extent anticipated, the Fund could sustain losses on transactions in
foreign currency options which would require it to forego a portion or all of
the benefits of advantageous changes in such rates.

The EAFE(R) Equity Index Fund may write options on foreign currencies for the
same types of hedging purposes. For example, where the Fund anticipates a
decline in the dollar value of foreign currency denominated securities due to
adverse fluctuations in exchange rates it could, instead of purchasing a put
option, write a call option on the relevant currency. If the expected decline
occurs, the options will most likely not be exercised, and the diminution in
value of portfolio securities will be offset by the amount of the premium
received.

Similarly, instead of purchasing a call option to hedge against an anticipated
increase in the dollar cost of securities to be acquired, the EAFE(R) Equity
Index Fund could write a put option on the relevant currency which, if rates
move in the manner projected, will expire unexercised and allow the Fund to
hedge such increased cost up to the amount of the premium. As in the case of
other types of options, however, the writing of a foreign currency option will
constitute only a partial hedge up to the amount of the premium, and only if
rates move in the expected direction. If this does not occur, the option may be
exercised and the Fund would be required to purchase or sell the underlying
currency at a loss which may not be offset by the amount of the premium. Through
the writing of options on foreign currencies, the Fund also may be required to
forego all or a portion of the benefits which might otherwise have been obtained
from favorable movements in exchange rates.

The EAFE(R) Equity Index Fund may write covered call options on foreign
currencies. A call option written on a foreign currency by the Fund is "covered"
if the Fund owns the underlying foreign currency covered by the call or has an
absolute and immediate right to acquire that foreign currency without additional
cash consideration (or for additional cash consideration held in a segregated
account by its Custodian) upon conversion or exchange of other foreign currency
held in its portfolio. A call option is also covered if the Fund has a call on
the same foreign currency and in the same principal amount as the call written
where the exercise price of the call held (a) is equal to or less than the
exercise price of the call written or (b) is greater than the exercise price of
the call written if the difference is maintained by the Fund in cash or liquid
securities in a segregated account with its custodian.

The EAFE(R) Equity Index Fund also may write call options on foreign currencies
that are not covered for cross-hedging purposes. A call option on a foreign
currency is for cross-hedging purposes if it is not covered, but is designed to
provide a hedge against a decline in the U.S. dollar value of a security which
the Fund owns or has the right to acquire and which is denominated in the
currency underlying the option due to an adverse change in the exchange rate. In
such circumstances, the Fund collateralizes the option by maintaining in a
segregated account with its custodian, cash or liquid securities in an amount
not less than the value of the underlying foreign currency in U.S. dollars
marked to market daily.

<PAGE>

Futures Contracts and Options on Futures Contracts

General. The successful use of futures contracts and options thereon draws upon
the Adviser's skill and experience with respect to such instruments and usually
depends on the Adviser's ability to forecast interest rate and currency exchange
rate movements correctly. Should interest or exchange rates move in an
unexpected manner, a 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 futures contracts 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 a 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, a 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. Futures contracts are contracts to purchase or sell a fixed
amount of an underlying instrument, commodity or index at a fixed time and place
in the future. 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 exchanges and
clear through their clearing corporations. Each Fund may enter into contracts
for the purchase or sale for future delivery of fixed-income securities, foreign
currencies, or financial indices including any index of U.S. Government
securities, foreign government securities or corporate debt securities. Each
Fund may enter into futures contracts which are based on debt securities that
are backed by the full faith and credit of the U.S. government, such as
long-term U.S. Treasury Bonds, Treasury Notes, Ginnie Mae modified pass-through
mortgage-backed securities and three-month U.S. Treasury Bills. A Fund may also
enter into futures contracts which are based on bonds issued by governments
other than the U.S. government. Futures contracts on foreign currencies may be
used to hedge against securities that are denominated in foreign currencies.

At the same time a futures contract is entered into, a Fund must allocate cash
or securities as a deposit payment ("initial margin"). Initial margin deposits
are set by exchanges and may range between 1% and 10% of a contract's face
value. Daily thereafter, the futures contract is valued and the payment of
"variation margin" may be required, since each day the Fund would provide or
receive cash that reflects any decline or increase in the contract's value.

At the time of delivery of securities pursuant to such a contract, adjustments
are made to recognize differences in value arising from the delivery of
securities with a different interest rate from that specified in the contract.
In some (but not many) cases, securities called for by a futures contract may
not have been issued when the contract was written.

Although futures contracts (other than those that settle in cash such as index
futures) by their terms call for the actual delivery or acquisition of the
instrument underlying the contract, in most cases the contractual obligation is
fulfilled by offset before the date of the contract without having to make or
take delivery of the instrument underlying the contract. The offsetting of a
contractual obligation is accomplished by entering into an opposite position in
the identical futures contract on the commodities exchange on which the futures
contract was entered into (or a linked exchange). Such a transaction, which is
effected through a member of an exchange, cancels the obligation to make or take
delivery of the instrument underlying the contract. 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, a Fund will
incur brokerage fees when it enters into futures contracts.

The purpose of the acquisition or sale of a futures contract, in the case of a
Fund which holds or intends to acquire fixed-income securities, is to attempt to
protect the Fund from fluctuations in interest or foreign exchange rates without
actually buying or selling fixed-income securities or foreign currencies. For
example, if interest rates were expected to increase, a Fund might enter into
futures contracts for the sale of debt securities. Such a sale would have much
the same effect as selling an equivalent value of the debt securities owned by
the Fund. If interest rates did increase, the value of the debt security in the
Fund would decline, but the value of the futures contracts to the Fund would
increase at approximately the same rate, thereby keeping the net asset value of
the Fund from declining as much as it otherwise would have. A Fund could
accomplish similar results by selling debt securities and investing in bonds
with short maturities when interest rates are expected to increase. However,
since the futures market is more liquid than the cash market, the use of futures
contracts as an investment technique allows a Fund to maintain a defensive
position without having to sell its portfolio securities.

Similarly, when it is expected that interest rates may decline, futures
contracts may be purchased to attempt to hedge against anticipated purchases of
debt securities at higher prices. Since the fluctuations in the value of futures
contracts should be similar to those of debt securities, a Fund could take
advantage of the anticipated rise in the value of debt securities without
actually buying them until the market had stabilized. At that time, the futures
contracts could be liquidated and the Fund could then buy debt securities on the
cash market. The assets in the segregated asset account maintained to cover the
Fund's obligations with respect to such futures contracts will consist of cash
or securities acceptable to the broker from its portfolio in an amount equal to
the difference between the fluctuating market value of such futures contracts
and the aggregate value of the initial and variation margin payments made by the
Fund with respect to such futures contracts.

The ordinary spreads between prices in the cash and futures market, due to
differences in the nature of those markets, are subject to distortions. First,
all participants in the futures market are subject to initial deposit and
variation margin requirements. Rather than meeting additional variation margin
requirements, investors may close futures contracts through offsetting
transactions which could distort the normal relationship between the cash and
futures markets. Second, the liquidity of the futures market depends on most
participants entering into offsetting transactions rather than making or taking
delivery. To the extent that many participants decide to make or take delivery,
liquidity in the futures market could be reduced, thus producing distortion.
Third, from the point of view of speculators, the margin deposit requirements in
the futures market are less onerous than margin requirements in the securities
market. Therefore, increased participation by speculators in the futures market
may cause temporary price distortions. Due to the possibility of distortion, a
correct forecast of general interest rate or currency exchange rate trends by
the Adviser may still not result in a successful transaction.

In addition, futures contracts entail risks. Although the Adviser believes that
use of such contracts will benefit the Funds, if the Adviser's investment
judgment about the general direction of interest rates is incorrect, a Fund's
overall performance would be poorer than if it had not entered into any such
contract. For example, if a Fund has hedged against the possibility of an
increase in interest rates which would adversely affect the price of debt
securities held in its portfolio and interest rates decrease instead, the Fund
will lose part or all of the benefit of the increased value of its debt
securities which it has hedged because it will have offsetting losses in its
futures positions. In addition, in such situations, if a Fund has insufficient
cash, it may have to sell debt securities from its portfolio to meet daily
variation margin requirements. Such sales of bonds may be, but will not
necessarily be, at increased prices which reflect the rising market. A Portfolio
may have to sell securities at a time when it may be disadvantageous to do so.

Options on Futures Contracts. Each Fund may purchase and write options on
futures contracts for hedging purposes. The purchase of a call option on a
futures contract is similar in some respects to the purchase of a call option on
an individual security. For example, when a Fund is not fully invested it may
purchase a call option on an interest rate sensitive futures contract to hedge
against a potential price increase on debt securities due to declining interest
rates. The purchase of a put option on a futures contract is similar in some
respects to the purchase of protective put options on portfolio securities. For
example, a Fund may purchase a put option on an interest rate sensitive futures
contract to hedge its portfolio against the risk of a decline in the price of
debt securities due to rising interest rates.

The writing of a call option on a futures contract may constitute a partial
hedge against declining prices of portfolio securities which are the same as or
correlate with the security or foreign currency which is deliverable upon
exercise of the futures contract. If the futures price at expiration of the
option is below the exercise price, a Fund will retain the full amount of the
option premium which provides a partial hedge against any decline that may have
occurred in the Fund's portfolio holdings. The writing of a put option on a
futures contract may constitute a partial hedge against increasing prices of
intended portfolio securities which are the same as or correlate with the
security or foreign currency which is deliverable upon exercise of the futures
contract. If the futures price at expiration of the option is higher than the
exercise price, the Fund will retain the full amount of the option premium which
provides a partial hedge against any increase in the price of securities which
the Fund intends to purchase. If a put or call option a Fund has written is
exercised, the Fund will incur a loss which will be reduced by the amount of the
premium it receives. Depending on the degree of correlation between changes in
the value of its portfolio securities and changes in the value of its futures
positions, the Fund's losses from existing options on futures may to some extent
be reduced or increased by changes in the value of portfolio securities.

The amount of risk a Fund assumes when it purchases an option on a futures
contract is the premium paid for the option plus related transaction costs. In
addition to the correlation risks discussed above, the purchase of an option
also entails the risk that changes in the value of the underlying futures
contract will not be fully reflected in the value of the option purchased.

Asset Coverage. To assure that a Fund's use of futures and related options, as
well as when-issued and delayed-delivery securities and foreign currency
exchange transactions, are not used to achieve investment leverage, a Fund will
cover such transactions, as required under applicable interpretations of the
SEC, either by owning the underlying securities or by segregating with the
Fund's Custodian or futures commission merchant liquid securities in an amount
at all times equal to or exceeding the Fund's commitment with respect to these
instruments or contracts.

The Board of Trustees of each Fund has adopted the policy that futures contracts
and options on futures contracts may be used as a hedge and may also use stock
index futures on a continual basis to equitize cash so that a Fund may maintain
100% equity exposure. In compliance with current CFTC regulations, a 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 Fund's net asset value, after taking into
account unrealized profits and unrealized losses on any such contracts.

Additional Risk Factors

In addition to the risks discussed above, the Funds' investments may be subject
to the following risk factors:

Fixed Income Security Risk. Fixed income securities expose the Fund to four
types of risk: (1) Interest rate risk is the potential for fluctuations in bond
prices due to changing interest rates; (2) Income risk is the potential for a
decline in a Fund's income due to falling market interest rates; (3) Credit risk
is the possibility that a bond issuer will fail to make timely payments of
either interest or principal to the Fund and (4) Prepayment risk or call risk is
the likelihood that, during period of falling interest rates, securities with
high stated interest rates will be prepaid (or "called") prior to maturity,
requiring the Fund to invest the proceeds at generally lower interest rates.

Foreign Securities: Special Considerations Concerning the Pacific Basin. 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.

The securities markets in Asia are substantially smaller, less liquid and more
volatile than the major securities markets in the United States. A high
proportion of the shares of many issuers may be held by a limited number of
persons and financial institutions, which may limit the number of shares
available for investment by a Fund. Similarly, volume and liquidity in the bond
markets in Asia are less than in the United States and, at times, price
volatility can be greater than in the United States. A limited number of issuers
in Asian securities markets may represent a disproportionately large percentage
of market capitalization and trading value. The limited liquidity of securities
markets in Asia may also affect a Fund's ability to acquire or dispose of
securities at the price and time it wishes to do so. The EAFE(R) Equity Index
Fund's inability to dispose fully and promptly of positions in declining markets
will cause the Fund's net asset value to decline as the value of the unsold
positions is marked to lower prices. In addition, the Asian securities markets
are susceptible to being influenced by large investors trading significant
blocks of securities.

Many stock markets are 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 EAFE(R) Equity Index Fund invests in securities denominated in currencies of
Asian countries. Accordingly, changes in the value of these currencies against
the U.S. dollar will result in corresponding changes in the U.S. dollar value of
the Fund's assets denominated in those currencies.

Options on Futures Contracts, Forward Contracts and Options on Foreign
Currencies. Unlike transactions entered into by a Fund in futures contracts,
options on foreign currencies and 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 principals, although foreign currency options
are also traded on certain national securities exchanges such as the
Philadelphia Stock Exchange and the Chicago Board Options Exchange, subject to
SEC regulation. In an over-the-counter trading environment, many of the
protections afforded to exchange participants will not be available. For
example, there are no daily price fluctuation limits, and adverse market
movements could therefore continue to an unlimited extent over a period of time.
Although the purchaser of an option cannot lose more than the amount of the
premium plus related transaction costs, this entire amount could be lost.
Moreover, the option writer and a trader of forward contracts could lose amounts
substantially in excess of their initial investments.

Forward contracts and options on foreign currencies traded over-the-counter
involve liquidity and credit risks which may not be present in the case of
exchange-traded currency options. A 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, each Fund will treat purchased over-the-counter
options and assets used to cover written over-the-counter options as illiquid
securities.

Options on foreign currencies traded on national securities exchanges are within
the jurisdiction of the SEC, as are other securities traded on such exchanges.
As a result, many of the protections provided to traders on organized exchanges
will be available with respect to such transactions. In particular, all foreign
currency option positions entered into on a national securities exchange are
cleared and guaranteed by the Options Clearing Corporation (the "OCC"), thereby
reducing the risk of counterparty default. Further, a liquid secondary market in
options traded on a national securities exchange may be more readily available
than in the over-the-counter market, potentially permitting a Fund to liquidate
open positions at a profit prior to exercise or expiration, or to limit losses
in the event of adverse market movements.

The purchase and sale of exchange-traded foreign currency options, however, is
subject to the risks of the availability of a liquid secondary market described
above, as well as the risks regarding adverse market movements, margining of
options written, the nature of the foreign currency market, possible
intervention by governmental authorities and the effects of other political and
economic events. In addition, exchange-traded options on foreign currencies
involve certain risks not presented by the over-the-counter market. For example,
exercise and settlement of such options must be made exclusively through the
OCC, which has established banking relationships in applicable foreign countries
for this purpose. As a result, the OCC may, if it determines that foreign
governmental restrictions or taxes would prevent the orderly settlement of
foreign currency option exercises, or would result in undue burdens on the OCC
or its clearing member, impose special procedures on exercise and settlement,
such as technical changes in the mechanics of delivery of currency, the fixing
of dollar settlement prices or prohibitions on exercise.

In addition, futures contracts, options on futures contracts, forward contracts
and options on foreign currencies 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.

Rating Services. The ratings of Moody's and S&P represent their opinions as to
the quality of the Municipal Obligations and other securities that they
undertake to rate. It should be emphasized, however, that ratings are relative
and subjective and are not absolute standards of quality. Although these ratings
are an initial criterion for selection of portfolio investments, the Adviser
also makes its own evaluation of these securities, subject to review by the
Board of Trustees. After purchase by a Fund, an obligation may cease to be rated
or its rating may be reduced below the minimum required for purchase by the
Fund. Neither event would require a Fund to eliminate the obligation from its
portfolio, but the Adviser will consider such an event in its determination of
whether a Fund should continue to hold the obligation. A description of the
ratings categories of Moody's and S&P is set forth in the Appendix to this SAI.

Investment Restrictions

Fundamental Policies. The following investment restrictions are "fundamental
policies" of each Fund and may not be changed with respect to a Fund 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, means, with respect to each 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, EAFE(R) Equity Index Fund, Equity 500 Index
Fund and Small Cap Index 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), interests in oil, gas or mineral leases, commodities or
commodity contracts (except futures and option contracts) in the
ordinary course of business (except that the Trust may hold and sell,
for the Fund's portfolio, real estate acquired as a result of the
Fund's ownership of securities);

(5) concentrate its investments in any particular industry (excluding
U.S. Government securities), but if it is deemed appropriate for the
achievement of the Fund's investment objective(s), up to 25% of its
total assets may be invested in any one industry;

(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.

As a matter of fundamental policy , U.S. Bond Index Fund may not:

(1) borrow money or mortgage or hypothecate assets of the Fund, except
that in an amount not to exceed 1/3 of the current value of the Fund's
assets, it may borrow money as a temporary measure for extraordinary or
emergency purposes and enter into reverse repurchase agreements or
dollar roll transactions, and except that it may pledge, mortgage or
hypothecate not more than 1/3 of such assets to secure such borrowings
(it is intended that money would be borrowed only from banks and only
either to accommodate requests for the withdrawal of beneficial
interests (redemption of shares) while effecting an orderly liquidation
of portfolio securities or to maintain liquidity in the event of an
unanticipated failure to complete a portfolio security transaction or
other similar situations) or reverse repurchase agreements, provided
that collateral arrangements with respect to options and futures,
including deposits of initial deposit and variation margin, are not
considered a pledge of assets for purposes of this restriction and
except that assets may be pledged to secure letters of credit solely
for the purpose of participating in a captive insurance company
sponsored by the Investment Company Institute; for additional related
restrictions, see clause (i) under the caption "Additional
Restrictions" below (as an operating policy, the 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 net assets (taken at market value); (b) through the
use of repurchase agreements or the purchase of short-term obligations;
or (c) by purchasing a portion of an issue of debt securities of types
distributed publicly or privately;

Additional Restrictions.

In order to comply with certain statutes and policies, the EAFE(R) Equity Index
Fund, Equity 500 Index Fund and Small Cap Index Fund will not, as a matter of
operating policy (except such policies may be changed by the Board of Trustees):

(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.

In order to comply with certain statutes and policies, the U.S. Bond Index Fund
will not, as a matter of operating policy (except such policies may be changed
by the Board of Trustees):

(ii) sell securities it does not own such that the dollar amount of
such short sales at any one time exceeds 25% of the net equity of the
Fund, and the value of securities of any one issuer in which the Fund
is short exceeds the lesser of 2.0% of the value of the Fund's net
assets or 2.0% of the securities of any class of any U.S. issuer and,
provided that short sales may be made only in those securities which
are fully listed on a national securities exchange (This provision does
not include the sale of securities where the Fund contemporaneously
owns or has the right to obtain securities equivalent in kind and
amount to those sold, i.e., short sales against the box.) (the Fund has
no current intention to engage in short selling);

(iii) invest for the purpose of exercising control or management;

(iv) purchase securities issued by any investment company except by
purchase in the open market where no commission or profit to a sponsor
or dealer results from such purchase other than the customary broker's
commission, or except when such purchase, though not made in the open
market, is part of a plan of merger or consolidation; provided,
however, that securities of any investment company will not be
purchased for the Fund if such purchase at the time thereof would
cause: (a) more than 10% of the Fund's total assets (taken at the
greater of cost or market value) (except the Fund may exceed the
applicable percentage limits to the extent permitted by an exemptive
order of the SEC)to be invested in the securities of such issuers; (b)
more than 5% of the Fund's total assets (taken at the greater of cost
or market value) (except the Fund may exceed the applicable percentage
limits to the extent permitted by an exemptive order of the SEC) to be
invested in any one investment company; or (c) more than 3% of the
outstanding voting securities of any such issuer to be held for the
Fund; provided further that, except in the case of a merger or
consolidation, the Fund shall not purchase any securities of any
open-end investment company unless the Fund (1) waives the investment
advisory fee with respect to assets invested in other open-end
investment companies and (2) incurs no sales charge in connection with
the investment (as an operating policy, the Fund will not invest in
another open-end registered investment company);

(v) invest more than 10% of the Fund's total assets (taken at the
greater of cost or market value) in securities that are restricted as
to resale under the 1933 Act (other than Rule 144A securities deemed
liquid by the Fund's Board of Trustees);

(vi) invest more than 15% of the Fund's net assets (taken at the
greater of cost or market value) in securities that are illiquid or not
readily marketable not including (a) Rule 144A securities that have
been determined to be liquid by the Board of Trustees; and (b)
commercial paper that is sold under section 4(2) of the 1933 Act which
is not traded flat or in default as to interest or principal;

(vii) invest in warrants (other than warrants acquired by the Fund as
part of a unit or attached to securities at the time of purchase) if,
as a result, the investments (valued at the lower of cost or market)
would exceed 5% of the value of the Fund's net assets or if, as a
result, more than 2% of the Fund's net assets would be invested in
warrants not listed on a recognized United States stock exchange, to
the extent permitted by applicable state securities laws.

There will be no violation of any investment restrictions or policies (except
with respect to fundamental investment restriction (1) above) if that
restriction is complied with at the time the relevant action is taken
notwithstanding a later change in the market value of an investment, in net or
total assets, or in the change of securities rating of the investment, or any
other later change.

Portfolio Transactions and Brokerage Commissions

The Adviser is responsible for decisions to buy and sell securities, futures
contracts and options on such securities and futures for each 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 portfolio 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 portfolio securities
on behalf of a Fund are frequently placed by the Adviser 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 Adviser 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 a 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 a Fund to reported commissions paid by others. The Adviser
reviews on a routine basis commission rates, execution and settlement services
performed, making internal and external comparisons.

The Adviser is authorized, consistent with Section 28(e) of the Securities
Exchange Act of 1934, as amended, when placing portfolio transactions for a 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 Conduct Rules of the National
Association of Securities Dealers, Inc. and such other policies as the Trustees
of a Fund may determine, the Adviser may consider sales of shares of the Fund as
a factor in the selection of broker-dealers to execute portfolio transactions.
Bankers Trust will make such allocations if commissions are comparable to those
charged by nonaffiliated, qualified broker-dealers for similar services.

Higher commissions may be paid to firms that provide research services to the
extent permitted by law. Bankers Trust may use this research information in
managing each 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 a Fund and to the Adviser, it is the opinion of the
management of the Funds that such information is only supplementary to the
Adviser's own research effort, since the information must still be analyzed,
weighed and reviewed by the Adviser's staff. Such information may be useful to
the Adviser in providing services to clients other than the Funds, and not all
such information is used by the Adviser in connection with the Funds.
Conversely, such information provided to the Adviser by brokers and dealers
through whom other clients of the Adviser effect securities transactions may be
useful to the Adviser in providing services to the Funds.

In certain instances there may be securities which are suitable for a Fund as
well as for one or more of the Adviser's other clients. Investment decisions for
a Fund and for the Adviser'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 a Fund is concerned. However, it is believed that the ability
of a Fund to participate in volume transactions will produce better executions
for the Fund.

For the fiscal year ended December 31, 1998, and for the period from October
1, 1997 (commencement of operations) to December 31, 1997, Equity 500 Index Fund
paid brokerage commissions in the amount of $17,740 and $1,075, respectively.

For the fiscal year ended December 31, 1998 and for the period from August 25,
1997 (commencement of operations) to December 31, 1997, the Small Cap Index Fund
paid brokerage commissions in the amount of $23,046 and $11,148, respectively.
During the fiscal year ended December 31, 1998, the Small Cap Index Fund paid
brokerage commissions of $108 to Bankers Trust. During the fiscal year ended
December 31, 1998, this amounted to approximately 0.47% of the aggregate
brokerage commissions paid by the Fund for transactions involving approximately
0.27% of the aggregate dollar amount of transactions for which the Fund paid
brokerage commissions.

For the fiscal year ended December 31, 1998 and for the period from August 22,
1997 (commencement of operations) to December 31, 1997, the EAFE(R) Equity Index
Fund paid brokerage commissions in the amount of $2,749 and $24,396,
respectively.

PERFORMANCE INFORMATION

Standard Performance Information

From time to time, quotations of a Fund's performance may be included in
advertisements, sales literature or shareholder reports. Mutual fund performance
is commonly measured as total return and/or yield. Each Fund's performance is
affected by its expenses. These performance figures are calculated in the
following manner:

Yield: Yield refers to the income generated by an investment in a Fund
over a given period of time, expressed as an annual percentage rate.
Yields for a Fund used in advertising are computed by dividing the
Fund's interest and dividend income for a given 30-day or one-month
period, net of expenses, by the average number of shares entitled to
receive distributions during the period, dividing this figure by the
Fund's net asset value per share at the end of the period, and
annualizing the result (assuming compounding of income) in order to
arrive at an annual percentage rate. Income is calculated for purpose
of yield quotations in accordance with standardized methods applicable
to all stock and bond mutual funds. Dividends from equity investments
are treated as if they were accrued on a daily basis, solely for the
purpose of yield calculations. In general, interest income is reduced
with respect to bonds trading at a premium over their par value by
subtracting a portion of the premium from income on a daily basis, and
is increased with respect to bonds trading at a discount by adding a
portion of the discount to daily income. Capital gains and losses
generally are excluded from the calculation.

Income calculated for the purposes of calculating a Fund's yield
differs from income as determined for other accounting purposes.
Because of the different accounting methods used, and because of the
compounding assumed in yield calculations, the yield quoted for a Fund
may differ from the rate of distributions of the Fund paid over the
same period or the rate of income reported in the Fund's financial
statements. This difference may be significant for a Fund investing in
a Fund whose investments are denominated in foreign currencies.

Total return: Total return is the change in value of an investment in a
Fund over a given period, assuming reinvestment of any dividends and
capital gains. A cumulative total return reflects actual performance
over a stated period of time. An average annual total return is a
hypothetical rate of return that, if achieved annually, would have
produced the same cumulative total return if performance had been
constant over the entire period. Average annual total return
calculations smooth out variations in performance; they are not the
same as actual year-by-year results. Average annual total returns
covering periods of less than one year assume that performance will
remain constant for the rest of the year. A 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. A Fund may also calculate total return figures
which represent aggregate performance over a period or year-by-year
performance.

Unlike some bank deposits or other investments which pay a fixed yield
for a stated period of time, the total return of a Fund will vary
depending upon interest rates, the current market value of the
securities held by the corresponding Fund and changes in the expenses
of the Fund. In addition, during certain periods for which total return
may be provided, Bankers Trust may have voluntarily agreed to waive
portions of its fees, or reimburse certain operating expenses of a
Fund, on a month-to-month basis. Such waivers will have the effect of
increasing such Fund's net income (and therefore its yield and total
return) during the period such waivers are in effect.

Performance Results: Total returns and yields are based on past results
and are not an indication of future performance. Any total return
quotation provided for a Fund should not be considered as
representative of the performance of the Fund in the future since the
net asset value and public offering price of shares of the Fund will
vary based not only on the type, quality and maturities of the
securities held in the corresponding 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 a Fund to total returns published for other investment
companies or other investment vehicles. Total return reflects the
performance of both principal and income.

Comparison of Fund Performance

Comparison of the quoted nonstandardized performance of various investments is
valid only if performance is calculated in the same manner. Since there are
different methods of calculating performance, investors should consider the
effect of the methods used to calculate performance when comparing performance
of a 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, a 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 a Fund's performance made by independent sources may also be used
in advertisements concerning the Fund. Sources for a Fund's performance
information could include the following:

Asian Wall Street Journal, a weekly Asian newspaper that often reviews U.S.
mutual funds investing internationally.

Barron's, a Dow Jones and Company, Inc. business and financial weekly that
periodically reviews mutual fund performance data.

Business Week, a national business weekly that periodically reports the
performance rankings and ratings of a variety of mutual funds investing abroad.

Changing Times, The Kiplinger Magazine, a monthly investment advisory
publication that periodically features the performance of a variety of
securities.

Consumer Digest, a monthly business/financial magazine that includes a "Money
Watch" section featuring financial news.

Financial Times, Europe's business newspaper, which features from time to time
articles on international or country-specific funds.

Financial World, a general business/financial magazine that includes a "Market
Watch" department reporting on activities in the mutual fund industry.

Forbes, a national business publication that from time to time reports the
performance of specific investment companies in the mutual fund industry.

Fortune, a national business publication that periodically rates the performance
of a variety of mutual funds.

Global Investor, a European publication that periodically reviews the
performance of U.S. mutual funds investing internationally.

Investor's Daily, a daily newspaper that features financial, economic and
business news.

Lipper Analytical Services, Inc.'s Mutual Fund Performance Analysis, a weekly
publication of industry-wide mutual fund averages by type of fund.

Money, a monthly magazine that from time to time features both specific funds
and the mutual fund industry as a whole.

Morningstar Inc., a publisher of financial information and mutual fund research.

New York Times, a nationally distributed newspaper which regularly covers
financial news.

Personal Investing News, a monthly news publication that often reports on
investment opportunities and market conditions.

Personal Investor, a monthly investment advisory publication that includes a
"Mutual Funds Outlook" section reporting on mutual fund performance measures,
yields, indices and portfolio holdings.

Success, a monthly magazine targeted to the world of entrepreneurs and growing
business, often featuring mutual fund performance data.

U.S. News and World Report, a national business weekly that periodically reports
mutual fund performance data.

Value Line, a biweekly publication that reports on the largest 15,000 mutual
funds.

Wall Street Journal, a Dow Jones and Company, Inc. newspaper which regularly
covers financial news.

Weisenberger Investment Companies Services, an annual compendium of information
about mutual funds and other investment companies, including comparative data on
funds' backgrounds, management policies, salient features, management results,
income and dividend records, and price ranges.

Working Women, a monthly publication that features a "Financial Workshop"
section reporting on the mutual fund/financial industry.

Economic and Market Information

Advertising and sales literature of a Fund may include discussions of economic,
financial and political developments and their effect on the securities market.
Such discussions may take the form of commentary on these developments by Fund
portfolio managers and their views and analysis on how such developments could
affect the Funds. In addition, advertising and sales literature may quote
statistics and give general information about the mutual fund industry,
including the growth of the industry, from sources such as the Investment
Company Institute ("ICI").

VALUATION OF SECURITIES; REDEMPTIONS AND PURCHASES IN KIND

Valuation of Securities

Each Fund is open for business each day the New York Stock Exchange, Inc.
("NYSE") is open (a "Valuation Day"). Each Fund's net asset value ("NAV") per
share is calculated as of the close of regular trading on the NYSE, which is
currently 4:00 p.m., Eastern time (the "Valuation Time"). The NAV per share is
computed by dividing the value of each Fund's assets, less all liabilities
attributable to the shares, by the total number of shares outstanding.

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.

Each 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. 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 a Fund purchases securities which are restricted as to resale
or for which current market quotations are not available, the Adviser, under the
supervision of the Board of Trustees, will value such securities based upon all
relevant factors as outlined in FRR 1.

Purchase and Redemption of Shares

Shares of each 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
Contract owners 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 Contract owners. Contract owners 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 each Fund's prospectus. Each Fund and the Distributor reserve the
right to reject any purchase order for shares of a Fund.

Payment for redeemed shares will ordinarily be made within seven (7) business
days after a 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 Contract owner's request in proper form.

Each 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 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.

Redemptions and Purchases in Kind

The Trust, on behalf of each 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
a 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 each Fund has
elected, however, to be governed by Rule 18f-1 under the 1940 Act as a result of
which each 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.

Each investor in a Fund may add to or reduce its investment in the Fund on each
day the Fund determines its net asset value. At the close of each such business
day, the value of each investor's beneficial interest in the Fund will be
determined by multiplying the net asset value of the Fund by the percentage,
effective for that day, which represents that investor's share of the aggregate
beneficial interests in the Fund. Any additions or withdrawals which are to be
effected as of the close of business on that day will then be effected. The
investor's percentage of the aggregate beneficial interests in the Fund will
then be recomputed as the percentage equal to the fraction (i) the numerator of
which is the value of such investor's investment in the Fund as of the close of
business on such day plus or minus, as the case may be, the amount of net
additions to or withdrawals from the investor's investment in the Fund effected
as of the close of business on such day, and (ii) the denominator of which is
the aggregate net asset value of the Fund as of the close of business on such
day plus or minus, as the case may be, the amount of net additions to or
withdrawals from the aggregate investments in the Fund by all investors in the
Fund. The percentage so determined will then be applied to determine the value
of the investor's interest in the Fund as the close of business on the following
business day.

Each Fund may, at its own option, accept securities in payment for shares. The
securities delivered in payment for shares are valued by the method described
under "Valuation of Securities" as of the day the Fund receives the securities.
This is a taxable transaction to the shareholder. Securities may be accepted in
payment for shares only if they are, in the judgment of Bankers Trust,
appropriate investments for the Fund. In addition, securities accepted in
payment for shares must: (i) meet the investment objective and policies of the
acquiring Fund; (ii) be acquired by the applicable Fund for investment and not
for resale; (iii) be liquid securities which are not restricted as to transfer
either by law or liquidity of market; and (iv) if stock, have a value which is
readily ascertainable as evidenced by a listing on a stock exchange,
over-the-counter market or by readily available market quotations from a dealer
in such securities. When securities are used as payment for shares or as a
redemption in kind from the fund, the transaction fee will not be assessed.
However, the shareholder will be charged the costs associated with receiving or
delivering the securities. These costs include security movement costs and taxes
and registration costs. Each Fund reserves the right to accept or reject at its
own option any and all securities offered in payment for its shares.

Trading in Foreign Securities

With respect to the EAFE(R) Equity Index Fund, trading in foreign cities may be
completed at times which vary from the closing of the NYSE. In computing the net
asset values, the Funds value foreign securities at the latest closing price on
the exchange on which they are traded immediately prior to the closing of the
NYSE. Similarly, foreign securities quoted in foreign currencies are translated
into U.S. dollars at the foreign exchange rates.

Occasionally, events that affect values and exchange rates may occur between the
times at which they are determined and the closing of the NYSE. If such events
materially affect the value of portfolio securities, these securities may be
valued at their fair value as determined in good faith by the Trustees, although
the actual calculation may be done by others.

MANAGEMENT OF THE TRUST

The Trust is governed by a Board of Trustees which is responsible for protecting
the interests of investors. None of the executive officers of the Trust or the
Funds devotes full time to the affairs of the Trust or the Funds.

The Board of Trustees is comprised of persons experienced in financial matters
who meet throughout the year to oversee the activities of the Funds. In
addition, the Trustees review contractual arrangements with companies that
provide services to the Funds and review the Funds' performance.

The Trustees and officers of the Trust, their birthdates, their principal
occupations during the past five years, and addresses are set forth below. Their
titles may have varied during that period. Unless otherwise indicated, the
address of each Trustee and officer is 101 Federal Street, Boston, Massachusetts
02110.

Trustees and Officers

Principal Occupations During
Name, Address and Age Position Held with the Trust Past 5 Years
- --------------------- ---------------------------- ------------

Robert R. Coby, 47 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, 55 Trustee Chairman of North American Properties
2015 West Main Street Group since January 1987.
Stamford, CT 06902

James S. Pasman, Jr., 68 Trustee Retired; President and Chief Operations
29 The Trillium Officer of National Intergroup Inc.
Pittsburgh, PA 15238 (1989-1991).

*William E. Small, 57 Trustee Independent Consultant (1996-present);
Formerly Executive Vice President of
First Data Investor Services Group Inc.
("Investor Services Group") (1993-1996).

Elizabeth Russell, 36 Vice President and Secretary Counsel of Investor Services Group
since 1994; Assistant Vice President
and Counsel, The Boston Company
Advisors, Inc. (1993-1994).

Gerald J. Holland, 48 President and Treasurer Vice President of Investor Services
Group since 1994; Senior Vice President
of Finance and Administration for
Delaware Management Company, Inc and
its affiliates prior to 1994.
* Prior to December 31, 1998, William E. Small was an "interested" Trustee.
</TABLE>

Mr. Holland and Ms. 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.

The Trust typically pays its Trustees an annual retainer and a per meeting fee
and reimburses them for their expenses. The aggregate amount of compensation
paid to each current Trustee by the Trust for the fiscal year ended December 31,
1998, was as follows:

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
(1) (2) (3) (4) (5)

Pension or Retirement Total Compensation
Aggregate Benefits Accrued as Estimated Annual from Registrant and
Name of Compensation Part of Benefits Fund Complex
Board Member from Fund* Fund's Expenses Upon Retirement

Robert R. Coby $15,000 N/A N/A $15,000

Desmond G. FitzGerald $15,000 N/A N/A $15,000

James S. Pasman, Jr. $15,000 N/A N/A $15,000

William E. Small $0 N/A N/A $0
</TABLE>

* Amount does not include reimbursed expenses for attending Board meetings,
which amounted to $8,375 for all Trustees as a group. As of April 14,
1999 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).

Through its separate accounts, the Companies are the Fund's sole stockholders of
record.

As of April 14, 1999, the following shareholders of record owned 5% or more of
the outstanding shares of the Equity 500 Index Fund:

Name and Address Percentage Owned

Integrity Life Insurance Company 30.28%
515 West Market Street
8th Floor
Louisville, KY 40202

USAA Life Insurance Company 21.98%
9800 Fredericksburg
San Antonio, TX 78288

National Integrity Life Insurance Company 12.07%
515 West Market Street
8th Floor
Louisville, KY 40202

Lincoln National Life Insurance Company 11.53%
Lincoln Life Variable Annuity Account
1300 South Clinton Street
Fort Wayne, IN 46801

Lincoln National Life Insurance Company 7.22%
Lincoln Life Separate Account
1300 South Clinton Street
Fort Wayne, IN 46801

Lincoln National Life Insurance Company 6.21%
Lincoln Life Flexible Premium Account
1300 South Clinton Street
Fort Wayne, IN 46801

As of April 14, 1999, the following shareholders of record owned 5% or more of
the outstanding Shares of the Small Cap Index Fund:

Name and Address Percentage Owned

Connecticut General Life Insurance Company 40.76%
900 Cottage Grove Road
Hartford, CT 06152

Travelers Insurance Company 21.34%
One Tower Square
Hartford, CT 06183

Integrity Life Insurance Company 14.51%
515 West Market Street
8th Floor
Louisville, KY 40202

National Integrity Life Insurance Company 13.42%
515 West Market Street
8th Floor
Louisville, KY 40202

USAA Life Insurance Company 9.84%
9800 Fredericksburg
San Antonio, TX 78288

As of April 14, 1999, the following shareholders of record owned 5% or more of
the outstanding Shares of the EAFE(R) Equity Index Fund:

Name and Address Percentage Owned

Connecticut General Life Insurance Company 46.68%
900 Cottage Grove Road
Hartford, CT 06152

Travelers Insurance Company 40.31%
One Tower Square
Hartford, CT 06183

Integrity Life Insurance Company 5.30%
515 West Market Street
8th Floor
Louisville, KY 40202

Investment Adviser

Bankers Trust Company, a New York banking corporation with principal offices at
130 Liberty Street, (One Bankers Trust Plaza), New York, New York 10006, is a
wholly owned subsidiary of Bankers Trust Corporation. Bankers Trust conducts a
variety of general banking and trust activities and is a major wholesale
supplier of financial services to the international and domestic institutional
market. As of December 31, 1998, Bankers Trust Corporation was the eighth
largest bank holding company in the United States with total assets of over $156
billion. 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 over $338 billion in assets under management globally.

Under the terms of each Fund's investment management agreement with Bankers
Trust (the "Management Agreements"), Bankers Trust manages each Fund subject to
the supervision and direction of the Board of Trustees of each Fund. Bankers
Trust will: (i) act in strict conformity with each Fund'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 each Fund in accordance with the Fund's
investment objectives, restrictions and policies; (iii) make investment
decisions for each Fund; (iv) place purchase and sale orders for securities and
other financial instruments on behalf of each Fund; (v) oversee the
administration of all aspects of the Funds' business and affairs; and (vi)
supervise the performance of professional services provided by others.

Bankers Trust, subject to the supervision and direction of the Board of Trustees
of each Fund, manages each 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 and employs professional investment managers
and securities analysts who provide research services to the Fund. Bankers Trust
may utilize the expertise of any of its worldwide subsidiaries and affiliates to
assist it in its role as investment adviser. All orders for investment
transactions on behalf of a Fund are placed by the Adviser 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. A Fund will not invest in obligations for which Bankers Trust
or any of its affiliates is the ultimate obligor or accepting bank. Each Fund
may, however, invest in the obligations of correspondents and customers of
Bankers Trust.

Bankers Trust bears all expenses in connection with the performance of services
under each Management Agreement. The Trust and each 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, or any of its 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; costs 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 or the Fund; and any extraordinary expenses.

The Investment Management Agreements provide for each Fund to pay Bankers Trust
a fee, accrued daily and paid monthly, equal on an annual basis to 0.15% of the
average daily net assets of the U.S. Bond Index Fund, 0.20% of the average daily
net assets of the Equity 500 Index Fund, 0.35% of the average daily net assets
of the Small Cap Index Fund and 0.45% of the average daily net assets of the
EAFE(R) Equity Index Fund. Bankers Trust has voluntarily undertaken to waive the
fees and to reimburse the Funds for certain expenses so that the Equity 500
Index Fund, Small Cap Index Fund and EAFE(R) Equity Index Fund total operating
expenses will not exceed 0.30%, 0.45% and 0.65%, respectively. Bankers Trust may
not recoup any of its waived investment advisory fees. Such waivers by Bankers
Trust shall stay in effect for at least 12 months.

For the fiscal year ended December 31, 1998, and for the period from October
1, 1997 (commencement of operations) to December 31, 1997, Bankers Trust earned
$47,571 and $5,294, respectively, as compensation for investment advisory
services provided to the Equity 500 Index Fund. During the same periods, Bankers
Trust reimbursed $182,787 and $65,771, respectively, to the Fund to cover
expenses.

For the fiscal year ended December 31, 1998 and for the period from August 25,
1997 (commencement of operations) to December 31, 1997, Bankers Trust earned
$80,592 and $13,629, respectively, for investment advisory services provided to
the Small Cap Index Fund. During the same periods, Bankers Trust reimbursed
$214,720 and $110,002, respectively, to the Fund to cover expenses.

For the fiscal years ended December 31, 1998 and for the period from August 22,
1997 (commencement of operations) to December 31, 1997, Bankers Trust earned
$105,141 and $23,060, respectively, for investment advisory services provided to
the EAFE(R) Equity Index Fund. During the same periods, Bankers Trust reimbursed
$216,275 and $107,853, respectively, to the Fund to cover 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 Funds,
including outstanding loans to such issuers which could be repaid in whole or in
part with the proceeds of securities so purchased. Such persons issue, deal,
trade and invest in securities for their own accounts and are among the leading
market participants with respect to various types of such securities. Bankers
Trust has informed the Funds that, in making its investment decisions, it 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 Funds, Bankers Trust will not inquire or take into consideration whether an
issuer of securities proposed for purchase or sale by a Fund is a customer of
Bankers Trust, its parent or its subsidiaries or affiliates and, in dealing with
its customers, Bankers Trust, its parent, subsidiaries and affiliates will not
inquire or take into consideration whether securities of such customers are held
by any fund managed by Bankers Trust or any such affiliate.

Administrator

Investor Services Group, 101 Federal Street, Boston, Massachusetts 02110, serves
as administrator of the Funds. 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.

As compensation for Investor Services Group's services under the Administration
Agreement, Investor Services Group is entitled to receive from the Trust a
monthly administration 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 fund of the
Trust and a one-time start-up fee for each fund of the Trust.

For the fiscal year ended December 31, 1998, and for the period from October
1, 1997 (commencement of operations) to December 31, 1997, Equity 500 Index Fund
paid Investor Services Group $74,756 and $17,758, respectively, for
administrative and other services provided to the Equity 500 Index Fund.

For the fiscal year ended December 31, 1998, and for the period from August 25,
1997 (commencement of operations) to December 31, 1997, Small Cap Index Fund
paid Investor Services Group $74,620 and $25,263, respectively as compensation
for administrative and other services provided to Small Cap Index Fund.

For the fiscal year ended December 31, 1998, and for the period from August 22,
1997 (commencement of operations to December 31, 1997, EAFE(R) Equity Index Fund
paid Investor Services Group $74,667 and $25,701, respectively, as compensation
for administrative and other services provided to EAFE(R) Equity Index Fund.

Distributor

First Data Distributors, Inc. (the "Distributor") serves as distributor of the
Funds' 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, 130 Liberty Street (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.

Expenses

In addition to the fees of Bankers Trust, the Funds are responsible for the
payment of all other expenses incurred in the operation of each Fund, which
include, among other things, expenses for legal and independent auditor's
services, charges of each 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 Contract owners, each 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 each Fund's net asset value per
share, expenses involved in registering and maintaining the registration of the
Funds' shares with the SEC and qualifying each 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 Contract owner servicing, distribution of reports to Contract owners and
prospectus printing and postage will be borne by the relevant Company.

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 adviser to the Funds.
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 Funds contemplated by the Management Agreements
and other activities for the Funds described in the Prospectuses and this SAI
without violation of the Glass-Steagall Act or other applicable banking laws or
regulations. However, counsel has pointed out that future changes in either
Federal or state statutes and regulations concerning the permissible activities
of banks or trust companies, as well as future judicial or administrative
decisions or interpretations of present and future statutes and regulations,
might prevent Bankers Trust from continuing to perform those services for the
Trust. 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 Auditors

Willkie Farr & Gallagher, 787 Seventh Avenue, New York, New York 10019-6099,
serves as Counsel to the Trust and the Funds. Ernst & Young LLP, 2001 Market
Street, Philadelphia, Pennsylvania 19103 acts as Independent Auditors of the
Trust and each Fund.

ORGANIZATION OF THE TRUST

The Trust was organized on January 19, 1996, under the laws of the Commonwealth
of Massachusetts. The Funds are separate series of the Trust. The Trust offers
shares of beneficial interest of the Funds and the Trust's other series, par
value $0.001 per share. The shares of some 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
obligation.

Through its separate accounts, the Companies are the Funds' sole stockholders of
record. Therefore under the 1940 Act, Companies owning 25% or more of the
outstanding securities of a Fund are deemed to be in control of the Fund.
Nevertheless, when a shareholders' meeting occurs, each Company solicits and
accepts voting instructions from its Contract owners 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
Contract owners' interests in the Funds 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 Funds 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.

Each Fund is only available to owners of variable annuity or variable life
insurance policies issued by the Companies through their respective separate
accounts. Each Fund does not currently foresee any disadvantages to Contract
owners 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 Contract owners. If a material irreconcilable conflict arises,
one or more separate accounts may withdraw their investment in a Fund. This
could possibly force a 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
Contract owners will likely increase due to the loss of economies of scale
benefits that can be provided to mutual funds with substantial assets.

As of April 14, 1999, the following shareholders of record owned 25% or more
of the voting securities of the Equity 500 Index Fund, and, therefore, may, for
certain purposes, be deemed to control the Fund and be able to affect the
outcome of certain matters presented for a vote of its shareholders: Integrity
Life Insurance Company, Louisville, Kentucky.

As of April 14, 1999, the following shareholders of record owned 25% or more of
the voting securities of the Small Cap Index Fund, and, therefore, may, for
certain purposes, be deemed to control the Fund and be able to affect the
outcome of certain matters presented for a vote of its shareholders: Connecticut
General Life Insurance Company, Hartford, Connecticut.

As of April 14, 1999, the following shareholders of record owned 25% or more of
the voting securities of the EAFE(R) Equity Index Fund, and, therefore, may, for
certain purposes, be deemed to control the Fund and be able to affect the
outcome of certain matters presented for a vote of its shareholders: Connecticut
General Life Insurance Company, Hartford, Connecticut and Travelers Insurance
Company, Hartford, Connecticut.

TAXATION

Taxation of the Funds

Each Fund intends to qualify or continue to qualify annually as a regulated
investment company under the Code. As a regulated investment company, each 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. Each
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
Funds also do not anticipate paying any excise taxes. The Funds' dividends and
distributions will not qualify for the dividends-received deduction for
corporations.

If for any taxable year a Fund does not qualify for the special federal income
tax treatment afforded regulated investment companies, all of its taxable income
will be subject to federal income tax at regular corporate rates (without any
deduction for distributions to its shareholders). In such event, dividend
distributions would be taxable to shareholders to the extent of current
accumulated earnings and profits, and would be eligible for the dividends
received deduction for corporations in the case of corporate shareholders.

A Fund's investment in Section 1256 contracts, such as regulated futures
contracts, most forward currency forward contracts traded in the interbank
market and options on most stock indices, are subject to special tax rules. All
section 1256 contracts held by a Fund at the end of its taxable year are
required to be marked to their market value, and any unrealized gain or loss on
those positions will be included in the Fund's income as if each position had
been sold for its fair market value at the end of the taxable year. The
resulting gain or loss will be combined with any gain or loss realized by the
Fund from positions in section 1256 contracts closed during the taxable year.
Provided such positions were held as capital assets and were not part of a
"hedging transaction" nor part of a "straddle," 60% of the resulting net gain or
loss will be treated as long-term capital gain or loss, and 40% of such net gain
or loss will be treated as short-term capital gain or loss, regardless of the
period of time the positions were actually held by the Fund.

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 Adviser intends to diversify the Fund's investments in
accordance with those requirements. The prospectus 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, each 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 each 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 a
Fund should consult a qualified tax adviser.

Distributions

Each Fund distributes substantially all of its net income and capital gains to
shareholders each year. Each Fund (except the U.S. Bond Index Fund) distributes
income dividends annually. U.S. Bond Index Fund declares income dividends daily
and distributes such dividends monthly. In addition, each Fund will distribute
net capital gains, if any, at least annually and may make additional capital
gains distributions at other times, if required, to remain in compliance with
the applicable tax regulations. Unless a shareholder instructs the Trust to pay
such dividends and distributions in cash, they will be automatically reinvested
in additional shares of the Fund that paid the dividend or distribution. The
prospectus for a Company's variable annuity or variable life insurance policies
describe the frequency of distributions to Contract owners and the federal
income tax treatment of distributions from such contracts to Contract owners.

Other Taxation

The Trust is organized as a Massachusetts business trust and, under current law,
neither the Trust nor any Fund is liable for any income or franchise tax in the
Commonwealth of Massachusetts, provided that the Fund continues to qualify as a
regulated investment company under Subchapter M of the Code.

Foreign Withholding Taxes

Income received by a Fund from investments in foreign securities may be subject
to withholding and other taxes imposed by foreign countries.

FINANCIAL STATEMENTS

The financial statements for the Funds for the period ended December 31, 1998
(other than U.S. Bond Index Fund which has not commenced operations as of the
date of this SAI), are incorporated herein by reference to the Funds' Annual
Reports dated December 31, 1998. A copy of a Fund's Annual Report may be
obtained without charge by contacting the Customer Service Center at the
telephone number shown in the contract Prospectus.

<PAGE>

APPENDIX

Description of Moody's Corporate Bond Ratings:

Aaa - Bonds rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt edge."
Interest payments are protected by a large or by an exceptionally stable margin
and principal is secure. While the various protective elements are likely to
change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.

Aa - Bonds rated Aa are judged to be of high quality by all standards. Together
with the Aaa group they comprise what are generally known as high-grade bonds.
They are rated lower than the best bonds because margins of protection may not
be as large as in Aaa securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than in Aaa securities.

A - Bonds rated A possess many favorable investment attributes and are to be
considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.

Baa - Bonds rated Baa are considered as medium-grade obligations, i.e. they are
neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such, bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.

Ba - Bonds rated Ba are judged to have speculative elements. Their future cannot
be considered as well assured. Often the protection of interest and principal
payments may be very moderate and thereby not well safeguarded during both (good
and bad times over the future. Uncertainty of position characterizes bonds in
this class.

B - Bonds rated B generally lack characteristics of a desirable investment.
Assurance of interest and principal payments or of maintenance of other terms of
the contract over any long period of time may be small.

Caa - Bonds rated Caa are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or interest.

Ca - Bonds rated Ca represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked short-comings.

C - Bonds rated C are the lowest-rated class of bonds and issued so rated can be
regarded as having extremely poor prospects of ever attaining any real
investment standing.

Moody's applies numerical modifiers, 1, 2, and 3, in each generic rating
classification from Aa through B in its corporate bond system. The modifier 1
indicates that the security ranks in the higher end of its generic rating
category; the modifier 2 indicates a mid-range ranking; and the modifier 3
indicates that the issue ranks in the lower end of its generic rating category.

Description of S&P's Corporate Bond Ratings:

AAA - Debt rated AAA has the highest rating assigned by S&P to a debt
obligation. Capacity to pay interest and repay principal is extremely strong.

AA - Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher-rated issues only in small degree.

A - Debt rated A has a strong capacity to pay interest and repay principal,
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.

BBB - Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to weakened capacity to pay interest and repay principal for debt
in this category than in higher-rated categories.

BB - Debt rate BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments.

B - Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB- rating.

CCC - Debt rated CCC has a currently identifiable vulnerability to default, and
is dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal.

CC - Debt rated CC is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC debt rating.

C -The rating C is typically applied to debt subordinated to senior debt which
is assigned an actual or implied CCC- debt rating. The C rating may be used to
cover a situation where a bankruptcy petition has been filed but debt service
payments are continued.

CI - The rating CI is reserved for income bonds on which no interest is being
paid.

D - Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating will also be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.

<PAGE>

COMB4NEW

Investment Adviser of each 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 Auditors
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 Trust's Prospectuses, its
Statements of Additional Information or the Trust's official sales literature in
connection with the offering of the Trust'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 Prospectuses nor this SAI constitutes an
offer in any state in which, or to any person to whom, such offer may not
lawfully be made.
--------------------

<PAGE>

STATEMENT OF ADDITIONAL INFORMATION
April 30, 1999

BT INSURANCE FUNDS TRUST

Small Cap Fund

BT Insurance Funds Trust (the "Trust") is an open-end management investment
company comprised of several funds. The Small Cap Fund (the "Fund") is a
separate series of the Trust. This Statement of Additional Information describes
the Fund's Shares.

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 "Adviser" or "Bankers Trust"). The
distributor of the Fund's shares is First Data Distributors, Inc. (the
"Distributor" or "First Data Distributors").

The Prospectus for the Fund is dated April 30, 1999. The Prospectus provides
the basic information investors should know before investing. 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. You may
request a copy of the prospectus or a paper copy of this SAI, if you have
received it electronically, free of charge by calling the Customer Service
Center at the telephone number shown in the Contract prospectus. This SAI is not
an offer for the Fund for which an investor has not received a Prospectus. This
SAI is not an offer of any Fund for which an investor has not received a
Prospectus. Capitalized terms not otherwise defined in this SAI have the
meanings accorded to them in the Fund's Prospectus.

BANKERS TRUST COMPANY
Investment Adviser of the Fund

FIRST DATA DISTRIBUTORS, INC.
Distributor
4400 Computer Drive
Westborough, MA 01581

<PAGE>

TABLE OF CONTENTS

INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS.............................
3
Investment Objective...................................................
3
Investment Policies.....................................................
3
Additional Risk Factors.................................................
12
Investment Restrictions..................................................
14
Portfolio Transactions and Brokerage Commissions.........................
15

PERFORMANCE INFORMATION......................................................
16
Standard Performance Information.........................................
16
Comparison of Fund Performance.......................................
17
Economic and Market Information.........................................
18

VALUATION OF SECURITIES; REDEMPTIONS AND PURCHASES IN KIND....................
18
Valuation of Securities.................................................
18
Purchase and Redemption of Shares.......................................
19
Redemptions and Purchases in Kind.......................................
19
Trading in Foreign Securities........................................
19

MANAGEMENT OF THE TRUST..................................................
20
Trustees and Officers 20
Investment Adviser.....................................................
21 Administrator.............................................................
22
Distributor............................................................
22
Custodian and Transfer Agent............................................
22
Expenses...............................................................
23
Use of Name.............................................................
23
Banking Regulatory Matters..............................................
23
Counsel and Independent Auditors .................................
23
ORGANIZATION OF THE TRUST....................................................
23

TAXATION.....................................................................
24
Taxation of the Fund....................................................
24
Distributions.......................................................
25
Other Taxation...........................................................
25
Foreign Withholding Taxes...............................................
25
APPENDIX...................................................................
26

<PAGE>

INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS

Investment Objective

Small Cap Fund's investment objective is long-term capital growth.

The production of any current income is secondary to the Fund's investment
objective and there can, of course, be no assurance that the Fund will achieve
its investment objective.

Investment Policies

Equity Securities. As used herein, "equity securities" are defined as common
stock, preferred stock, trust or limited partnership interests, rights and
warrants to subscribe to or purchase such securities, sponsored or unsponsored
ADRs, EDRs, GDRs, and convertible securities, consisting of debt securities or
preferred stock that may be converted into common stock or that carry the right
to purchase common stock. Common stocks, the most familiar type, represent an
equity (ownership) interest in a corporation. Although equity securities have a
history of long-term growth in value, their prices fluctuate based on changes in
a company's financial condition and on overall market and economic conditions.
Smaller companies are especially sensitive to these factors.

Debt Securities. Although not a principal investment, the Fund may invest in
debt securities. Bonds and other debt instruments are used by issuers to borrow
money from investors. The issuer pays the investor a fixed or variable rate of
interest, and must repay the amount borrowed at maturity. Some debt securities,
such as zero coupon bonds, do not pay current interest, but are purchased at a
discount from their face values. Debt securities, loans, and other direct debt
have varying degrees of quality and varying levels of sensitivity to changes in
interest rates. Longer-term bonds are generally more sensitive to interest rate
changes than short-term bonds.

Lower-quality foreign government debt securities are often considered to be
speculative and involve greater risk of default or price changes, or they may
already be in default. These risks are in addition to the general risks
associated with foreign securities.

Convertible Securities. A convertible security is a bond or preferred stock that
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.

Preferred Stock. Preferred stock has a preference in liquidation (and, generally
dividends) over common stock but is subordinated in liquidation to debt. As a
general rule the market value of preferred stocks with fixed dividend rates and
no conversion rights varies inversely with interest rates and perceived credit
risk, with the price determined by the dividend rate. Some preferred stocks are
convertible into other securities, for example common stock, at a fixed price
and ratio or upon the occurrence of certain events. The market price of
convertible preferred stocks generally reflects an element of conversion value.
Because many preferred stocks lack a fixed maturity date, these securities
generally fluctuate substantially in value when interest rates change; such
fluctuations often exceed those of long-term bonds of the same issuer. Some
preferred stocks pay an adjustable dividend that may be based on an index,
formula, auction procedure or other dividend rate reset mechanism. In the
absence of credit deterioration, adjustable rate preferred stocks tend to have
more stable market values than fixed rate preferred stocks.

All preferred stocks are also subject to the same types of credit risks of the
issuer as corporate bonds. In addition, because preferred stock is junior to
debt securities and other obligations of an issuer, deterioration in the credit
rating of the issuer will cause greater changes in the value of a preferred
stock than in a more senior debt security with similar yield characteristics.
Preferred stocks may be rated by Standard & Poor's Ratings Group ("S&P") and
Moody's Investors Services, Inc. ("Moody's") although there is no minimum rating
which a preferred stock must have (and a preferred stock may not be rated) to be
an eligible investment for the Fund. The Adviser expects, however, that
generally the preferred stocks in which the Fund invests will be rated at least
CCC by S&P or Caa by Moody's or, if unrated, of comparable quality in the
opinion of the Adviser. Preferred stocks rated CCC by S&P are regarded as
predominantly speculative with respect to the issuer's capacity to pay preferred
stock obligations and represent the highest degree of speculation among
securities rated between BB and CCC; preferred stocks rated Caa by Moody's are
likely to be in arrears on dividend payments. Moody's rating with respect to
preferred stocks does not purport to indicate the future status of payments of
dividends.

Warrants. Warrants are instruments that 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.

U.S. Government Securities. U.S. government securities are high-quality debt
securities issued or guaranteed by the U.S. Treasury or by an agency or
instrumentality of the U.S. government. Not all U.S. government securities are
backed by the full faith and credit of the United States. For example,
securities issued by the Farm Credit Banks or by the Federal National Mortgage
Association are supported by the instrumentality's right to borrow money from
the U.S. Treasury under certain circumstances. However, securities issued by
other agencies or instrumentalities are supported only by the credit of the
entity that issued them.

ADRs, GDRs and EDRs. American Depository Receipts ("ADRs"), Global Depository
Receipts ("GDRs"), and European Depository Receipts ("EDRs") are certificates
evidencing ownership of shares of a foreign-based issuer held in trust by a bank
or similar financial institution. Designed for use in U.S., international and
European securities markets, respectively, ADRs, GDRs and EDRs are alternatives
to the purchase of the underlying securities in their national markets and
currencies. ADRs, GDRs and EDRs are subject to the same risks as the foreign
securities to which they relate.

Zero Coupon Bonds. Zero coupon bonds are the separate income or principal
components of a debt instrument. These involve risks that are similar to those
of other debt securities, although they may be more volatile, and certain zero
coupon bonds move in the same direction as interest rates.

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 remaining 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.

The Securities and Exchange Commission the (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 Adviser
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.

Rule 144A Securities are securities in the United States that are not registered
for sale under federal securities laws but which can be resold to institutions
under SEC Rule 144A. Provided that a dealer or institutional trading market in
such securities exists, these restricted securities are treated as exempt from
the 15% limit on illiquid securities. Under the supervision of the Board of
Trustees of the Fund, the Adviser determines the liquidity of restricted
securities and, through reports from the Adviser, the Board will monitor trading
activity in restricted securities. If institutional trading in restricted
securities were to decline, the liquidity of the Fund could be adversely
affected.

<PAGE>

In reaching liquidity decisions, the Adviser will consider, among other things,
the following factors: (1) the frequency of trades and quotes for the security;
(2) the number of dealers and other potential purchasers or sellers of the
security; (3) dealer undertakings to make a market in the security and (4) 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).

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
fluctuations during this period and no income accrues to the Fund until
settlement takes place. The Fund identifies, as part of a segregated account,
cash or liquid securities in an amount at least equal to these commitments.

Lending of Portfolio Securities. The Fund is permitted to lend up to 30% of the
total value of its securities. The Fund will not lend securities to bankers
Trust or its affiliates. These loans must be secured continuously by cash or
equivalent collateral or by a letter of credit at least equal to the market
value of the securities loaned plus income. By lending its securities, the Fund
may increase its income by continuing to receive income on the loaned securities
as well as by the opportunity to receive interest on the collateral. During the
term of the loan, the Fund continues to bear the risk of fluctuations in the
price of the loaned securities. In lending securities to brokers, dealers and
other financial organizations, the Fund is subject to risks, which like those
associated with other extensions of credit, include delays in recovery and
possible loss of rights in the collateral should the borrower fail financially.
Cash collateral may be invested in a money market fund managed by Bankers Trust
(or its affiliates) and Bankers Trust may serve as the Fund's lending agent and
may share in revenue received from securities lending transactions as
compensation for this service.

Repurchase Agreements. In a repurchase agreement, the Fund buys a security at
one price and simultaneously agrees to sell it back at a higher price at a
future date. Delays or losses could result if the other party to the agreement
defaults or becomes insolvent.

Reverse Repurchase Agreements. In a reverse repurchase agreement, the Fund
temporarily transfers possession of a portfolio instrument to another party in
return for cash. This could increase the risk of fluctuation in the Fund's yield
or in the market value of its assets. A reverse repurchase agreement is a form
of borrowing and will be counted toward the Fund's borrowing restrictions.

Investment Companies. With respect to certain countries in which capital markets
are either less developed or not easily accessed, investments by the Fund may be
made through investment in other registered investment companies that in turn
are authorized to invest in the securities of such countries. Investments in
other investment companies may also be made for other purposes, such as noted
below under "Short-Term Instruments," are limited in amount by the Investment
Company Act of 1940, as amended (the "1940 Act") (except the Fund may exceed the
applicable percentage limits to the extent permitted by an exemptive order of
the SEC), and will involve the indirect payment of a portion of the expenses,
including advisory fees, of such other investment companies and may result in a
duplication of fees and expenses.

Short-Term Instruments. The Fund intends to stay invested in the securities
described herein to the extent practical in light of its objective and long-term
investment perspective. However, the Fund may invest up to 35% of its total
assets in high quality short-term investments with remaining maturities of 397
days or less, or in money market mutual funds, to meet anticipated redemptions
and expenses for day-to-day operating purposes and up to 100% of its total
assets when, in the Adviser's opinion, it is advisable to adopt a temporary
defensive position because of unusual and adverse conditions affecting the
respective markets. 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 invest in short-term instruments for a
limited time pending availability of such portfolio securities. Short-term
instruments consist of U.S. and non-U.S.: (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 the Adviser; (iii) commercial paper; (iv) bank obligations, including
negotiable certificates of deposit, time deposits and bankers' acceptances; and
(v) repurchase agreements. At the time the Fund invests in commercial paper,
bank obligations or repurchase agreements, the issuer or the issuer's parent
must have outstanding debt rated AA or higher by 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.

Lending of Portfolio Securities. The Fund has the authority to lend up to 30% of
the total value of its securities to brokers, dealers and other financial
organizations. These loans must be secured continuously by cash or securities
issued or guaranteed by the United States government, its agencies or
instrumentalities or by a letter of credit at least equal to the market value of
the securities loaned plus accrued income. The Fund will not lend securities to
the Adviser or its affiliates. By lending its securities, the Fund may increase
its income by continuing to receive payments in respect of dividends and
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 a fee
interest paid by the borrower when irrevocable letters of credit and U.S.
government obligations are used as collateral. During the term of the loan, the
Fund continues to bear the risk of fluctuations in the price of the loaned
securities. 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% 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 substitute payments in respect of all
dividends, interest or other distributions on the loaned securities, and (v)
voting rights on the loaned securities may pass to the borrower; provided,
however, that if a material event adversely affecting the investment occurs, the
Board of Trustees must retain the right to terminate the loan and recall and
vote the securities. In accordance with approval received from the SEC, cash
collateral may be invested in a money market fund managed by Bankers Trust (or
its affiliates) and Bankers Trust may serve as the Fund's lending agent and may
share in revenue received from the securities lending transactions as
compensation for this service.

Derivatives. The Fund may invest in various instruments that are commonly known
as "derivatives." Generally, a derivative is a financial arrangement, the value
of which is based on, or "derived" from, a traditional security, asset, or
market index. Some derivatives such as mortgage-related and other asset-backed
securities are in many respects like any other investment, although they may be
more volatile or less liquid than more traditional debt securities. There are,
in fact, many different types of derivatives and many different ways to use
them. There are a range of risks associated with those uses. Futures and options
are commonly used for traditional hedging purposes to attempt to protect a fund
from exposure to changing interest rates, securities prices, or currency
exchange rates and as a low cost method of gaining exposure to a particular
securities market without investing directly in those securities. However, some
derivatives are used for leverage, which tends to magnify the effects of an
instrument's price changes as market conditions change. Leverage involves the
use of a small amount of money to control a large amount of financial assets,
and can in some circumstances, lead to significant losses. The Adviser will use
derivatives only in circumstances where they offer the most efficient means of
improving the risk/reward profile of the Fund and when consistent with the
Fund's investment objective and policies. The use of derivatives for non-hedging
purposes may be considered speculative.

Currency Exchange Transactions. 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 currency exchange transactions to convert to
and from different currencies and to convert 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 currency exchange market or uses
forward contracts to purchase or sell foreign currencies.

Forward Currency Exchange Contracts. A forward foreign currency exchange
contract is an obligation by the Fund to purchase or sell a specific currency at
a future date, which may be any fixed number of days from the date of the
contract. Forward foreign currency exchange contracts establish an exchange rate
at a future date. These contracts are transferable in the interbank market
conducted directly between currency traders (usually large commercial banks and
brokerages) and their customers. A forward foreign currency exchange contract
may not have a deposit requirement and may be traded at a net price without
commission. The Fund maintains with its custodian a segregated account of cash
or liquid securities in an amount at least equal to its obligations under each
forward foreign currency exchange contract. Neither spot transactions nor
forward foreign currency exchange contracts eliminate fluctuations in the prices
of the Fund's securities or in foreign exchange rates, or prevent loss if the
prices of these securities should decline.

The Fund may enter into foreign currency hedging transactions in an attempt to
protect against changes in foreign currency exchange rates between the trade and
settlement dates of specific securities transactions or changes in foreign
currency exchange rates that would adversely affect a portfolio position or an
anticipated investment position. Since consideration of the prospect for
currency parities will be incorporated into the Adviser's long-term investment
decisions, the Fund will not routinely enter into foreign currency hedging
transactions with respect to security transactions; however, the Adviser
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.

<PAGE>

While these contracts are not presently regulated by the Commodity Futures
Trading Commission ("CFTC"), the CFTC may in the future assert authority to
regulate forward contracts. In such event the Fund's ability to utilize forward
contracts 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 contract to
hedge or cross-hedge its assets. Also, with regard to the Fund's use of
cross-hedges, there can be no assurance that historical correlations between the
movement of certain foreign currencies relative to the U.S. dollar will
continue. Thus, at any time poor correlation may exist between movements in the
exchange rates of the foreign currencies underlying the Fund's cross-hedges and
the movements in the exchange rates of the foreign currencies in which the
Fund's assets that are the subject of such cross-hedges are denominated.

Options on Foreign Currencies. The Fund may purchase and write options on
foreign currencies for hedging purposes in a manner similar to that in which
futures contracts on foreign currencies, or forward contracts, will be utilized.
For example, a decline in the dollar value of a foreign currency in which
portfolio securities are denominated will reduce the dollar value of such
securities, even if their value in the foreign currency remains constant. In
order to protect against such diminutions in the value of portfolio securities,
the Fund may purchase put options on the foreign currency. If the value of the
currency does decline, the Fund will have the right to sell such currency for a
fixed amount in dollars and will thereby offset, in whole or in part, the
adverse effect on its portfolio which otherwise would have resulted.

Conversely, where a rise in the dollar value of a currency in which securities
to be acquired are denominated is projected, thereby increasing the cost of such
securities, the Fund may purchase call options thereon. The purchase of such
options could offset, at least partially, the effects of the adverse movements
in exchange rates. As in the case of other types of options, however, the
benefit to the Fund deriving from purchases of foreign currency options will be
reduced by the amount of the premium and related transaction costs. In addition,
where currency exchange rates do not move in the direction or to the extent
anticipated, the Fund could sustain losses on transactions in foreign currency
options which would require it to forego a portion or all of the benefits of
advantageous changes in such rates.

The purchase of an option on foreign currency may be used to hedge against
fluctuations in exchange rates although, in the event of exchange rate movements
adverse to the Fund's position, it may forfeit the entire amount of the premium
plus related transaction costs. In addition, the Fund may purchase call options
on a foreign currency when the Adviser anticipates that the currency will
appreciate in value.

The Fund may write options on foreign currencies for the same types of hedging
purposes. For example, where the Fund anticipates a decline in the dollar value
of foreign currency denominated securities due to adverse fluctuations in
exchange rates it could, instead of purchasing a put option, write a call option
on the relevant currency. If the expected decline occurs, the options will most
likely not be exercised, and the diminution in value of portfolio securities
will be offset by the amount of the premium received.

Similarly, instead of purchasing a call option to hedge against an anticipated
increase in the dollar cost of securities to be acquired, the Fund could write a
put option on the relevant currency which, if rates move in the manner
projected, will expire unexercised and allow the Fund to hedge such increased
cost up to the amount of the premium. As in the case of other types of options,
however, the writing of a foreign currency option will constitute only a partial
hedge up to the amount of the premium, and only if rates move in the expected
direction. If this does not occur, the option may be exercised and the Fund
would be required to purchase or sell the underlying currency at a loss which
may not be offset by the amount of the premium. Through the writing of options
on foreign currencies, the Fund also may be required to forego all or a portion
of the benefits which might otherwise have been obtained from favorable
movements in exchange rates.

The Fund may write covered call options on foreign currencies. A call option
written on a foreign currency by the Fund is "covered" if the Fund owns the
underlying foreign currency covered by the call or has an absolute and immediate
right to acquire that foreign currency without additional cash consideration (or
for additional cash consideration held in a segregated account by its Custodian)
upon conversion or exchange of other foreign currency held in its portfolio. A
call option is also covered if the Fund has a call on the same foreign currency
and in the same principal amount as the call written where the exercise price of
the call held (a) is equal to or less than the exercise price of the call
written or (b) is greater than the exercise price of the call written if the
difference is maintained by the Fund in cash or liquid securities in a
segregated account with its custodian.

<PAGE>

The Fund also may write call options on foreign currencies that are not covered
for cross-hedging purposes. A call option on a foreign currency is for
cross-hedging purposes if it is not covered, but is designed to provide a hedge
against a decline in the U.S. dollar value of a security which the Fund owns or
has the right to acquire and which is denominated in the currency underlying the
option due to an adverse change in the exchange rate. In such circumstances, the
Fund collateralizes the option by maintaining in a segregated account with its
custodian, cash or liquid securities in an amount not less than the value of the
underlying foreign currency in U.S. dollars marked to market daily.

There is no assurance that a liquid secondary market will exist for any
particular option, or at any particular time. If the Fund is unable to effect a
closing purchase transaction with respect to covered options it has written, the
Fund will not be able to sell the underlying currency or dispose of assets held
in a segregated account until the options expire or are exercised. Similarly, if
the Fund is unable to effect a closing sale transaction with respect to options
it has purchased, it would have to exercise the options in order to realize any
profit and will incur transaction costs upon the purchase or sale of underlying
currency. The Fund pays brokerage commissions or spreads in connection with its
options transactions.

Options on Securities. The Fund may write and purchase put and call options on
stocks. A call option gives the purchaser of the option the right to buy, and
obligates the writer to sell, the underlying stock at the exercise price at any
time during the option period. Similarly, a put option gives the purchaser of
the option the right to sell, and obligates the writer to buy, the underlying
stock at the exercise price at any time during the option period. The Fund may
also write (sell) covered call and put options to a limited extent on its
portfolio securities ("covered options") in an attempt to increase income.
However, the Fund may forgo the benefits of appreciation on securities sold or
may pay more than the market price on securities acquired pursuant to call and
put options written by the Fund.

When the Fund writes a covered call option, it gives the purchaser of the option
the right to buy the underlying security at the price specified in the option
(the "exercise price") by exercising the option at any time during the option
period. If the option expires unexercised, the Fund will realize income in an
amount equal to the premium received for writing the option. If the option is
exercised, a decision over which the Fund has no control, the Fund must sell the
underlying security to the option holder at the exercise price. By writing a
covered call option, the Fund forgoes, in exchange for the premium less the
commission ("net premium"), the opportunity to profit during the option period
from an increase in the market value of the underlying security above the
exercise price. In addition the Fund may continue to hold a stock which might
otherwise have been sold to protect against depreciation in the market price of
the stock.

A put option sold by the Fund is covered when, among other things, cash or
securities acceptable to the broker are place in a segregated account to fulfill
the obligations undertaken.

When the Fund writes a covered put option, it gives the purchaser of the option
the right to sell the underlying security to the Fund at the specified exercise
price at any time during the option period. If the option expires unexercised,
the Fund will realize income in the amount of the premium received for writing
the option. If the put option is exercised, a decision over which the Fund has
no control, the Fund must purchase the underlying security from the option
holder at the exercise price. By writing a covered put option, the Fund, in
exchange for the net premium received, accepts the risk of a decline in the
market value of the underlying security below the exercise price. The Fund will
only write put options involving securities for which a determination is made at
the time the option is written that the Fund wishes to acquire the securities at
the exercise price.

The Fund may terminate its obligation as the writer of a call or put option by
purchasing an option with the same exercise price and expiration date as the
option previously written. This transaction is called a "closing purchase
transaction." The Fund will realize a profit or loss for a closing purchase
transaction if the amount paid to purchase an option is less or more, as the
case may be, than the amount received from the sale thereof. To close out a
position as a purchaser of an option, the Fund, may make a "closing sale
transaction" which involves liquidating the Fund's position by selling the
option previously purchased. Where the Fund cannot effect a closing purchase
transaction, it may be forced to incur brokerage commissions or dealer spreads
in selling securities it receives or it may be forced to hold underlying
securities until an option is exercised or expires.

When the Fund writes an option, an amount equal to the net premium received by
the Fund is included in the liability section of the Fund's Statement of Assets
and Liabilities as a deferred credit. The amount of the deferred credit will be
subsequently marked to market to reflect the current market value of the option
written. The current market value of a traded option is the last sale price or,
in the absence of a sale, the mean between the closing bid and asked price. If
an option expires on its stipulated expiration date or if the Fund enters into a
closing purchase transaction, the Fund will realize a gain (or loss if the cost
of a closing purchase transaction exceeds the premium received when the option
was sold), and the deferred credit related to such option will be eliminated. If
a call option is exercised, the Fund will realize a gain or loss from the sale
of the underlying security and the proceeds of the sale will be increased by the
premium originally received. The writing of covered call options may be deemed
to involve the pledge of the securities against which the option is being
written. Securities against which call options are written will be segregated on
the books of the custodian for the Fund.

<PAGE>

The Fund may purchase call and put options on any securities in which it may
invest. The Fund would normally purchase a call option in anticipation of an
increase in the market value of such securities. The purchase of a call option
would entitle the Fund, in exchange for the premium paid, to purchase a security
at a specified price during the option period. The Fund would ordinarily have a
gain if the value of the securities increased above the exercise price
sufficiently to cover the premium and would have a loss if the value of the
securities remained at or below the exercise price during the option period.

The Fund would normally purchase put options in anticipation of a decline in the
market value of securities in its portfolio ("protective puts") or securities of
the type in which it is permitted to invest. The purchase of a put option would
entitle the Fund, in exchange for the premium paid, to sell a security, which
may or may not be held in the Fund's holdings, at a specified price during the
option period. The purchase of protective puts is designed merely to offset or
hedge against a decline in the market value of the Fund's holdings. Put options
also may be purchased by the Fund for the purpose of affirmatively benefiting
from a decline in the price of securities which the Fund does not own. The Fund
would ordinarily recognize a gain if the value of the securities decreased below
the exercise price sufficiently to cover the premium and would recognize a loss
if the value of the securities remained at or above the exercise price. Gains
and losses on the purchase of protective put options would tend to be offset by
countervailing changes in the value of underlying portfolio securities.

The Fund may engage in over-the-counter options transactions with broker-dealers
who make markets in these options. The ability to terminate over-the-counter
option positions is more limited than with exchange-traded option positions
because the predominant market is the issuing broker rather than an exchange,
and may involve the risk that broker-dealers participating in such transactions
will not fulfill their obligations. To reduce this risk, the Fund will purchase
such options only from broker-dealers who are primary government securities
dealers recognized by the Federal Reserve Bank of New York and who agree to (and
are expected to be capable of) entering into closing transactions, although
there can be no guarantee that any such option will be liquidated at a favorable
price prior to expiration. The Adviser will monitor the creditworthiness of
dealers with whom the Fund enters into such options transactions under the
general supervision of the Fund's Trustees. The Fund intends to treat OTC
Options purchased and the assets used to "cover" OTC Options written as not
readily marketable and therefore subject to the limitations described in
"Investment Restrictions." Unless the Trustees conclude otherwise, the Fund
intends to treat OTC options as not readily marketable and therefore subject to
the Fund's 15% limitation on investment in illiquid securities.

Options on Securities Indices. In addition to options on securities, the Fund
may also purchase and write (sell) call and put options on domestic and foreign
stock exchanges, in lieu of direct investment in the underlying securities for
hedging purposes. 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. Such options will be used for the
purposes described above under "Options on Securities."

Options on stock indices are generally similar to options on stock except that
the delivery requirements are different. Instead of giving the right to take or
make delivery of stock at a specified price, an option on a stock index gives
the holder the right to receive a cash "exercise settlement amount" equal to (a)
the amount, if any, by which the fixed exercise price of the option exceeds (in
the case of a put) or is less than (in the case of a call) the closing value of
the underlying index on the date of exercise, multiplied by (b) a fixed "index
multiplier." Receipt of this cash amount will depend upon the closing level of
the stock index upon which the option is based being greater than, in the case
of a call, or less than, in the case of a put, the exercise price of the option.
The amount of cash received will be equal to such difference between the closing
price of the index and the exercise price of the option expressed in dollars or
a foreign currency, as the case may be, times a specified multiple. The writer
of the option is obligated, in return for the premium received, to make delivery
of this amount. The writer may offset its position in stock index options prior
to expiration by entering into a closing transaction on an exchange or the
option may expire unexercised.

Because the value of an index option depends upon movements in the level of the
index rather than the price of a particular stock, whether the Fund will realize
a gain or loss from the purchase or writing of options on an index depends upon
movements in the level of stock prices in the stock market generally or, in the
case of certain indices, in an industry or market segment, rather than movements
in the price of a particular stock. Accordingly, successful use by the Fund of
options on stock indices will be subject to the Adviser's ability to predict
correctly movements in the direction of the stock market generally or of a
particular industry. This requires different skills and techniques than
predicting changes in the price of individual stocks.

Options on securities indices entail risks in addition to the risks of options
on securities. The absence of a liquid secondary market to close out options
positions on securities indices is more likely to occur, although the Fund
generally will only purchase or write such an option if the Adviser believes the
option can be closed out.

<PAGE>

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 Adviser
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 holdings 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 Adviser may be forced to liquidate portfolio securities
to meet settlement obligations.

Futures Contracts and Options on Futures Contracts.

General. The successful use of futures contracts and options thereon draws upon
the Adviser's skill and experience with respect to such instruments and usually
depends on the Adviser's ability to forecast interest rate and currency exchange
rate movements correctly. Should interest or exchange rates move in an
unexpected manner, the Fund may not achieve the anticipated benefits of futures
contracts or options on futures contracts or may realize losses and thus will be
in a worse position than if such strategies had not been used. In addition, the
correlation between movements in the price of futures contracts or options on
futures contracts and movements in the price of the securities and currencies
hedged or used for cover will not be perfect and could produce unanticipated
losses.

Futures Contracts. Futures contracts are contracts to purchase or sell a fixed
amount of an underlying instrument, commodity or index at a fixed time and place
in the future. 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 clear through their clearing corporations. The Fund may enter into
contracts for the purchase or sale for future delivery of fixed-income
securities, foreign currencies, or financial indices including any index of U.S.
government securities, foreign government securities or corporate debt
securities. The Fund may enter into futures contracts which are based on debt
securities that are backed by the full faith and credit of the U.S. Government,
such as long-term U.S. Treasury Bonds, Treasury Notes, Government National
Mortgage Association ("GNMA") modified pass-through mortgage-backed securities
and three-month U.S. Treasury Bills. The Fund may also enter into futures
contracts which are based on bonds issued by governments other than the U.S.
government.

Futures contracts on foreign currencies may be used to hedge against securities
that are denominated in foreign currencies.

At the same time a futures contract is entered into, the Fund must allocate cash
or securities as a deposit payment ("initial margin"). The initial margin
deposits are set by exchanges and may range between 1% and 10% 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 (other than those that settle in cash such as index
futures) by their terms call for the actual delivery or acquisition of the
instrument underlying the contract, in most cases the contractual obligation is
fulfilled by offset before the date of the contract without having to make or
take delivery of the instrument underlying the contract. The offsetting of a
contractual obligation is accomplished by entering into an opposite position in
the identical futures contract on the commodities exchange on which the futures
contract was entered into (or a linked exchange). Such a transaction, which is
effected through a member of an exchange, cancels the obligation to make or take
delivery of the instrument underlying the contract. 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 enters into futures contracts.

The assets in the segregated asset account maintained to cover the Fund's
obligations with respect to such futures contracts will consist of cash or
securities acceptable to the broker from its portfolio in an amount equal to the
difference between the fluctuating market value of such futures contracts and
the aggregate value of the initial and variation margin payments made by the
Fund with respect to such futures contracts.

The ordinary spreads between prices in the cash and futures market, due to
differences in the nature of those markets, are subject to distortions. First,
all participants in the futures market are subject to initial 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 most
participants entering into offsetting transactions rather than making or taking
delivery. To the extent that many 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 lending requirements in the
securities market. Therefore, increased participation by speculators in the
futures market may cause temporary price distortions. Due to the possibility of
distortion, a correct forecast of general interest rate or currency exchange
rate trends by the Adviser may still not result in a successful transaction.

In addition, futures contracts entail risks. Although the Adviser believes that
use of such contracts will benefit the Fund, if the Adviser's investment
judgment about the general direction of interest rates is incorrect, the Fund's
overall performance would be poorer than if it had not entered into any such
contract. For example, if the Fund has hedged against the possibility of an
increase in interest rates which would adversely affect the price of debt
securities held in its portfolio and interest rates decrease instead, the Fund
will lose part or all of the benefit of the increased value of its debt
securities which it has hedged because it will have offsetting losses in its
futures positions. In addition, in such situations, if the Fund has insufficient
cash, it may have to sell debt securities from its portfolio to meet daily
variation margin requirements. Such sales of bonds may be, but will not
necessarily be, at increased prices which reflect the rising market. The Fund
may have to sell securities at a time when it may be disadvantageous to do so.

Options on Futures Contracts. The Fund may purchase and write options on futures
contracts for hedging purposes. The purchase of a call option on a futures
contract is similar in some respects to the purchase of a call option on an
individual security. Depending on the pricing of the option compared to either
the price of the futures contract upon which it is based or the price of the
underlying debt securities, it may or may not be less risky than ownership of
the futures contract or underlying debt securities. For example, when the Fund
is not fully invested it may purchase a call option on an interest rate
sensitive futures contract to hedge against a potential price increase on debt
securities due to declining interest rates. The purchase of a put option on a
futures contract is similar in some respects to the purchase of protective put
options on portfolio securities. For example, the Fund may purchase a put option
on an interest rate sensitive futures contract to hedge its portfolio against
the risk of a decline in the price of debt securities and to rising interest
rates.

The writing of a call option on a futures contract may constitute a partial
hedge against declining prices of portfolio securities which are the same as or
correlate with the security or currency of foreign currency which is deliverable
upon exercise of the futures contract. If the futures price at expiration of the
option is below the exercise price, the Fund will retain the full amount of the
option premium which provides a partial hedge against any decline that may have
occurred in the Fund's portfolio holdings. The writing of a put option on a
futures contract may constitute a partial hedge against increasing prices of
intended portfolio securities which are the same as or correlate with the
security or foreign currency which is deliverable upon exercise of the futures
contract. If the futures price at expiration of the option is higher than the
exercise price, the Fund will retain the full amount of the option premium which
provides a partial hedge against any increase in the price of securities which
the Fund intends to purchase. If a put or call option the Fund has written is
exercised, the Fund will incur a loss which will be reduced by the amount of the
premium it receives. Depending on the degree of correlation between changes in
the value of its portfolio securities and changes in the value of its futures
positions, the Fund's losses from existing options on futures may to some extent
be reduced or increased by changes in the value of portfolio securities.

The amount of risk the Fund assumes when it purchases an option on a futures
contract is the premium paid for the option plus related transaction costs. In
addition to the correlation risks discussed above, the purchase of an option
also entails the risk that changes in the value of the underlying futures
contract will not be fully reflected in the value of the option purchased.

<PAGE>

Futures Contracts on Securities Indices. The Fund may enter into futures
contracts providing for cash settlement based upon changes in the value of an
index of domestic or foreign securities. This investment technique is designed
as a low-cost method of gaining exposure to a particular securities market
without investing directly in those securities or to hedge against anticipated
future change in general market prices which otherwise might either adversely
affect the value of securities held by the Fund or adversely affect the prices
of securities which are intended to be purchased at a later date for the Fund.

In general, each transaction in futures contracts on a securities index involves
the establishment of a position which the Adviser believes will move in a
direction opposite to that of the investment being hedged. If these hedging
transactions are successful, the futures positions taken for the Fund will rise
in value by an amount which approximately offsets the decline in value of the
portion of the Fund's investments that are being hedged. Should general market
prices move in an unexpected manner, the full anticipated benefits of Futures
Contracts may not be achieved or a loss may be realized.

Although futures contracts on securities indices would be entered into for
hedging purposes only, such transactions do involve certain risks. These risks
include a lack of correlation between the futures contract and the foreign
equity market being hedged, and incorrect assessments of the market trends which
may result in poorer overall performance than if a futures contract had not been
entered into. Futures may fail as hedging techniques in cases where the price
movements of the securities underlying the futures do not follow the price
movements of the portfolio securities subject to the hedge. The loss from
investing in futures transactions is potentially unlimited. Gains and losses on
investments in futures depend on the portfolio manager's ability to predict
correctly the direction of stock prices, interest rates, and other economic
factors. The Fund will likely be unable to control losses by closing its
position where a liquid secondary market does not exist.

Asset Coverage. To assure that the Fund's use of futures and related options, as
well as when-issued and delayed-delivery securities and foreign currency
exchange transactions, are not used to achieve investment leverage, the Fund
will cover such transactions, as required under applicable interpretations of
the SEC, either by owning the underlying securities or by segregating with the
Fund's Custodian or futures commission merchant liquid securities in an amount
at all times equal to or exceeding the Fund's commitment with respect to these
instruments or contracts.

Investment Restriction on Futures Transactions. 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 net assets of the Fund.

Additional Risk Factors

In addition to the risks discussed above, the Fund's investments may be subject
to the following risk factors:

Investing in Foreign Securities. The Fund will, under normal market conditions,
invest a significant portion of its assets 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 or (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 or gross national product, rate of
inflation, capital reinvestment, resource self-sufficiency or 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 Untied 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 portfolio liquidity. Finally, there may be less government
supervision and regulation of securities exchanges, brokers and issuers in
foreign countries than in the United States.

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 S&P 500. 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 prices as large company stocks decline.

Options on Futures Contracts, Forward Contracts and Options on Foreign
Currencies. Unlike transactions entered into by the Fund in futures contracts,
options on foreign currencies and 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 principals, although foreign currency options
are also traded on certain national securities exchanges such as the
Philadelphia Stock Exchange and the Chicago Board Options Exchange, subject to
SEC regulation. In an over-the-counter trading environment, many of the
protections afforded to exchange participants will not be available. For
example, there are no daily price fluctuation limits, and adverse market
movements could therefore continue to an unlimited extent over a period of time.
Although the purchaser of an option cannot lose more than the amount of the
premium plus related transaction costs, this entire amount could be lost.
Moreover, the option writer and a trader of forward contracts could lose amounts
substantially in excess of their initial investments.

Forward Contracts and options on foreign currencies traded over-the-counter
involve liquidity and credit risks which may not be present in the case of
exchange-traded currency options. 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.

Options on foreign currencies traded on national securities exchanges are within
the jurisdiction of the SEC, as are other securities traded on such exchanges.
As a result, many of the protections provided to traders on organized exchanges
will be available with respect to such transactions. In particular, all foreign
currency option positions entered into on a national securities exchange are
cleared and guaranteed by the Options Clearing Corporation ("OCC"), thereby
reducing the risk of counterparty default. Further, a liquid secondary market in
options traded on a national securities exchange may be more readily available
than in the over-the-counter market, potentially permitting the Fund to
liquidate open positions at a profit prior to exercise or expiration, or to
limit losses in the event of adverse market movements.

Rating Services. The ratings of rating services represent their opinions as to
the quality of the securities that they undertake to rate. It should be
emphasized, however, that ratings are relative and subjective and are not
absolute standards of quality. Although these ratings are an initial criterion
for selection of portfolio investments, the Adviser also makes its own
evaluation of these securities, subject to review by the Board of Trustees.
After purchase by the Fund, an obligation may cease to be rated or its rating
may be reduced below the minimum required for purchase by the Fund. Neither
event would require the Fund to eliminate the obligation from its portfolio, but
the Adviser will consider such an event in its determination of whether the Fund
should continue to hold the obligation. A description of the ratings is included
in the Appendix herein.

<PAGE>

Investment Restrictions

Fundamental Policies. The following investment restrictions are "fundamental
policies" of the Fund and may not be changed with respect to the Fund 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, 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.

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.

The Fund may not (except that no investment restriction of the Fund shall
prevent the Fund from investing all of its Assets in an open-end investment
company with substantially the same investment objective):

(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 the portfolio security transaction or
other similar situations) or reverse repurchase agreements, provided
that collateral arrangements with respect to options and futures,
including deposits of initial deposit and variation margin, are not
considered a pledge of assets for purposes of this restriction and
except that assets may be pledged to secure letters of credit solely for
the purpose of participating in a captive insurance company sponsored by
the Investment Company Institute; for additional related restrictions,
see clause (i) under the caption "Additional Restrictions" below (as an
operating policy, the Fund may not engage in dollar-roll transactions);

(2) underwrite securities issued by other persons except insofar as the
Fund may technically be deemed an underwriter under the 1933 Act in
selling a portfolio security;

(4) purchase or sell real estate (including limited partnership
interests but excluding securities secured by real estate or interests
therein), interests in oil, gas or mineral leases, commodities or
commodity contracts (except futures and option contracts) in the
ordinary course of business (except that the Fund may hold and sell, for
the Fund's portfolio, real estate acquired as a result of the Fund's
ownership of securities);

(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, provided that collateral
arrangements with respect to options and futures, including deposits of
initial deposit and variation margin, are not considered to be the
issuance of a senior security for purposes of this restriction.

(7) purchase the securities of any one issuer if as a result more
than 5% of the value of its total assets would be invested in the
securities of such issuer or the Fund would own more than 10% of the
outstanding voting securities of such issuer, except that up to 25% of
the value of its total assets may be invested without regard to these 5%
limitation and provided that there is no limitation with respect to
investments in U.S. Government securities.

Additional Restrictions. These are non-fundamental policies. In order
to comply with certain statutes and policies, the Fund will not as a matter of
operating policy (except that such policies may be changed by the Board of
Trustees):

(i) sell any security which it does not own unless by virtue of its
ownership of other securities it has at the time of sale a right to
obtain securities, without payment of further consideration, equivalent
in kind and amount to the securities sold and provided that if such
right is conditional the sale is made upon the same conditions;

(ii) invest for the purpose of exercising control or management;

(iii) purchase securities issued by any investment company except by
purchase in the open market where no commission or profit to a sponsor
or dealer results from such purchase other than the customary broker's
commission, or except when such purchase, though not made in the open
market, is part of a plan of merger or consolidation; provided, however,
that securities of any investment company will not be purchased for the
Fund if such purchase at the time thereof would cause: (a) more than 10%
of the Fund's total assets (taken at the greater of cost or market
value) to be invested in the securities of such issuers; (b) more than
5% of the Fund's total assets (taken at the greater of cost or market
value) (except the Fund may exceed the applicable percentage limits to
the extent permitted by an exemptive order of the SEC) to be invested in
any one investment company; or (c) more than 3% of the outstanding
voting securities of any such issuer to be held for the Fund; provided
further that, except in the case of a merger or consolidation, the Fund
shall not purchase any securities of any open-end investment company;

(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 (excluding Rule 144A securities deemed by the Board of
Trustees to be liquid);

(v) invest more than 5% of the Fund's net assets in warrants (valued at
the lower of cost or market), but not more than 2% of the Fund's net
assets may be invested in warrants not listed on the New York Stock
Exchange Inc. ("NYSE") or the AMEX.

There will be no violation of any investment restriction (except with
respect to fundamental investment restriction (1) above) if that
restriction is complied with at the time the relevant action is taken,
notwithstanding a later change in the market value of an investment, in
net or total assets or in the change of securities rating of the
investment, or any other later change.

Portfolio Transactions and Brokerage Commissions

The Adviser 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 portfolio 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 portfolio securities on behalf of the
Fund are frequently placed by the Adviser 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 Adviser 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 Adviser reviews on a routine basis
commission rates, execution and settlement services performed, making internal
and external comparisons.

The Adviser is authorized, consistent with Section 28(e) of the Securities
Exchange Act of 1934, 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 Conduct Rules of the National
Association of Securities Dealers, Inc. and such other policies as the Trustees
of the Fund may determine, the Adviser may consider sales of shares of the Trust
and of other investment company clients of the Adviser as a factor in the
selection of broker-dealers to execute portfolio transactions. The Adviser 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. The Adviser may use this research information in
managing the Fund's assets, as well as the assets of other clients.

Although certain research, market and statistical information from brokers and
dealers can be useful to the Fund and to the Adviser, it is the opinion of the
management of the Fund that such information is only supplementary to the
Adviser's own research effort, since the information must still be analyzed,
weighed and reviewed by the Adviser's staff. Such information may be useful to
the Adviser in providing services to clients other than the Fund, and not all
such information is used by the Adviser in connection with the Fund. Conversely,
such information provided to the Adviser by brokers and dealers through whom
other clients of the Adviser effect securities transactions may be useful to the
Adviser 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 Adviser's other clients. Investment decisions for
the Fund and for the Adviser'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. For mutual funds
performance is commonly measured as total return. The Fund's performance is
affected by its expenses. These performance figures are calculated in the
following manner:

Total return: Total return is the change in value of an investment in
the Fund over a given period, assuming reinvestment of any dividends and
capital gains. A cumulative total return reflects actual performance
over a stated period of time. An average annual total return is a
hypothetical rate of return that, if achieved annually, would have
produced the same cumulative total return if performance had been
constant over the entire period. Average annual total return
calculations smooth out variations in performance; they are not the same
as actual year-by-year results. Average annual total returns covering
periods of less than one year assume that performance will remain
constant for the rest of the year. 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: Total returns are based on past results and are not
an indication of future performance. Any total return quotation provided
for the Fund should not be considered as representative of the
performance of the Fund in the future since the net asset value and
public offering price of shares of the Fund will vary based not only on
the type, quality and maturities of the securities held, but also on
changes in the current value of such securities and on changes in the
expenses of the Fund. These factors and possible differences in the
methods used to calculate total return should be considered when
comparing the total return of the Fund to total returns published for
other investment companies or other investment vehicles. Total return
reflects the performance of both principal and income.

<PAGE>

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. The Fund's performance may
be compared to the performance of various indices and investments for which
reliable data is available. The Fund's performance may also be compared to
averages, performance rankings, or other information prepared by recognized
mutual fund statistical services. 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: