BT INSTITUTIONAL FUNDS, 485APOS, 1999-02-26

BT INSTITUTIONAL FUNDS
485APOS, 1999-02-26

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As filed with the Commission on February 26, 1999
1933 Act File No. 33-34079
1940 Act File No. 811-6071

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. 28 .......................... X
------ -----

and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
-----

Amendment No. 36 ......................................... X
------- -----

BT INSTITUTIONAL FUNDS
(Exact Name of Registrant as Specified in Charter)

One South Street
Baltimore, Maryland 21202
(Address of Principal Executive Offices)

(410) 895-5000
(Registrant's Telephone Number)

Daniel O. Hirsch Copies To:Burton M. Leibert, Esq.
One South Street Willkie Farr & Gallagher
Baltimore, MD 21202 787 Seventh Ave.
(Name and Address of Agent for Service) New York, New York 10016

It is proposed that this filing will become effective (check appropriate box)

[ ] immediately upon filing pursuant to paragraph (b)
[ ] on pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
<PAGE>

[X] on April 30, 1999 pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of rule 485.

If appropriate, check the following box:

[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.

Cash Management Portfolio, Treasury Money Portfolio, Equity 500 Index Portfolio
and BT Investment Portfolios have also executed this Registration Statement.

<PAGE>

PROSPECTUS: APRIL 30, 1999

BT Mutual Funds (logo)

SMALL CAP INDEX FUND-INSTITUTIONAL CLASS SHARES

EAFE(R) EQUITY INDEX FUND- INSTITUTIONAL CLASS SHARES

U.S. BOND INDEX FUND-INSTITUTIONAL CLASS SHARES

INSTITUTIONAL EQUITY 500 INDEX FUND

With the goal of matching the performance of a related Index.

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>

TABLE OF CONTENTS

00 SMALL CAP INDEX FUND-INSTITUTIONAL CLASS SHARES

00 EAFE(R) EQUITY INDEX FUND- INSTITUTIONAL CLASS SHARes

00 U.S. BOND INDEX FUND-INSTITUTIONAL CLASS SHARES

00 INSTITUTIONAL EQUITY 500 INDEX FUND

00 INFORMATION CONCERNING ALL FUNDS
00 Management of the Funds
00 Calculating a Fund's Share Price
00 Performance Information
00 Dividends and Distributions
00 Tax Considerations
00 Buying and Selling Fund Shares

<PAGE>

SMALL CAP INDEX FUND
OVERVIEW OF THE SMALL CAP INDEX FUND
00 Goal
00 Core Strategy
00 Investment Policies and Strategies
00 Principal Risks of Investing in the Fund
00 Who Should Consider Investing in the Fund
00 Total Returns, After Fees and Expenses
00 Annual Fund Operating Expenses

A DETAILED LOOK AT THE SMALL CAP INDEX FUND
00 Objective
00 Strategy
00 Principal Investments
00 Investment Process
00 Risks
00 Portfolio Manager
00 Financial Highlights

<PAGE>

Overview
OF THE SMALL CAP INDEX FUND

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.

[THE RUSSELL 2000 SMALL STOCK INDEX IS A WIDELY ACCEPTED BENCHMARK OF
SMALL-COMPANY STOCK PERFORMANCE. IT IS A SUBSET OF THE RUSSELL 3000 INDEX. THE
RUSSELL 2000 TRACKS THE 2000 SMALLEST COMPANIES IN THE RUSSELL 3000. IT
CONSTITUTES ABOUT 10% OF THE RUSSELL 3000'S TOTAL MARKET VALUE. AS OF DECEMBER
31, 1998, THE WEIGHTED AVERAGE MARKET CAPITALIZATION OF THE COMPANIES IN THE
RUSSELL 2000 WAS $TK MILLION. THAT COMPARES TO $TK BILLION FOR THE COMPANIES IN
THE RUSSELL 3000.]

<PAGE>

CORE STRATEGY: The Investment Adviser attempts to invest in stocks and other
securities that are representative of the Russell 2000 Index as a whole.

INVESTMENT POLICIES AND STRATEGIES
The Fund is a feeder fund that invests all of its assets in a master portfolio
with the same investment objective. The Fund, through the master portfolio,
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.

<PAGE>

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:

o Stocks could decline generally or could underperform other investments.
o Returns on small U.S. companies' stock 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.
o The Fund may not be able to mirror the Russell 2000 Index closely enough to
track its performance for a number of reasons: the Fund's costs to buy and
sell securities, the flow of money into and out of the Fund, and the
underperformance of stocks selected by the Investment Adviser.
o 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.

<PAGE>

WHO SHOULD CONSIDER INVESTING IN THE FUND
The Small Cap Index Fund-Institutional Class requires a minimum investment of $5
million. You should consider investing in the Fund if you are seeking the
following:
o capital appreciation over the long term;
o exposure to the U.S. equity market as represented by smaller companies; and
o 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:
o pursuing a short-term financial goal;
o seeking regular income and stability of principal;
o cannot tolerate fluctuations in the value of your investments; or
o seeking to outperform the Russell 2000 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 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.

<PAGE>

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
two full calendar years since the Fund began selling shares on August 8, 1996
(its inception date). The table compares the Fund's average annual return with
the Russell 2000 Small Stock Index over the last calendar year and since its
inception. The Russell 2000 Index is a model, not an actual 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 stock--costs that are reflected in the Fund's results.

YEAR-BY-YEAR RETURNS FOR EACH FULL CALENDAR YEAR SINCE INCEPTION
[BAR CHART]

- ------------------- -----------------
TK TK
- ------------------- -----------------
1997 1998
- ------------------- -----------------

Since inception, the Fund's highest return in any calendar quarter was TK% and
its lowest quarterly return was TK%. Past performance offers no indication of
how the Fund will perform in the future.

<PAGE>

AVERAGE ANNUAL RETURNS
(AS OF DECEMBER 31, 1998)

- --------------------------------------------------------------------------
SINCE INCEPTION
1 YEAR (AUGUST 8, 1996)(1)
- --------------------------------------------------------------------------
Small Cap Index Fund-Institutional Class (TK)% TK%
- --------------------------------------------------------------------------
Russell 2000 Index (TK)% TK%
- --------------------------------------------------------------------------

- --------
1 The performance of the Russell 2000 Index is calculated from July 31, 1996.

<PAGE>

ANNUAL FEES AND EXPENSES

- ------------------------------------------- ---------------------------------
PERCENTAGE OF AVERAGE
DAILY NET ASSETS(1)
- ------------------------------------------- ---------------------------------
Management Fees 0.15%
- ------------------------------------------- ---------------------------------
Distribution and Service (12b-1) Fees none
- ------------------------------------------- ---------------------------------
Other Fund Operating Expenses 0.42%
- ------------------------------------------- ---------------------------------
Total Fund Operating Expenses 0.57%
- ------------------------------------------- ---------------------------------
Less: Fee Waiver or Expense Reimbursements (0.32)%(2)
- ------------------------------------------- ---------------------------------
NET EXPENSES 0.25%
- ------------------------------------------- ---------------------------------

Expense Example. The example illustrates the expenses you would have incurred on
a $10,000 investment in the Fund. It assumes that the Fund earned an annual
return of 5% over the periods shown, that the Fund's operating expenses remained
the same, and that you sold your shares at the end of the period.

- ------------------
1 Information on the annual operating expenses of the Fund reflects the
expenses of both the Fund and the Small Cap Index Portfolio, the master
portfolio in which the Small Cap Index Fund invests its assets. (A further
discussion of the relationship between the Fund and the master portfolio
appears in the "Organizational Structure" section of this prospectus.)
2 Bankers Trust has agreed, for the 16-month period from the Fund's fiscal
year end of December 31, 1998, to waive its fees and reimburse expenses so
that total expenses will not exceed 0.25%.

<PAGE>

Expense Example(1)

- -------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------------
$26 $144 $286 $702
- -------------------------------------------------------

You may use this hypothetical example to compare the Fund's expense history with
other funds.(2)
Actual costs may be higher or lower.

- ------------
1 Based on expenses, after fee waivers and reimbursements for the first 16
months only.
2 Information on the annual operating expenses reflects the expenses of both
the Fund and the EAFE Equity Index Portfolio, the master portfolio in which
the EAFE Equity Index Fund Class invests its assets. (A further discussion
of the relationship between the Fund and the master portfolio appears in
the "Organizational Structure" section of this prospectus.)
<PAGE>

A detailed look
AT THE SMALL CAP INDEX FUND

OBJECTIVE
The Fund seeks to match, as closely as possible (before 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 do not require their approval to do so.

o indexing provides simplicity because it is a straightforward
market-matching strategy;
o index funds generally provide diversification by investing in a wide
variety of companies and industries;
o 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;
o 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
usually have relatively low trading activity and therefore brokerage
commissions tend to be lower; and
o index funds generally have low realization of capital gains.

<PAGE>

STRATEGY
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
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.)

<PAGE>

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, 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.

[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.]

<PAGE>

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.

PORTFOLIO TURNOVER
The 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.

<PAGE>

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
track the Index exactly:
o Unlike the Index, the Fund incurs administrative expenses and transaction
costs in trading stocks.
o The composition of the Index and the stocks held by the Fund may
occasionally diverge.
o 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" 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 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.

<PAGE>

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:
o that the derivative will not fully offset the underlying positions
o that derivatives used for risk management may not have the intended effects
and may result in losses or missed opportunities
o 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.

<PAGE>

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:
o the companies in which the Fund invests, which could impact the value of
the Fund's investments
o our ability to service your Fund account, including our ability to meet
your requests to buy and sell Fund shares
o 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 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.

<PAGE>

Portfolio Manager

FRANK SALERNO, Managing Director of Bankers Trust, is responsible for the
day-to-day management of the Fund's investments:
o Joined Bankers Trust in 1981 and the Fund at its inception in August 1996.
o 16 years of investment industry experience.
o Bachelor's degree from Syracuse University, MBA from New York University.

<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 , 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 BT
Service Center at 1-800-368-4031.

Financial Highlights

INSTITUTIONAL CLASS SHARES
<TABLE>
<CAPTION>
-------------------------------------------------------------------
FOR THE PERIOD
AUGUST 8, 1996
(COMMENCEMENT
FOR THE YEAR ENDED OF OPERATIONS) TO
1998 DECEMBER 31, 1997 DECEMBER 31, 1996
-------------------------------------------------------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, Beginning of Period $10.90 $10.00
------ ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.23 0.04
Net Realized and Unrealized
Gain on Investments and Futures
Transactions 2.21 0.90
---- ----
Total from Investment Operations 2.44 0.94
---- ----
DISTRIBUTIONS TO SHAREHOLDERS
Net Investment Income (0.21) (0.04)
Net Realized Gain from
Investment Transactions (2.00) (0.00)(1)
------ -------
TOTAL DISTRIBUTIONS (2.21) (0.04)
------ ------
NET ASSET VALUE, END OF PERIOD $11.13 $10.90
====== ======
TOTAL INVESTMENT RETURN 23.00% 9.47%
SUPPLEMENTAL DATA AND RATIOS:
Net Assets, End of Period
(000s omitted) $38,312 $61,558
Ratios to Average Net Assets:
Net Investment Income 1.35% 1.71%(2)
Expenses, Including Expenses
of the Small Cap Index Portfolio 0.25% 0.25%(2)

<PAGE>

Decrease Reflected in Above
Expense Ratio Due to Absorption of
Expenses by Bankers Trust 0.32% 0.62%(2)
Portfolio Turnover Rate(3)
-------------------------------------------------------------------
</TABLE>

(1) Less than $0.01.
(2) Annualized.
(3) The portfolio turnover rate is the rate for the master fund in which the
Fund invests its assets.

<PAGE>

EAFE(R) EQUITY INDEX FUND
OVERVIEW OF THE EAFE(R) EQUITY INDEX FUNd
00 Goal
00 Core Strategy
00 Investment Policies and Strategies
00 Principal Risks of Investing in the Fund
00 Who Should Consider Investing in the Fund
00 Total Returns, After Fees and Expenses
00 Annual Fund Operating Expenses

A DETAILED LOOK AT THE EAFE(R) EQUITY INDEX FUNd
00 Objective
00 Strategy
00 Principal Investments
00 Investment Process
00 Risks
00 Portfolio Managers
00 Financial Highlights

<PAGE>

Overview
OF THE EAFE(R) EQUITY INDEX FUND

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.

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 STOCKS 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.

<PAGE>

CORE STRATEGY: The Investment Adviser attempts to invest in stocks and other
securities that are representative of the EAFE(R) Index as a whole.

INVESTMENT POLICIES AND STRATEGIES
The Fund is a feeder fund that invests all of its assets in a master portfolio
with the same investment objective as the Fund. The Fund, through the master
portfolio, 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.

<PAGE>

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:
o The stock market could perform poorly in one or more of the countries in
which the Fund has invested.
o Stocks could decline generally or could underperform other investments.
o Adverse political, economic or social developments could undermine the
value of the Fund's investments or prevent the Fund from realizing their
full value.
o 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.
o 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.
o The Fund may not be able to mirror the EAFE(R) Index closely enough to
track its performance for a number of reasons: the Fund's cost to buy and
sell securities, the flow of money into and out of the Fund, and the
underperformance of stocks selected by the Investment Adviser.
o 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.

<PAGE>

WHO SHOULD CONSIDER INVESTING IN THE FUND
The EAFE(R) Index-Institutional Class requires a minimum investment of $5
million. You should consider investing in the Fund if you are seeking the
following:
o capital appreciation over the long term;
o exposure to the equity market as represented by companies outside the U.S.;
and
o 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:
o pursuing a short-term financial goal;
o seeking regular income and stability of principal;
o unable to tolerate fluctuations in the value of your investments; or
o seeking to outperform the EAFE(R) Index.

The Fund by itself does not constitute a balanced investment program. It can,
however, afford 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.

<PAGE>

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 each
full calendar year since the Fund began selling shares to the public on January
24, 1996 (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
results.

YEAR-BY-YEAR RETURNS FOR EACH FULL CALENDAR YEAR SINCE INCEPTION
[BAR CHART]

- ------------------- -----------------
TK TK
- ------------------- -----------------
1997 1998
- ------------------- -----------------

Since inception, the Fund's highest return in any calendar quarter was TK% and
its lowest quarterly return was TK%. Past performance offers no indication of
how the Fund will perform in the future.

<PAGE>

AVERAGE ANNUAL RETURNS
(AS OF DECEMBER 31, 1998)

- --------------------------------------------------------------------
SINCE INCEPTION
1 YEAR (JANUARY 24, 1996)*
- --------------------------------------------------------------------
EAFE(R) Equity Index Fund TK TK
- - Institutional Class
- --------------------------------------------------------------------
EAFE(R) Index TK TK
- --------------------------------------------------------------------

- ----------------
*The performance of the EAFE(R) Index is calculated from January 31, 1996.

<PAGE>

Annual Fund Operating Expenses (expenses paid from Fund assets)

This table describes the fees and expenses that you may pay if you buy and hold
shares of the EAFE(R) Equity IndeX Fund-Institutional Class.

ANNUAL FEES AND EXPENSES

- ------------------------------------------- ---------------------------------
PERCENTAGE OF AVERAGE
DAILY NET ASSETS(1)
- ------------------------------------------- ---------------------------------
Management Fees 0.25%
- ------------------------------------------- ---------------------------------
Distribution and Service (12b-1) Fees None
- ------------------------------------------- ---------------------------------
Other Fund Operating Expenses 0.58%
- ------------------------------------------- ---------------------------------
Total Fund Operating Expenses 0.83%
- ------------------------------------------- ---------------------------------
Less: Fee Waiver or Expense Reimbursements (0.43)%(2)
- ------------------------------------------- ---------------------------------
NET EXPENSES 0.40%
- ------------------------------------------- ---------------------------------

Expense Example. The example below illustrates the expenses you would have
incurred on a $10,000 investment in the Fund. The numbers assume that the Fund
earned an annual return of 5% over the periods shown, that the Fund's operating
expenses remained the same, and that you sold your shares at the end of the
period.

- ----------------
1 Information on the annual operating expenses reflects the expenses of both
the Fund and the EAFE Equity Index Portfolio, the master portfolio in which
the EAFE Equity Index Fund Class invests its assets. (A further discussion
of the relationship between the Fund and the master portfolio appears in
the "Organizational Structure" section of this prospectus.)
2 Bankers Trust has agreed, for the 16-month period from the Fund's fiscal
year end of December 31, 1998, to waive its fees and reimburse expenses so
that total expenses will not exceed 0.40%.

<PAGE>

Expense Example(1)

- ------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------------------------------------------------------
$41 $214 $419 $1012
- ------------------------------------------------------

You may use this hypothetical example to compare the Fund's expense history with
other funds.(2)
Your actual costs may be higher or lower.

- -----------------
1 Based on expenses, after fee waivers and reimbursements for the first 16
months only.
2 Information on the annual operating expenses reflects the expenses of both
the Fund and the EAFE Equity Index Portfolio, the master portfolio in which
the EAFE Equity Index Fund Class invests its assets. (A further discussion
of the relationship between the Fund and the master portfolio appears in
the "Organizational Structure" section of this prospectus.)

<PAGE>

A detailed look
AT THE EAFE(R) EQUITY INDEX FUND

OBJECTIVE
The Fund seeks to match, as closely as possible, before 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 do not require their approval to do so.

This Fund and master portfolio are 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 and
master portfolio, or to this Fund and master portfolio themselves. Morgan
Stanley has no obligation to take the needs of the issuer of this Fund and
master portfolio or the owners of this Fund and master portfolio 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 and master portfolio 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
and

<PAGE>

master portfolio in connection with the administration, marketing or trading of
this Fund and master portfolio. This Fund and master portfolio are 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.

<PAGE>

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:
o indexing provides simplicity because it is a straightforward
market-matching strategy;
o index funds generally provide diversification by investing in a wide
variety of companies and industries;
o 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;
o 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
usually have relatively low trading activity and therefore brokerage
commissions tend to be lower; and
o index funds generally have low realization of capital gains.

<PAGE>

STRATEGY

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 and stock index futures and options. Futures and options are
considered derivatives because the "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.

[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. 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.]

<PAGE>

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 Index's value in
roughly the same proportion as the 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 small 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.

<PAGE>

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.

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

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.

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

<PAGE>

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:

o 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.

o 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.

<PAGE>

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 stock
investments.

SECONDARY RISK

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:
o changes in the relative strength and value of the U.S. dollar or other
major currencies;
o adverse effects on the business or financial condition of European issuers
that the Fund holds in its portfolio;
o that the systems used to purchase and sell euro-denominated securities may
not work;
o uncertainty about how existing financial contracts will be treated after
euro implementation; and
o 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.

<PAGE>

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:
o the companies in which the Fund invests, which could impact the value of
the Fund's investments;
o our ability to service your Fund account, including our ability to meet
your requests to buy and sell Fund shares; and
o 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.

<PAGE>

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.
o Joined Bankers Trust in 1985 and the Fund at its inception in 1996.
o 14 years of trading and investment experience.
o 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.
o Joined Bankers Trust in 1992 and the Fund at its inception in1996.
o 11 years of trading and investment experience.
o Bachelor's degree from the University of California at Berkeley, MBA from
the New York University Stern School.

<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
_________________________ , 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 BT Service Center at 1-800-368-4031.

Financial Highlights

<TABLE>
<CAPTION>
------------------------------------------------------------------------
FOR THE PERIOD
JANUARY 24, 1996
(COMMENCEMENT
FOR THE YEAR ENDED OF OPERATIONS) TO
1998 DECEMBER 31, 1997 DECEMBER 31, 1996
------------------------------------------------------------------------
<S> <C> <C>
Per Share Operating Performance:Net Asset Value,
Beginning of Period $10.62 $10.00
------ ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.23 0.12
Net Realized and Unrealized Gain (Loss) from
Investments, Futures, Foreign Currencies and Forward
Foreign Currency Contracts Transactions (0.02) 0.60
------ ----
Total from Investment Operations 0.21 0.72
---- ----
DISTRIBUTIONS TO SHAREHOLDERS
Net nvestment Income (0.24) (0.08)
Net Realized Gain from
Investment Transactions (0.61) (0.02)
------ ------
TOTAL DISTRIBUTIONS (0.85) (0.10)
------ ------
NET ASSET VALUE, END OF PERIOD $9.98 $10.62
----- ------
TOTAL INVESTMENT RETURN 2.11% 7.22%
SUPPLEMENAL DATA AND RATIOS:
Net Assets, End of Period
(000s omitted) $ 35,509 $ 39,667
-------- --------
Ratios to Average Net Assets:
Net InvestmentIncome 1.70% 1.64%(1)
Expenses, Including Expenses
of the EAFE(R)Equity Index Portfolio 0.40% 0.40%(1)
Decrease Reflected in Above
Expense Ratio Due to Absorption of Expenses by
Bankers Trust 0.33% 0.48%(1)
Portfolio Turnover Rate(2)
------------------------------------------------------------------------
</TABLE>

<PAGE>

- -----------------
1 Annualized.
2 The portfolio turnover rate is the rate for the master fund in which the
Fund invests its assets.

<PAGE>

U.S. BOND INDEX FUND
OVERVIEW OF THE U.S. BOND INDEX FUND
00 Goal
00 Core Strategy
00 Investment Policies and Strategies
00 Principal Risks of Investing in the Fund
00 Who Should Consider Investing in the Fund
00 Total Returns, After Fees and Expenses
00 Annual Fund Operating Expenses

A DETAILED LOOK AT THE U.S. BOND INDEX FUND
00 Objective
00 Strategy
00 Principal Investments
00 Investment Process
00 Portfolio Turnover
00 Risks
00 Portfolio Manager
00 Financial Highlights

<PAGE>

Overview
OF THE U.S. BOND INDEX FUND

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.

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. ALL OF THE BONDS ON THE INDEX HAVE
MATURITIES OF ONE YEAR OR MORE AT THE TIME OF THEIR ISSUE.

<PAGE>

CORE STRATEGY: The Investment Adviser attempts to invest in debt and other
securities that are representative of the Lehman Bond Index as a whole.

INVESTMENT POLICIES AND STRATEGIES
The Fund is a feeder fund that invests all of its assets in a master portfolio
with the same investment objective as the Fund. The Fund, through the master
portfolio, 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 compose 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.

<PAGE>

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:
o The performance of the bonds that our Investment Adviser has selected could
underperform that of the Lehman Bond Index.
o The bond market could decline in value as a result of a rise in interest
rates.
o The Fund may not be able to mirror the Lehman Bond Index closely enough to
track its performance for a number of reasons, including the Fund's cost to
buy and sell securities and the flow of money into and out of the Fund.
o 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.

<PAGE>

WHO SHOULD CONSIDER INVESTING IN THE FUND
The U.S. Bond Index Fund-Institutional Class requires a minimum investment of $5
million. 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 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.

<PAGE>

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
one full calendar year since the Fund began selling shares to the public on June
30, 1997 (its inception date). The table compares the Fund's average annual
return with the Lehman Bond Index over the last year and since its inception.
The Index is a model, not an actual 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 results.

1998 RETURN
[BAR CHART]

- -------------------
TK
- -------------------
1998
- -------------------

Since inception, the Fund's highest return in any calendar quarter was TK% and
its lowest quarterly return was TK%. Past performance offers no indication of
how the Fund will perform in the future.

<PAGE>

AVERAGE ANNUAL RETURNS
(AS OF DECEMBER 31, 1998)

- ------------------------------------------------------------------------------
SINCE INCEPTION
1 YEAR (JUNE 30, 1997)
- ------------------------------------------------------------------------------
U.S. Bond Index Fund-Institutional Class (TK)% TK%
- ------------------------------------------------------------------------------
Lehman Brothers Aggregate Bond Index (TK)% TK%
- ------------------------------------------------------------------------------

<PAGE>

ANNUAL FUND OPERATING EXPENSES
(EXPENSES PAID FROM FUND ASSETS)

This table describes the fees and expenses that you may pay if you buy and hold
shares of the U.S. Bond Index Fund-Institutional Class.

ANNUAL FEES AND EXPENSES

- ------------------------------------------- ---------------------------------
PERCENTAGE OF AVERAGE
DAILY NET ASSETS(1)
- ------------------------------------------- ---------------------------------
Management Fees 0.15%
- ------------------------------------------- ---------------------------------
Distribution and Service (12b-1) Fees none
- ------------------------------------------- ---------------------------------
Other Fund Operating Expenses 0.75%
- ------------------------------------------- ---------------------------------
Total Fund Operating Expenses 0.90%
- ------------------------------------------- ---------------------------------
Less: Fee Waiver or Expense Reimbursements (0.75)%(2)
- ------------------------------------------- ---------------------------------
NET EXPENSES 0.15%
- ------------------------------------------- ---------------------------------

- ----------------
1 Information on the annual operating expenses reflects the expenses of both
the Fund and the U.S. Bond Index Portfolio, the master portfolio in which
the U.S. Bond Index Fund invests its assets. (A further discussion of the
relationship between the Fund and the master portfolio appears in the
"Organizational Structure" section of this prospectus.)
2 Bankers Trust has agreed, for the 16-month period from the Fund's fiscal
year end of December 31, 1998, to waive its fees and reimburse expenses so
that total expenses will not exceed 0.15%.

<PAGE>

Expense Example1(1)

- -------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------------
$15 $193 $417 $1060
- -------------------------------------------------------

You may use this hypothetical example to compare the Fund's expense history with
other funds.(1)
Actual costs may be higher or lower.

- -----------------
1 Based on expenses, after fee waivers and reimbursements for the first 16
months only.

<PAGE>

A detailed look
AT THE U.S. BOND INDEX FUND

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 do not require 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:
o indexing provides simplicity because it is a straightforward
market-matching strategy;
o index funds generally provide diversification by investing in a wide
variety of companies and industries;
o 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;
o 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
usually have relatively low trading activity and therefore brokerage
commissions tend to be lower; and
o index funds generally have low realization of capital gains.

<PAGE>

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 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. Hedging is a strategy designed
to offset investment risks. Hedging activities include, among other things, the
use of options and futures. The Fund intends to buy futures in anticipation of
buying stocks.

[SIDEBAR: 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. 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.]

<PAGE>

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 Index, which tracks four major classes of investment grade
fixed-income securities. The chart below shows the proportion as of December 31,
1998 that each class has recently constituted of the market value of the Index.
The Fund also attempts to match the Index's duration of [YEARS], an intermediate
term.

<TABLE>
<CAPTION>
- --------------------------------------------------------------------- -------------------------------------
CLASS OF SECURITIES % OF MARKET VALUE OF INDEX
- --------------------------------------------------------------------- -------------------------------------
<S> <C>
U.S. Treasury and agency securities 49
- --------------------------------------------------------------------- -------------------------------------
Mortgage-backed securities 30
- --------------------------------------------------------------------- -------------------------------------
Corporate bonds 16
- --------------------------------------------------------------------- -------------------------------------
Bonds issued outside the U.S. but payable in U.S. dollars 4
- --------------------------------------------------------------------- -------------------------------------
Other debt securities 1
- --------------------------------------------------------------------- -------------------------------------
</TABLE>

[Duration measures the sensitivity of bond prices to changes in interest rates.
The longer the duration of a bond, the longer it will take to repay the
principal and interest obligations and the more sensitive it is to changes in
interest rates. Investors in longer-duration bonds face more risk as interest
rates rise--but also are more likely to receive more income from their
investment to compensate for the risk.]

<PAGE>

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.

RISKS
BELOW WE SET FORTH SOME OF THE PROMINENT RISKS ASSOCIATED WITH BOND 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 in 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 Index exactly:
o Unlike the Index, the Fund incurs administrative expenses and transaction
costs in trading bonds.
o The composition of the Index and the bonds held by the Fund may
occasionally diverge.
o 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" Index.

<PAGE>

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.

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:
o that the derivative will not fully offset the underlying positions;
o that derivatives used for risk management may not have the intended effects
and may result in losses or missed opportunities; and
o 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.

<PAGE>

SECONDARY RISK

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:
o the companies in which the Fund invests, which could impact the value of
the Fund's investments;
o our ability to service your Fund account, including our ability to meet
your requests to buy and sell Fund shares; and
o our ability to trade securities held by the Fund or to accurately price
securities held by the Fund.

<PAGE>

Portfolio Manager

LOUIS R. D'ARIENZO, Principal of Bankers Trust, is responsible for the
day-to-day management of the Fund.
o Joined Bankers Trust in 1981 and the Fund at its commencement in 1997.
o 16 years of investment experience.
o Bachelor's degree in Finance from New York University.

<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
_________________________ , 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 BT Service Center at 1-800-368-4031.

FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
-------------------------------------------------------
INSTITUTIONAL CLASS SHARES
FOR THE PERIOD
JUNE 30, 1997(1) THROUGH
1998 DECEMBER 31, 1997
-------------------------------------------------------
<S> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, Beginning of Period $10.00
------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.33
Net Realized and Unrealized Gain on 0.32
Investment Transactions ----

Total from Investment Operations 0.65
----
DISTRIBUTIONS TO SHAREHOLDERS
Net Investment Income (0.32)
Net Realized Gain from Investment (0.04)
Transactions ------

TOTAL DISTRIBUTIONS (0.36)
------
NET ASSET VALUE, END OF PERIOD $10.29
======
TOTAL INVESTMENT RETURN 6.52%
SUPPLEMENTAL DATA AND RATIOS:
Net Assets, End of Period (000s omitted) $8,119
Ratios to Average Net Assets:
Net Investment Income 6.32%(2)
Expenses, Including Expenses of the
U.S. Bond Index Portfolio 0.15%(2)
Decrease Reflected in Above Expense
Ratio Due to Absorption of Expenses by
Bankers Trust
Portfolio Turnover Rate(3) 0.71%(2)
-------------------------------------------------------
</TABLE>

1 Commencement of operations.
2 Annualized.
3 The portfolio turnover rate is the rate for the master fund in which the
Fund invests its assets.

<PAGE>

INSTITUTIONAL EQUITY 500 INDEX FUND
OVERVIEW OF THE BT INSTITUTIONAL EQUITY 500 INDEX FUND

00 Goal
00 Core Strategy
00 Investment Policies and Strategies
00 Principal Risks of Investing in the Fund
00 Who Should Consider Investing in the Fund
00 Total Returns, After Fees and Expenses
00 Annual Fund Operating Expenses

A DETAILED LOOK AT THE BT INSTITUTIONAL EQUITY 500 INDEX FUND
00 Objective
00 Strategy
00 Principal Investments
00 Investment Process
00 Portfolio Turnover
00 Risks
00 Portfolio Manager
00 Financial Highlights

<PAGE>

Overview
OF THE INSTITUTIONAL EQUITY 500 INDEX FUND

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.

[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. 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).]

<PAGE>

CORE STRATEGY:
The Investment Adviser attempts to invest in stocks and other securities that
are representative of the S&P 500 Index as a whole.

INVESTMENT POLICIES AND STRATEGIES
The Fund is a feeder fund that invests all of its assets in a master portfolio
with the same investment objective as the Fund. The Fund, through the master
portfolio, seeks to replicate, before expenses, the risk and return
characteristics of the S&P 500. The Fund will invest primarily in common stocks
of companies that compose the S&P 500, in approximately the same weightings as
the S&P 500.

<PAGE>

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:
o Stocks could decline generally or could underperform other investments.
o Returns on large U.S. companies' stock could trail the returns of stocks of
medium or small companies. Each type of stock tends to go through cycles of
overperformance and underperformance in comparison to the overall stock
market.
o The Fund may not be able to mirror the S&P 500 Index closely enough to
track its performance for a number of reasons, including the Fund's cost to
buy and sell securities, the flow of money into and out of the Fund and the
underperformance of stocks selected by the Investment Adviser.
o The Fund could suffer losses on its futures and options positions if they
are not well correlated with the securities for which they are acting as a
proxy or if the Fund cannot close out its positions.

<PAGE>

WHO SHOULD CONSIDER INVESTING IN THE FUND
The Institutional Equity 500 Index Fund requires a minimum investment of $5
million. You should consider investing in the Fund if you are seeking the
following:
o capital appreciation over the long term;
o exposure to the U.S. equity market as represented by larger companies; and
o investment returns that track the performance of the S&P 500 Index.

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

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

The Fund by itself does not constitute a balanced investment program.
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.

<PAGE>

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 years since the Fund began selling shares on December 31, 1992
(its inception date). The table compares the Fund's average annual return with
the S&P 500 Index over the last calendar year, the last five calendar years and
since its inception. The S&P 500 Index is a model, not an actual 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 stocks -- costs which are reflected in the Fund's results.

Year-by-Year Returns for Each Full Calendar Year Since Inception
[bar chart]

1993 1994 1995 1996 1997 1998

Since inception, the Fund's highest return in any calendar quarter was ____% and
its lowest quarterly return was ____%. Past performance offers no indication of
how the Fund will perform in the future.

<PAGE>

Average Annual Returns as of December 31, 1998

1 year 5 year Since inception
(December 31,
1992)
BT Institutional Equity 500 Index Fund
S&P 500 Index

<PAGE>

ANNUAL FEES AND EXPENSES
PERCENTAGE OF AVERAGE
DAILY NET ASSETS(1)

Management Fees 0.075%
Distribution and Service (12b-1) Fees none
Other Fund Operating Expenses 0.095%
Total Fund Operating Expenses 0.17%
Less: Fee Waiver or Expense Reimbursement (0.07%)(2)
Net Expenses 0.10%

- --------------
1 Information on the annual operating expenses reflects the expenses of both
the Fund and Equity 500 Index Portfolio, the master fund in which the
Equity 500 Index Fund invests its assets. (A further discussion of the
relationship between the Fund and the Portfolio appears in the
"Organizational Structure" section of this prospectus.)
2 Bankers Trust has agreed, for the 16-month period from the end of the
Fund's fiscal year end of December 31, 1998, to waive its fees and
reimburse expenses so that total expenses will not exceed 0.10%.

<PAGE>

Expense Example. The example below illustrates the expenses incurred on a
$10,000 investment in the Fund. It assumes that the Fund earned an annual return
of 5% over the periods shown, the Fund's operating expenses remained the same
and you sold your shares at the end of the period.

Expense Example(1)

- -------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------------
$10 $47 $90 $217
- -------------------------------------------------------

You may use this hypothetical example to compare the Fund's expense history with
other funds.(1) The example does not represent an estimate of future returns or
expenses. Actual costs may be higher or lower.

- ------------
1 Based on expenses, after fee waivers and reimbursements for the first 16
months only.

<PAGE>

A detailed look
AT THE INSTITUTIONAL 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.

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 do not require their approval to do so.

The Fund and the Portfolio are not sponsored, endorsed, sold or promoted by S&P.
S&P makes no representation or warranty, express or implied, to the owners of
the Fund or the Portfolio or any member of the public regarding the advisability
of investing in securities generally or in the Fund and the Portfolio
particularly or the ability of the S&P 500 Index to track general stock market
performance. 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 or the Portfolio, owners of the Fund or the Portfolio, 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.

<PAGE>

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:
o indexing provides simplicity because it is a straightforward
market-matching strategy;
o index funds generally provide diversification by investing in a wide
variety of companies and industries;
o 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;
o 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
usually have relatively low trading activity and therefore brokerage
commissions tend to be lower; and
o index funds generally have low realization of capital gains.

<PAGE>

STRATEGY
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.)

<PAGE>

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 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 may
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.

The Fund may hold up to 20% 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.

<PAGE>

INVESTMENT PROCESS
The Fund cannot as a practical matter 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, 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 small 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.

PORTFOLIO TURNOVER
The 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.

<PAGE>

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.

<PAGE>

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:
o that the derivative will not fully offset the underlying positions;
o that derivatives used for risk management may not have the intended effects
and may result in losses or missed opportunities; and
o that the Fund cannot sell the derivative because of an illiquid secondary
market.

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 judgement 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.

<PAGE>

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:
o The companies in which the Fund invests, which could impact the value of
the Fund's investments;
o Our ability to service your Fund account, including our ability to meet
your requests to buy and sell Fund shares; and
o 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 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.

<PAGE>

Portfolio Manager

FRANK SALERNO, Managing Director of Bankers Trust, is responsible for the
day-to-day management of the Fund's investments:
o Joined Bankers Trust in 1981 and the Fund at its inception in 1992.
o 16 years of investment industry experience.
o Bachelor's degree from Syracuse University, MBA from New York University.

<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
____________________, 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 BT Service Center at 1-800-368-4031.

Financial Highlights

<PAGE>

INFORMATION
CONCERNING ALL FUNDS

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.

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.

The Funds paid the following fees to Bankers Trust for investment advisory
services in the last fiscal year:

Fund Percentage of Average Daily Net Assets
- ------------------------------------ --------------------------------------
Small Cap Index Fund 0.07%
- ------------------------------------ --------------------------------------
EAFE(R)Equity Index Fund 0.14%
- ------------------------------------ --------------------------------------
U.S. Bond Index Fund 0.03%
- ------------------------------------ --------------------------------------
Institutional Equity 500 Index Fund 0.10%
- ------------------------------------ --------------------------------------

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.

<PAGE>

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 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 retail and commercial banking, investment banking
and insurance. The transaction is contingent upon various regulatory approvals,
as well as the approval of the Fund's shareholders. If the transaction is
approved and completed, Deutsche Bank AG, as the Investment Adviser's new parent
company, will control the operations of the Investment Adviser. Bankers Trust
believes that, under this new arrangement, the services provided to the Fund
will be maintained at their current level.

<PAGE>

Other Services. Bankers Trust provides administrative services--such as
portfolio accounting, legal services and others--for the Fund. In addition,
Bankers Trust, or your broker or financial advisor, performs the functions
necessary to establish and maintain your account. In addition to setting up the
account and processing your purchase and sale orders, these functions include:
o keeping accurate, up-to-date records for your individual Fund account;
o implementing any changes you wish to make in your account information;
o processing your requests for cash dividends and distributions from the
Fund;
o answering your questions on the Fund's investment performance or
administration;
o sending proxy reports and updated prospectus information to you; and
o collecting your executed proxies.

<PAGE>

Brokers and financial advisors may charge additional fees to investors only for
those services not otherwise included in the Bankers Trust servicing agreement,
such as cash management or special trust or retirement-investment reporting.

Organizational Structure. The Funds are "feeder funds" that invest all of their
assets in a "master portfolio." The Funds and their corresponding Master
Portfolio are listed below:

Fund Master Portfolio
- -------------------------------------- ---------------------------------
Small Cap Index Fund Small Cap Index Portfolio
- -------------------------------------- ---------------------------------
EAFE(R) Equity Index Fund EAFE(R) Equity Index Portfolio
- -------------------------------------- ---------------------------------
U.S. Bond Index Fund U.S. Bond Index Portfolio
- -------------------------------------- ---------------------------------
Institutional Equity 500 Index Fund Equity 500 Index Portfolio
- -------------------------------------- ---------------------------------

Each Fund and its master portfolio have the same investment objective. Each
master portfolio is advised by Bankers Trust.

A master portfolio may accept investments from other feeder funds. A feeder
bears the master portfolio's expenses in proportion to its assets. Each feeder
can set its own transaction minimums, fund-specific expenses, and other
conditions. This arrangement allows the Fund's Trustees to withdraw the Fund's
assets from the master portfolio if they believe doing so is in the
shareholders' best interests. If the Trustees withdraw a Fund's assets, they
would then consider whether the Fund should hire its own investment adviser,
invest in a different master portfolio or take other action.

<PAGE>

CALCULATING A FUND'S SHARE PRICE
We calculate the daily price of each 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 a 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 a Fund owns may
ultimately affect the price of the Fund's shares the next time the NAV is
calculated.)

We value the securities in a 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. You can find a Fund's daily share price in the mutual fund listings of
most major newspapers.

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.

<PAGE>

DIVIDENDS AND DISTRIBUTIONS
The Funds distribute substantially all of their dividends and capital gains to
shareholders each year. Capital gains, if any, are paid annually. The Funds pay
income dividends as described below:

Fund Income Dividends Are Paid
- ------------------------------------- ------------------------------
Small Cap Index Fund Annually
- ------------------------------------- ------------------------------
EAFE(R) Equity Index Fund Annually
- ------------------------------------- ------------------------------
U.S. Bond Index Fund Monthly
- ------------------------------------- ------------------------------
Institutional Equity 500 Index Fund Quarterly
- ------------------------------------- ------------------------------

Distribution Options. The account applications for Small Cap Index Fund, EAFE(R)
Equity Index Fund and U.S. Bond Index Fund have a section where you can elect to
receive your dividend and capital gain distributions in one of four ways:
o You can direct us to reinvest all of your distributions in additional
shares of the Fund.
o You can direct us to reinvest your capital gain distributions in additional
shares of the Fund, and send you a check for your dividend distributions.
o You can direct us to send you a check for all of your distributions.
o You can direct us to reinvest all of your distributions in shares of
another BT mutual fund. You can only choose this option if you meet the
account balance requirements for the selected fund.

We will automatically reinvest all of your distributions in shares of your Fund
unless you choose one of the other three options on your account application.
You can change your distribution option at any time by notifying BT Mutual Funds
in writing.

If you have a retirement account, the Fund will automatically reinvest your
distributions until you are older than 59-1/2 years. Once you reach that age,
you can elect to receive your distributions in cash.

<PAGE>

TAX CONSIDERATIONS
A Fund does not ordinarily pay income taxes. You and other shareholders pay
taxes on the income or capital gains from the Fund's holdings. Your taxes will
vary from year to year, based on the amount of capital gain distributions and
dividends paid out by the Fund. You owe the taxes whether you receive cash or
choose to have distributions and dividends reinvested. Distributions and
dividends usually create the following tax liability:

- ------------------------------------------ --------------------------
TRANSACTION TAX STATUS
- ------------------------------------------ --------------------------
Income dividends Ordinary income
- ------------------------------------------ --------------------------
Short-term capital gain distributions Ordinary income
- ------------------------------------------ --------------------------
Long-term capital gain distributions Capital gains
- ------------------------------------------ --------------------------

Every year your Fund will send you information on the distributions for the
previous year. In addition, if you sell your Fund shares you may have a capital
gain or loss.

<TABLE>
<CAPTION>
- ------------------------------------------------------------- ----------------------------------------------------------
TRANSACTION TAX STATUS
- ------------------------------------------------------------- ----------------------------------------------------------
<S> <C>
You sell shares owned more than one year Capital gains or losses
- ------------------------------------------------------------- ----------------------------------------------------------
You sell shares owned for one year or less Gains treated as ordinary income; losses subject to
special rules
- ------------------------------------------------------------- ----------------------------------------------------------
</TABLE>

The tax considerations for tax deferred accounts or nontaxable entities are
different.

BECAUSE EACH INVESTOR'S TAX CIRCUMSTANCES ARE UNIQUE AND BECAUSE THE TAX LAWS
ARE SUBJECT TO CHANGE, WE RECOMMEND THAT YOU CONSULT YOUR TAX ADVISOR ABOUT YOUR
INVESTMENT.

<PAGE>

BUYING AND SELLING FUND SHARES

CONTACTING THE BT MUTUAL FUNDS

By Phone 1-800-368-4031
(between 9:00 a.m. and
6:00 p.m., Eastern time)

By Mail P.O. Box 419210
Kansas City, MO 64141-6210

By Overnight Mail 210 West 10th Street, 8th floor
Kansas City, MO 64105-1716

MINIMUM ACCOUNT INVESTMENTS

To open an account $5 million
To add to an account $100,000
Minimum account balance $1 million

HOW TO OPEN YOUR FUND ACCOUNT

By mail
Complete and sign the account application that accompanies this prospectus. (You
may obtain additional applications by calling the BT Service Center.) Mail the
completed application along with a check payable to the BT Fund you have
selected to the BT Service Center. The addresses are shown under "Contacting the
BT Mutual Funds".

By wire
Call the BT Service Center to set up a wire account.

Please note that your account cannot become activated until we receive a
completed application via mail or fax.

<PAGE>

TWO WAYS TO BUY AND SELL SHARES IN YOUR ACCOUNT

MAIL

Buying: Send your check, payable to the BT Fund you have selected, to the BT
Service Center. The addresses are shown above under "Contacting the BT Mutual
Funds." Be sure to include the fund number and your account number (see your
account statement) on your check. Please note that we cannot accept starter
checks or third-party checks. If you are investing in more than one fund, make
your check payable to "BT Funds" and include your account number and the names
and numbers of the funds you have selected.

Selling: Send a signed letter to the BT Service Center with your name, your fund
number and account number, the fund's name, and either the number of shares you
wish to sell or the dollar amount you wish to receive. If you are selling shares
of Small Cap Index Fund or EAFE(R) Equity Index Fund, you must leave at least
$1,000 worth of shares in your account to keep it open. Unless exchanging into
another BT Fund, you must submit a written authorization to sell shares in a
retirement account.

<PAGE>

WIRE

Buying: You may only buy shares by wire if your account is authorized to do so.
Please note that you or your financial advisor must call the BT Service Center
at 1-800-368-4031 to notify us in advance of a wire transfer purchase. Inform
the BT Representative of the amount of your purchase and receive a trade
confirmation number. Instruct your bank to send payment by wire using the wire
instructions noted below. All wires must be received by 4:00 p.m. Eastern time
the next business day.

Routing No.: 021001033
Attn: Bankers Trust/BT Funds
DDA No.: 00-226-296
FBO: (Account name)
(Account number)
Credit: (Fund name and number)
Small Cap Index Fund - Institutional Class - 513
EAFE(R) Equity Index Fund - Institutional Class - 514
U.S. Bond Index Fund - Institutional Class - 511
Institutional Equity 500 Index Fund - 481

See your account statement for the account name and number.

Selling: You may only sell shares by wire if your account is authorized to do
so. For your protection, you may not change the destination bank account over
the phone. To sell by wire, contact your financial advisor or the BT Service
Center at 1-800-368-4031. Inform the BT Representative of the amount of your
redemption and receive your trade confirmation number. The minimum redemption by
wire is $1,000. We must receive your order by 4:00 p.m. Eastern time to wire
your account the next business day.

<PAGE>

IMPORTANT INFORMATION ABOUT BUYING AND SELLING SHARES
o After receiving your order, we buy or sell your shares at the next price
calculated on a day the New York Stock Exchange is open for business.
o We accept payment for shares only in U.S. dollars by check, bank or Federal
Funds wire transfer, or by electronic bank transfer.
o We remit proceeds from the sale of shares in U.S. dollars (unless the
redemption is so large that it is made "in-kind").
o You may place orders to buy and sell over the phone by calling your
financial advisor or the BT Service Center at 1-800-368-4031. If you pay
for shares by check and the check fails to clear, or if you order shares by
phone and fail to pay for them by 4:00 p.m. Eastern time the next business
day, we have the right to cancel your order, hold you liable or charge you
or your account for any losses or fees the Fund or its agents have
incurred. Unless you request a wire, we will send you a check.
o You may buy and sell shares of the Fund through authorized brokers and
financial advisors as well as from BT Mutual Funds directly. The same terms
and conditions apply. Specifically, once you place your order with a broker
or financial advisor, it is considered received by the BT Service Center.
It is then your broker or financial advisor's responsibility to transmit
the order to the BT Service Center by the next business day. You should
contact your broker or financial advisor if you have a dispute as to when
your order was placed with the Fund.
o We do not issue share certificates.
o We process all sales orders free of charge.
o Unless otherwise instructed, we normally mail a check for the proceeds from
the sale of your shares to your account address the next business day and
no later than seven days.
o We reserve the right to close your account on 30 days' notice if it fails
to meet minimum balance requirements for any reason other than a change in
market value.
o If you sell shares by mail or wire, you may be required to obtain a
signature guarantee. Please contact your financial advisor or the BT
Service Center for more information.

<PAGE>

o Selling shares of trust accounts and business or organization accounts may
require additional documentation. Please contact your financial advisor or
the BT Service Center for more information.
o During periods of heavy market activity, you may have trouble reaching the
BT Service Center by telephone. If this occurs, you should make your
request by mail.

EXCHANGE PRIVILEGE

You can exchange all or part of your shares for shares in another BT Mutual Fund
up to four times. When you exchange shares, you are selling shares in one fund
to purchase shares in another. Before buying shares through an exchange, you
should be sure to get a copy of that fund's prospectus and read it carefully.
You may only order exchanges over the phone if your account is authorized to do
so.

PLEASE NOTE THE FOLLOWING CONDITIONS:
o The accounts between which the exchange is taking place must have the same
name, address and taxpayer ID number.
o You may make the exchange by phone, letter or wire, if your account has the
exchange by phone feature.
o If you are maintaining a taxable account, you may have to pay taxes on the
exchange.
o You will receive a written confirmation of each transaction from the BT
Service Center or your investment professional.
o Please note the following conditions on exchanges into and out of EAFE(R)
Equity Index Fund and Institutional Equity 500 Index Fund:

<PAGE>

o We reserve the following rights:
- The right to terminate the exchange privilege of any investor who makes
more than four exchanges out of the Fund in a calendar year.
- The right to refuse exchanges into the Fund if we believe the Fund
could not invest the proceeds from the new shares effectively according
to its objective.
- The right to restrict exchanges if we receive or anticipate
simultaneous orders that could force the Fund to deviate from its
investment objective. Such orders might occur in connection with
so-called market timing strategies, in anticipation of or during
periods of extreme market movements.

<PAGE>

BACK COVER

Additional information about each 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 each 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 a Fund, write to us at:

BT SERVICE CENTER
P.O. BOX 419210
KANSAS CITY, MO 64141-6210
OR CALL OUR TOLL-FREE NUMBER: 1-800-368-4031

You can find reports and other information about each 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 each 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.

Small Cap Index Fund - Institutional Class Shares CUSIP#
EAFE(R) Equity Index Fund - Institutional Class Shares
U.S. Bond Index Fund-Institutional Class Shares
Institutional Equity 500 Index Fund

BT Advisor Funds
BT Institutional Funds

811-7347
811-6071

<PAGE>
SIMPLIFY

Bankers Trust
Simplified Prospectus
February 10, 1999

PROSPECTUS: APRIL 30, 1999

BT Mutual Funds (logo)

INSTITUTIONAL LIQUID ASSETS FUND

With the goal of achieving a high level of current income consistent with
liquidity and the preservation of capital

TRUST: BT INSTITUTIONAL FUNDS

INVESTMENT ADVISER: BANKERS TRUST COMPANY

<PAGE>

INSTITUTIONAL LIQUID ASSETS FUND
OVERVIEW OF THE INSTITUTIONAL LIQUID ASSETS FUND
00 Goal
00 Core Strategy
00 Investment Policies and Strategies
00 Principal Risks of Investing in the Fund
00 Who Should Consider Investing in the Fund
00 Total Returns, After Fees and Expenses
00 Annual Fund Operating Expenses

A DETAILED LOOK AT THE INSTITUTIONAL LIQUID ASSETS FUND
00 Objective
00 Strategy
00 Principal Investments
00 Risks
00 Management of the Fund
00 Calculating the Fund's Share Price
00 Dividends and Distributions
00 Tax Considerations
00 Buying and Selling Fund Shares
00 Financial Highlights

<PAGE>

Overview
OF THE INSTITUTIONAL LIQUID ASSETS FUND

GOAL: The Fund seeks a high level of current income consistent with liquidity
and the preservation of capital.

1
<PAGE>

CORE STRATEGY: The Fund invests in high quality money market instruments.

INVESTMENT POLICIES AND STRATEGIES
The Fund invests all of its assets in a master portfolio with the same
investment objective as the Fund. The Fund, through the master portfolio, seeks
to achieve that objective by investing in high quality money market instruments,
maintaining a dollar-weighted average maturity of 90 days or less. The Fund
attempts to maintain a stable share price by investing in securities that are
valued in U.S. dollars, have remaining maturities of 397 days or less and are of
the highest quality. The Fund invests more than 25% of its total assets in banks
and other financial institutions.

2
<PAGE>

PRINCIPAL RISKS OF INVESTING IN THE FUND
Although the Fund seeks to preserve the value of your investment at $1.00 a
share, there are risks associated with investing in the Fund. For example:
o A sharp rise in interest rates could cause the bond market and
individual securities in the Fund's portfolio to decline in value.
o An issuer's creditworthiness could decline, which in turn may cause the
value of a security in the Fund's portfolio to decline.
o Changes in interest rates or economic downturns could have a negative
effect on issuers in the financial services industry.

3
<PAGE>

WHO SHOULD CONSIDER INVESTING IN THE FUND
The Institutional Liquid Assets Fund requires a minimum balance of $100,000 and
minimum additional investments of at least $500,000 each. You should consider
investing in the Fund if you are looking for a cash management vehicle that
offers income approximating money market rates and preserves the value of your
capital. A majority of the Fund's investors use the Fund to "sweep" in cash
balances remaining in accounts at Bankers Trust each trading day.

You should NOT consider investing in the Institutional Liquid Assets Fund if you
seek long-term capital growth. Although it provides a convenient means of
diversifying short-term investments, the Fund by itself does not constitute a
balanced investment program.

AN INVESTMENT IN THE INSTITUTIONAL LIQUID ASSETS 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. ALTHOUGH
THE FUND SEEKS TO PRESERVE THE VALUE OF YOUR INVESTMENT AT $1.00 PER SHARE, IT
IS POSSIBLE TO LOSE MONEY BY INVESTING IN THE FUND.

4
<PAGE>

YEAR-BY-YEAR RETURNS FOR EACH FULL CALENDAR YEAR SINCE INCEPTION
[BAR CHART]

- -------------- ----------- -----------
TK TK TK
- -------------- ----------- -----------
1996 1997 1998
- -------------- ----------- -----------

Since inception, the Fund's highest return in any calendar quarter was TK% and
its lowest quarterly return was TK%. Past performance offers no indication of
how the Fund will perform in the future.

AVERAGE ANNUAL RETURNS
(AS OF DECEMBER 31, 1998)

- ---------------------------------------------------------------------------
SINCE INCEPTION
1 YEAR (DECEMBER 11, 1995)
- ---------------------------------------------------------------------------
Institutional Liquid Assets Fund TK TK
- ---------------------------------------------------------------------------

As of December 31, 1998, the Fund's 7-day yield was TK. To learn the current
7-day yield, investors may call the Bankers Trust Service Center at
1-800-368-4031.

5
<PAGE>

THE FUND OVER A GIVEN PERIOD. AVERAGE ANNUAL RETURNS ARE CALCULATED BY AVERAGING
THE YEAR-BY-YEAR RETURNS OF THE FUND OVER A GIVEN PERIOD.

6
<PAGE>

ANNUAL FUND OPERATING EXPENSES
(EXPENSES PAID FROM FUND ASSETS)
The Annual Fees and Expenses table to the right describes the fees and expenses
that you may pay if you buy and hold shares of the Institutional Liquid Assets
Fund.
<TABLE>
<CAPTION>
--------------------------------------------------------- ---------------------------------
PERCENTAGE OF AVERAGE
DAILY NET ASSETS(1)
--------------------------------------------------------- ---------------------------------
<S> <C> <C>

Management Fees 0.10%
--------------------------------------------------------- ---------------------------------
Distribution and Service (12b-1) Fees none
--------------------------------------------------------- ---------------------------------
Other Fund Operating Expenses 0.16%
--------------------------------------------------------- ---------------------------------
Total Fund Operating Expenses 0.26%
--------------------------------------------------------- ---------------------------------
Less: Fee Waivers or Expense Reimbursements (0.10)%(2)
--------------------------------------------------------- ---------------------------------
NET EXPENSES 0.16%
--------------------------------------------------------- ---------------------------------
</TABLE>

Expense Example(3)

- ------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------------------------------------------------------
$16 $72 $138 $332
- ------------------------------------------------------

You may use this hypothetical example to compare the Fund's expense history with
other funds.(1) Your actual costs may be higher or lower.

1 Information on the annual operating expenses reflects the expenses of both
the Fund and the Liquid Assets Portfolio, the master portfolio in which the
Institutional Liquid Assets Fund invests its assets. (A further discussion
of the relationship between the Fund and the master portfolio appears in
the "Organizational Structure" section of this prospectus.)
2 Bankers Trust has agreed, for the 16-month period from the Fund's
fiscal year end of December 31, 1998, to waive its fees and reimburse
expenses so that total expenses will not exceed 0.16%.
3 Based on expenses, after fee waivers and reimbursements for the first 16
months only.

7
<PAGE>

A detailed look
AT THE INSTITUTIONAL LIQUID ASSETS FUND

OBJECTIVE
The Institutional Liquid Assets Fund seeks a high level of current income
consistent with liquidity and the preservation of capital by investing in high
quality short-term money market instruments.

While we give priority to earning income and maintaining the value of the Fund's
principal at $1.00 per share, all money market instruments, including U.S.
government obligations, can change in value when interest rates change or an
issuer's creditworthiness changes.

The Fund's objective is not a fundamental policy. We must notify shareholders
before we can change it, but we do not require their approval to do so.

<PAGE>

STRATEGY
The Fund seeks current income, maintaining a dollar-weighted average maturity of
90 days or less, by investing in high quality money market securities. The Fund
follows two policies designed to maintain a stable share price:

o Generally, Fund securities are valued in U.S. dollars and have remaining
maturities of 397 days (about 13 months) or less at the time of purchase.
The Fund may also invest in securities that have features that reduce their
maturities to 397 days or less at the time of purchase.
o The Fund buys U.S. government debt obligations, money market instruments
and other debt obligations that at the time of purchase:
-- have received the highest short-term rating from two nationally
recognized statistical rating organizations;
-- have received the highest short-term rating from one rating
organization (if only one organization rates the security);
-- if unrated, are determined to be of similar quality by the Fund's
Investment Adviser; or the
-- Fund may also invest in securities that have no short-term rating,
but are rated in one of the top three highest long-term rating
categories, and are determined to be of similar quality by the Fund's
Investment Adviser.

<PAGE>

PRINCIPAL INVESTMENTS

The Fund may invest in high-quality, short-term, dollar-denominated money market
instruments paying a fixed, variable or floating interest rate. These include:

o Debt obligations issued by U.S. and foreign banks, financial institutions,
corporations or other entities, including certificates of deposit,
euro-time deposits, commercial paper (including asset-backed commercial
paper), notes, funding agreements and U.S. government securities.
Securities that do not satisfy the maturity restrictions for a money market
fund may be specifically structured so that they are eligible investments
for money market funds. For example, some securities have features which
have the effect of shortening the security's maturity.

o U.S. government securities that are issued or guaranteed by the U.S.
Treasury, or by agencies or instrumentalities of the U.S. Government.

o Repurchase agreements, which are agreements to buy securities at one price,
with a simultaneous agreement to sell back the securities at a future date
at an agreed-upon price.

o Asset Backed Securities are generally participations in a pool of assets
whose payment is derived from the payments generated by the underlying
assets. Payments on the asset backed security generally consist of interest
and/or principal.

Because many of the Fund's principal investments are issued or credit-enhanced
by banks or other financial institutions, the Fund may invest more than 25% of
its total assets in the financial services industry.

10
<PAGE>

RISKS
BELOW WE SET FORTH SOME OF THE PROMINENT RISKS ASSOCIATED WITH MONEY MARKET
MUTUAL FUNDS, AND WE DETAIL OUR APPROACHES TO CONTAIN 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. IF A SECURITY NO LONGER MEETS THE
FUND'S REQUIREMENTS, WE WILL ATTEMPT TO SELL THAT SECURITY WITHIN A REASONABLE
TIME, UNLESS SELLING THE SECURITY WOULD NOT BE IN THE FUND'S BEST INTEREST.

PRIMARY RISKS

Interest Rate Risk. Money market instruments, like all debt securities, face the
risk that the 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 when interest rates decline. To
minimize such price fluctuations, the Fund adheres to the following practices:
o We limit the dollar-weighted average maturity of the securities held by the
Fund to 90 days or less. Generally, rates of short-term investments
fluctuate less than longer-term bonds.
o We primarily buy securities with remaining maturities of 13 months or less.
This reduces the risk that the issuer's creditworthiness will change, or
that the issuer will default on the principal and interest payments of the
obligation.

Credit Risk. A money market instrument's credit quality depends on the issuer's
ability to pay interest on the security and repay the debt: the lower the credit
rating, the greater the

11
<PAGE>

risk that the security's issuer will default, or fail to meet its payment
obligations. The credit risk of a security may also depend on the credit quality
of any bank or financial institution that provides credit enhancement for it.
The Fund only buys high quality securities with minimal credit risk.

Market Risk. Although individual securities may outperform their market, the
entire market may decline as a result of rising interest rates, regulatory
developments or deteriorating economic conditions.

Security Selection Risk. While the Fund invests in short-term securities, which
by nature are relatively stable investments, the risk remains that the
securities we have selected will not perform as expected. This could cause the
Fund's returns to lag behind those of similar money market funds. We attempt to
limit this risk by diversifying the Fund's investments so that a single setback
need not undermine the pursuit of its objective and by investing in money market
instruments that receive the highest short-term debt ratings as described above.

Repurchase Agreement Risk. A repurchase agreement exposes the Fund to the risk
that the party that sells the securities defaults on its obligation to
repurchase them. In this circumstance, the Fund can lose money because:
o it cannot sell the securities at the agreed-upon time and price
o the securities lose value before they can be sold

The Fund seeks to reduce this risk by monitoring, under the supervision of the
Board of Trustees, the creditworthiness of the sellers with whom it enters into
repurchase agreements. The Fund also monitors the value of the securities to
ensure that they are at least equal to the total amount of the repurchase
obligations, including interest.

12
<PAGE>

Concentration Risk. Because the Fund may invest more than 25% of its total
assets in the financial services industry, it may be vulnerable to setbacks in
that industry. Banks and other financial service companies are highly dependent
on short-term interest rates and can be adversely affected by downturns in the
U.S. and foreign economies or changes in banking regulations.

Prepayment Risk. When a bond issuer, such as an issuer of asset-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.

SECONDARY RISK

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

13
<PAGE>

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

14
<PAGE>

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.

Bankers Trust's officers bring wide experience to managing both the Fund and its
master 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.

15
<PAGE>

Other Services. Bankers Trust provides administrative services--such as
portfolio accounting, legal services and others--for the Fund. In addition,
Bankers Trust, or your broker or financial advisor, performs the functions
necessary to establish and maintain your account. Besides setting up the account
and processing your purchase and sale orders, these functions include:
o keeping accurate, up-to-date records for your individual Fund account
o implementing any changes you wish to make in your account information
o processing your requests for cash dividends and distributions from the Fund
o answering your questions on the Fund's investment performance or
administration
o sending proxy reports and updated prospectus information to you
o collecting your executed proxies

Brokers and financial advisors may charge additional fees to investors only for
those services not otherwise included in the Bankers Trust servicing agreement,
such as cash management, or special trust or retirement-investment reporting.

16
<PAGE>

Organizational Structure. The Institutional Liquid Assets Fund is a FEEDER FUND
that invests all of its assets in a MASTER PORTFOLIO, the Liquid Assets
Portfolio. The Fund and the master portfolio have the same investment objective.
The master portfolio is advised by Bankers Trust.

The master portfolio may accept investments from other feeder funds. The feeders
bear the master portfolio's expenses in proportion to their assets. Each feeder
can set its own transaction minimums, fund-specific expenses, and other
conditions. This arrangement allows the Fund's Trustees to withdraw the Fund's
assets from the master portfolio if they believe doing so is in the
shareholders' best interests. If the Trustees withdraw the Fund's assets, they
would then consider whether the Fund should hire its own investment adviser,
invest in a different master portfolio or take other action.

17
<PAGE>

CALCULATING THE FUND'S SHARE PRICE
We calculate the price of the Fund's shares (also known as the "Net Asset Value"
or "NAV") each day the Fund is open for business, as of the close of regular
trading on the New York Stock Exchange. If the markets for the Fund's primary
investments closes early, the Fund will cease taking purchase orders at that
time. In accordance with the standard formula for valuing mutual fund shares, we
deduct all of the Fund's liabilities from the total value of its assets and
divide the result by the number of shares outstanding.

The Fund uses the amortized cost method to account for any premiums or discounts
above or below the face value of any securities it buys. This method writes down
the premium--or marks up the discount--at a constant rate until maturity. It
does not reflect daily fluctuations in market value. The Fund's Net Asset Value
will normally be $1.00 a share.

OPEN FOR BUSINESS: THE FUND 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 FOURTH,
LABOR DAY (THE FIRST MONDAY IN SEPTEMBER), COLUMBUS DAY (THE SECOND MONDAY IN
OCTOBER), VETERANS' DAY (NOVEMBER 11), THANKSGIVING DAY (THE FOURTH THURSDAY IN
NOVEMBER) AND CHRISTMAS DAY. THE MARKETS FOR THE FUND'S PRIMARY INVESTMENTS MAY
CLOSE EARLY ON THE BUSINESS DAY BEFORE EACH OF THESE HOLIDAYS. IT MAY ALSO CLOSE
EARLY ON THE DAY AFTER THANKSGIVING AND THE DAY BEFORE CHRISTMAS EVE.

18
<PAGE>

DIVIDENDS AND DISTRIBUTIONS
The Fund declares dividends from its net income daily and pays the dividends on
a monthly basis.

The Fund reserves the right to include in the daily dividend any short-term
capital gains on securities that it sells. Also, the Fund will normally declare
and pay annually any long-term capital gains as well as any short-term capital
gains that it did not distribute during the year.

We automatically reinvest all dividends and capital gains, if any, unless you
tell us otherwise.

19
<PAGE>

TAX CONSIDERATIONS
The Fund does not ordinarily pay income taxes. You and other shareholders pay
taxes on the income or capital gains from the Fund's holdings. Your taxes will
vary from year to year, based on the amount of capital gain distributions and
dividends paid out by the Fund. You owe the taxes whether you receive cash or
choose to have distributions and dividends reinvested. Distributions and
dividends usually create the following tax liability:

-------------------------------------------- -------------------------
TRANSACTION TAX STATUS
-------------------------------------------- -------------------------
Income dividends Ordinary income
-------------------------------------------- -------------------------
Short-term capital gains distributions Ordinary income
-------------------------------------------- -------------------------
Long-term capital gains distributions Capital gains
-------------------------------------------- -------------------------

Every year, the Fund will send you information on the distributions for the
previous year.

The tax considerations for tax deferred accounts or nontaxable entities are
different.
BECAUSE EACH INVESTOR'S TAX CIRCUMSTANCES ARE UNIQUE AND BECAUSE THE TAX LAWS
ARE SUBJECT TO CHANGE, WE RECOMMEND THAT YOU CONSULT YOUR TAX ADVISOR ABOUT YOUR
INVESTMENT.

20
<PAGE>

BUYING AND SELLING FUND SHARES
It is expected that the majority of investors in the Fund will issue standing
orders, effective in the late afternoon of each day on which the Fund is open,
to "sweep" into the Fund cash balances remaining in accounts at Bankers Trust.

MINIMUM ACCOUNT INVESTMENTS
to open an account None
to add to an account $500,000
minimum account balance $100,000*

Brokers and financial advisors may impose initial and subsequent investment
minimums that differ from these amounts.

*Upon 30 days' written notice, we reserve the right to close accounts with
current balances of less than $100,000.

IMPORTANT INFORMATION ABOUT BUYING AND SELLING SHARES

o After receiving your order, we buy or sell your shares at the next price
calculated on a day the Fund is open for business.

o We do not pay dividends on shares the day they are sold.

o We accept payment for shares only in U.S. dollars by check, bank or Federal
Funds wire transfer, or by electronic bank transfer.

o We remit proceeds from the sale of shares in U.S. dollars (unless the
redemption is so large that it is made "in-kind").

21
<PAGE>

o You may buy and sell shares of the Fund through authorized brokers and
financial advisors. The same terms and conditions apply. Specifically, once
you place your order with a broker or financial advisor, it is considered
received by the Fund. It is then your broker or financial advisor's
responsibility to transmit the order to the Fund in a timely manner. You
should contact your broker or financial advisor if you have a dispute as to
when your order was placed with the Fund.
o If we receive your purchase order and payment before 4:00 p.m. Eastern time
(or earlier, if the Fund closes early) you will receive the dividends
declared that day.
o You will not receive the dividends declared on the day you sell your
shares.
o We do not issue share certificates.
o We process all orders free of charge.
o Unless otherwise instructed, we normally mail a check for the proceeds from
the sale of your shares to your account address the next business day and
no later than seven days.
o We reserve the right to reject any purchase order.
o Because Bankers Trust is the Fund's Custodian and Transfer Agent, funds may
be transferred directly between the Fund and a customer account held with
Bankers Trust without incurring the additional costs or delays associated
with a wire transfer.
o Automatic Investment Plan. Shareholders may authorize their broker or
financial advisor to place a purchase order each month or quarter. Contact
your broker or financial advisor for more information.

22
<PAGE>

The table below provides a picture of the Fund's financial performance since its
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
________________________ , 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 BT Service Center at 1-800-368-4031.

Financial Highlights

------------------------------------------------------------------------------
FOR THE YEAR FOR THE YEAR ENDED FOR THE PERIOD
ENDED FOR THE YEAR ENDED DECEMBER 31, 1996 DECEMBER 11, 1995(1)
DECEMBER 31, DECEMBER 31, 1997 TO DECEMBER 31, 1995
1998
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00
------------ ------------ ------------

INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.05 0.05 0.00(2)
Net Realized Gain (Loss) from
Investment Transactions (0.00)(2) (0.00)(2) 0.00(2)
------------- ------------- ------------
Total from Investment Operations 0.05 0.05 0.00(2)
------------ ------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS
Net Investment Income (0.05) (0.05) (0.00) (2)
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00
============= ============= =============
TOTAL INVESTMENT RETURN 5.63% 5.45% 5.88%(3)
SUPPLEMENTAL DATA AND RATIOS:
Net Assets, End of Period
(000s omitted) $ 3,316,815 $ 1,943,024 $ 1,477,401
Ratios to Average Net Assets:
Net Investment Income 5.48% 5.32% 5.50%(3)
Expenses, Including Expenses of
the Liquid Assets Portfolio 0.16% 0.04% 0.01%(3)
Decrease Reflected in Above
Expense Ratio Due to Absorption of
Expenses by Bankers Trust 0.09% 0.22% 0.97%(3)
------------------------------------------------------------------------------
</TABLE>

1 Inception date.
2 Less than $0.01 per share.
3 Annualized.

23
<PAGE>

BACK COVER

Additional information about the Fund's investments is available in the Fund's
annual and semi-annual reports to shareholders.

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. 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, write to us at:

BT SERVICE CENTER
P.O. BOX 419210
KANSAS CITY, MO 64141-6210
OR CALL OUR TOLL-FREE NUMBER: 1-800-368-4031

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.

INSTITUTIONAL LIQUID ASSETS FUND
BT Institutional Funds

811 - 6071

<PAGE>

Bankers Trust
Simplified Prospectus
February 10, 1999

PROSPECTUS: APRIL 30, 1999

BT Mutual Funds (logo)

INSTITUTIONAL CASH RESERVES

With the goal of achieving a high level of current income consistent with
liquidity and the preservation of capital

TRUST: BT INSTITUTIONAL FUNDS

INVESTMENT ADVISER: BANKERS TRUST COMPANY

<PAGE>
INSTITUTIONAL CASH RESERVES FUND
OVERVIEW OF THE INSTITUTIONAL CASH RESERVES FUND
00 Goal
00 Core Strategy
00 Investment Policies and Strategies
00 Principal Risks of Investing in the Fund
00 Who Should Consider Investing in the Fund
00 Total Returns, After Fees and Expenses
00 Annual Fund Operating Expenses

A DETAILED LOOK AT THE INSTITUTIONAL CASH RESERVES FUND
00 Objective
00 Strategy
00 Principal Investments
00 Risks
00 Management of the Fund
00 Calculating the Fund's Share Price
00 Dividends and Distributions
00 Tax Considerations
00 Buying and Selling Fund Shares
00 Financial Highlights

2
<PAGE>

Overview
OF THE INSTITUTIONAL CASH RESERVES FUND

GOAL: The Fund seeks a high level of current income consistent with liquidity
and the preservation of capital.

3
<PAGE>

CORE STRATEGY: The Fund invests in high quality money market instruments.

<PAGE>

PRINCIPAL RISKS OF INVESTING IN THE FUND
Although the Fund seeks to preserve the value of your investment at $1.00 a
share, there are risks associated with investing in the Fund. For example:
o A sharp rise in interest rates could cause the bond market and individual
securities in the Fund's portfolio to decline in value.
o An issuer's creditworthiness could decline, which in turn may cause the
value of a security in the Fund's portfolio to decline.
o Changes in interest rates or economic downturns could have a negative
effect on issuers in the financial services industry.

<PAGE>

WHO SHOULD CONSIDER INVESTING IN THE FUND
The Institutional Cash Reserves Fund requires a minimum investment of $50
million (except for retirement accounts). You should consider investing in the
Fund if you are looking for a liquid investment that offers income approximating
money market rates and preserves the value of your capital.

You should NOT consider investing in the Institutional Cash Reserves Fund if you
seek long-term capital growth. Although it provides a convenient means of
diversifying short-term investments, the Fund by itself does not constitute a
balanced investment program.

AN INVESTMENT IN THE INSTITUTIONAL CASH RESERVES 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. ALTHOUGH
THE FUND SEEKS TO PRESERVE THE VALUE OF YOUR INVESTMENT AT $1.00 PER SHARE, IT
IS POSSIBLE TO LOSE MONEY BY INVESTING IN THE FUND.

<PAGE>

YEAR-BY-YEAR RETURNS FOR EACH FULL CALENDAR YEAR SINCE INCEPTION
[BAR CHART]

- -------------- ----------- ----------- ------------
TK TK TK TK
- -------------- ----------- ----------- ------------
1995 1996 1997 1998
- -------------- ----------- ----------- ------------

Since inception, the Fund's highest return in any calendar quarter was TK% and
its lowest quarterly return was TK%. Past performance offers no indication of
how the Fund will perform in the future.

AVERAGE ANNUAL RETURNS
(AS OF DECEMBER 31, 1998)

- ----------------------------------------------------------------------------

SINCE INCEPTION
1 YEAR (JANUARY 25, 1994)
- ----------------------------------------------------------------------------
Institutional Cash Reserves Fund TK TK
- ----------------------------------------------------------------------------

As of December 31, 1998, the Fund's 7-day yield was TK. To learn the current
7-day yield, investors may call the Bankers Trust Service Center at
1-800-368-4031.

THE 7-DAY YIELD, WHICH IS OFTEN REFERRED TO AS THE "CURRENT YIELD," IS THE
INCOME GENERATED BY THE FUND OVER A SEVEN-DAY PERIOD. THIS AMOUNT IS THEN
ANNUALIZED, WHICH MEANS THAT WE ASSUME THE FUND GENERATES THE SAME INCOME EVERY
WEEK FOR A YEAR. THE "TOTAL RETURN" OF THE FUND IS THE CHANGE IN THE VALUE OF AN
INVESTMENT IN THE FUND OVER A GIVEN PERIOD. AVERAGE ANNUAL RETURNS ARE
CALCULATED BY AVERAGING THE YEAR-BY-YEAR RETURNS OF THE FUND OVER A GIVEN
PERIOD.

7
<PAGE>

ANNUAL FUND OPERATING EXPENSES
(EXPENSES PAID FROM FUND ASSETS)

The Annual Fees and Expenses table to the right describes the fees and expenses
that you may pay if you buy and hold shares of the Institutional Cash Reserves
Fund.

ANNUAL FEES AND EXPENSES
<TABLE>
<CAPTION>

--------------------------------------------------------- ---------------------------------
PERCENTAGE OF AVERAGE
DAILY NET ASSETS(1)
--------------------------------------------------------- ---------------------------------
<S> <C>
Management Fees 0.10%
--------------------------------------------------------- ---------------------------------
Distribution and Service (12b-1) Fees none
--------------------------------------------------------- ---------------------------------
Other Fund Operating Expenses 0.16%
--------------------------------------------------------- ---------------------------------
Total Fund Operating Expenses 0.26%
--------------------------------------------------------- ---------------------------------
Less: Fee Waivers or Expense Reimbursements (0.08)%(2)
--------------------------------------------------------- ---------------------------------
NET EXPENSES 0.18%
--------------------------------------------------------- ---------------------------------
</TABLE>
Expense Example: The example below illustrates the expenses you would have
incurred on a $10,000 investment in the Fund. The numbers assume that the Fund
earned an annual return of 5% over the periods shown, that the Fund's operating
expenses remained the same, and that you redeem your shares at the end of the
period.

Expense Example(3)

- -------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------------
$18 $75 $141 $334
- -------------------------------------------------------

You may use this hypothetical example to compare the Fund's expense history with
other funds.(1) Your actual costs may be higher or lower.

- --------

(1) Information on the annual operating expenses reflects the expenses of both
the Fund and the Cash Management Portfolio, the master portfolio in which the
Institutional Cash Reserves Fund invests its assets. (A further discussion of
the relationship between the Fund and the master portfolio appears in the
"Organizational Structure" section of this prospectus.)
(2) Bankers Trust has agreed, for the 16-month period from the Fund's fiscal
year end of December 31, 1998, to waive its fees and reimburse expenses so that
total expenses will not exceed 0.18%.
(3) Based on expenses, after fee waivers and reimbursements for the first 16
months.
8

<PAGE>

A detailed look
AT THE INSTITUTIONAL CASH RESERVES FUND

OBJECTIVE
The Institutional Cash Reserves Fund seeks a high level of current income
consistent with liquidity and the preservation of capital by investing in high
quality short-term money market instruments.

9
<PAGE>

STRATEGY

The Fund seeks current income, maintaining a dollar-weighted average maturity of
90 days or less, by investing in high quality money market securities. The Fund
follows two policies designed to maintain a stable share price:
o Generally, Fund securities are valued in U.S. dollars and have remaining
maturities of 397 days (about 13 months) or less at the time of purchase.
The Fund may also invest in securities that have features that reduce
their maturities to 397 days or less at the time of purchase.
o The Fund buys U.S. government debt obligations, money market instruments
and other debt obligations that at the time of purchase:
o have received the highest short-term rating from two nationally
recognized statistical rating organizations;
o have received the highest short-term rating from one rating
organization (if only one organization rates the security);
o if unrated, are determined to be of similar quality by the Fund's
Investment Adviser; or
o the Fund may also invest in securities that have no short-term rating,
but are rated in one of the top three highest long-term rating
categories, or are determined to be of similar quality by the Fund's
Investment Adviser.

10
<PAGE>

PRINCIPAL INVESTMENTS

The Fund may invest in high-quality, short-term, dollar-denominated money market
instruments paying a fixed, variable or floating interest rate. These include:

o U.S. government securities that are issued or guaranteed by the U.S.
Treasury, or by agencies or instrumentalities of the U.S. Government.

o Repurchase agreements, which are agreements to buy securities at one price,
with a simultaneous agreement to sell back the securities at a future date
at an agreed-upon price.

Because many of the Fund's principal investments are issued or credit-enhanced
by banks or other financial institutions, the Fund may invest more than 25% of
its total assets in the
11
<PAGE>

financial services industry.

PRIMARY RISKS

Credit Risk. A money market instrument's credit quality depends on the issuer's
ability to pay interest on the security and repay the debt: the lower the credit
rating, the greater the risk that the security's issuer will default, or fail to
meet its payment obligations. The credit risk of a security may also depend on
the credit quality of any bank or financial institution that provides credit
enhancement for it. The Fund only buys high quality securities with minimal
credit risk.

12
<PAGE>

13
<PAGE>

SECONDARY RISK

o the companies in which the Fund invests, which could impact the value of
the Fund's investments

o our ability to service your Fund account, including our ability to meet
your requests to buy and sell Fund shares

o our ability to trade securities held by the Fund or to accurately price
securities held by the Fund

<PAGE>

15
<PAGE>

Adviser's new parent company, will control the operations of the Investment
Adviser. Bankers Trust believes that, under this new arrangement, the services
provided to the Fund will be maintained at their current level.

o keeping accurate, up-to-date records for your individual Fund account;

o implementing any changes you wish to make in your account information;

o processing your requests for cash dividends and distributions from the
Fund;

o answering your questions on the Fund's investment performance or
administration;

o sending proxy reports and updated prospectus information to you; and

o collecting your executed proxies.

Brokers and financial advisors may charge additional fees to investors only for
those services not otherwise included in the Bankers Trust servicing agreement,
such as cash management, or special trust or retirement-investment reporting.

Organizational Structure. The Institutional Cash Reserves Fund is a FEEDER FUND
that invests all of its assets in a MASTER PORTFOLIO, the Cash Reserves Fund
Portfolio. The Fund and the master portfolio have the same investment objective.
The master portfolio is advised by Bankers Trust.

16
<PAGE>

OPEN FOR BUSINESS: THE FUND 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), COLUMBUS DAY (THE SECOND MONDAY IN
OCTOBER), VETERANS' DAY (NOVEMBER 11), THANKSGIVING DAY (THE FOURTH THURSDAY IN
NOVEMBER) AND CHRISTMAS DAY. THE MARKETS FOR THE FUND'S PRIMARY INVESTMENTS MAY
CLOSE EARLY ON THE BUSINESS DAY BEFORE EACH OF THESE HOLIDAYS. IT MAY ALSO CLOSE
EARLY ON THE DAY AFTER THANKSGIVING AND THE DAY BEFORE CHRISTMAS EVE.

17
<PAGE>

DIVIDENDS AND DISTRIBUTIONS
The Fund declares dividends from its net income daily and pays the dividends on
a monthly basis.

We automatically reinvest all dividends and capital gains, if any, unless you
tell us otherwise.

18
<PAGE>

TAX CONSIDERATIONS
The Fund does not ordinarily pay income taxes. You and other shareholders pay
taxes on the income or capital gains from the FundAEs holdings. Your taxes will
vary from year to year, based on the amount of capital gain distributions and
dividends paid out by the Fund. You owe the taxes whether you receive cash or
choose to have distributions and dividends reinvested. Distributions and
dividends usually create the following tax liability:

--------------------------------------- ------------------------------
TRANSACTION TAX STATUS
--------------------------------------- ------------------------------
Income dividends Ordinary income
--------------------------------------- ------------------------------
Short-term capital gain distributions Ordinary income
--------------------------------------- ------------------------------
Long-term capital gain distributions Capital gains
--------------------------------------- ------------------------------

Every year, the Fund will send you information on the distributions for the
previous year.

The tax considerations for tax deferred accounts or nontaxable entities are
different. BECAUSE EACH INVESTOR'S TAX CIRCUMSTANCES ARE UNIQUE AND BECAUSE THE
TAX LAWS ARE SUBJECT TO CHANGE, WE RECOMMEND THAT YOU CONSULT YOUR TAX ADVISOR
ABOUT YOUR INVESTMENT.

<PAGE>

BUYING AND SELLING FUND SHARES

CONTACTING THE BT MUTUAL FUNDS

By Phone 1-800-368-4031
(between 9:00 a.m. and 6:00 p.m., Eastern time)
By Mail P.O. Box 419210
Kansas City, MO 64141-6210
By Overnight Mail 210 West 10th Street, 8th floor
Kansas City, MO 64105-1716

MINIMUM ACCOUNT INVESTMENTS*

To open an account $50 million**
To add to an account $1 million
Minimum account balance $1 million

*Excluding retirement accounts.
**May be allocated among certain designated funds in the BT Family of Funds in
amounts of not less than $100,000 per Fund.

HOW TO OPEN YOUR FUND ACCOUNT

By wire
Call the BT Service Center to set up a wire account.

Please note that your account cannot become activated until we receive a
completed application via mail or fax.

20
<PAGE>

TAX-SAVING RETIREMENT PLANS
Retirement plans offer significant tax savings and are available to individuals,
partnerships, small businesses, corporations, nonprofit organizations and other
institutions. We can set up your new account in the Fund under a number of
several tax-sheltered plans. These plans contain special tax advantages and let
you invest for retirement while sheltering your investment income from current
taxes. Note that minimum Fund investments in retirement plan accounts may differ
from nonretirement plan accounts. Contact your financial advisor or Bankers
Trust for more information.

TWO WAYS TO BUY AND SELL SHARES IN YOUR ACCOUNT

MAIL

Buying: Send your check, payable to the Institutional Cash Reserves Fund, to the
BT Service Center. The addresses are shown above under "Contacting the BT Mutual
Funds." Be sure to include the fund number and your account number (see your
account statement) on your check. Please note that we cannot accept starter
checks or third-party checks. If you are investing in more than one fund, make
your check payable to "BT Funds" and include your account number and the names
and numbers of the funds you have selected.

Selling: Send a signed letter to the BT Service Center with your name, your fund
number and account number, the fund's name, and either the number of shares you
wish to sell or the dollar amount you wish to receive. You must leave at least
$100,000 worth of shares in your account to keep it open. Unless exchanging into
another BT Fund, you must submit a written authorization to sell shares in a
retirement account.

WIRE

21
<PAGE>

Routing no.: 021001033
Attn: Bankers Trust/BT Funds
DDA no.: 00-226-296
FBO: (Account name)
(Account number)
Credit: Institutional Cash Reserves Fund-487

See your account statement for the account name and number.

Because Bankers Trust acts as custodian and Transfer Agent of BT Mutual Funds,
shareholders with accounts at Bankers Trust may buy and sell shares directly, as
well as exchange shares between BT Funds, without incurring the additional costs
and delays associated with wiring Federal Funds.

AUTOMATIC INVESTMENT PLANS

Buying: Contact your financial advisor to see if you are eligible to buy shares
each month or quarter through automatic regularly scheduled withdrawals from
your bank account.

Selling: You may receive periodic cash payments from your Fund investment.
Contact your financial advisor for more information.

CHECKWRITING
We issue you a checkbook linked to your account. You can sell shares by writing
a check for the desired amount free of charge, but you cannot close your account
by check. Contact your financial advisor for additional information.

22
<PAGE>

IMPORTANT INFORMATION ABOUT BUYING AND SELLING SHARES

o After receiving your order, we buy or sell your shares at the next price
calculated on a day the Fund is open for business.

o We accept payment for shares only in U.S. dollars by check, bank or Federal
funds wire transfer, or by electronic bank transfer.

o We remit proceeds from the sale of shares in U.S. dollars (unless the
redemption is so large that it is made "in-kind").

o You may buy and sell shares of the Fund through authorized brokers and
financial advisors as well as from BT Mutual Funds directly. The same terms
and conditions apply. Specifically, once you place your order with a broker
or financial advisor, it is considered received by the BT Service Center.
It is then your broker or financial advisor's responsibility to transmit
the order to the BT Service Center by the next business day. You should
contact your broker or financial advisor if you have a dispute as to when
your order was placed with the Fund.

o If we receive your purchase order and payment before 4:00 p.m. Eastern time
(or earlier, if the Fund closes early) you will receive the dividends
declared that day.

o You will not receive the dividends declared on the day you sell your
shares.

o We do not issue share certificates.

o We process all sales orders free of charge.

o Unless otherwise instructed, we normally mail a check for the proceeds from
the sale

23
<PAGE>

of your shares to your account address the next business day and
no later than seven days.

o We reserve the right to close your account on 30 days' notice if it fails
to meet minimum balance requirements.

o If you sell shares by mail or wire, you may be required to obtain a
signature guarantee. Please contact your financial advisor or the BT
Service Center for more information.

o Selling shares of trust accounts and business or organization accounts may
require additional documentation. Please contact your financial advisor or
the BT Service Center for more information.

o During periods of heavy market activity, you may have trouble reaching the
BT Service Center by telephone. If this occurs, you should make your
request by mail.

24
<PAGE>

Financial Highlights The table below provides a picture of the Fund's financial
performance for the past five years. 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 __________ 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 BT Service Center at 1-800-368-4031.

25
<PAGE>
<TABLE>
<CAPTION>

FOR THE YEARS ENDED DECEMBER 31, FOR THE
PERIOD JANUARY 25,
1994 (COMMENCEMENT
OF OPERATIONS) TO
DECEMBER 31,
----------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, Beginning of $1.00 $1.00 $1.00 $1.00
Period ----- ----- ----- -----

INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.05 0.05 0.06 0.04
Net Realized Gain (Loss)
from Investment Transactions
(0.00)(1) 0.00(1) 0.00(1) (0.01)
----- ----- ----- -----
Total from Investment Operations 0.05 0.05 0.06 0.03
----- ----- ----- -----
CONTRIBUTIONS OF CAPITAL -- 0.00(1) -- 0.01
----- ----- ----- -----
DISTRIBUTIONS TO SHAREHOLDERS
Net Investment Income (0.05) (0.05) (0.06) (0.04)
----- ----- ----- -----
NET ASSET VALUE, END OF YEAR $1.00 $1.00 $1.00 $1.00
===== ===== ===== =====

TOTAL INVESTMENT RETURN 5.58% 5.42%(2) 5.94% 4.32%(2),(3)
SUPPLEMENTAL DATA AND RATIOS:
Net Assets, End of Period
(000s omitted) $ 1,548,864 $ 1,286,737 $ 820,973 $ 920,722
Ratios to Average Net Assets:
Net Investment Income 5.45% 5.28% 5.80% 4.32%(3)
Expenses, Including
Expenses of the Cash
Management Portfolio 0.18% 0.18% 0.18% 0.18%(3)
Decrease Reflected in
Above Expense Ratio
Due to Absorption of
Expenses by Bankers Trust 0.08% 0.08% 0.07% 0.08%(3)
----------------------------------------------------------------------------------------
</TABLE>

(1) Less than $0.01 per share.
(2) Increased by approximately .03% and 0.81% due to
Contributions of Capital for the years ended
December 31, 1996 and 1994.
(3) Annualized.

26
<PAGE>

BACK COVER

Additional information about the Fund's investments is available in the Fund's
annual and semi-annual reports to shareholders.

BT SERVICE CENTER
P.O. BOX 419210
KANSAS CITY, MO 64141-6210
OR CALL OUR TOLL-FREE NUMBER: 1-800-368-4031

INSTITUTIONAL CASH RESERVES FUND
BT Institutional Funds

811-6071

<PAGE>

Bankers Trust
Simplified Prospectus
February 10, 1999

PROSPECTUS: APRIL 30, 1999

BT Mutual Funds (logo)

INSTITUTIONAL CASH MANAGEMENT FUND

With the goal of achieving a high level of current income consistent with
liquidity and the preservation of capital

TRUST: BT INSTITUTIONAL FUNDS

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

<PAGE>

Commission passed upon the accuracy or adequacy of this prospectus. Any
representation to the contrary is a criminal offense.]

2
<PAGE>

INSTITUTIONAL CASH MANAGEMENT FUND
OVERVIEW OF THE INSTITUTIONAL CASH MANAGEMENT FUND
00 Goal
00 Core Strategy
00 Investment Policies and Strategies
00 Principal Risks of Investing in the Fund
00 Who Should Consider Investing in the Fund
00 Total Returns, After Fees and Expenses
00 Annual Fund Operating Expenses

A DETAILED LOOK AT THE INSTITUTIONAL CASH MANAGEMENT FUND
00 Objective
00 Strategy
00 Principal Investments
00 Risks
00 Management of the Fund
00 Calculating the Fund's Share Price
00 Dividends and Distributions
00 Tax Considerations
00 Buying and Selling Fund Shares
00 Financial Highlights

4
<PAGE>

Overview
OF THE INSTITUTIONAL CASH MANAGEMENT FUND

GOAL: The Fund seeks a high level of current income consistent with liquidity
and the preservation of capital.

1
<PAGE>

CORE STRATEGY: The Fund invests in high quality money market instruments.

2
<PAGE>

PRINCIPAL RISKS OF INVESTING IN THE FUND
Although the Fund seeks to preserve the value of your investment at $1.00 a
share, there are risks associated with investing in the Fund. For example:
o A sharp rise in interest rates could cause the bond market and
individual securities in the Fund's portfolio
to decline in value.
o An issuer's creditworthiness could decline, which in turn may cause the
value of a security in the Fund's portfolio to decline.
o Changes in interest rates or economic downturns could have a negative
effect on issuers in the financial services industry.

3
<PAGE>

WHO SHOULD CONSIDER INVESTING IN THE FUND
The Institutional Cash Management Fund requires a minimum investment of $1
million. You should consider investing in the Fund if you are looking for a
liquid investment that offers income approximating money market rates and
preserves the value of your capital.

You should NOT consider investing in the Institutional Cash Management Fund if
you seek long-term capital growth. Although it provides a convenient means of
diversifying short-term investments, the Fund by itself does not constitute a
balanced investment program.

AN INVESTMENT IN THE INSTITUTIONAL CASH MANAGEMENT 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. ALTHOUGH
THE FUND SEEKS TO PRESERVE THE VALUE OF YOUR INVESTMENT AT $1.00 PER SHARE, IT
IS POSSIBLE TO LOSE MONEY BY INVESTING IN THE FUND.

4
<PAGE>

<TABLE>
<CAPTION>
YEAR-BY-YEAR RETURNS FOR EACH FULL CALENDAR YEAR SINCE INCEPTION
[BAR CHART]

- -------------- ----------- ----------- ------------ ----------- ----------- ------------ -----------
TK TK TK TK TK TK TK TK
- -------------- ----------- ----------- ------------ ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
1991 1992 1993 1994 1995 1996 1997 1998
- -------------- ----------- ----------- ------------ ----------- ----------- ------------ -----------
</TABLE>

Since inception, the Fund's highest return in any calendar quarter was TK% and
its lowest quarterly return was TK%. Past performance offers no indication of
how the Fund will perform in the future.

AVERAGE ANNUAL RETURNS
(AS OF DECEMBER 31, 1998)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
SINCE INCEPTION
1 YEAR 5 YEARS (JULY 25, 1990)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Institutional Cash Management Fund TK TK TK
- --------------------------------------------------------------------------------------------------
</TABLE>

As of December 31, 1998, the Fund's 7-day yield was TK. To learn the current
7-day yield, investors may call the Bankers Trust Service Center at
1-800-368-4031.

5
<PAGE>

THE FUND OVER A GIVEN PERIOD. AVERAGE ANNUAL RETURNS ARE CALCULATED BY AVERAGING
THE YEAR-BY-YEAR RETURNS OF THE FUND OVER A GIVEN PERIOD.

6
<PAGE>

ANNUAL FUND OPERATING EXPENSES
(EXPENSES PAID FROM FUND ASSETS)

The Annual Fees and Expenses table to the right describes the fees and expenses
that you may pay if you buy and hold shares of the Institutional Cash Management
Fund.

Annual Fees and Expenses
<TABLE>
<CAPTION>
- --------------------------------------------------------- ---------------------------------
PERCENTAGE OF AVERAGE
DAILY NET ASSETS1
- --------------------------------------------------------- ---------------------------------
<S> <C>
Management Fees 0.13%
- --------------------------------------------------------- ---------------------------------
Distribution and Service (12b-1) Fees none
- --------------------------------------------------------- ---------------------------------
Other Fund Operating Expenses 0.13%
- --------------------------------------------------------- ---------------------------------
Total Fund Operating Expenses 0.26%
- --------------------------------------------------------- ---------------------------------
Less: Fee Waivers or Expense Reimbursements (0.03)%2
- --------------------------------------------------------- ---------------------------------
NET EXPENSES 0.23%
- --------------------------------------------------------- ---------------------------------
</TABLE>

Expense Example3

- ------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------------------------------------------------------
$18 $84 $149 $343
- ------------------------------------------------------

You may use this hypothetical example to compare the Fund's expense history with
other funds.1 Your actual costs may be higher or lower.

- -------------------
1 Information on the annual operating expenses reflects the expenses of both
the Fund and the Cash Management Portfolio, the master portfolio in which
the Institutional Cash Management Fund invests its assets. (A further
discussion of the relationship between the Fund and the master portfolio
appears in the "Organizational Structure" section of this prospectus.)
2 Bankers Trust has agreed, for the 16-month period from the Fund's
fiscal year end of December 31, 1998, to waive its fees and reimburse
expenses so that total expenses will not exceed 0.23%.

7
<PAGE>

3 Based on expenses, after fee waivers and reimbursements for the first 16
months only.

8
<PAGE>

A detailed look
AT THE INSTITUTIONAL CASH MANAGEMENT FUND

OBJECTIVE
The Institutional Cash Management Fund seeks a high level of current income
consistent with liquidity and the preservation of capital by investing in high
quality short-term money market instruments.

9
<PAGE>

o Generally, Fund securities are valued in U.S. dollars and have remaining
maturities of 397 days (about 13 months) or less at the time of purchase.
The Fund may also invest in securities that have features that reduce their
maturities to 397 days or less at the time of purchase.
o The Fund buys U.S. government debt obligations, money market instruments
and other debt obligations that at the time of purchase:
- have received the highest short-term rating from two nationally
recognized statistical rating organizations; - have received the
highest short-term rating from one rating organization (if only one
organization rates the security); or
- if unrated, are determined to be of similar quality by the Fund's
Investment Adviser.
- The Fund may also invest in securities that have no short-term rating,
but are rated in one of the top three highest long-term rating
categories, or are determined to be of similar quality by the Fund's
Investment Adviser.

10
<PAGE>

PRINCIPAL INVESTMENTS

The Fund may invest in high-quality, short-term, dollar-denominated money market
instruments paying a fixed, variable or floating interest rate. These include:

o U.S. government securities that are issued or guaranteed by the U.S.
Treasury, or by agencies or instrumentalities of the U.S. Government.

o Repurchase agreements, which are agreements to buy securities at one price,
with a simultaneous agreement to sell back the securities at a future date
at an agreed-upon price.

11
<PAGE>

RISKS
BELOW WE SET FORTH SOME OF THE PROMINENT RISKS ASSOCIATED WITH MONEY MARKET
MUTUAL FUNDS, AND WE DETAIL OUR APPROACHES TO CONTAIN 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. IF A SECURITY NO LONGER MEETS THE
FUND'S CREDIT RATING REQUIREMENTS, WE WILL ATTEMPT TO SELL THAT SECURITY WITHIN
A REASONABLE TIME, UNLESS SELLING THE SECURITY WOULD NOT BE IN THE FUND'S BEST
INTEREST.

PRIMARY RISKS

o We limit the dollar-weighted average maturity of the securities held by the
Fund to 90 days or less. Generally, rates of short-term investments
fluctuate less than longer-term bonds.
o We primarily buy securities with remaining maturities of 13 months or less.
This reduces the risk that the issuer's creditworthiness will change, or
that the issuer will default on the principal and interest payments of the
obligation.

Credit Risk. A money market instrument's credit quality depends on the issuer's
ability to pay interest on the security and repay the debt: the lower the credit
rating, the greater the risk that the security's issuer will default, or fail to
meet its payment obligations. The credit risk of a security may depend on the
credit quality of any bank or financial

12
<PAGE>

institution that provides credit enhancement for it. The Fund only buys high
quality securities with minimal credit risk.

13
<PAGE>

14
<PAGE>

15
<PAGE>

SECONDARY RISK

o the companies in which the Fund invests, which could impact the value of
the Fund's investments
o our ability to service your Fund account, including our ability to meet
your requests to buy and sell Fund shares
o our ability to trade securities held by the Fund or to accurately price
securities held by the Fund

16
<PAGE>

17
<PAGE>

o keeping accurate, up-to-date records for your individual Fund account;
o implementing any changes you wish to make in your account information;
o processing your requests for cash dividends and distributions from the
Fund;
o answering your questions on the Fund's investment performance or
administration;
o sending proxy reports and updated prospectus information to you; and
o collecting your executed proxies.

Brokers and financial advisors may charge additional fees to investors only for
those services not otherwise included in the Bankers Trust servicing agreement,
such as cash management, or special trust or retirement-investment reporting.

18
<PAGE>

Organizational Structure. The Institutional Cash Management Fund is a FEEDER
FUND that invests all of its assets in a MASTER PORTFOLIO, the Cash Management
Portfolio. The Fund and the master portfolio have the same investment objective.
The master portfolio is advised by Bankers Trust.

19
<PAGE>

CALCULATING THE FUND'S SHARE PRICE
We calculate the price of the Fund's shares (also known as the "Net Asset Value"
or "NAV") each day the Fund is open for business, as of the close of regular
trading on the New York Stock Exchange. If the markets for the Fund's primary
investments closes early, the fund will cease taking purchase orders at that
time. In accordance with the standard formula for valuing mutual fund shares, we
deduct all of the Fund's liabilities from the total value of its assets and
divide the result by the number of shares outstanding.

OPEN FOR BUSINESS: THE FUND 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), COLUMBUS DAY (THE SECOND MONDAY IN
OCTOBER), VETERANS' DAY (NOVEMBER 11), THANKSGIVING DAY (THE FOURTH THURSDAY IN
NOVEMBER) AND CHRISTMAS DAY. THE MARKETS FOR THE FUND'S PRIMARY INVESTMENTS MAY
CLOSE EARLY ON THE BUSINESS DAY BEFORE EACH OF THESE HOLIDAYS. IT MAY ALSO CLOSE
EARLY ON THE DAY AFTER THANKSGIVING AND THE DAY BEFORE CHRISTMAS EVE.

20
<PAGE>

DIVIDENDS AND DISTRIBUTIONS
The Fund declares dividends from its net income daily and pays the dividends on
a monthly basis.

We automatically reinvest all dividends and capital gains, if any, unless you
tell us otherwise.

21
<PAGE>

<TABLE>
<CAPTION>
- ------------------------------------------------ ---------------------------------------
TRANSACTION TAX STATUS
- ------------------------------------------------ ---------------------------------------
<S> <C>
Income dividends Ordinary income
- ------------------------------------------------ ---------------------------------------
Short-term capital gain distributions Ordinary income
- ------------------------------------------------ ---------------------------------------
Long-term capital gain distributions Capital gains
- ------------------------------------------------ ---------------------------------------
</TABLE>

Every year, the Fund will send you information on the distributions for the
previous year. BECAUSE EACH INVESTOR'S TAX CIRCUMSTANCES ARE UNIQUE AND BECAUSE
THE TAX LAWS ARE SUBJECT TO CHANGE, WE RECOMMEND THAT YOU CONSULT YOUR TAX
ADVISOR ABOUT YOUR INVESTMENT.

22
<PAGE>

BUYING AND SELLING FUND SHARES

CONTACTING THE BT MUTUAL FUNDS

By Phone 1-800-368-4031
(between 9:00 a.m. and 6:00 p.m., Eastern time)
By Mail P.O. Box 419210
Kansas City, MO 64141-6210
By Overnight Mail 210 West 10th Street, 8th floor
Kansas City, MO 64105-1716

MINIMUM ACCOUNT INVESTMENTS*

To open an account $1 million**
To add to an account $100,000
Minimum account balance $100,000

*Excluding retirement accounts.
**May be allocated among certain designated funds in the BT Family of Funds in
amounts of not less than $100,000 per Fund.

HOW TO OPEN YOUR FUND ACCOUNT

23
<PAGE>

By wire
Call the BT Service Center to set up a wire account.

Please note that your account cannot become activated until we receive a
completed application via mail or fax.

TWO WAYS TO BUY AND SELL SHARES IN YOUR ACCOUNT

MAIL

Buying: Send your check, payable to the Institutional Cash Management Fund, to
the BT Service Center. The addresses are shown above under "Contacting the BT
Mutual Funds." Be sure to include the Fund number and your account number (see
your account statement) on your check. Please note that we cannot accept starter
checks or third-party checks. If you are investing in more than one fund, make
your check payable to "BT Funds" and include your account number and the names
and numbers of the funds you have selected.

24
<PAGE>

Selling: Send a signed letter to the BT Service Center with your name, your fund
number and account number, the fund's name, and either the number of shares you
wish to sell or the dollar amount you wish to receive. You must leave at least
$100,000 worth of shares in your account to keep it open. Unless exchanging into
another BT Fund, you must submit a written authorization to sell shares in a
retirement account.

WIRE

Routing no.: 021001033
Attn: Bankers Trust/BT Funds
DDA no.: 00-226-296
FBO: (Account name)
(Account number)
Credit: Institutional Cash Management Fund-479

See your account statement for the account name and number.

Because Bankers Trust acts as custodian and Transfer Agent of BT Mutual Funds,
shareholders with accounts at Bankers Trust may buy and sell shares directly, as
well as

25
<PAGE>

exchange shares between BT Funds, without incurring the additional costs
and delays associated with wiring Federal Funds.

26
<PAGE>

AUTOMATIC INVESTMENT PLANS

Buying: Contact your financial advisor to see if you are eligible to buy shares
each month or quarter through automatic regularly scheduled withdrawals from
your bank account.

Selling: You may receive periodic cash payments from your Fund investment.
Contact your financial advisor for more information.

27
<PAGE>

o You may place orders to buy and sell over the phone by calling your
financial advisor or the BT Service Center at 1-800-368-4031. If you pay
for shares by check and the check fails to clear, or if you order shares by
phone and fail to pay for them by 4:00 p.m. Eastern time the next business
day, we have the right to cancel your order, hold you liable or charge you
or your account for any losses or fees the Fund or its agents have
incurred. Unless you request a wire, we will send you a check.
o You may buy and sell shares of the Fund through authorized brokers and
financial advisors as well as from BT Mutual Funds directly. The same terms
and conditions apply. Specifically, once you place your order with a broker
or financial advisor, it is considered received by the BT Service Center.
It is then your broker or financial advisor's responsibility to transmit
the order to the BT Service Center by the next business day. You should
contact your broker or financial advisor if you have a dispute as to when
your order was placed with the Fund.
o If we receive your purchase order and payment before 4:00 p.m. Eastern time
(or earlier, if the Fund closes early) you will receive the dividends
declared that day.
o You will not receive the dividends declared on the day you sell your
shares.
o We do not issue share certificates.
o We process all sales orders free of charge.
o Unless otherwise instructed, we normally mail a check for the proceeds from
the sale of your shares to your account address the next business day and
no later than seven days.
o We reserve the right to close your account on 30 days' notice if it fails
to meet minimum balance requirements.
o If you sell shares by mail or wire, you may be required to obtain a
signature guarantee. Please contact your financial advisor or the BT
Service Center for more information.

28
<PAGE>

29
<PAGE>

The table below provides a picture of the Fund's financial performance for the
past five years. 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 __________, 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 BT Service Center at 1-800-368-4031.

Financial Highlights

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
NET ASSET VALUE, BEGINNING OF YEAR $ 1.00 $ 1.00 $ 1.00 $ 1.00
------------ ------------ ------------ ------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.05 0.05 0.06 0.04
Net Realized Gain (Loss) from
Investment Transactions (0.00)1 0.001 0.001 (0.01)
------------- ------------ ------------ -------------
Total from Investment Operations 0.05 0.05 0.06 0.03
------------ ------------ ------------ ------------
CONTRIBUTIONS OF CAPITAL - 0.001 - 0.01
------------ ------------ ------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS
Net Investment Income (0.05) (0.05) (0.06) (0.04)
Net Realized Gain from
Investment Transactions - - - -
------------ ------------ ------------ ------------
Total Distributions (0.05) (0.05) (0.06) (0.04)
------------- ------------- ------------- -------------
NET ASSET VALUE, END OF YEAR $ 1.00 $ 1.00 $ 1.00 $ 1.00
============= ============= ============= =============
TOTAL INVESTMENT RETURN 5.52% 5.36%2 5.89% 4.18%2
SUPPLEMENTAL DATA AND RATIOS:
Net Assets, End of Year
(000s omitted) $ 1,921,925 $ 1,438,546 $ 1,010,874 $ 664,149
Ratios to Average Net Assets:
Net Investment Income 5.40% 5.24% 5.72% 3.98%
Expenses, Including Expenses of
the Cash Management Portfolio 0.23% 0.23% 0.23% 0.23%
Decrease Reflected in Above
Expense Ratio Due to Absorption
of Expenses by Bankers Trust
0.03% 0.04% 0.04% 0.03%
------------------------------------------------------------------------------------
</TABLE>

1 Less than $0.01 per share.
2 Increased by approximately 0.01% and 0.91% due to Contributions of Capital
for the years ended December 31, 1996 and 1994.

30
<PAGE>

31
<PAGE>

BACK COVER

Additional information about the Fund's investments is available in the Fund's
annual and semi-annual reports to shareholders.

BT SERVICE CENTER
P.O. BOX 419210
KANSAS CITY, MO 64141-6210
OR CALL OUR TOLL-FREE NUMBER: 1-800-368-4031

INSTITUTIONAL CASH MANAGEMENT FUND
BT Institutional Funds
811 - 6071

<PAGE>

Bankers Trust
Simplified Prospectus
February 10, 1999

PROSPECTUS: APRIL 30, 1999

BT Mutual Funds (logo)

INSTITUTIONAL TREASURY MONEY FUND

With the goal of achieving a high level of current income consistent with
liquidity and the preservation of capital

TRUST: BT INSTITUTIONAL FUNDS

INVESTMENT ADVISER: BANKERS TRUST COMPANY

<PAGE>

INSTITUTIONAL TREASURY MONEY FUND
OVERVIEW OF THE INSTITUTIONAL TREASURY MONEY FUND
00 Goal
00 Core Strategy
00 Investment Policies and Strategies
00 Principal Risks of Investing in the Fund
00 Who Should Consider Investing in the Fund
00 Total Returns, After Fees and Expenses
00 Annual Fund Operating Expenses

A DETAILED LOOK AT THE INSTITUTIONAL TREASURY MONEY FUND
00 Objective
00 Strategy
00 Principal Investments
00 Risks
00 Management of the Fund
00 Calculating the Fund's Share Price
00 Dividends and Distributions
00 Tax Considerations
00 Buying and Selling Fund Shares
00 Financial Highlights

2
<PAGE>
Overview
OF THE INSTITUTIONAL TREASURY MONEY FUND

GOAL: The Fund seeks a high level of current income consistent with liquidity
and the preservation of capital.

3
<PAGE>

CORE STRATEGY: The Fund invests in debt obligations of the U.S. Treasury or
repurchase agreements collateralized by U.S. Treasury debt obligations.

INVESTMENT POLICIES AND STRATEGIES
The Fund invests all of its assets in a master portfolio with the same
investment objective as the Fund. The Fund, through the master portfolio, seeks
to achieve that objective by investing in U.S. Treasury securities, either
directly or through repurchase agreements. The Fund maintains a dollar-weighted
average maturity of 90 days or less. The Fund attempts to maintain a stable
share price by investing in securities that are valued in U.S. dollars and have
remaining maturities of 397 days or less.

4
<PAGE>

5
<PAGE>

WHO SHOULD CONSIDER INVESTING IN THE FUND
The Institutional Treasury Money Fund requires a minimum investment of $1
million. You should consider investing in the Fund if you are looking for a
liquid investment that offers income approximating money market rates and
preserves the value of your capital.

You should NOT consider investing in the Institutional Treasury Money Fund if
you seek long-term capital growth. Although it provides a convenient means of
diversifying short-term investments, the Fund by itself does not constitute a
balanced investment program.

AN INVESTMENT IN THE INSTITUTIONAL TREASURY MONEY 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. ALTHOUGH
THE FUND SEEKS TO PRESERVE THE VALUE OF YOUR INVESTMENT AT $1.00 PER SHARE, IT
IS POSSIBLE TO LOSE MONEY BY INVESTING IN THE FUND.

6
<PAGE>

TOTAL RETURNS, AFTER FEES AND EXPENSES
The bar chart and table on this page can help you evaluate the potential risk
and reward 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 each full
calendar year since it began selling shares on July 25, 1990 (its inception
date). The table shows the Fund's average annual return.

YEAR-BY-YEAR RETURNS FOR EACH FULL CALENDAR YEAR SINCE INCEPTION
[BAR CHART]

Since inception, the Fund's highest return in any calendar quarter was TK% and
its lowest quarterly return was TK%. Past performance offers no indication of
how the Fund will perform in the future.

AVERAGE ANNUAL RETURNS
(AS OF DECEMBER 31, 1998)

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
SINCE INCEPTION
1 YEAR 5 YEARS (JULY 25, 1990)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Institutional Treasury Money Fund TK TK TK
- ------------------------------------------------------------------------------------------------------
</TABLE>

As of December 31, 1998, the Fund's 7-day yield was TK. To learn the current
7-day yield, investors may call the Bankers Trust Service Center at
1-800-368-4031.

7
<PAGE>

ANNUAL FEES AND EXPENSES
<TABLE>
<CAPTION>
- --------------------------------------------------------- ---------------------------------
PERCENTAGE OF AVERAGE
DAILY NET ASSETS1
- --------------------------------------------------------- ---------------------------------
<S> <C>
Management Fees 0.15%
- --------------------------------------------------------- ---------------------------------
Distribution and Service (12b-1) Fees none
- --------------------------------------------------------- ---------------------------------
Other Fund Operating Expenses 0.11%
- --------------------------------------------------------- ---------------------------------
Total Fund Operating Expenses 0.26%
- --------------------------------------------------------- ---------------------------------
Less: Fee Waivers or Expense Reimbursement (0.01)%2
- --------------------------------------------------------- ---------------------------------
NET EXPENSES 0.25%
- --------------------------------------------------------- ---------------------------------
</TABLE>

Expense Example3

- --------
1 Information on the annual operating expenses reflects the expenses of both
the Fund and the Treasury Money Portfolio, the master portfolio in which the
Institutional Treasury Money Fund invests its assets. (A further discussion
of the relationship between the Fund and the master portfolio appears in the
"Organizational Structure" section of this prospectus.)
2 Bankers Trust has agreed, for the 16-month period from the Fund's
fiscal year end of December 31, 1998, to waive its fees and reimburse
expenses so that total expenses will not exceed 0.25%.
3 Based on expenses, after fee waivers and reimbursements for the first 16
months only

8
<PAGE>

- -------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------------
$26 $85 $150 $343
- -------------------------------------------------------

You may use this hypothetical example to compare the Fund's expense history with
other funds.1 Your actual costs may be higher or lower.

9
<PAGE>

A detailed look
AT THE INSTITUTIONAL TREASURY MONEY FUND

OBJECTIVE
The Institutional Treasury Money Fund seeks a high level of current income
consistent with liquidity and the preservation of capital by investing in debt
obligations of the U.S. Treasury or repurchase agreements collateralized by U.S.
Treasury debt obligations.

10
<PAGE>

STRATEGY
The Fund seeks current income, maintaining a dollar-weighted average maturity of
90 days or less, by investing only in U.S. Treasury securities and repurchase
agreements backed by obligations of the U.S. Treasury. Fund securities are
valued in U.S. dollars and have remaining maturities of 397 days (about 13
months) or less at the time of purchase. The Fund may also invest in securities
that have features that reduce their maturities to 397 days or less at the time
of purchase. Although the U.S. government guarantees the timely payment of
interest and principal, it does not guarantee the market value of these
obligations, which may change in response to changes in interest rates.

11
<PAGE>

PRINCIPAL INVESTMENTS
The Fund invests in U.S. Treasury obligations, either directly or through
repurchase agreements. In a repurchase agreement, the Fund buys securities at
one price with a simultaneous agreement to sell back the securities at a future
date at an agreed-upon price.

The Fund may invest in Treasury obligations with remaining maturities of 397
days or less at the time of purchase and the dollar-weighted average maturity of
the Fund remains 90 days or less.

12
<PAGE>

RISKS
BELOW WE SET FORTH SOME OF THE PROMINENT RISKS ASSOCIATED WITH "GOVERNMENT"
MONEY MARKET MUTUAL FUNDS, AND WE DETAIL OUR APPROACHES TO CONTAIN 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. If a security no
longer meets the Fund's requirements, we will attempt to sell that security
within a reasonable time, unless selling the security would not be in the Fund's
best interest.

PRIMARY RISKS

13
<PAGE>

SECONDARY RISK

o the companies in which the Fund invests, which could impact the value of the
Fund's investments;
o our ability to service your Fund account, including our ability to meet your
requests to buy and sell Fund shares; and
o our ability to trade securities held by the Fund or to accurately price
securities held by the Fund.

14
<PAGE>

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.

15
<PAGE>

o keeping accurate, up-to-date records for your individual Fund account;
o implementing any changes you wish to make in your account information;
o processing your requests for cash dividends and distributions from the Fund;
o answering your questions on the Fund's investment performance or
administration;
o sending proxy reports and updated prospectus information to you; and
o collecting your executed proxies.

Brokers and financial advisors may charge additional fees to investors only for
those services not otherwise included in the Bankers Trust servicing agreement,
such as cash management, or special trust or retirement-investment reporting.

Organizational Structure. The Treasury Money Fund is a FEEDER FUND that invests
all of its assets in a MASTER PORTFOLIO, the Treasury Money Portfolio. The Fund
and the master portfolio have the same investment objective. The master
portfolio is advised by Bankers Trust.

16
<PAGE>

Open for business: The Fund 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), Columbus Day (the second Monday in
October), Veterans' Day (November 11), Thanksgiving Day (the fourth Thursday in
November) and Christmas Day. The markets for the Fund's primary investments may
close early on the business day before each of these holidays. It may also close
early on the day after Thanksgiving and the day before Christmas Eve.

17
<PAGE>

DIVIDENDS AND DISTRIBUTIONS
The Fund declares dividends from its net income daily and pays the dividends on
a monthly basis.

We automatically reinvest all dividends and capital gains, if any, unless you
tell us otherwise.

18
<PAGE>

<TABLE>
<CAPTION>
- ------------------------------------------------------------ ----------------------------------------
TRANSACTION TAX STATUS
- ------------------------------------------------------------ ----------------------------------------
<S> <C>
Income dividends Ordinary income
- ------------------------------------------------------------ ----------------------------------------
Short-term capital gain distributions Ordinary income
- ------------------------------------------------------------ ----------------------------------------
Long-term capital gain distributions Capital gains
- ------------------------------------------------------------ ----------------------------------------
</TABLE>

Every year the Fund will send you information on the distributions for the
previous year.

19
<PAGE>

BUYING AND SELLING FUND SHARES

CONTACTING THE BT MUTUAL FUNDS

By Phone 1-800-368-4031
(between 9:00 a.m. and 6:00 p.m., Eastern time)
By Mail P.O. Box 419210
Kansas City, MO 64141-6210
By Overnight Mail 210 West 10th Street, 8th floor
Kansas City, MO 64105-1716

MINIMUM ACCOUNT INVESTMENTS*

To open an account $1 million**
To add to an account $100,000
Minimum account balance $100,000

*Excluding retirement accounts.
**May be allocated among certain designated funds in the BT Family of Funds in
amounts of not less than $100,000 per Fund.

HOW TO OPEN YOUR FUND ACCOUNT

By wire
Call the BT Service Center to set up a wire account.

Please note that your account cannot become activated until we receive a
completed application via mail or fax.

20
<PAGE>

TWO WAYS TO BUY AND SELL SHARES IN YOUR ACCOUNT

MAIL:

Buying: Send your check, payable to the Institutional Treasury Money Fund, to
the BT Service Center. The addresses are shown above under "Contacting the BT
Mutual Funds." Be sure to include the fund number and your account number (see
your account statement) on your check. Please note that we cannot accept starter
checks or third-party checks. If you are investing in more than one fund, make
your check payable to "BT Funds" and include your account number and the names
and numbers of the funds you have selected.

Selling: Send a signed letter to the BT Service Center with your name, your fund
number and account number, the fund's name, and either the number of shares you
wish to sell or the dollar amount you wish to receive. You must leave at least
$100,000 worth of shares in your account to keep it open. Unless exchanging into
another BT Fund, you must submit a written authorization to sell shares in a
retirement account.

WIRE:

Buying: You only buy shares by wire if your account is authorized to do so.
Please note that you or your financial advisor must call the BT Service Center
at 1-800-368-4031 to notify us in advance of a wire transfer purchase. Inform
the BT Representative of the amount of your purchase and receive a trade
confirmation number. Instruct your bank to send payment by wire using the wire
instructions noted below. All wires must be received by 4:00 p.m. Eastern time
the next business day.

21
<PAGE>

Routing no.: 021001033
Attn: Bankers Trust/BT Funds
DDA no.: 00-226-296
FBO: (Account name)
(Account number)
Credit: Institutional Treasury Money Fund-480

See your account statement for the account name and number.

Selling: You may sell shares by wire if your account is authorized to do so. For
your protection, you may not change the destination bank account over the phone.
To sell by wire, contact your financial advisor or the BT Service Center at
1-800-368-4031. Inform the BT Representative of the amount of your redemption
and receive your trade confirmation number. The minimum redemption by wire is
$1,000. We must receive your order by 4:00 p.m. Eastern time to wire your
account the next business day.

AUTOMATIC INVESTMENT PLANS

Buying: Contact your financial advisor to see if you are eligible to buy shares
each month or quarter through automatic regularly scheduled withdrawals from
your bank account.

Selling: You may receive periodic cash payments from your Fund investment.
Contact your financial advisor for more information.

22
<PAGE>

IMPORTANT INFORMATION ABOUT BUYING AND SELLING SHARES
o After receiving your order, we buy or sell your shares at the next price
calculated on a day the Fund is open for business.
o We accept payment for shares only in U.S. dollars by check, bank or Federal
Funds wire transfer, or by electronic bank transfer.
o We remit proceeds from the sale of shares in U.S. dollars (unless the
redemption is so large that it is made "in-kind").
o You may place orders to buy and sell over the phone by calling your
financial advisor or the BT Service Center at 1-800-368-4031. If you pay
for shares by check and the check fails to clear, or if you order shares by
phone and fail to pay for them by 4:00 p.m. Eastern time the next business
day, we have the right to cancel your order, hold you liable or charge you
or your account for any losses or fees the Fund or its agents have
incurred. Unless you request a wire, we will send you a check.
o You may buy and sell shares of the Fund through authorized brokers and
financial advisors as well as from BT Mutual Funds directly. The same terms
and conditions apply. Specifically, once you place your order with a broker
or financial advisor, it is considered received by the BT Service Center.
It is then your broker or financial advisor's responsibility to transmit
the order to the BT Service Center by the next business day. You should
contact your broker or financial advisor if you have a dispute as to when
your order was placed with the Fund.
o If we receive your purchase order and payment before 2:00 p.m. Eastern time
you will receive the dividends declared that day. If we receive it after
2:00 p.m. Eastern time, you will not.
o If we receive your order to sell shares after 2:00 p.m. Eastern time you
will receive the dividends declared that day.
o We do not issue share certificates.
o We process all sales orders free of charge.
o Unless otherwise instructed, we normally mail a check for the proceeds from
the sale of your shares to your account address the next business day and
no later than seven days.
o We reserve the right to close your account on 30 days' notice if it fails
to meet minimum balance requirements.
o If you sell shares by mail or wire, you may be required to obtain a
signature guarantee. Please contact your financial advisor or the BT
Service Center for more information.

23
<PAGE>

24
<PAGE>

Financial Highlights
The table below provides a picture of the Fund's financial performance for the
past five years. 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_______________ , 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 BT Service Center at 1-800-368-4031.

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------------------------------------------------
1998 1997 1996 1995 1994
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, Beginning of Year $1.00 $1.00 $1.00 $1.00
----- ----- ----- -----

INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.05 0.05 0.06 0.04
Net Realized Gain (Loss) on
Investment Transactions (0.00)1 (0.00)1 (0.00)1 (0.00)1
------- ------ ------ ------
Total from Investment Operations 0.05 0.05 0.06 0.04
---- ---- ---- ----
DISTRIBUTIONS TO SHAREHOLDERS
Net Investment Income (0.05) (0.05) (0.06) (0.04)
Net Realized Gain from
Investment Transactions - - (0.00)1 -
- - ------ -
TOTAL DISTRIBUTIONS (0.05) (0.05) (0.06) (0.04)
------ ------ ------ ------
NET ASSET VALUE, END OF YEAR $1.00 $1.00 $1.00 $1.00
====== ======= ===== =====

TOTAL INVESTMENT RETURN 5.42% 5.22% 5.71% 3.92%
SUPPLEMENTAL DATA AND RATIOS:
Net Assets, End of Period
(000s omitted) $ 1,852,634 $ 1,424,305 $ 1,325,069 $ 182,101
Ratios to Average Net Assets:
Net Investment Income 5.26% 5.10% 5.53% 3.97%
Expenses, Including Expenses of
the Treasury Money Portfolio 0.25% 0.25% 0.25% 0.25%
Decrease Reflected in Above
Expense Ratio Due to Absorption
of Expenses by Bankers Trust
0.02% 0.01% 0.07% 0.04%
-------------------------------------------------------------------------------
</TABLE>

1 Less than $0.01 per share.

25
<PAGE>

BACK COVER

Additional information about the Fund's investments is available in the Fund's
annual and semi-annual reports to shareholders.

BT SERVICE CENTER
P.O. BOX 419210
KANSAS CITY, MO 64141-6210
OR CALL OUR TOLL-FREE NUMBER: 1-800-368-4031

INSTITUTIONAL TREASURY MONEY FUND
BT Institutional Funds

811-6071

<PAGE>

[REDHERRING APPEARS ON LEFT SIDE OF PAGE WITH THE FOLLOWING INFORMATION]
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
any offers to buy be accepted prior to the time the registration statement
becomes effective. This Statement of Additional Information does not constitute
a prospectus.

STATEMENT OF ADDITIONAL INFORMATION

APRIL 30, 1999

BT INSTITUTIONAL FUNDS

o BT INSTITUTIONAL EQUITY 500 INDEX FUND

BT ADVISOR FUNDS -- INSTITUTIONAL CLASS SHARES

o U.S. BOND INDEX FUND
o SMALL CAP INDEX FUND
o EAFE(R) EQUITY INDEX FUND

BT Advisor Funds (the "Trust") is comprised of several funds. The funds listed
above (each, a "Fund" and together the "Funds") are, with the exception of BT
Institutional Equity 500 Index Fund, each a series of the Trust and offer two
classes of shares (each a "Class" and collectively the "Classes"). This
Statement of Additional Information describes the Institutional Class Shares. BT
Institutional Equity 500 Index Fund is a series of BT Institutional Funds (the
"Institutional Trust") (together with the Trust, the "Trusts").

Unlike other mutual funds, the Trusts seek to achieve the investment
objective of each Fund by investing all the investable assets of the Fund in a
diversified open-end management investment company (or a series thereof) having
the same investment objective as such Fund. These investment companies are,
respectively, BT Investment Portfolios and Equity 500 Index Portfolio. U.S. Bond
Index Portfolio, Small Cap Index Portfolio and EAFE(R) Equity Index Portfolio
are each a series of BT Investment Portfolios (each, a "Portfolio" and
collectively, the "Portfolios").

Shares of the Funds are sold by ICC Distributors, Inc. ("ICC Distributors"),
the Trust's distributor (the "Distributor"), to clients and customers (including
affiliates and correspondents) of Bankers Trust Company ("Bankers Trust"), the
Portfolios' investment adviser ("Adviser"), and to clients and customers of
other organizations.

The Prospectuses for each Fund, dated April 30, 1999, provide 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 Trusts 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 Trusts at the telephone number
listed below or by contacting any Bankers Trust service agent ("Service
Agent"). 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 and the corresponding
Portfolio for the fiscal year ended December 31, 1998, are incorporated herein
by reference to the Annual Report to shareholders for each Fund and each
Portfolio dated December 31, 1998. A copy of each Fund's and the corresponding
Portfolio's Annual Report may be obtained without charge by calling each Fund at
the telephone number listed below.

BANKERS TRUST COMPANY
INVESTMENT ADVISER OF EACH PORTFOLIO AND ADMINISTRATOR

ICC DISTRIBUTORS, INC.
DISTRIBUTOR

Two Portland Square Portland, Maine 04101 1-800-730-1313

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<TABLE>
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TABLE OF CONTENTS
<S> <C>

INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS..................................................................1

Investment Objectives..........................................................................................1

Investment Policies............................................................................................1
Debt Securities.............................................................................................1
Fixed Income Security Risk..................................................................................1
Medium- and Small-Capitalization Stocks.....................................................................2
Convertible Securities......................................................................................2
U.S. Government Obligations.................................................................................2
Short-Term Instruments......................................................................................3
Certificates of Deposit and Bankers' Acceptances............................................................3
Commercial Paper............................................................................................3
Derivatives.................................................................................................3
Illiquid Securities.........................................................................................3
When-Issued and Delayed Delivery Securities.................................................................4
Lending of Portfolio Securities.............................................................................5
Repurchase Agreements.......................................................................................5
Reverse Repurchase Agreements...............................................................................5
Warrants....................................................................................................5
Swap Agreements.............................................................................................5
Ginnie Mae Certificates.....................................................................................7
Fannie Mae Certificates.....................................................................................7
Freddie Mac Certificates....................................................................................7
Adjustable Rate Mortgages - Interest Rate Indices...........................................................7
Asset-Backed Securities.....................................................................................8
Mortgage-Backed Securities and Asset-Backed Securities--Types of Credit Support.............................8
Stripped Mortgage-Backed Securities.........................................................................9
Options on Securities.......................................................................................9
Options on Securities Indices..............................................................................11
Currency Exchange Transactions.............................................................................11
Forward Currency Exchange Contracts........................................................................11
Options on Foreign Currencies..............................................................................12

Futures Contracts and Options on Futures Contracts............................................................13
General....................................................................................................13
Futures Contracts..........................................................................................14
Options on Futures ContractS...............................................................................15
Asset Coverage.............................................................................................16

Additional Risk Factors.......................................................................................16
Foreign Securities: Special Considerations Concerning the Pacific Basin....................................16
Year 2000 Matters..........................................................................................17
Options on Futures Contracts, Forward Contracts and Options on Foreign Currencies..........................17
Special Information Concerning Master-Feeder Fund Structure................................................18
Rating Services............................................................................................19

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Investment Restrictions.......................................................................................19
Fundamental Policies.......................................................................................19
Additional Restrictions....................................................................................20

Portfolio Transactions and Brokerage Commissions..............................................................22

PERFORMANCE INFORMATION..........................................................................................24

Standard Performance Information..............................................................................24

Comparison of Fund Performance................................................................................25

Economic and Market Information...............................................................................26

VALUATION OF SECURITIES; REDEMPTIONS AND PURCHASES IN KIND.......................................................26

Valuation of Securities.......................................................................................26

Purchase of Shares............................................................................................27

Redemption of Shares..........................................................................................29

Additional Information About Selling Shares...................................................................30

Redemptions and Purchases in Kind.............................................................................32

Trading in Foreign Securities.................................................................................33

MANAGEMENT OF THE TRUSTS AND THE PORTFOLIOS......................................................................34

Investment Adviser............................................................................................36

Administrator.................................................................................................38

Distributor...................................................................................................40

Service Agent.................................................................................................40

Custodian and Transfer Agent..................................................................................40

Expenses......................................................................................................41

Use of Name...................................................................................................41

Banking Regulatory Matters....................................................................................41

Counsel and Independent Accountants...........................................................................41

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ORGANIZATION OF THE TRUSTS.......................................................................................41

TAXATION.........................................................................................................43

Taxation of the Funds.........................................................................................43

Distributions.................................................................................................43

Taxation of the Portfolios....................................................................................44

Backup Withholding............................................................................................44

Foreign Shareholders..........................................................................................44

Other Taxation................................................................................................44

Foreign Withholding Taxes.....................................................................................45

FINANCIAL STATEMENTS.............................................................................................45

APPENDIX.........................................................................................................46
</TABLE>

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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(s).

BT Institutional Equity 500 Index 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.

U.S. Bond Index Fund seeks to match as closely as possible (before expenses) the
investment performance of the Lehman Brothers Aggregate Bond Index (the
"Aggregate Bond Index"), which emphasizes government and corporate investment
grade debt securities.

Small Cap Index 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.

EAFE(R) Equity Index Fund seeks to match as closely as possible (before
expenses) the performance of the Morgan Stanley Capital International Europe,
Australia, Far East (EAFE) Index with net dividends (the "EAFE Index"), which
emphasizes stocks of companies in major markets in Europe, Australia and the Far
East.

INVESTMENT POLICIES

Each Fund seeks to achieve its investment objective by investing all of its
ASSETS in the corresponding Portfolio. The Trusts may withdraw a Fund's
investment from the corresponding Portfolio at any time if the Board of Trustees
of the respective Trust determines that it is in the best interests of the Fund
to do so.

Since the investment characteristics of each Fund will correspond directly to
those of the corresponding Portfolio, the following is a discussion of the
various investments of and techniques employed by the Portfolios.

EQUITY SECURITIES. With the exception of the U.S. Bond Index Portfolio, each
Portfolio 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, l oans, 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.

FIXED INCOME SECURITY RISK. Fixed Income Securities expose the Portfolio to four
types of risk: (1)

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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
Portfolio'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 Portfolio and (4) Prepayment risk or call risk is
the likelihood that, during period of falling interest rates, securities with
high sated interest rates will be prepaid (or " "called") prior to maturity,
requiring the Portfolio to invest the proceeds at generally lower interest
rates.

MEDIUM- AND SMALL-CAPITALIZATION STOCKS. The Small Cap Index Portfolio 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 Index". Among the reasons
for the greater price volatility of these securities are the less certain growth
prospects of smaller firms, the lower degree of liquidity in the markets for
such stocks, and the greater sensitively 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 price as large company stocks 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 in 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.

** 1 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.

** 2 U.S. GOVERNMENT OBLIGATIONS. Each Portfolio 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 Portfolio 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
Portfolio 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

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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.

** 3 SHORT-TERM INSTRUMENTS. When a Portfolio experiences large cash inflows
through the sale of securities and desirable equity securities, that are
consistent with the Portfolio's investment objective, which are unavailable in
sufficient quantities or at attractive prices, the Portfolio 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 Portfolio 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 Portfolio 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

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<PAGE>

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 Portfolio and when consistent
with the Portfolio'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 the 15% limit on illiquid securities. Under the
supervision of the Board of Trustees of the Portfolios, 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 Portfolios 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).

** 4 WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. Each Portfolio 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

4
<PAGE>

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 Portfolio until settlement takes place.
At the time a Portfolio 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 Portfolio
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 Portfolio will meet its obligations from maturities or sales
of the securities held in the segregated account and/or from cash flow. If a
Portfolio 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 Portfolio not to enter into when-issued commitments
exceeding in the aggregate 15% of the market value of the Portfolio's total
assets, less liabilities other than the obligations created by when-issued
commitments.

LENDING OF PORTFOLIO SECURITIES. Each Portfolio 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 Portfolio 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 Portfolio will adhere to the following conditions
whenever its securities are loaned: (i) the Portfolio 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 Portfolio must be able to terminate
the loan at any time; (iv) the Portfolio 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
Portfolio's lending agent and may share in revenue received from securities
lending transactions as compensation for this service.

* 3 moved from here; text not shown* 4 moved from here; text not shown* 2 moved
from here; text not shownREPURCHASE AGREEMENTS. In a repurchase agreement, a
Portfolio 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 Portfolio 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
Portfolio could experience a loss. In all cases, the Adviser must find the
creditworthiness of the other party to the transaction satisfactory.

* 5 moved from here; text not shown* 6 MOVED FROM HERE; TEXT NOT SHOWN* 7
MOVED FROM HERE; TEXT NOT SHOWNREVERSE REPURCHASE AGREEMENTS. The Portfolios 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 Portfolio 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 Portfolio may
decline below the repurchase price of those securities.

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Reverse repurchase agreements are considered to be borrowings by a Portfolio.

WARRANTS. Each Portfolio (except the Equity 500 Index Portfolio) 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.

** 5 SWAP AGREEMENTS. Each Portfolio (except the Equity 500 Index Portfolio) may
enter into swap agreements to the extent that obligations under such agreements
represent not more than 10% of the Portfolio'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 Portfolio'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 Portfolio's
obligations under a swap agreement will be accrued daily (offset against any
amounts owing to the Portfolio) 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 Portfolio'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 Portfolio 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 Portfolio will minimize this risk by entering
into agreements that mark to market no less frequently than quarterly. In
addition, a Portfolio will enter into swap agreements only with counterparties
that would be eligible for consideration as repurchase agreement counterparties
under the Portfolio's repurchase agreement guidelines. Certain restrictions
imposed on the Portfolios by the Internal Revenue Code of 1986, as amended (the
"Code") may limit the Portfolios' ability to use swap agreements. The swaps
market is a relatively new market and is largely unregulated. It is possible
that developments in the swaps market, including potential government
regulation, could adversely affect a Portfolio'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 Portfolio will not be able to meet its
obligation to the counterparty. This risk will be mitigated by investing the
Portfolio in the specific asset for which it is obligated to pay a return.

* 1 moved from here; text not shown** 6 Certain swap agreements are exempt from
most provisions of

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the Commodity Exchange Act (the "CEA") and, therefore, are not regulated as
futures or commodity option transactions under the CEA, pursuant to regulations
approved by the Commodity Futures Trading Commission (the "CFTC") effective
February 22, 1993. To qualify for this exemption, a swap agreement must be
entered into by eligible participants, which includes the following, provided
the participant's total assets exceed established levels: a bank or trust
company, savings association or credit union, insurance company, investment
company subject to regulation under the Investment Company Act of 1940, as
amended (the "1940 Act"), commodity pool, corporation, partnership,
proprietorship, organization, trust or other entity, employee benefit plan,
governmental entity, broker-dealer, futures commission merchant, 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 asset 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.

** 7 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 Portfolio 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

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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 Portfolio 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

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<PAGE>

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 Portfolio 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 Portfolio 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 Portfolio 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

9
<PAGE>

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.

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NOT SHOWNOPTIONS ON SECURITIES. Each Portfolio 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 Portfolio 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 Portfolio.

When a Portfolio 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 Portfolio 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 Portfolio has no control, the
Portfolio must sell the underlying security to the option holder at the exercise
price. By writing a covered call option, the Portfolio 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 Portfolio writes a covered put option, it gives the purchaser of the
option the right to sell the underlying security to the Portfolio at the
specified exercise price at any time during the option period. If the option
expires unexercised, the Portfolio 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 Portfolio has no control, the Portfolio must purchase
the underlying security from the option holder at the exercise price. By writing
a covered put option, the Portfolio, 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 Portfolio will only write put options involving
securities for which a determination is made at the time the option is written
that the

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Portfolio wishes to acquire the securities at the exercise price.

A Portfolio 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 Portfolio 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 Portfolio, may make a "closing sale
transaction" which involves liquidating the Portfolio's position by selling the
option previously purchased. Where the Portfolio 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 Portfolio writes an option, an amount equal to the net premium received
by the Portfolio is included in the liability section of the Portfolio'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 Portfolio enters into a closing purchase transaction, the
Portfolio 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 Portfolio 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 Portfolio.

A Portfolio may purchase call and put options on any securities in which it may
invest. The Portfolio 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 Portfolio, in exchange for the premium paid, to
purchase a security at a specified price during the option period. The Portfolio
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 Portfolio 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 Portfolio, in exchange for the premium paid, to sell a
security, which may or may not be held in the Portfolio'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
Portfolio's portfolio securities. Put options also may be purchased by the
Portfolio for the purpose of affirmatively benefiting from a decline in the
price of securities which the Portfolio does not own. The Portfolio 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.

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A Portfolio 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
Portfolio 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 Portfolio enters into such options
transactions under the general supervision of the Portfolios' Trustees. Unless
the Trustees conclude otherwise, each Portfolio intends to treat OTC options as
not readily marketable and therefore subject to each Portfolio's 15% limit on
investments in illiquid securities.

OPTIONS ON SECURITIES INDICES. In addition to options on securities, each
Portfolio 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 Portfolio 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 the Portfolio
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. The Portfolio 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 Portfolio'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 Portfolio 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 Portfolio 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 Portfolio 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 currencies.

FORWARD CURRENCY EXCHANGE CONTRACTS. A forward currency exchange contract is
an obligation by a Portfolio 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 Portfolio 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

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spot transactions nor forward currency exchange contracts eliminate fluctuations
in the prices of the Portfolio's securities or in exchange rates, or prevent
loss if the prices of these securities should decline.

Each Portfolio 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 Portfolio 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
Portfolio's best interest. Although these transactions tend to minimize the risk
of loss due to a decline in the value of the hedged currency, at the same time
they tend to limit any potential gain that might be realized should the value of
the hedged currency increase. The precise matching of the forward contract
amounts and the value of the securities involved will not generally be possible
because the future value of such securities in foreign currencies will change as
a consequence of market movements in the value of such securities between the
date the forward contract is entered into and the date it matures. The
projection of currency market movements is extremely difficult, and the
successful execution of a hedging strategy is highly uncertain.

While these contracts are not presently regulated by the CFTC, the CFTC may in
the future assert authority to regulate forward contracts. In such event the
Portfolio'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
Portfolio 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 Portfolio's foreign
currency denominated portfolio securities and the use of such techniques will
subject a Portfolio 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
Portfolio may not always be able to enter into currency forward contracts at
attractive prices and this will limit the Portfolio's ability to use such
contract to hedge or cross-hedge its assets. Also, with regard to a Portfolio'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 Portfolio's
cross-hedges and the movements in the exchange rates of the foreign currencies
in which the Portfolio's assets that are the subject of such cross-hedges are
denominated.

** 8 OPTIONS ON FOREIGN CURRENCIES. The EAFE(R) Equity Index Portfolio 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 Portfolio may purchase put options on the foreign
currency. If the value of the currency does decline, the Portfolio 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.

** 9 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 Portfolio may purchase call
optionS thereon. The purchase of such options could offset, at least partially,
the effects

13
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of the adverse movements in exchange rates. As in the case of other types of
options, however, the benefit to the Portfolio 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 Portfolio 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.

** 10 The EAFE(R) Equity Index Portfolio may write options on foreign currencies
for the same types of hedging purposes. For example, where the Portfolio
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.

** 11 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 Portfolio could write a put option on the relevant currency
which, if rates move in the manner projected, will expire unexercised and allow
the Portfolio 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 Portfolio 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 Portfolio 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.

** 12 The EAFE(R) Equity Index Portfolio may write covered call options on
foreign currencies. A call option writteN on a foreign currency by the Portfolio
is "covered" if the Portfolio 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
Portfolio 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 Portfolio in cashor liquid securities in a segregated account with its
custodian.

** 13 The EAFE(R) Equity Index Portfolio 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 Portfolio 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 Portfolio 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.

FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS

** 14 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 Portfolio 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

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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.

** 15 Successful use of the futures contract and related options are subject to
special risk considerations. A liquid secondary market for any futures or
options contract may not be available when a futures or options position is
sought to be closed. In addition, there may be an imperfect correlation between
movements in the securities or currency in the Portfolio. Successful use of
futures or options contracts is further dependent on Bankers Trust's ability to
correctly predict movements in the securities or foreign currency markets and no
assurance can be given that its judgment will be correct. Successful use of
options on securities or stock indices are subject to similar risk
considerations. In addition, by writing covered call options, the Portfolio
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 Portfolio 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 Portfolio 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 Portfolio 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.

** 16 At the same time a futures contract is entered into, a Portfolio 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 Portfolio
would provide or receive cash that reflects any decline or increase in the
contract's value.

** 17 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, the Portfolio
will incur brokerage fees when it enters into futures contracts.

** 18 The purpose of the acquisition or sale of a futures contract, in the case
of a Portfolio which holds or intends to acquire fixed-income securities, is to
attempt to protect the Portfolio from fluctuations in

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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, the Portfolio 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 Portfolio. If
interest rates did increase, the value of the debt security in the Portfolio
would decline, but the value of the futures contracts to the Portfolio would
increase at approximately the same rate, thereby keeping the net asset value of
the Portfolio from declining as much as it otherwise would have. The Portfolio
could accomplish similar results by selling debt securities and investing in
bonds with short maturities when interest rates are expected to increase.
However, since the futures market is more liquid than the cash market, the use
of futures contracts as an investment technique allows the Portfolio to maintain
a defensive position without having to sell its portfolio securities.

** 19 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 Portfolio 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 Portfolio could then buy debt securities
on the cash market. The assets in the segregated asset account maintained to
cover the Portfolio's obligations with respect to such futures contracts will
consist of cashor 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 Portfolio with respect to such futures contracts.

** 20 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.

** 21 In addition, futures contracts entail risks. Although the Adviser believes
that use of such contracts will benefit the Portfolios, if the Adviser's
investment judgment about the general direction of interest rates is incorrect,
a Portfolio's overall performance would be poorer than if it had not entered
into any such contract. For example, if a Portfolio 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 Portfolio 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 Portfolio
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 Portfolio 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 Portfolio is not fully invested

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<PAGE>

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 Portfolio 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.

** 22 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 Portfolio will retain the full amount of
the option premium which provides a partial hedge against any decline that may
have occurred in the Portfolio'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 Portfolio will retain the full amount of the option premium
which provides a partial hedge against any increase in the price of securities
which the Portfolio intends to purchase. If a put or call option a Portfolio
has written is exercised, the Portfolio 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 Portfolio's losses from existing options on
futures may to some extent be reduced or increased by changes in the value of
portfolio securities.

** 23 The amount of risk a Portfolio 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 Portfolio'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 Portfolio
will cover such transactions, as required under applicable interpretations of
the SEC, either by owning the underlying securities or by segregating with the
Portfolio's Custodian or futures commission merchant liquid securities in an
amount at all times equal to or exceeding the Portfolio's commitment with
respect to these instruments or contracts.

** 24 The Board of Trustees of each Portfolio has adopted the requirement that
futures contracts and options on futures contracts be used as a hedge and may
also use stock index futures on continual basis to equitize cash so that the
Portfolio may maintain 100% equity exposure. In compliance with current CFTC
regulations, a Portfolio 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 Portfolio and premiums paid on outstanding options
on futures contracts owned by the Portfolio (other than those entered into for
bona fide hedging purposes) would exceed 5% of the Portfolio'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 Portfolios' investments may be
subject to the following risk factors:

** 25 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

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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.

** 26 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.

** 27 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 the Portfolio. 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 the Portfolio's ability to acquire or dispose of
securities at the price and time it wishes to do so. The EAFE(R) Equity Index
Portfolio's inability to dispose fully and promptly oF positions in declining
markets will cause the Portfolio'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.

** 28 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.

** 29 The EAFE(R) Equity Index Portfolio 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 Portfolio's assets denominated in those currencies.

YEAR 2000 MATTERS. Like other mutual funds, financial and business organizations
and individuals around the world, the Funds could be adversely affected if the
computer systems used by Bankers Trust and other service providers do not
properly process and calculate date-related information and data from and after
January 1, 2000. This is commonly known as the "Year 2000 Problem." Bankers
Trust is taking steps that it believes are reasonably designed to address the
Year 2000 Problem with respect to computer systems that it uses and to obtain
reasonable assurances that comparable steps are being taken by the Funds' other
major service providers. At this time, however, there can be no assurance that
these steps will be sufficient to avoid any adverse impact to the Funds nor
can there be any assurance that the Year 2000 Problem will not have an adverse
effect on the companies whose securities are held by the Funds or on global
markets or economies, generally.

** 30 OPTIONS ON FUTURES CONTRACTS, FORWARD CONTRACTS AND OPTIONS ON FOREIGN
CURRENCIES. Unlike transactions entered into by a Portfolio 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

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<PAGE>

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 Portfolio'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 Portfolio will treat purchased
over-the-counter options and assets used to cover written over-the-counter
options as illiquid securities.

** 31 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
Portfolio to liquidate open positions at a profit prior to exercise or
expiration, or to limit losses in the event of adverse market movements.

** 32 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.

** 33 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
Portfolio'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.

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<PAGE>

terms and conditions and will pay a proportionate share of a Portfolio's
expenses. However, the other investors investing in a Portfolio are not required
to sell their shares at the same public offering price as the Fund due to
variations in sales commissions and other operating expenses. Therefore,
investors in a Fund should be aware that these differences may result in
differences in returns experienced by investors in the different funds that
invest in each Portfolio. Such differences in returns are also present in other
mutual fund structures. Information concerning other holders of interests in
each Portfolio is available from Bankers Trust at 1-800-730-1313.

Smaller funds investing in a Portfolio may be materially affected by the actions
of larger funds investing in the Portfolio. For example, if a large fund
withdraws from a Portfolio, the remaining funds may experience higher pro rata
operating expenses, thereby producing lower returns (however, this possibility
exists as well for traditionally structured funds which have large institutional
investors). Additionally, a Portfolio may become less diverse, resulting in
increased portfolio risk. Also, funds with a greater pro rata ownership in a
Portfolio could have effective voting control of the operations of the
Portfolio. Except as permitted by the SEC, whenever the Trust is requested to
vote on matters pertaining to a Portfolio, the Trust will hold a meeting of
shareholders of the Fund and will cast all of its votes in the same proportion
as the votes of the Fund's shareholders. Fund shareholders who do not vote will
not affect the Trust's votes at the Portfolio meeting. The percentage of the
Trust's votes representing the Fund's shareholders not voting will be voted by
the Trustees or officers of the Trust in the same proportion as the Fund
shareholders who do, in fact, vote.

Certain changes in a Portfolio's investment objectives, policies or restrictions
may require the Fund to withdraw its interest in the Portfolio. Any such
withdrawal could result in a distribution "in kind" of portfolio securities (as
opposed to a cash distribution from the Portfolio). If securities are
distributed, the Fund could incur brokerage, tax or other charges in converting
the securities to cash. In addition, the distribution in kind may result in a
less diversified portfolio of investments or adversely affect the liquidity of
the Fund. Notwithstanding the above, there are other means for meeting
redemption requests, such as borrowing.

A Fund may withdraw its investment from a Portfolio at any time, if the Board of
Trustees of the Trust determines that it is in the best interests of the
shareholders of the Fund to do so. Upon any such withdrawal, the Board of
Trustees of the Trust would consider what action might be taken, including the
investment of all the assets of the Fund in another pooled investment entity
having the same investment objective as the Fund or the retaining of an
investment adviser to manage the Fund's assets in accordance with the investment
policies described herein with respect to the corresponding Portfolio.

Each 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 a Fund's investment objective, the Fund's shareholders should
consider whether the Fund remains an appropriate investment in light of their
then-current needs. The investment objective of each Portfolio is also not a
fundamental policy. Shareholders of the Funds will receive 30 days prior written
notice with respect to any change in the investment objective of a Fund or the
corresponding Portfolio.

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 Portfolio, an obligation may cease to be
rated or its rating may be reduced below the minimum required for purchase by
the Portfolio. Neither event would require a Portfolio to eliminate the
obligation from its portfolio, but the Adviser will consider such an event in
its determination of whether a Portfolio 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.

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<PAGE>

INVESTMENT RESTRICTIONS

FUNDAMENTAL POLICIES. The following investment restrictions are "fundamental
policies" of each Fund and each Portfolio and may not be changed with respect to
the Fund or the Portfolio without the approval of a "majority of the outstanding
voting securities" of the Fund or the Portfolio, as the case may be. "Majority
of the outstanding voting securities" under the 1940 Act, and as used in this
SAI and the Prospectus, means, with respect to the Fund (or the Portfolio), the
lesser of (i) 67% or more of the outstanding voting securities of the Fund (or
of the total beneficial interests of the Portfolio) present at a meeting, if the
holders of more than 50% of the outstanding voting securities of the Fund or of
the total beneficial interests of the Portfolio) are present or represented by
proxy or (ii) more than 50% of the outstanding voting securities of the Fund (or
of the total beneficial interests of the Portfolio). Whenever the Trust is
requested to vote on a fundamental policy of a Portfolio, the Trust will hold a
meeting of the corresponding Fund's shareholders and will cast its vote as
instructed by that Fund's shareholders. Fund shareholders who do not vote will
not affect the Trust's votes at the Portfolio meeting. The percentage of the
Trust's votes representing Fund shareholders not voting will be voted by the
Trustees of the Trust in the same proportion as the Fund shareholders who do, in
fact, vote.

As a matter of fundamental policy, no Portfolio (or Fund) may (except that no
investment restriction of a Fund shall prevent a Fund from investing all of its
assets in an open-end investment company with substantially the same
investment objectives):

(1) borrow money or mortgage or hypothecate assets of the Portfolio (Fund),
except that in an amount not to exceed 1/3 of the current value of the
Portfolio's (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 Portfolios may not engage in dollar roll transactions);

(2) underwrite securities issued by other persons except insofar as the
Portfolios (Trust or the Funds) 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
Portfolio's (Fund's) portfolio securities and provided that any such loans not
exceed 30% of the Portfolio's (Fund's) total assets (taken at market value); (b)
through the use of repurchase agreements or the purchase of short-term
obligations; or (c) by purchasing a portion of an issue of debt securities of
types distributed publicly or privately;

(4) purchase or sell real estate (including limited partnership interests but
excluding securities secured by real estate or interests therein), interests in
oil, gas or mineral leases, commodities or commodity contracts (except futures
and option contracts) in the ordinary course of business (except that the
Portfolio (Trust) may hold and sell, for the Portfolio's (Fund's) portfolio,
real estate acquired as a result of the Portfolio's (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 a
Portfolio's (Fund's) investment objective(s), up to 25% of

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<PAGE>

its total assets may be invested in any one industry; and

(6) issue any senior security (as that term is defined in the 1940 Act) if such
issuance is specifically prohibited by the 1940 Act or the rules and regulations
promulgated thereunder, 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) with respect to 75% of the Fund's (Portfolio's) total assets, invest more
than 5% of its total assets in the securities of any one issuer (excluding cash
and cash-equivalents, U.S. government securities and the securities of other
investment companies) or own more than 10% of the voting securities of any
issuer.

ADDITIONAL RESTRICTIONS. In order to comply with certain statutes and policies
each Portfolio (or the Trust, on behalf of each Fund) will not as a matter of
operating policy (except that no operating policy shall prevent a Fund from
investing all of its assets in an open-end investment company with
substantially the same investment objectives):

(i) borrow money (including through reverse repurchase or forward roll
transactions) for any purpose in excess of 5% of the Portfolio's
(Fund's) total assets (taken at cost), except that the Portfolio (Fund)
may borrow for temporary or emergency purposes up to 1/3 of its total
assets;

(ii) pledge, mortgage or hypothecate for any purpose in excess of 10% of the
Portfolio's (Fund's) total assets (taken at market value), provided
that collateral arrangements with respect to options and futures,
including deposits of initial deposit and variation margin, and reverse
repurchase agreements are not considered a pledge of assets for
purposes of this restriction;

(iii) 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;

(iv) 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
Portfolio (Fund), and the value of securities of any one issuer in
which the Portfolio (Fund) is short exceeds the lesser of 2.0% of the
value of the Portfolio's (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 or a foreign exchange (This provision does not
include the sale of securities of the Portfolio (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 Portfolios (Funds) have no current intention to engage in short
selling);

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

(vi) 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 Portfolio (Fund) if such purchase at the time thereof
would cause: (a) more than 10% of the Portfolio's (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 Portfolio's
(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
Portfolio (Fund), unless permitted to exceed these imitations by an
exemptive order of the SEC; provided further that, except in the case
of a merger or

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<PAGE>

consolidation, the Portfolio (Fund) shall not purchase any securities
of any open-end investment company unless the Portfolio (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, each Portfolio
will not invest in another open-end registered investment company);

(vii) invest more than 15% of the Portfolio's (Fund's) net assets (taken at
the greater of cost or market value) in securities that are illiquid or
not readily marketable not including (a) Rule 144A securities that have
been determined to be liquid by the Board of Trustees; and (b)
commercial paper that is sold under section 4(2) of the 1933 Act which:
(i) is not traded flat or in default as to interest or principal; and
(ii) is rated in one of the two highest categories by at least two
nationally recognized statistical rating organizations and the
Portfolio's (Fund's) Board of Trustees have determined the commercial
paper to be liquid; or (iii) is rated in one of the two highest
categories by one nationally recognized statistical rating agency and
the Portfolio's (Fund's) Board of Trustees have determined that the
commercial paper is equivalent quality and is liquid;

(viii) write puts and calls on securities unless each of the following
conditions are met: (a) the security underlying the put or call is
within the Investment Practices of the Portfolio (Fund) and the option
is issued by the Options Clearing Corporation, except for put and call
options issued by non-U.S. entities or listed on non-U.S. securities or
commodities exchanges; (b) the aggregate value of the obligations
underlying the puts determined as of the date the options are sold
shall not exceed 5% of the Portfolio's (Fund's) net assets; (c) the
securities subject to the exercise of the call written by the Portfolio
(Fund) must be owned by the Portfolio (Fund) at the time the call is
sold and must continue to be owned by the Portfolio (Fund) until the
call has been exercised, has lapsed, or the Portfolio (Fund) has
purchased a closing call, and such purchase has been confirmed, thereby
extinguishing the Portfolio's (Fund's) obligation to deliver securities
pursuant to the call it has sold; and (d) at the time a put is written,
the Portfolio (Fund) establishes a segregated account with its
custodian consisting of cash or short-term U.S. government securities
equal in value to the amount the Portfolio (Fund) will be obligated to
pay upon exercise of the put (this account must be maintained until the
put is exercised, has expired, or the Portfolio (Fund) has purchased a
closing put, which is a put of the same series as the one previously
written); and

(ix) buy and sell puts and calls on securities, stock index futures or
options on stock index futures, or financial futures or options on
financial futures unless such options are written by other persons and:
(a) the options or futures are offered through the facilities of a
national securities association or are listed on a national securities
or commodities exchange, except for put and call options issued by
non-U.S. entities or listed on non-U.S. securities or commodities
exchanges; (b) the aggregate premiums paid on all such options which
are held at any time do not exceed 20% of the Portfolio's (Fund's)
total net assets; and (c) the aggregate margin deposits required on all
such futures or options thereon held at any time do not exceed 5% of
the Portfolio's (Fund's) total assets.

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 Portfolio, the
selection of brokers, dealers and futures commission merchants to effect
transactions and the negotiation of brokerage commissions, if any.
Broker-dealers may

23
<PAGE>

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
Portfolio 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 Portfolio. 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 Portfolio 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
Portfolio 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
Portfolio 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 and such other policies as the Trustees of the
Portfolio 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 Portfolio'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 Portfolio and to the Adviser, it is the opinion of
the management of the Portfolios 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 Portfolios, and not
all such information is used by the Adviser in connection with the Portfolios.
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

24
<PAGE>

Adviser in providing services to the Portfolios.

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

For the fiscal years ended December 31, 1998, 1997and 1996, Equity 500 Index
Portfolio paid brokerage commissions in the amount of $_____, $341,058 and
$289,791, respectively.

For the fiscal years ended December 31, 1998 and 1997, and for the period from
July 10, 1996 (commencement of operations) to December 31, 1996, the Small Cap
Index Portfolio, paid brokerage commissions in the amount of $_____, $64,041
and $55,569, respectively.

For the fiscal years ended December 31, 1998 and 1997, and for the period from
January 24, 1996 (commencement of operations) to December 31, 1996, the EAFE
Equity Index Portfolio, paid brokerage commissions in the amount of $_____,
$33,474and $66,791, respectively.

For the fiscal year ended December 31, 1998, U.S. Bond Index Portfolio paid
brokerage commissions in the amount of $______. For the period from June 30,
1997 (commencement of operations) to December 31, 1997, U.S. Bond Index
Portfolio did not pay any brokerage commissions.

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.

25
<PAGE>

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 Portfolio 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 Portfolio and changes in the
expenses of the Fund or Portfolio. 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 or Portfolio, 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 Portfolio, but also on changes in
the current value of such securities and on changes in the expenses of
the Fund and the corresponding Portfolio. 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

26
<PAGE>

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.

27
<PAGE>

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"). For example, according to the ICI, thirty-seven
percent of American households are pursuing their financial goals through mutual
funds. These investors, as well as businesses and institutions, have entrusted
over $4.4 trillion to the more than 6,700 funds available.

VALUATION OF SECURITIES; REDEMPTIONS AND PURCHASES IN KIND

Valuation of Securities

Each Fund is open for business each day the the New York Stock Exchange, Inc.
("NYSE") is open, except that the EAFE(R) Equity Index Fund is open each day
that the NYSE and the Tokyo Stock Exchange are 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 (i.e., the value of its investment in the corresponding Portfolio
and other assets), less all liabilities attributable to the shares, by the total
number of shares outstanding. The EAFE(R) Equity Index Fund will not process
orders on any day when either the NYSE or the Tokyo Stock Exchange is closed.
Orders received on such days will be priced on the next day the Fund computes
its NAV. As such, investors may experience a delay in purchasing or redeeming
shares of the Fund. Each Portfolio'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 Portfolio's Board of Trustees believes
accurately reflects fair value.

Under procedures adopted by the Board, a NAV for a Fund later determined to have
been inaccurate for any reason will be recalculated. Purchases and redemptions
made at a NAV determined to have been inaccurate will be adjusted, although in
certain circumstances, such as where the difference between the original NAV and
the recalculated NAV divided by the recalculated is 0.005 (1/2 of 1%) or less or
shareholder transactions are otherwise insubstantially affected, further action
is not required.

Equity and debt securities (other than short-term debt obligations maturing in
60 days or less), including listed securities and securities for which price
quotations are available, will normally be valued on the basis of market
valuations furnished by a pricing service. Short-term debt obligations and money
market securities maturing in 60 days or less are valued at amortized cost,
which approximates market.

Securities for which market quotations are not available are valued by Bankers
Trust pursuant to procedures adopted by each Portfolio's Board of Trustees. It
is generally agreed that securities for which market quotations are not readily
available should not be valued at the same value as that carried by an

28
<PAGE>

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

Purchase of Shares

Each Trust accepts purchase orders for shares of the Funds at the NAV per share
next determined after the order is received on each Valuation Day. Shares may be
available through Investment Professionals, such as broker/dealers and
investment advisers (including Service Agents).

Purchase orders for shares (including those purchased through a Service Agent)
that are transmitted to the Trusts' Transfer Agent (the "Transfer Agent"), prior
to the Valuation Time on any Valuation Day will be effective at that day's
Valuation Time. The Trusts and Transfer Agent reserve the right to reject any
purchase order.

Shares must be purchased in accordance with procedures established by the
Transfer Agent and each Service Agent. It is the responsibility of each Service
Agent to transmit to the Transfer Agent purchase and redemption orders and to
transmit to the Custodian purchase payments by the following business day (trade
date + 1) after an order for shares is placed. A shareholder must settle with
the Service Agent for his or her entitlement to an effective purchase or
redemption order as of a particular time. Because Bankers Trust is the Custodian
and Transfer Agent of the Trust, funds may be transferred directly from or to a
customer's account held with Bankers Trust to settle transactions with the Fund
without incurring the additional costs or delays associated with the wiring of
federal funds.

If orders are placed through an Investment Professional, it is the
responsibility of the Investment Professional to transmit the order to buy
shares to the Transfer Agent before 4:00 p.m. Eastern time.

Certificates for Shares will not be issued. Each shareholder's account will be
maintained by a Service Agent or Transfer Agent.

The Transfer Agent must receive payment within one business day after an order
for Shares is placed; otherwise, the purchase order may be canceled and the
investor could be held liable for resulting fees and/or losses.

The Institutional Trust and Bankers Trust have authorized one or more brokers to
accept on the Institutional Trust's behalf purchase and redemption orders. Such
brokers are authorized to designate other intermediaries to accept purchase and
redemption orders on the Institutional Trust's behalf. The Transfer Agent will
be deemed to have received a purchase or redemption order when an

29
<PAGE>

authorized broker or, if applicable, a broker's authorized designee, accepts the
order. Customer orders will be priced at a Fund's NAV next computed after they
are accepted by an authorized broker or the broker's authorized designee.

MINIMUM INVESTMENTS

To Open an Account $5 million

To Add to an Account $100,000

Minimum Balance $1 million

The Funds and their service providers reserve the right to, from time to time,
at their discretion, waive or reduce the investment minimums. Shares of a Fund
may be offered to employees of Bankers Trust and their spouses and minor
children without regard to the minimum initial investment requirements.

If you are new to BT Institutional Funds or BT Advisor Funds, complete and sign
an account application and mail it along with your check to the address listed
below. For an account application, call the BT Service Center at 1-800-368-4031.

BT Service Center
P.O. Box 419210
Kansas City, MO 64141-6210

Overnight mailings:

BT Service Center
210 West 10th Street, 8th Floor
Kansas City, MO 64105-1716

If you have money invested in a fund in the BT Family of Funds, you can:

o Mail an account application with a check,

o Wire money into your account,

o Open an account by exchanging from another fund in the BT Family of
Funds, or

o Contact your Service Agent or Investment Professional.

30
<PAGE>

If you are investing through a tax-sheltered retirement plan, such as an IRA,
for the first time, you will need a special application. Contact your Investment
Professional for more information and a retirement account application.

Additional Information About Buying Shares

<TABLE>
<CAPTION>
To Open an Account To Add to an Account

<S> <C> <C> <C>
By Wire Call the BT Service Center at 1-800-368-4031 to Call your Investment Professional or wire additional
receive wire instructions for account establishment. investment to:

Routing No.: 021001033
Attn: Bankers Trust/IFTC Deposit
DDA No.: 00-226-296
FBO: (Account name)
(Account Number)
Credit: BT Institutional Equity
500 Index Fund - 481
U.S. Bond Index Fund - 511
Small Cap Index Fund - 513
EAFE(R) Equity Index Fund - 514

Specify the complete name of the
Fund, including your account number
and your name.

By Phone Contact your Service Agent, Investment Professional, Contact your Service Agent, Investment Professional,
or call BT's Service Center at 1-800-368-4031. If you or call BT's Service Center at 1-800-368-4031. If
are an existing shareholder, you may exchange from you are an existing shareholder, you may exchange
another BT account with the same registration, from another BT account with the same registration,
including name, address, and taxpayer ID number. including name, address, and taxpayer ID number.

By Mail Complete and sign the account application. Make your Make your check payable to the complete name of the
check payable to the complete name of the Fund of Fund of your choice. Indicate your Fund account
your choice. Mail to the appropriate address number on your check and mail to the address printed
indicated on the application. on your account statement.
</TABLE>

REDEMPTION OF SHARES

You can arrange to take money out of your fund account at any time by selling
(redeeming) some or all of your shares. Your shares shall be sold at the next
NAV calculated after an order is received by the Transfer Agent. Redemption
requests should be transmitted by customers in accordance with procedures
established by the Transfer Agent and the shareholder's Service Agent.
Redemption requests for shares received by the Service Agent and transmitted to
the Transfer Agent prior to the Valuation Time on each Valuation Day will be
effective at the that day's Valuation Time and the redemption proceeds normally
will be delivered to the shareholder's account the next day, but in any event
within seven calendar days following receipt of the request.

31
<PAGE>

redemption or exchange privilege. The Transfer Agent and the Service Agent must
employ reasonable procedures to confirm that instructions communicated by
telephone are genuine. If the Service Agent does not do so, it may be liable for
any losses due to unauthorized or fraudulent instructions. Such procedures may
include, among others, requiring some form of personal identification prior to
acting upon instructions received by telephone, providing written confirmation
of such transactions and/or tape recording of telephone instructions.

Redemption orders are processed without charge by the Trust. The Service Agent
may on at least 30 days' notice involuntarily redeem a shareholder's account
with the Fund having a balance below the minimum, but not if an account is below
the minimum due to change in market value. See "Minimum Investments" above for
minimum balance amounts.

To sell Shares in a retirement account, your request must be made in writing,
except for exchanges to other eligible funds in the BT Family of Funds, which
can be requested by phone or in writing. For information on retirement
distributions, contact your Service Agent or call the BT Service Center at
1-800-368-4031.

To sell shares by bank wire you will need to sign up for these services in
advance when completing your account application.

Certain requests must include a signature guarantee to protect you and Bankers
Trust from fraud. Redemption requests in writing must include a signature
guarantee if any of the following situations apply:

o Your account registration has changed within the last 30 days,

o The check is being mailed to a different address than the one on your
account (record address),

o The check is being made payable to someone other than the account owner,

o The redemption proceeds are being transferred to a BT account with a
different registration, or

o You wish to have redemption proceeds wired to a non-predesignated bank
account.

A signature guarantee is also required if you change the pre-designated bank
information for receiving redemption proceeds on your account.

You should be able to obtain a signature guarantee from a bank, broker, dealer,
credit union (if authorized under state law), securities exchange or
association, clearing agency, or savings association. A notary public cannot
provide a signature guarantee.

Additional Information About Selling Shares

By Wire - You must sign up for the wire feature before using it. To verify that
it is in place, call 1-800-368-4031. Minimum wire: $1,000. Your wire redemption
request must be received by the Transfer Agent before 4:00 p.m. Eastern time for
money to be wired on the next business day.

In Writing - Write a signed "letter of instruction" with your name, the Fund's
name and Fund's number, your Fund account number, the dollar amount or number of
shares to be redeemed, and mail to one of the following addresses:

BT Service Center
P.O. Box 419210
Kansas City, MO 64141-6210

32
<PAGE>

Overnight mailings:

BT Service Center
210 West 10th Street, 8th Floor
Kansas City, MO 64105-1716

For Trust accounts, the trustee must sign the letter indicating capacity as
trustee. If the trustee's name is not on the account registration, provide a
copy of the trust document certified within the last 60 days.

For a Business or Organization account, at least one person authorized by
corporate resolution to act on the account must sign the letter.

Unless otherwise instructed, the Transfer Agent will send a check to the account
address of record. The Trust reserves the right to close investor accounts via
30 day notice in writing if the Fund account balance falls below the Fund
minimums.

Investor Services

BT Pyramid Mutual Funds and BT Advisors Funds provide a variety of services to
help you manage your account.

Information Services

Statements and reports that your Investment Professional or the Transfer Agent
may send to you include the following:

o Confirmation statements (after every transaction that affects your account
balance, including distributions or your account registration)

o Account statements (monthly)

o Financial reports (every six months)

To reduce expenses, only one copy of most financial reports will be mailed, even
if you have more than one account in the Fund. Call your Investment Professional
or the BT Service Center at 1-800-368-4031 if you need additional copies of
financial reports.

Exchange Privilege

Shareholders may exchange their shares for shares of certain other funds in the
BT Family of Funds registered in their state. To make an exchange, follow the
procedures indicated in "Purchase of Shares" and "Redemption of Shares" herein.
Before making an exchange, please note the following:

o Call your Service Agent for information and a prospectus. Read the
prospectus for relevant information.

o Complete and sign an application, taking care to register your new account
in the same name, address and taxpayer identification number as your
existing account(s).

o Each exchange represents the sale of shares of one fund and the purchase
of shares of another, which may produce a gain or loss for tax purposes.
Your Service Agent will receive a written confirmation of each exchange
transaction.

o The Fund reserves the right to terminate or modify the exchange privilege
in the future.

Note that exchanges out of a Fund may be limited to four per calendar year and
that they may have tax consequences for you.

Systematic Programs

33
<PAGE>

To move money from your bank account to BT Advisor Funds

<TABLE>
<CAPTION>
Minimum Minimum
Initial Subsequent Frequency Setting up or changing
------- ---------- --------- ----------------------
<S> <C> <C> <C>
$1,000 $100 Monthly, bimonthly, For a new account, complete the appropriate section
quarterly or semi-annually on the application. For existing accounts, call your
Investment Professional for an application. To change
the amount or frequency of your investment, contact
your Investment Professional directly or call
1-800-368-4031. Call at least 10 business days prior
to your next scheduled investment date.
</TABLE>

Systematic Withdrawal Program lets you set up periodic redemptions from your
account.

<TABLE>
<CAPTION>
Minimum Frequency Setting up or changing
------- --------- ----------------------
<S> <C> <C>
$100 Monthly, quarterly, To establish, call your Investment Professional or call
semi-annually or annually 1-800-368-4031 after your account is open. The accounts from which
the withdrawals will be processed must have a minimum balance of
$10,000, other than retirement accounts subject to required minimum
distributions.
</TABLE>

Tax-Saving Retirement Plans

Retirement plans offer significant tax savings and are available to individuals,
partnerships, small businesses, corporations, nonprofit organizations and other
institutions. Contact your Service Agent or Bankers Trust for further
information. Bankers Trust can set up your new account in the Fund under a
number of several tax-savings or tax-deferred plans. Minimums may differ from
those listed elsewhere in this SAI.

o Individual Retirement Accounts (IRAs): personal savings plans that offer
tax advantages for individuals to set aside money for retirement and allow
new contributions of $2,000 per tax year.

o Rollover IRAs: tax-deferred retirement accounts that retain the special
tax advantages of lump sum distributions from qualified retirement plans
and transferred IRA accounts.

REDEMPTIONS AND PURCHASES IN KIND

The Trusts , on behalf of each Fund, and each Portfolio reserve 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, or the Portfolio, as the case may be,
and valued as they are for purposes of computing the Fund's or the Portfolio's
net asset value, as the case may be (a redemption in kind). If payment is made
to a Fund shareholder in securities, an investor, including the Fund, the
shareholder may incur transaction expenses in converting these securities into
cash. The Trusts, on behalf of each Fund, and each Portfolio have elected,
however, to be governed by Rule 18f-1 under the 1940 Act as a result of which
each Fund and each Portfolio are obligated to redeem shares or beneficial
interests, as the case may be, 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 or the Portfolio, as the case may be, at the beginning
of the period.

Each Portfolio has agreed to make a redemption in kind to the corresponding Fund
whenever the Fund

34
<PAGE>

wishes to make a redemption in kind and therefore shareholders of the Fund that
receive redemptions in kind will receive portfolio securities of the
corresponding Portfolio and in no case will they receive a security issued by
the Portfolio. The Portfolio has advised the Trust that the Portfolio will not
redeem in kind except in circumstances in which the Fund is permitted to redeem
in kind or unless requested by the Fund.

Each investor in a Portfolio, including the corresponding Fund, may add to or
reduce its investment in the Portfolio on each day the Portfolio determines its
net asset value. At the close of each such business day, the value of each
investor's beneficial interest in the Portfolio will be determined by
multiplying the net asset value of the Portfolio by the percentage, effective
for that day, which represents that investor's share of the aggregate beneficial
interests in the Portfolio. 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 Portfolio
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 Portfolio
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
Portfolio effected as of the close of business on such day, and (ii) the
denominator of which is the aggregate net asset value of the Portfolio 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 Portfolio
by all investors in the Portfolio. The percentage so determined will then be
applied to determine the value of the investor's interest in the Portfolio 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 "Net Asset Value" 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's corresponding Portfolio. In addition, securities
accepted in payment for shares must: (i) meet the investment objective and
policies of the acquiring Fund's corresponding Portfolio; (ii) be acquired by
the applicable Fund for investment and not for resale (other than for resale to
the Fund's corresponding Portfolio); (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 TRUSTS AND THE PORTFOLIOS

35
<PAGE>

The Trusts and the Portfolios are governed by their respective Boards of
Trustees which are responsible for protecting the interests of investors. By
virtue of the responsibilities assumed by Bankers Trust, the administrator of
the Trusts and the Portfolios, neither the Trusts nor the Portfolios require
employees other than their executive officers. None of the executive officers of
the Trusts or the Portfolios devotes full time to the affairs of the Trusts or
the Portfolios.

A majority of the Trustees who are not "interested persons" (as defined in the
1940 Act) of each Trust or Portfolio, as the case may be, have adopted written
procedures reasonably appropriate to deal with potential conflicts of interest
arising from the fact that some of the same individuals are Trustees of such
Trust and Portfolio, up to and including creating separate boards of trustees.

Each Board of Trustees is composed of persons experienced in financial matters
who meet throughout the year to oversee the activities of the Funds or
Portfolios they represent. In addition, the Trustees review contractual
arrangements with companies that provide services to the Funds/Portfolios and
review the Funds' performance.

The Trustees and officers of the Trusts and Portfolios 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 officer is 5800 Corporate Drive, Pittsburgh,
Pennsylvania 15237-5829.

TRUSTEES OF THE BT ADVISOR FUNDS

HARRY VAN BENSCHOTEN (birthdate: February 18, 1928) -- Trustee; Retired (since
1987); Corporate Vice President, Newmont Mining Corporation (prior to 1987);
Director, Canada Life Insurance Company of New York. His address is 6581
Ridgewood Drive, Naples, Florida 34108.

MARTIN J. GRUBER (birthdate: July 15, 1937) -- Trustee; Nomura Professor of
Finance, Leonard N. Stern School of Business, New York University (since 1964).
His address is 229 S. Irving Street, Ridgewood, New Jersey 07450.

RICHARD J. HERRING (birthdate: February 18, 1946) -- Trustee; Vice Dean and
Director, Wharton Undergraduate Division, Professor, Finance Department, The
Wharton School, University of Pennsylvania. His address is The Wharton School,
University of Pennsylvania, Finance Department, 3303 Steinberg Hall/Dietrich
Hall, Philadelphia, Pennsylvania 19104.

BRUCE E. LANGTON (birthdate: May 10, 1931) -- Trustee; Retired; Director, Adela
Investment Co. and University Patents, Inc.; formerly Assistant Treasurer of IBM
Corporation (until 1986). His address is 99 Jordan Lane, Stamford, Connecticut
06903.

TRUSTEES OF BT INSTITUTIONAL FUNDS

CHARLES P. BIGGAR (birthdate: October 13, 1930) -- Trustee; Retired; formerly
Vice President of International Business Machines ("IBM") and President of the
National Services and the Field Engineering Divisions of IBM. His address is 12
Hitching Post Lane, Chappaqua, New York 10514.

RICHARD J. HERRING -- Trustee.

BRUCE E. LANGTON -- Trustee.

TRUSTEES OF THE PORTFOLIOS

CHARLES P. BIGGAR -- Trustee.

S. LELAND DILL (birthdate: March 28, 1930) -- Trustee; Retired; Director, Coutts
Group, Coutts (U.S.A.) International; Coutts Trust Ltd.; Director, Zweig Series
Trust; formerly Partner of KPMG Peat Marwick;

36
<PAGE>

Director, Vinters International Company Inc.; General Partner of Pemco (an
investment company registered under the 1940 Act). His address is 5070 North
Ocean Drive, Singer Island, Florida 33404.

PHILIP SAUNDERS, JR. (birthdate: October 11, 1935) -- Trustee; Principal, Philip
Saunders Associates (Consulting); former Director of Financial Industry
Consulting, Wolf & Company; President, John Hancock Home Mortgage Corporation;
and Senior Vice President of Treasury and Financial Services, John Hancock
Mutual Life Insurance Company, Inc. His address is 445 Glen Road, Weston,
Massachusetts 02193.

OFFICERS OF THE TRUSTS AND PORTFOLIOS

Unless otherwise specified, each officer listed below holds the same position
with each Trust and each Portfolio.

JOHN Y. KEFFER (BIRTHDATE: JULY 14, 1942) -- PRESIDENT AND CHIEF EXECUTIVE
OFFICER; PRESIDENT, FORUM FINANCIAL GROUP. HIS ADDRESS IS 2 PORTLAND SQUARE,
PORTLAND, MAINE 04101.

JOSEPH A. FINELLI (BIRTHDATE: JANUARY 24, 1957) -- TREASURER; VICE PRESIDENT,
BT ALEX. BROWN INCORPORATED AND VICE PRESIDENT, INVESTMENT COMPANY CAPITAL CORP.
(REGISTERED INVESTMENT ADVISER), SEPTEMBER 1995 TO PRESENT; FORMERLY, VICE
PRESIDENT AND TREASURER, THE DELAWARE GROUP OF FUNDS (REGISTERED INVESTMENT
COMPANIES) AND VICE PRESIDENT, DELAWARE MANAGEMENT COMPANY INC. (INVESTMENTS),
1980 TO AUGUST 1995. HIS ADDRESS IS ONE SOUTH STREET, BALTIMORE, MARYLAND 21202.

DANIEL O. HIRSCH (BIRTHDATE: MARCH 27, 1954) -- SECRETARY; PRINCIPAL, BT ALEX.
BROWN SINCE JULY 1998; ASSISTANT GENERAL COUNSEL IN THE OFFICE OF THE GENERAL
COUNSEL AT THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION FROM 1993 TO
1998. HIS ADDRESS IS 2901 DORSET AVENUE, CHEVY CHASE, MARYLAND 20815.

MESSRS. KEFFER, FINELLI AND HIRSCH ALSO HOLD SIMILAR POSITIONS FOR OTHER
INVESTMENT COMPANIES FOR WHICH ICC DISTRIBUTORS, 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 TRUSTS OR THE PORTFOLIOS. NO DIRECTOR, OFFICER OR EMPLOYEE OF
ICC DISTRIBUTORS OR ANY OF ITS AFFILIATES WILL RECEIVE ANY COMPENSATION FROM THE
TRUSTS OR THE PORTFOLIOS FOR SERVING AS AN OFFICER OR TRUSTEE OF THE TRUSTS OR
THE PORTFOLIOS.

AS OF _______ __, 1999, the Trustees and officers of the Trusts and the
Portfolios owned in the aggregate less than 1% of the shares of any Fund or
Trust (all series taken together).

TRUSTEE COMPENSATION TABLE

<TABLE>
<CAPTION>
AGGREGATE AGGREGATE AGGREGATE TOTAL COMPENSATION
NAME OF PERSON, COMPENSATION FROM COMPENSATION FROM BT COMPENSATION FROM FUND COMPLEX
POSITION BT ADVISOR FUNDS* INSTITUTIONAL FUNDS** FROM PORTFOLIOS+ PAID TO TRUSTEES++
- ------------ ------------------ --------------------- ---------------- ------------------
<S> <C> <C> <C> <C>
* 34 moved from here; text not shown
Harry Van Benschoten,
Trustee of BT Advisor
Funds and BT
Institutional Funds $______ N/A N/A $______

* 35 moved from here; text not shown ** 34 Martin J. Gruber,
Trustee of BT Advisor
Funds and BT
Institutional Funds $______ N/A N/A $______
Richard J. Herring

37
<PAGE>

Trustee of BT Advisor
Funds $______ $______ N/A $______

** 35 Bruce E. Langton
Trustee of BT Advisor
Funds $______ $______ N/A $______
Charles P. Biggar,
Trustee of Portfolios N/A $______ $_____ $______
S. Leland Dill,
Trustee of Portfolios N/A N/A $_____ $______
Philip Saunders, Jr.,
Trustee of Portfolios N/A N/A $_____ $______
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>

* The information provided is for the BT Advisor Funds which is comprised of 4
funds. Information provided is for the year ended December 31, 1998.

** The information provided is for the BT Institutional Funds which is
comprised of 10 funds. Information provided is for the year ended December
31, 1998.

+ The information provided is for the Equity 500 Index Portfolio and BT
Institutional Portfolios. Information provided is for the year ended
December 31, 1998.

++ Aggregated information is furnished for the BT Family of Funds which consists
of the following: BT Investment Funds, BT Institutional Funds, BT Pyramid Mutual
Funds, BT Advisor Funds, BT Investment Portfolios, Cash Management Portfolio,
Treasury Money Portfolio, Tax Free Money Portfolio, NY Tax Free Money Portfolio,
International Equity Portfolio, Short Intermediate US Government Securities
Portfolio, Intermediate Tax Free Portfolio, Asset Management Portfolio, Equity
500 Index Portfolio, and Capital Appreciation Portfolio. The compensation
provided is for the calendar year ended December 31, 1998.

As of ______, __, 1999, the following shareholders of record owned 5% or more
of the outstanding shares of the Equity 500 Index Fund: [TO BE PROVIDED]

As of ______, __, 1999, the following shareholders of record owned 5% or more
of the outstanding Institutional Class Shares of the EAFE Equity Index Fund:
[TO BE PROVIDED]

As of ______, __, 1999, the following shareholders of record owned 5% or more
of the outstanding Institutional Class Shares of the Small Cap Index Fund: [TO
BE PROVIDED]

As of ______, __, 1999, the following shareholders of record owned 5% or more
of the outstanding Institutional Class Shares of the U.S. Bond Index Fund: [TO
BE PROVIDED]

INVESTMENT ADVISER

The Trusts have not retained the services of an investment adviser since each
Trust seeks to achieve the investment objective of each of its Funds by
investing all the assets of each Fund in the corresponding Portfolio. The
Portfolios have retained the services of Bankers Trust as investment adviser.

38
<PAGE>

Bankers Trust New York Corporation was the seventh largest bank holding company
in the United States with total assets of over $150 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 $300
billion in assets under management globally.]

Under the terms of each Portfolio's investment advisory agreement with Bankers
Trust (the "Advisory Agreements"), Bankers Trust manages the Portfolio subject
to the supervision and direction of the Board of Trustees of the Portfolio.
Bankers Trust will: (i) act in strict conformity with each Portfolio'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 Portfolio in
accordance with the Portfolio's investment objectives, restrictions and
policies; (iii) make investment decisions for each Portfolio; and (iv) place
purchase and sale orders for securities and other financial instruments on
behalf of each Portfolio.

Bankers Trust, subject to the supervision and direction of the Board of Trustees
of each Portfolio, manages each Portfolio in accordance with the Portfolio's
investment objective and stated investment policies, makes investment decisions
for the Portfolio, places orders to purchase and sell securities and other
financial instruments on behalf of the Portfolio and employs professional
investment managers and securities analysts who provide research services to the
Portfolio. Bankers Trust may utilize the expertise of any of its world wide
subsidiaries and affiliates to assist it in its role as investment adviser. All
orders for investment transactions on behalf of a Portfolio 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 Portfolio
only if Bankers Trust believes that the affiliate's charge for the transaction
does not exceed usual and customary levels. A Portfolio will not invest in
obligations for which Bankers Trust or any of its affiliates is the ultimate
obligor or accepting bank. Each Portfolio may, however, invest in the
obligations of correspondents and customers of Bankers Trust. Bankers Trust may
perform the above duties or it may delegate such responsibilities to the
Sub-Investment Adviser as defined herein.

The 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 Company 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 retail and commercial banking, investment banking and
insurance. The transaction is contingent upon various regulatory approvals, as
well as the approval of the Funds' shareholders. If the transaction is approved
and completed, Deutsche Bank AG, as the Adviser's new parent company, will
control the operations of the Adviser. Bankers Trust believes that, under this
new arrangement, the services provided to the Funds will be maintained at their
current level.

Bankers Trust bears all expenses in connection with the performance of services
under each Advisory Agreement. The Trust and each Portfolio bears certain other
expenses incurred in its operation, including: taxes, interest, brokerage fees
and commissions, if any; fees of Trustees of the Trust or the Portfolio who are
not officers, directors or employees of Bankers Trust, ICC Distributors or any
of their affiliates; SEC fees and state Blue Sky qualification fees; charges of
custodians and transfer and dividend disbursing agents; certain insurance
premiums; outside auditing and legal expenses; 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
Portfolio; and any extraordinary expenses.

The Investment Advisory Agreements provide for each Portfolio to pay Bankers
Trust a fee, accrued daily

39
<PAGE>

and paid monthly, equal on an annual basis to 0.15% of the average daily net
assets of the U.S. Bond Index Portfolio and the Small Cap Index Portfolio,
0.075% of the average daily net assets of the Equity 500 Index Portfolio and
0.25% of the average daily net assets of the EAFE(R) Equity Index Portfolio.

For the fiscal years ended December 31, 1998, 1997and 1996, Bankers Trust
earned $_____, $2,430,147and $1,505,963 , respectively, as compensation for
investment advisory services provided to the Equity 500 Index Portfolio. During
the same periods, Bankers Trust reimbursed $_____, $1,739,490and $870,024,
respectively, to the Portfolio to cover expenses.

For the fiscal years ended December 31, 1998 and 1997, and for the period from
July 1, 1996 (commencement of operations) to December 31, 1997, Bankers Trust
earned $_____, $123,632 and $34,759, respectively, for investment advisory
services provided to the Small Cap Index Portfolio. During the same periods,
Bankers Trust reimbursed $_____, $107,835 and $26,968, respectively, to the
Portfolio to cover expenses.

For the fiscal years ended December 31, 1998 and 1997, and for the period from
January 24, 1996 (commencement of operations) to December 31, 1997, Bankers
Trust earned $_____, $113,810 and $68,584, respectively, for investment advisory
services provided to the EAFE Equity Index Portfolio. During the same periods,
Bankers Trust reimbursed $_____, $28,070 and $30,591, respectively, to the
Portfolio to cover expenses.

For the fiscal year ended December 31, 1998 and for the period from June 30,
1997 (commencement of operations) to December 31, 1997, Bankers Trust earned
$_____ and $33,131, respectively, for investment advisory services provided to
the U.S. Bond Index Portfolio. During the same periods, Bankers Trust
reimbursed $_______ and $39,527 to the Portfolio 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
Portfolios, including outstanding loans to such issuers which could be repaid in
whole or in part with the proceeds of securities so purchased. Such affiliates
deal, trade and invest for their own accounts in such obligations and are among
the leading dealers of various types of such obligations. Bankers Trust has
informed the Portfolios 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
Portfolios, Bankers Trust will not inquire or take into consideration whether an
issuer of securities proposed for purchase or sale by a Portfolio is a customer
of Bankers Trust, its parent or its subsidiaries or affiliates and, in dealing
with its customers, Bankers Trust, its parent, subsidiaries and affiliates will
not inquire or take into consideration whether securities of such customers are
held by any fund managed by Bankers Trust or any such affiliate.

The prospectus contains disclosure as to the amount of Bankers Trust's
investment advisory and administration and services fees, including waivers
thereof. Bankers Trust may not recoup any of its waived investment advisory or
administration and services fees. Such waivers by Bankers Trust shall stay in
effect for at least 12 months.

ADMINISTRATOR

Under its Administration and Services Agreements with the Trusts, the Adviser
calculates the net asset value of the Fund and generally assists the Board of
Trustees of the Trusts in all aspects of the administration and operation of the
Trusts. The Administration and Services Agreements provides for each Trust to
pay the Adviser a fee, computed daily and paid monthly, equal on an annual basis
to 0.20% of the average daily net assets of the U.S. Bond Index Fund and the
Small Cap Index Fund, 0.30% of the average daily net assets of the BT Investment
Equity 500 Index Fund and 0.15% of the average daily net assets of the EAFE(R)
Equity Index Fund.

40
<PAGE>

Under Administration and Services Agreements with each Portfolio, the Adviser
calculates the value of the assets of the Portfolio and generally assists the
Board of Trustees of the Portfolio in all aspects of the administration and
operation of the Portfolio. The Administration and Services Agreements provides
for each Portfolio to pay the Adviser a fee, computed daily and paid monthly,
equal on an annual basis to 0.05% of the average daily net assets of the U.S.
Bond Index Portfolio and the Small Cap Index Portfolio, and 0.10% of the average
daily net assets of the EAFE(R) Equity Index Portfolio. The Administration and
Services Agreements provides for the Equity 500 Index Portfolio to pay the
Adviser a fee, computed daily and paid monthly, equal on an annual basis to the
lesser of 0.05% of the average daily net assets of the Portfolio or an amount
that brings the total operating expenses of the Portfolio to 0.08% of the
average daily net assets of the Portfolio. Under the Administration and Services
Agreements, the Adviser may delegate one or more of its responsibilities to
others, including affiliates of ICC Distributors, at the Adviser's expense.

Under the Administration and Services Agreements, Bankers Trust is obligated on
a continuous basis to provide such administrative services as the Board of
Trustees of the Trusts and the Portfolios reasonably deem necessary for the
proper administration of the Trusts or the Portfolios. Bankers Trust will:
generally assist in all aspects of each class of shares of each Funds' and
Portfolios' operations; supply and maintain office facilities (which may be in
Bankers Trust'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 Declarations 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.

Pursuant to a sub-administration agreement (the "Sub-Administration Agreement"),
FSC performs such sub-administration duties for the Trusts and the Portfolios as
from time to time may be agreed upon by Bankers Trust and FSC. The
Sub-Administration Agreement provides that FSC will receive such compensation as
from time to time may be agreed upon by FSC and Bankers Trust. All such
compensation will be paid by Bankers Trust.

For the fiscal years ended December 31, 1998 and 1997, and for the period from
July 10, 1996 (commencement of operations) to December 31, 1997, Bankers Trust
earned $_____, $113,569 and $26,726, respectively as compensation for
administrative and other services provided to Small Cap Index Fund-Institutional
Class Shares. During the same periods, Bankers Trust reimbursed $_____, $106,928
and $69,671, respectively to Small Cap Index Fund-Institutional Class Shares to
cover expenses.

For the fiscal years ended December 31, 1998 and 1997, and for the period from
January 24, 1996 (commencement of operations to December 31, 1997, Bankers Trust
earned $_____, $65,464 and $41,404, respectively, as compensation for
administrative and other services provided to EAFE(R) Equity Index
Fund-Institutional Class Shares. During the same periods, Bankers Trust
reimbursed $_____, $118,022 and $104,356, respectively, to EAFE(R) Equity Index
Fund-Institutional Class Shares to cover expenses.

For the fiscal years ended December 31, 1998, 1997and 1996, Bankers Trust
earned $_____, $724,120and $541,924, respectively, for administrative and
other services provided to the BT Institutional Equity 500 Index Fund. During
the same periods, Bankers Trust reimbursed $_____, $525,736and $658,635,
respectively to BT Institutional Equity 500 Index Fund to cover expenses.

41
<PAGE>

For the fiscal year ended December 31, 1998, and for the period from June 30,
1997 (commencement of operations) to December 31, 1997, Bankers Trust earned
$_____ and $19,528, respectively, for administrative and other services provided
to the U.S. Bond Index Fund-Institutional Class Shares. During the same
periods, Bankers Trust reimbursed $_____ and $52,269, respectively, to U.S. Bond
Index Fund-Institutional Class Shares to cover expenses.

For the fiscal years ended December 31, 1998 and 1997, and for the period from
July 10, 1996 (commencement of operations) to December 31, 1997, Bankers Trust
earned $_____, $41,211and $11,586, respectively, as compensation for
administrative and other services provided to the Small Cap Index Portfolio.

For the fiscal years ended December 31, 1998 and 1997, and for the period from
January 24, 1996 to December 31, 1997, Bankers Trust earned $_____, $45,524 and
$27,433, respectively, as compensation for administrative and other services
provided by the EAFE Equity Index Portfolio.

For the fiscal years ended December 31, 1998, 1997and 1996, Bankers Trust
earned $_____, $1.215,073and $752,981, respectively, as compensation for
administrative and other services provided to the Equity 500 Index Portfolio.

For the fiscal year ended December 31, 1998 and for the period from June 30,
1997 (commencement of operations) to December 31, 1997, Bankers Trust earned
$_____ and $11,044, respectively, as compensation for administrative and other
services provided to the U.S. Bond Index Portfolio.

Bankers Trust has agreed that if in any fiscal year the aggregate expenses of
any Fund and its respective Portfolio (including fees pursuant to the Advisory
Agreement, but excluding interest, taxes, brokerage and, if permitted by the
relevant state securities commissions, extraordinary expenses) exceed the
expense limitation of any state having jurisdiction over a Fund or Class,
Bankers Trust will reimburse that Fund for the excess expense to the extent
required by state law. As of the date of this SAI, the most restrictive annual
expense limitation applicable to any Fund or Class is 2.50% of the Fund's or
Class' first $30 million of average annual net assets, 2.00% of the next $70
million of average annual net assets and 1.50% of the remaining average annual
net assets.

DISTRIBUTOR

ICC Distributors is the principal distributor for shares of each Fund. ICC
Distributors is a registered broker/dealer and is unaffiliated with Bankers
Trust. The principal business address of ICC Distributors is Two Portland
Square, Portland, Maine 04101.

SERVICE AGENT

All shareholders must be represented by a Service Agent. The Adviser acts as a
Service Agent pursuant to its Administration and Services Agreements with the
Trusts and receives no additional compensation from the Funds for such
shareholder services. The service fees of any other Service Agents, including
broker-dealers, will be paid by the Adviser from its fees. The services provided
by a Service Agent may include establishing and maintaining shareholder
accounts, processing purchase and redemption transactions, arranging for bank
wires, performing shareholder sub-accounting, answering client inquiries
regarding the Trusts, assisting clients in changing dividend options, account
designations and addresses, providing periodic statements showing the client's
account balance, transmitting proxy statements, periodic reports, updated
prospectuses and other communications to shareholders and, with respect to
meetings of shareholders, collecting, tabulating and forwarding to the Trusts
executed proxies and obtaining such other information and performing such other
services as the Administrator or the Service Agent's clients may reasonably
request and agree upon with the Service Agent. Service Agents may separately
charge their clients additional fees only to cover provision of additional or
more comprehensive services not already provided under the Administration and
Services Agreements with the Adviser, or of the type or scope not generally
offered by a

42
<PAGE>

mutual fund, such as cash management services or enhanced retirement or trust
reporting. In addition, investors may be charged a transaction fee if they
effect transactions in Fund shares through a broker or agent. Each Service Agent
has agreed to transmit to shareholders, who are its customers, appropriate
disclosures of any fees that it may charge them directly.

CUSTODIAN AND TRANSFER AGENT

Bankers Trust, 130 Liberty Street (One Bankers Trust Plaza), New York, New York
10006, serves as Custodian for the Trusts and for the Portfolios pursuant to the
administration and services agreements. As Custodian, it holds the Funds' and
each Portfolio's assets. Bankers Trust also serves as transfer agent of the
Trusts and of each Portfolio pursuant to the respective administration and
services agreements. Under its transfer agency agreement with the Trusts,
Bankers Trust maintains the shareholder account records for each Class of shares
of each Fund, handles certain communications between shareholders and the Trusts
and causes to be distributed any dividends and distributions payable by the
Trusts. Bankers Trust may be reimbursed by the Funds or the Portfolios for its
out-of-pocket expenses. Bankers Trust will comply with the self-custodian
provisions of Rule 17f-2 under the 1940 Act.

EXPENSES

Each Fund bears its own expenses. Operating expenses for each Fund generally
consist of all costs not specifically borne by the Adviser or ICC Distributors,
including administration and services fees, fees for necessary professional
services, amortization of organizational expenses and costs associated with
regulatory compliance and maintaining legal existence and shareholder relations.
Each Portfolio bears its own expenses. Operating expenses for each Portfolio
generally consist of all costs not specifically borne by the Adviser or ICC
Distributors, including investment advisory and administration and service fees,
fees for necessary professional services, amortization of organizational
expenses, the costs associated with regulatory compliance and maintaining legal
existence and investor relations.

USE OF NAME

The Trusts and Bankers Trust have agreed that each Trust may use "BT" as part of
its name for so long as Bankers Trust serves as investment adviser to the
Portfolios. The Trusts have 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.

Each 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 each Trust, but there
would be no other material effect on the Trusts, their 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 Portfolios contemplated by the Advisory
Agreements and other activities for the Funds and the Portfolios 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 Trusts and the Portfolios. 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.

43
<PAGE>

COUNSEL AND INDEPENDENT ACCOUNTANTS

Willkie Farr & Gallagher, 787 Seventh Avenue, New York, New York 10019-6099,
serves as Counsel to the Trusts and each Portfolio. PricewaterhouseCoopers
LLP, 1100 Main Street, Suite 900, Kansas City, Missouri 64105 acts as
Independent Accountants of the Trusts and each Portfolio.

ORGANIZATION OF THE TRUSTS

* 36 MOVED FROM HERE; TEXT NOT SHOWNTHE TRUST WAS ORGANIZED ON JULY 24, 1995 AND
THE INSTITUTIONAL TRUST WAS ORGANIZED ON MARCH 26, 1990 UNDER THE LAWS OF THE
COMMONWEALTH OF MASSACHUSETTS. EACH FUND IS A MUTUAL FUND: AN INVESTMENT THAT
POOLS SHAREHOLDERS' MONEY AND INVESTS IT TOWARD A SPECIFIED GOAL. EACH FUND IS A
SEPARATE SERIES OF THE TRUST EXCEPT FOR THE BT INSTITUTIONAL EQUITY 500 INDEX
FUND WHICH IS A SEPARATE SERIES OF THE INSTITUTIONAL TRUST. THE TRUSTS OFFER
SHARES OF BENEFICIAL INTEREST OF SEPARATE SERIES, PAR VALUE $0.001 PER SHARE.
THE SHARES OF THE OTHER SERIES OF THE TRUSTS ARE OFFERED THROUGH SEPARATE
PROSPECTUSES AND STATEMENTS OF ADDITIONAL INFORMATION. NO SERIES OF SHARES HAS
ANY PREFERENCE OVER ANY OTHER SERIES. THE TRUSTS ALSO RESERVE THE RIGHT TO ISSUE
MORE THAN ONE CLASS OF SHARES OF EACH FUND.

The Trusts are an entities commonly known as "Massachusetts business trusts."
Massachusetts law provides that shareholders could under certain circumstances
be held personally liable for the obligations of the Trusts. However, each
Declaration of Trust disclaims shareholder liability for acts or obligations of
such Trust and requires that notice of this disclaimer be given in each
agreement, obligation or instrument entered into or executed by the Trust or a
Trustee. Each Declaration of Trust provides for indemnification from such
Trust's property for all losses and expenses of any shareholder held personally
liable for the obligations of the Trust. Thus, the risk of shareholders
incurring financial loss on account of shareholder liability is limited to
circumstances in which both inadequate insurance existed and each Trust itself
was unable to meet its obligations, a possibility that the Trusts believe is
remote. Upon payment of any liability incurred by the Trusts, the shareholder
paying the liability will be entitled to reimbursement from the general assets
of the Trusts. The Trustees intend to conduct the operations of each Trust in
a manner so as to avoid, as far as possible, ultimate liability of the
shareholders for liabilities of the Trusts.

Each of the U.S. Bond Index Portfolio, Small Cap Index Portfolio and EAFE(R)
Equity Index Portfolio is a separate series of BT Investment Portfolios, a New
York master trust fund. The Equity 500 Index Portfolio is a New York trust. The
Trusts, BT Investment Portfolios and the Equity 500 Index Portfolio each reserve
the right to add additional series in the future.

The Declarations of Trust of the BT Investment Portfolios and the Equity 500
Index Portfolio provide that each Fund and other entities investing in the
corresponding Portfolio (e.g., other investment companies, insurance company
separate accounts and common and commingled trust funds) will each be liable for
all obligations of the Portfolio. However, the risk of a Fund incurring
financial loss on account of such liability is limited to circumstances in which
both inadequate insurance existed and the Portfolio itself was unable to meet
its obligations. Accordingly, the Trustees of the Trusts believe that neither
the Fund nor its shareholders will be adversely affected by reason of a Fund's
investing in the corresponding Portfolio.

The Trusts or Portfolios may hold special meetings and mail proxy materials.
These meetings may be called to elect or remove trustees, change fundamental
policies, approve a Portfolio's investment advisory agreement, or for other
purposes. Shareholders not attending these meetings are encouraged to vote by
proxy. The Trusts' Transfer Agent will mail proxy materials in advance,
including a voting card and information about the proposals to be voted on.

When matters are submitted for shareholder vote, shareholders of each Fund will
have one vote for

44
<PAGE>

each full share held and proportionate, fractional votes for fractional shares
held. A separate vote of each Fund is required on any matter affecting the Fund
on which shareholders are entitled to vote. Shareholders of each Fund are not
entitled to vote on trust matters that do not affect the Fund. All series of a
Trust will vote together on certain matters, such as electing trustees or
approving independent public accountants. There normally will be no meetings of
shareholders for the purpose of electing Trustees unless and until such time as
less than a majority of Trustees holding office have been elected by
shareholders, at which time the Trustees then in office, will call a
shareholders' meeting for the election of Trustees. Any Trustee may be removed
from office upon the vote of shareholders holding at least two-thirds of the
Trust's outstanding shares at a meeting called for that purpose. The Trustees
are required to call such a meeting upon the written request of shareholders
holding at least 10% of the Trust's outstanding shares. The Trust will also
assist shareholders in communicating with one another as provided for in the
1940 Act.

Each series in a Trust will not be involved in any vote involving a Portfolio in
which it does not invest its assets. Shareholders of all of the series of a
Trust will, however, vote together to elect Trustees of the Trust and for
certain other matters. Under certain circumstances, the shareholders of one or
more series could control the outcome of these votes.

** 36 Shares of the Trusts do not have cumulative voting rights, which means
that holders of more than 50% of the shares voting for the election of Trustees
can elect all Trustees. Shares are transferable but have no preemptive,
conversion or subscription rights. Shareholders generally vote by Fund, except
with respect to the election of Trustees and the ratification of the selection
of independent accountants.

As of _______ __, 1999, the following shareholders of record owned 25% or more
of the voting securities of the BT Institutional 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: [TO BE PROVIDED]

As of _______ __, 1999, the following shareholders of record owned 25% or more
of the voting securities of the U.S. Bond 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: [TO BE
PROVIDED]

As of _______ __, 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: [TO BE
PROVIDED]

As of _______ __, 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: [TO BE
PROVIDED]

TAXATION

TAXATION OF THE FUNDS

Each Fund intends to 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

45
<PAGE>

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.

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 potentially semi-annually, if
required, to remain in compliance with the applicable tax regulations. Unless a
shareholder instructs the Trusts 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.

Dividends paid out of the Fund's investment company taxable income will be
taxable to a U.S. shareholder as ordinary income. Distributions of net capital
gains, if any, designated as capital gain dividends are taxable as long-term
capital gains, regardless of how long the shareholder has held the Fund's
shares, and are not eligible for the dividends-received deduction. Shareholders
receiving distributions in the form of additional shares, rather than cash,
generally will have a taxable amount, and a cost basis in each such share, equal
to the net asset value of a share of the Fund on the reinvestment date.
Distributions declared to shareholders of record in October, November or
December and paid in January are taxable as if paid on December 31. The Fund
will send each shareholder a tax statement by January 31 showing the tax status
of the distributions received in the part year. Mutual fund dividends from U.S.
government securities are generally free from state and local income taxes.
However, particular states may limit this benefit, and some types of securities,
such as repurchase agreements and some agency-backed securities, may not qualify
for the benefit. In addition, some states may impose intangible property taxes.
Shareholders should consult their own tax adviser concerning the application of
federal, state and local taxes to the distributions they receive from the Fund.

You may realize a capital gain or loss when you redeem (sell) or exchange
shares. Because the tax treatment also depends on your purchase price and your
personal tax position, you should keep your regular account statements to use in
determining your tax.

TAXATION OF THE PORTFOLIOS

The Portfolios are not subject to the Federal income taxation. Instead, the Fund
and other investors

46
<PAGE>

investing in a Portfolio must take into account, in computing their Federal
income tax liability, their share of the Portfolio's income, gains, losses,
deductions, credits and tax preference items, without regard to whether they
have received any cash distributions from the Portfolio.

BACKUP WITHHOLDING

A Fund may be required to withhold U.S. Federal income tax at the rate of 31% of
all taxable distributions payable to shareholders who fail to provide the Fund
with their correct taxpayer identification number or to make required
certifications, or who have been notified by the Internal Revenue Service that
they are subject to backup withholding. Corporate shareholders and certain other
shareholders specified in the Code generally are exempt from such backup
withholding. Backup withholding is not an additional tax. Any amounts withheld
may be credited against the shareholder's U.S. Federal income tax liability.

FOREIGN SHAREHOLDERS

The tax consequences to a foreign shareholder of an investment in a Fund may be
different from those described herein. Foreign shareholders are advised to
consult their own tax advisers with respect to the particular tax consequences
to them of an investment in a Fund.

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.

Each Portfolio is organized as a New York trust. Each Portfolio is not subject
to any income or franchise tax in the State of New York or the Commonwealth of
Massachusetts.

FOREIGN WITHHOLDING TAXES

Income received by a Portfolio 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 and the Portfolios for the period ended
December 31,1998, 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 Fund.

47
<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.

48
<PAGE>

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.

49
<PAGE>

INVESTMENT ADVISER OF EACH PORTFOLIO AND ADMINISTRATOR
BANKERS TRUST COMPANY

DISTRIBUTOR
ICC DISTRIBUTORS, INC.

CUSTODIAN AND TRANSFER AGENT
BANKERS TRUST COMPANY

INDEPENDENT ACCOUNTANTS
PRICEWATERHOUSECOOPERS 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.
--------------------

Cusips:
05576L700
05576L809
05576L882
05576L874
055922751

COMBADV400 (4/98)

<PAGE>

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY ANY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS STATEMENT OF ADDITIONAL INFORMATION DOES NOT CONSTITUTE A
PROSPECTUS.

STATEMENT OF ADDITIONAL INFORMATION

APRIL 30, 1999
SUBJECT TO COMPLETION, DATED FEBRUARY __, 1999

BT INSTITUTIONAL FUNDS
o INSTITUTIONAL LIQUID ASSETS FUND

BT Institutional Funds (THE "TRUST") IS AN open-end management investment
COMPANY that OFFERS investors a selection of investment portfolios, each
having distinct investment objectives and policies. This Statement of Additional
Information ("SAI") relates to the INSTITUTIONAL LIQUID ASSETS FUND (THE
"FUND").

THE FUND'S INVESTMENT OBJECTIVE IS TO SEEK a high level of current income
consistent with liquidity and the preservation of capital through investment in
a portfolio of high quality money market instruments. THE TRUST SEEKS to
achieve the investment OBJECTIVE of THE Fund by investing all the investable
assets of the Fund in THE LIQUID ASSETS PORTFOLIO (THE "PORTFOLIO"), a
diversified open-end management investment company having the same investment
objectives as THE FUND. THE PORTFOLIO IS A SERIES OF BT INVESTMENT Portfolios.

Shares of the FUND ARE SOLD BY ICC DISTRIBUTORS, INC. ("ICC DISTRIBUTORS"),
THE TRUST'S DISTRIBUTOR (THE "Distributor"), to clients and customers (including
affiliates and correspondents) of Bankers Trust Company ("Bankers Trust"), the
PORTFOLIO'S investment adviser ("ADVISER"), and to clients and customers of
other organizations.

The FUND'S PROSPECTUS, 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 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 Trust at the telephone number
listed below or by contacting any BANKERS TRUST SERVICE AGENT ("SERVICE
AGENT"). 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. THE FINANCIAL
STATEMENTS FOR THE FUND AND THE PORTFOLIO FOR THE FISCAL YEAR ENDED DECEMBER 31,
1998, ARE INCORPORATED HEREIN BY REFERENCE TO THE ANNUAL REPORT TO SHAREHOLDERS
FOR THE FUND AND PORTFOLIO DATED DECEMBER 31, 1998. A COPY OF THE FUND'S AND THE
PORTFOLIO'S ANNUAL REPORT MAY BE OBTAINED WITHOUT CHARGE BY CALLING THE FUND AT
THE TELEPHONE NUMBER LISTED BELOW.

* 1 moved from here; text not shown INVESTMENT ADVISER OF THE PORTFOLIO AND
ADMINISTRATOR

** 1 BANKERS TRUST COMPANY
DISTRIBUTOR
ICC DISTRIBUTORS, INC.

TWO PORTLAND SQUARE PORTLAND, MAINE 04101 1-800-730-1313

<PAGE>

TABLE OF CONTENTS

INVESTMENT OBJECTIVE, POLICIES AND
RESTRICTIONS..................................................................1
INVESTMENT POLICIES..................................................1
ADDITIONAL RISK FACTORS..............................................4
INVESTMENT RESTRICTIONS..............................................5
PORTFOLIO TURNOVER...................................................7
PORTFOLIO TRANSACTIONS...............................................7

NET ASSET VALUE...............................................................7

PURCHASE AND REDEMPTION INFORMATION...........................................8
REDEMPTION OF SHARES.................................................9

MANAGEMENT OF THE TRUST AND PORTFOLIO.........................................10
TRUSTEES OF BT INSTITUTIONAL FUNDS...................................10
TRUSTEES OF THE PORTFOLIO............................................10
OFFICERS OF THE TRUST AND PORTFOLIO..................................10
TRUSTEE COMPENSATION TABLE...........................................12
INVESTMENT ADVISER...................................................12
ADMINISTRATOR........................................................12
DISTRIBUTOR..........................................................13
SERVICE AGENT........................................................14
CUSTODIAN AND TRANSFER AGENT.........................................14
EXPENSES.............................................................15
USE OF NAME..........................................................15
BANKING REGULATORY MATTERS...........................................15
COUNSEL AND INDEPENDENT ACCOUNTANTS..................................15

ORGANIZATION OF THE TRUST.....................................................16

TAXES.........................................................................17

PERFORMANCE INFORMATION.......................................................19
ECONOMIC AND MARKET INFORMATION......................................20

FINANCIAL STATEMENTS..........................................................20

APPENDIX......................................................................21

<PAGE>

INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS

THE FUND'S INVESTMENT OBJECTIVE IS TO SEEK A HIGH LEVEL OF CURRENT INCOME
CONSISTENT WITH LIQUIDITY AND THE PRESERVATION OF CAPITAL THROUGH INVESTMENT IN
A PORTFOLIO OF HIGH QUALITY MONEY MARKET INSTRUMENTS. THERE CAN, OF COURSE, BE
NO ASSURANCE THAT THE FUND WILL ACHIEVE ITS INVESTMENT OBJECTIVE.

INVESTMENT POLICIES

SINCE THE INVESTMENT CHARACTERISTICS OF THE FUND WILL CORRESPOND DIRECTLY TO
THOSE OF THE PORTFOLIO, THE FOLLOWING IS A DISCUSSION OF THE VARIOUS INVESTMENTS
OF AND TECHNIQUES EMPLOYED BY THE PORTFOLIO. THE PORTFOLIO, IN PURSUING ITS
INVESTMENT OBJECTIVE, WILL COMPLY WITH RULE 2A-7 ("RULE 2A-7") UNDER THE
INVESTMENT COMPANY ACT OF 1940 (THE "1940 ACT"). THUS, DESCRIPTIONS OF
INVESTMENT TECHNIQUES AND PORTFOLIO INSTRUMENTS ARE QUALIFIED BY THE PROVISIONS
AND LIMITATIONS OF RULE 2A-7.

OBLIGATIONS OF BANKS AND OTHER FINANCIAL INSTITUTIONS. THE PORTFOLIO MAY INVEST
IN U.S. DOLLAR-DENOMINATED FIXED RATE OR VARIABLE RATE OBLIGATIONS OF U.S. OR
FOREIGN FINANCIAL INSTITUTIONS, INCLUDING BANKS, WHICH ARE RATED IN THE HIGHEST
SHORT-TERM RATING CATEGORY BY ANY TWO NATIONALLY RECOGNIZED STATISTICAL RATING
ORGANIZATIONS ("NRSROS") (OR ONE NRSRO IF THAT NRSRO IS THE ONLY SUCH NRSRO
WHICH RATES SUCH OBLIGATIONS) OR, IF NOT SO RATED, ARE BELIEVED BY BANKERS
TRUST, ACTING UNDER THE SUPERVISION OF THE BOARD OF TRUSTEES OF THE PORTFOLIO,
TO BE OF COMPARABLE QUALITY. OBLIGATIONS OF DOMESTIC AND FOREIGN FINANCIAL
INSTITUTIONS in which the Portfolio may invest INCLUDE, BUT ARE NOT LIMITED TO,
CERTIFICATES OF DEPOSIT, BANKERS' ACCEPTANCES, BANK TIME DEPOSITS, COMMERCIAL
PAPER, AND OTHER U.S. DOLLAR-DENOMINATED INSTRUMENTS ISSUED OR SUPPORTED BY THE
CREDIT OF U.S. OR FOREIGN FINANCIAL INSTITUTIONS, INCLUDING BANKS.

For purposes of the PORTFOLIO'S investment policies with respect to bank
obligations, the assets of a bank will be deemed to include the assets of its
domestic and foreign branches. Obligations of foreign branches of U.S. banks and
foreign banks may be general obligations of the parent bank in addition to the
issuing bank or may be limited by the terms of a specific obligation and by
government regulation. If Bankers Trust, acting under the supervision of the
Board of Trustees, deems the instruments to present minimal credit risk, THE
Portfolio may invest in obligations of foreign banks or foreign branches of U.S.
banks which include banks located in the United Kingdom, Grand Cayman Island,
Nassau, Japan and Canada. Investments in these obligations may entail risks that
are different from those of investments in obligations of U.S. domestic banks
because of differences in political, regulatory and economic systems and
conditions. These risks include future political and economic developments,
currency blockage, the possible imposition of withholding taxes on interest
payments, possible seizure or nationalization of foreign deposits, difficulty or
inability of pursuing legal remedies and obtaining judgments in foreign courts,
possible establishment of exchange controls or the adoption of other foreign
governmental restrictions that might affect adversely the payment of principal
and interest on bank obligations. Foreign branches of U.S. banks and foreign
banks may also be subject to less stringent reserve requirements and to
different accounting, auditing, reporting and recordkeeping standards that those
applicable to domestic branches of U.S. banks.

UNDER NORMAL MARKET CONDITIONS, THE PORTFOLIO WILL INVEST MORE THAN 25% OF ITS
ASSETS IN THE BANK AND OTHER FINANCIAL INSTITUTION OBLIGATIONS DESCRIBED ABOVE.
THE PORTFOLIO'S CONCENTRATION OF ITS INVESTMENTS IN THE OBLIGATIONS OF BANKS AND
OTHER FINANCIAL INSTITUTIONS WILL CAUSE THE PORTFOLIO TO BE SUBJECT TO THE RISKS
PECULIAR TO THESE INDUSTRIES TO A GREATER EXTENT THAN IF ITS INVESTMENTS WERE
NOT SO CONCENTRATED.

COMMERCIAL PAPER. THE PORTFOLIO MAY INVEST IN FIXED RATE OR VARIABLE RATE
COMMERCIAL PAPER, ISSUED BY U.S. OR FOREIGN ENTITIES. COMMERCIAL PAPER WHEN
PURCHASED BY THE PORTFOLIO MUST BE RATED IN THE HIGHEST SHORT-TERM RATING
CATEGORY BY ANY TWO NRSROS (OR ONE NRSRO IF THAT NRSRO IS THE ONLY SUCH NRSRO
WHICH RATES SUCH SECURITY) OR, IF NOT SO RATED, MUST BE BELIEVED BY BANKERS
TRUST, ACTING UNDER THE SUPERVISION OF THE BOARD OF TRUSTEES OF THE PORTFOLIO,
TO BE OF COMPARABLE QUALITY. ANY COMMERCIAL PAPER ISSUED BY A FOREIGN ENTITY
CORPORATION AND PURCHASED BY THE PORTFOLIO MUST BE U.S. DOLLAR-DENOMINATED AND
MUST NOT BE SUBJECT TO FOREIGN WITHHOLDING TAX at the time of purchase .
INVESTING in foreign commercial paper generally INVOLVES risks similar to
those described above relating to obligations of foreign banks or foreign
branches AND SUBSIDIARIES OF U.S. AND FOREIGN BANKS.

VARIABLE RATE MASTER DEMAND NOTES. VARIABLE RATE MASTER DEMAND NOTES ARE
UNSECURED INSTRUMENTS THAT PERMIT THE INDEBTEDNESS THEREUNDER TO VARY AND
PROVIDE FOR PERIODIC ADJUSTMENTS IN THE INTEREST RATE. BECAUSE VARIABLE RATE
MASTER DEMAND NOTES ARE DIRECT LENDING ARRANGEMENTS BETWEEN THE PORTFOLIO AND
THE ISSUER, THEY ARE NOT ORDINARILY TRADED. ALTHOUGH NO ACTIVE SECONDARY MARKET
MAY EXIST FOR THESE NOTES, THE PORTFOLIO WILL PURCHASE ONLY THOSE NOTES UNDER
WHICH IT MAY DEMAND AND RECEIVE PAYMENT OF PRINCIPAL AND ACCRUED INTEREST DAILY
OR MAY RESELL THE NOTE TO A THIRD PARTY. WHILE THE NOTES ARE NOT TYPICALLY RATED
BY CREDIT RATING AGENCIES, ISSUERS OF VARIABLE RATE MASTER DEMAND NOTES MUST
SATISFY BANKERS TRUST, ACTING UNDER THE SUPERVISION OF THE BOARD OF TRUSTEES OF
THE PORTFOLIO, THAT THE SAME CRITERIA AS SET FORTH ABOVE FOR ISSUERS OF
COMMERCIAL PAPER ARE MET. IN THE EVENT AN ISSUER OF A VARIABLE RATE MASTER
DEMAND NOTE DEFAULTED ON ITS PAYMENT OBLIGATION, THE PORTFOLIO MIGHT BE UNABLE
TO DISPOSE OF THE NOTE BECAUSE OF THE ABSENCE OF A SECONDARY MARKET AND COULD,
FOR THIS OR OTHER REASONS, SUFFER A LOSS TO THE EXTENT OF THE DEFAULT. THE FACE
MATURITIES OF VARIABLE RATE NOTES SUBJECT TO A DEMAND FEATURE MAY EXCEED 397
DAYS IN CERTAIN CIRCUMSTANCES. (SEE "QUALITY AND MATURITY OF THE FUND'S
SECURITIES" HEREIN.)
<PAGE>

U.S. GOVERNMENT OBLIGATIONS. THE PORTFOLIO may invest in direct obligations
issued by the U.S. Treasury or in obligations issued or guaranteed by the U.S.
Treasury or by agencies or instrumentalities of the U.S. government ("U.S.
Government Obligations"). Certain short-term U.S. Government Obligations, such
as those issued by the Government National Mortgage Association, are supported
by the "full faith and credit" of the U.S. government; others, such as those of
the Export-Import Bank of the United States, are supported by the right of the
issuer to borrow from the U.S. Treasury; others, such as those of the Federal
National Mortgage Association are solely the obligations of the issuing entity
but are supported by the discretionary authority of the U.S. government to
purchase the agency's obligations; and still others, such as those of the
Student Loan Marketing Association, are supported by the credit of the
instrumentality. No assurance can be given that the U.S. government would
provide financial support to U.S. government-sponsored instrumentalities if it
is not obligated to do so by law.

Examples of the types of U.S. Government Obligations that the PORTFOLIO may
hold include, but are not limited to, in addition to those described above and
direct U.S. Treasury obligations, the obligations of the Federal Housing
Administration, Farmers Home Administration, Small Business Administration,
General Services Administration, Central Bank for Cooperatives, Farm Credit
Banks, Federal Home Loan Banks, Federal Home Loan Mortgage Corporation, Federal
Intermediate Credit Banks, Federal Land Banks and Maritime Administration.

OTHER DEBT OBLIGATIONS. THE PORTFOLIO MAY INVEST IN DEPOSITS, BONDS, NOTES AND
DEBENTURES AND OTHER DEBT OBLIGATIONS THAT AT THE TIME OF PURCHASE HAVE, OR ARE
COMPARABLE IN PRIORITY AND SECURITY TO OTHER SECURITIES OF SUCH ISSUER WHICH
HAVE, OUTSTANDING SHORT-TERM OBLIGATIONS MEETING THE ABOVE SHORT-TERM RATING
REQUIREMENTS, OR IF THERE ARE NO SUCH SHORT-TERM RATINGS, ARE DETERMINED BY
BANKERS TRUST, ACTING UNDER THE SUPERVISION OF the Board of Trustees OF THE
PORTFOLIO, TO BE OF COMPARABLE QUALITY AND ARE RATED IN THE TOP THREE HIGHEST
LONG-TERM RATING CATEGORIES BY THE NRSROS RATING SUCH SECURITY.

** 2 ASSET-BACKED SECURITIES. The Portfolio may also invest in securities
generally referred to as asset-backed securities, which directly or indirectly
represent a participation interest in, or are secured by and payable from, a
stream of payments generated by particular assets such as motor vehicle or
credit card receivables. Asset-backed securities may provide periodic payments
that consist of interest and/or principal payments. Consequently, the life of an
asset-backed security varies with the prepayment and loss experience of the
underlying assets."

REPURCHASE AGREEMENTS. THE PORTFOLIO MAY ENGAGE IN REPURCHASE AGREEMENT
TRANSACTIONS WITH BANKS AND GOVERNMENTAL SECURITIES DEALERS APPROVED BY THE
PORTFOLIO'S BOARD OF TRUSTEES. UNDER THE TERMS OF A TYPICAL REPURCHASE
AGREEMENT, THE PORTFOLIO WOULD ACQUIRE U.S. GOVERNMENT OBLIGATIONS (OR ANY OTHER
SECURITIES PERMITTED BY RULE 2A-7) REGARDLESS OF MATURITY ANY REMAINING MATURITY
FOR A RELATIVELY SHORT PERIOD (USUALLY NOT MORE THAN ONE WEEK), SUBJECT TO AN
OBLIGATION OF THE SELLER TO REPURCHASE, AND THE PORTFOLIO TO RESELL, THE
OBLIGATION AT AN AGREED PRICE AND TIME, THEREBY DETERMINING THE YIELD DURING THE
PORTFOLIO'S HOLDING PERIOD. THIS ARRANGEMENT RESULTS IN A FIXED RATE OF RETURN
THAT IS NOT SUBJECT TO MARKET FLUCTUATIONS DURING THE PORTFOLIO'S HOLDING
PERIOD. THE VALUE OF THE UNDERLYING SECURITIES WILL BE AT LEAST EQUAL AT ALL
TIMES TO THE TOTAL AMOUNT OF THE REPURCHASE OBLIGATIONS, INCLUDING INTEREST. THE
PORTFOLIO BEARS A RISK OF LOSS IN THE EVENT THAT THE OTHER PARTY TO A REPURCHASE
AGREEMENT DEFAULTS ON ITS OBLIGATIONS AND THE PORTFOLIO IS DELAYED IN OR
PREVENTED FROM EXERCISING ITS RIGHTS TO DISPOSE OF THE COLLATERALIZED
SECURITIES, INCLUDING THE RISK OF A POSSIBLE DECLINE IN THE VALUE OF THE
UNDERLYING SECURITIES DURING THE PERIOD IN WHICH THE PORTFOLIO SEEKS TO ASSERT
THESE RIGHTS. BANKERS TRUST, ACTING UNDER THE SUPERVISION OF THE BOARD OF
TRUSTEES OF THE PORTFOLIO, REVIEWS THE CREDITWORTHINESS OF THOSE BANKS AND
DEALERS WITH WHICH THE PORTFOLIO ENTERS INTO REPURCHASE AGREEMENTS AND MONITORS
ON AN ONGOING BASIS THE VALUE OF THE SECURITIES SUBJECT TO REPURCHASE AGREEMENTS
TO ENSURE THAT IT IS MAINTAINED AT THE REQUIRED LEVEL.

REVERSE REPURCHASE AGREEMENTS. THE PORTFOLIO may borrow funds for temporary or
emergency purposes, such as meeting larger than anticipated redemption requests,
and not for leverage, by among other things, agreeing to sell portfolio
securities to financial institutions such as banks and broker-dealers and to
repurchase them at a mutually agreed date and price (a "reverse repurchase
agreement"). At the time THE Portfolio 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 THE Portfolio
may decline below the repurchase price of those securities. Reverse repurchase
agreements are considered to be borrowings by THE Portfolio.

2
<PAGE>

WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. To secure prices deemed
advantageous at a particular time, THE Portfolio may purchase securities on a
when-issued or delayed delivery basis, in which case delivery of the securities
occurs beyond the normal settlement period; payment for or delivery of the
securities would be made at the same time as the reciprocal delivery or payment
by the other party to the transaction. THE Portfolio will enter into
when-issued or delayed delivery transactions for the purpose of acquiring
securities and not for the purpose of leverage. When-issued securities purchased
by the PORTFOLIO may include securities purchased on a "when, as, and if
issued" basis under which the issuance of the securities depends on the
occurrence of a subsequent event.

Securities purchased on a when-issued or delayed delivery basis may expose THE
Portfolio to risk because the securities may experience fluctuations in value
prior to their actual delivery. THE Portfolio does not accrue income with
respect to a when-issued or delayed delivery security prior to its stated
delivery date. Purchasing securities on a when-issued or delayed delivery basis
can involve the additional risk that the yield available in the market when the
delivery takes place may be higher than that obtained in the transaction itself.
Upon purchasing a security on a when-issued or delayed delivery basis, THE
Portfolio will segregate with the Portfolio's custodian liquid instruments in an
amount at least equal to the when-issued or delayed delivery commitment.

* 2 moved from here; text not shown INVESTMENT IN OTHER INVESTMENT COMPANIES.
IN ACCORDANCE WITH APPLICABLE LAW, THE PORTFOLIO MAY INVEST ITS ASSETS IN OTHER
MONEY MARKET FUNDS WITH COMPARABLE INVESTMENT OBJECTIVES. IN GENERAL, THE
PORTFOLIO MAY NOT (1) PURCHASE MORE THAN 3% OF ANY OTHER MONEY MARKET FUND'S
VOTING STOCK; (2) INVEST MORE THAN 5% OF ITS ASSETS IN ANY SINGLE MONEY MARKET
FUND; AND (3) INVEST MORE THAN 10% OF ITS ASSETS IN OTHER MONEY MARKET FUNDS
UNLESS PERMITTED TO EXCEED THESE LIMITATIONS BY AN EXEMPTIVE ORDER OF THE
SECURITIES AND EXCHANGE COMMISSION (THE "SEC").

ILLIQUID SECURITIES. THE PORTFOLIO MAY NOT INVEST MORE THAN 10% OF ITS NET
ASSETS IN SECURITIES WHICH ARE ILLIQUID OR OTHERWISE NOT READILY MARKETABLE
(SUCH SECURITIES MAY INCLUDE SECURITIES WHICH ARE SUBJECT TO LEGAL OR
CONTRACTUAL RESTRICTIONS OR REPURCHASE AGREEMENTS WITH MATURITIES OVER SEVEN
DAYS). IF A SECURITY BECOMES ILLIQUID AFTER PURCHASE BY THE PORTFOLIO, THE
PORTFOLIO WILL NORMALLY SELL THE SECURITY UNLESS TO DO SO WOULD NOT BE IN THE
BEST INTERESTS OF SHAREHOLDERS.

CREDIT ENHANCEMENT. CERTAIN OF THE PORTFOLIO'S ACCEPTABLE INVESTMENTS MAY BE
CREDIT-ENHANCED BY A GUARANTY, LETTER OF CREDIT, OR INSURANCE FROM A THIRD
PARTY. ANY BANKRUPTCY, RECEIVERSHIP, DEFAULT, OR CHANGE IN THE CREDIT QUALITY OF
THE THIRD PARTY PROVIDING THE CREDIT ENHANCEMENT COULD ADVERSELY AFFECT THE
QUALITY AND MARKETABILITY OF THE UNDERLYING SECURITY AND COULD CAUSE LOSSES TO
THE PORTFOLIO AND AFFECT THE PORTFOLIO'S SHARE PRICE. SUBJECT TO THE
DIVERSIFICATION LIMITS CONTAINED IN RULE 2A-7, THE PORTFOLIO MAY HAVE MORE THAN
25% OF ITS TOTAL ASSETS INVESTED IN SECURITIES ISSUED BY OR CREDIT-ENHANCED BY
BANKS OR OTHER FINANCIAL INSTITUTIONS.

LENDING OF PORTFOLIO SECURITIES. THE PORTFOLIO IS PERMITTED TO LEND UP TO 20% 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. BY LENDING ITS SECURITIES, THE
PORTFOLIO 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. THE PORTFOLIO WILL ADHERE TO THE
FOLLOWING CONDITIONS WHENEVER ITS SECURITIES ARE LOANED: (I) THE PORTFOLIO 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 PORTFOLIO
MUST BE ABLE TO TERMINATE THE LOAN AT ANY TIME; (IV) THE PORTFOLIO 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 THE PORTFOLIO'S LENDING AGENT AND MAY SHARE IN
REVENUE RECEIVED FROM SECURITIES LENDING TRANSACTIONS AS COMPENSATION FOR THIS
SERVICE.

DURING THE TERM OF THE LOAN, THE PORTFOLIO CONTINUES TO BEAR THE RISK OF
FLUCTUATIONS IN THE PRICE OF THE LOANED SECURITIES. IN LENDING SECURITIES TO
BROKERS, DEALERS AND OTHER ORGANIZATIONS, THE PORTFOLIO IS SUBJECT TO RISKS
WHICH, LIKE THOSE ASSOCIATED WITH OTHER EXTENSIONS OF CREDIT, INCLUDE DELAYS IN
RECEIVING ADDITIONAL COLLATERAL, IN RECOVERY SHOULD THE BORROWER FAIL
FINANCIALLY AND POSSIBLE LOSS OF THE COLLATERAL. UPON RECEIPT OF APPROPRIATE
REGULATORY APPROVAL, CASH COLLATERAL MAY BE INVESTED IN A MONEY MARKET FUND
MANAGED BY BANKERS TRUST (OR ITS AFFILIATES) AND BANKERS TRUST

3
<PAGE>

MAY SERVE AS THE PORTFOLIO'S LENDING AGENT AND MAY SHARE IN REVENUE RECEIVED
FROM SECURITIES LENDING TRANSACTIONS AS COMPENSATION FOR THIS SERVICE.

QUALITY AND MATURITY OF THE PORTFOLIO'S SECURITIES. THE PORTFOLIO WILL MAINTAIN
A DOLLAR-WEIGHTED AVERAGE MATURITY OF 90 DAYS OR LESS. ALL SECURITIES IN WHICH
THE PORTFOLIO INVESTS WILL HAVE, OR BE DEEMED TO HAVE, REMAINING MATURITIES OF
397 DAYS OR LESS ON THE DATE OF THEIR PURCHASE, WILL BE DENOMINATED IN U.S.
DOLLARS AND WILL HAVE BEEN GRANTED THE REQUIRED RATINGS ESTABLISHED HEREIN BY
TWO NRSROS (OR ONE SUCH NRSRO IF THAT NRSRO IS THE ONLY SUCH NRSRO WHICH RATES
THE SECURITY), OR IF UNRATED, ARE BELIEVED BY BANKERS TRUST, UNDER THE
SUPERVISION OF THE PORTFOLIO'S BOARD OF TRUSTEES, TO BE OF COMPARABLE QUALITY.
CURRENTLY, THERE ARE FIVE RATING AGENCIES WHICH HAVE BEEN DESIGNATED BY THE SEC
AS A NRSRO. THESE ORGANIZATIONS AND THEIR HIGHEST SHORT-TERM RATING CATEGORY
(WHICH MAY ALSO BE MODIFIED BY A "+") ARE: DUFF AND PHELPS CREDIT RATING CO.,
D-1; FITCH IBCA, INC. F1; MOODY'S INVESTORS SERVICE INC. ("MOODY'S"), PRIME-1;
STANDARD & POOR'S, A-1; AND THOMSON BANKWATCH, INC., T-1. A DESCRIPTION OF SUCH
RATINGS IS PROVIDED IN THE APPENDIX. BANKERS TRUST, ACTING UNDER THE SUPERVISION
OF AND PROCEDURES ADOPTED BY THE BOARD OF TRUSTEES OF THE PORTFOLIO, WILL ALSO
DETERMINE THAT ALL SECURITIES PURCHASED BY THE PORTFOLIO PRESENT MINIMAL CREDIT
RISKS. BANKERS TRUST WILL CAUSE THE PORTFOLIO TO DISPOSE OF ANY SECURITY AS SOON
AS PRACTICABLE IF THE SECURITY IS NO LONGER OF THE REQUISITE QUALITY, UNLESS
SUCH ACTION WOULD NOT BE IN THE BEST INTEREST OF THE PORTFOLIO. HIGH-QUALITY,
SHORT-TERM INSTRUMENTS MAY RESULT IN A LOWER YIELD THAN INSTRUMENTS WITH A LOWER
QUALITY OR LONGER TERM.

ADDITIONAL RISK FACTORS

IN ADDITION TO THE RISKS DISCUSSED ABOVE, THE PORTFOLIO'S INVESTMENTS MAY BE
SUBJECT TO THE FOLLOWING RISK FACTORS:

YEAR 2000 MATTERS. Like other mutual funds, financial and business organizations
and individuals around the world, the FUND could be adversely affected if the
computer systems used by Bankers Trust and other service providers do not
properly process and calculate date-related information and data from and after
January 1, 2000. This is commonly known as the "Year 2000 Problem." Bankers
Trust is taking steps that it believes are reasonably designed to address the
Year 2000 Problem with respect to computer systems that it uses and to obtain
reasonable assurances that comparable steps are being taken by the FUND'S
other major service providers. At this time, however, there can be no assurance
that these steps will be sufficient to avoid any adverse impact to the Fund nor
can there be any assurance that the Year 2000 Problem will not have an adverse
effect on the companies whose securities are held by the Fund or on global
markets or economies, generally.

SPECIAL INFORMATION CONCERNING MASTER-FEEDER FUND STRUCTURE. UNLIKE OTHER
OPEN-END MANAGEMENT INVESTMENT COMPANIES (MUTUAL FUNDS) WHICH DIRECTLY ACQUIRE
AND MANAGE THEIR OWN PORTFOLIO SECURITIES, THE FUND SEEKS TO ACHIEVE ITS
INVESTMENT OBJECTIVE BY INVESTING ALL OF ITS ASSETS IN THE PORTFOLIO, A SEPARATE
REGISTERED INVESTMENT COMPANY WITH THE SAME INVESTMENT OBJECTIVE AS THE FUND.
THEREFORE, AN INVESTOR'S INTEREST IN THE PORTFOLIO'S SECURITIES IS INDIRECT. IN
ADDITION TO SELLING A BENEFICIAL INTEREST TO THE FUND, THE PORTFOLIO MAY SELL
BENEFICIAL INTERESTS TO OTHER MUTUAL FUNDS, INVESTMENT VEHICLES OR INSTITUTIONAL
INVESTORS. SUCH INVESTORS WILL INVEST IN THE PORTFOLIO ON THE SAME TERMS AND
CONDITIONS AND WILL PAY A PROPORTIONATE SHARE OF THE PORTFOLIO'S EXPENSES.
HOWEVER, THE OTHER INVESTORS INVESTING IN THE PORTFOLIO ARE NOT REQUIRED TO SELL
THEIR SHARES AT THE SAME PUBLIC OFFERING PRICE AS THE FUND DUE TO VARIATIONS IN
SALES COMMISSIONS AND OTHER OPERATING EXPENSES. THEREFORE, INVESTORS IN THE FUND
SHOULD BE AWARE THAT THESE DIFFERENCES MAY RESULT IN DIFFERENCES IN RETURNS
EXPERIENCED BY INVESTORS IN THE DIFFERENT FUNDS THAT INVEST IN THE PORTFOLIO.
SUCH DIFFERENCES IN RETURNS ARE ALSO PRESENT IN OTHER MUTUAL FUND STRUCTURES.
INFORMATION CONCERNING OTHER HOLDERS OF INTERESTS IN THE PORTFOLIO IS AVAILABLE
FROM BANKERS TRUST AT 1-800-730-1313.

SMALLER FUNDS INVESTING IN THE PORTFOLIO MAY BE MATERIALLY AFFECTED BY THE
ACTIONS OF LARGER FUNDS INVESTING IN THE PORTFOLIO. FOR EXAMPLE, IF A LARGE FUND
WITHDRAWS FROM THE PORTFOLIO, THE REMAINING FUNDS MAY EXPERIENCE HIGHER PRO RATA
OPERATING EXPENSES, THEREBY PRODUCING LOWER RETURNS (HOWEVER, THIS POSSIBILITY
EXISTS AS WELL FOR TRADITIONALLY STRUCTURED FUNDS WHICH HAVE LARGE INSTITUTIONAL
INVESTORS). ADDITIONALLY, THE PORTFOLIO MAY BECOME LESS DIVERSE, RESULTING IN
INCREASED PORTFOLIO RISK. ALSO, FUNDS WITH A GREATER PRO RATA OWNERSHIP IN THE
PORTFOLIO COULD HAVE EFFECTIVE VOTING CONTROL OF THE OPERATIONS OF THE
PORTFOLIO. EXCEPT AS PERMITTED BY THE SEC, WHENEVER THE TRUST IS REQUESTED TO
VOTE ON MATTERS PERTAINING TO THE PORTFOLIO, THE TRUST WILL HOLD A MEETING OF
SHAREHOLDERS OF THE FUND AND WILL CAST ALL OF ITS VOTES IN THE SAME PROPORTION
AS THE VOTES OF THE FUND'S SHAREHOLDERS. FUND SHAREHOLDERS WHO DO NOT VOTE WILL
NOT AFFECT THE TRUST'S VOTES AT THE PORTFOLIO MEETING. THE PERCENTAGE OF THE
TRUST'S VOTES REPRESENTING THE FUND'S SHAREHOLDERS NOT VOTING WILL BE VOTED BY
THE TRUSTEES OR OFFICERS OF THE TRUST IN THE SAME PROPORTION AS THE FUND
SHAREHOLDERS WHO DO, IN FACT, VOTE.

CERTAIN CHANGES IN THE PORTFOLIO'S INVESTMENT OBJECTIVES, POLICIES OR
RESTRICTIONS MAY REQUIRE THE FUND TO WITHDRAW ITS INTEREST IN THE PORTFOLIO. ANY
SUCH WITHDRAWAL COULD RESULT IN A DISTRIBUTION "IN KIND" OF PORTFOLIO SECURITIES
(AS OPPOSED TO A CASH DISTRIBUTION FROM THE PORTFOLIO). IF SECURITIES ARE
DISTRIBUTED, THE FUND COULD INCUR BROKERAGE, TAX OR OTHER CHARGES IN CONVERTING
THE SECURITIES TO CASH. IN ADDITION, THE DISTRIBUTION IN KIND MAY RESULT IN A
LESS

4
<PAGE>

DIVERSIFIED PORTFOLIO OF INVESTMENTS OR ADVERSELY AFFECT THE LIQUIDITY OF
THE FUND. NOTWITHSTANDING THE ABOVE, THERE ARE OTHER MEANS FOR MEETING
REDEMPTION REQUESTS, SUCH AS BORROWING.

THE FUND MAY WITHDRAW ITS INVESTMENT FROM THE PORTFOLIO AT ANY TIME, IF THE
BOARD OF TRUSTEES OF THE TRUST DETERMINES THAT IT IS IN THE BEST INTERESTS OF
THE SHAREHOLDERS OF THE FUND TO DO SO. UPON ANY SUCH WITHDRAWAL, THE BOARD OF
TRUSTEES OF THE TRUST WOULD CONSIDER WHAT ACTION MIGHT BE TAKEN, INCLUDING THE
INVESTMENT OF ALL THE ASSETS OF THE FUND IN ANOTHER POOLED INVESTMENT ENTITY
HAVING THE SAME INVESTMENT OBJECTIVE AS THE FUND OR THE RETAINING OF AN
INVESTMENT ADVISER TO MANAGE THE FUND'S ASSETS IN ACCORDANCE WITH THE INVESTMENT
POLICIES DESCRIBED HEREIN WITH RESPECT TO THE PORTFOLIO.

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. THE INVESTMENT OBJECTIVE OF THE PORTFOLIO IS ALSO NOT A
FUNDAMENTAL POLICY. SHAREHOLDERS OF THE FUND WILL RECEIVE 30 DAYS PRIOR WRITTEN
NOTICE WITH RESPECT TO ANY CHANGE IN THE INVESTMENT OBJECTIVE OF THE FUND OR THE
PORTFOLIO.

RATING SERVICES. The ratings of Moody's and Standard & Poor's Ratings Group
("S&P") 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 Portfolio, an obligation may cease to
be rated or its rating may be reduced below the minimum required for purchase by
the Portfolio. Neither event would require THE Portfolio to eliminate the
obligation from its portfolio, but THE ADVISER will consider such an event in
its determination of whether THE Portfolio should continue to hold the
obligation. A description of the ratings used herein and in the Prospectus is
set forth in the Appendix to this SAI.

INVESTMENT RESTRICTIONS

FUNDAMENTAL POLICIES. THE FOLLOWING investment restrictions have been
adopted by the TRUST with respect to the FUND and by the PORTFOLIO as
fundamental policies. Under the 1940 ACT, a "fundamental" policy may not be
changed without the vote of a majority of the outstanding voting securities of
the Fund or Portfolio, respectively, to which it relates, which is defined in
the 1940 Act as the lesser of (a) 67% or more of the shares present at a
shareholder meeting if the holders of more than 50% of the outstanding shares
are present or represented by proxy, or (b) more than 50% of the outstanding
shares. WHENEVER THE Fund is requested to vote on a change in the investment
restrictions of THE Portfolio, THE Trust will hold a meeting of Fund
shareholders and will cast its votes as instructed by the shareholders. Fund
shareholders who do not vote will not affect THE Trust's votes at the
Portfolio meeting. The percentage of THE Trust's votes representing Fund
shareholders not voting will be voted by the Trustees of the Trust in the same
proportion as the Fund shareholders who do, in fact, vote.

As a matter of fundamental policy, the Portfolio (or 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 objectives):

1. Borrow money or mortgage or hypothecate assets of the Portfolio (Fund),
except that in an amount not to exceed 1/3 of the current value of the
Portfolio's (Fund's) total 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 Portfolio may not engage in dollar roll transactions);

2. Underwrite securities issued by other persons except insofar as the
Portfolio (Trust or the Fund) may technically be deemed an underwriter
under the Securities Act of 1933, as amended (the "1933 Act"), in
selling a portfolio security;

5
<PAGE>

3. Make loans to other persons except (a) through the lending of the
Portfolio's (Fund's) portfolio securities and provided that any such
loans not exceed 20% of the Portfolio's (Fund's) total assets (taken at
market value), (b) through the use of repurchase agreements or the
purchase of short-term obligations or (c) by purchasing a portion of an
issue of debt securities of types distributed publicly or privately;

4. Purchase or sell real estate (including limited partnership interests
but excluding securities secured by real estate or interests therein),
interests in oil, gas or mineral leases, commodities or commodity
contracts (except futures and option contracts) in the ordinary course
of business (except that the Portfolio (Trust) may hold and sell, for
the Portfolio's (Fund's) portfolio, real estate acquired as a result of
the Portfolio's (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 Portfolio's (Fund's) investment objective, up to 25%
of its total assets may be invested in any one industry; and

6. Issue any senior security (as that term is defined in the 1940 Act) if
such issuance is specifically prohibited by the 1940 Act or the rules
and regulations promulgated thereunder, 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. WITH RESPECT TO 75% OF THE FUND'S (PORTFOLIO'S) TOTAL ASSETS, INVEST
MORE THAN 5% OF ITS TOTAL ASSETS IN THE SECURITIES OF ANY ONE ISSUER
(EXCLUDING CASH AND CASH-EQUIVALENTS, U.S. GOVERNMENT SECURITIES AND
THE SECURITIES OF OTHER INVESTMENT COMPANIES) OR OWN MORE THAN 10% OF
THE VOTING SECURITIES OF ANY ISSUER.

ADDITIONAL RESTRICTIONS. In order to comply with certain statutes and policies,
THE Portfolio (or Trust, on behalf of the Fund) will not as a matter of
operating policy (except that no operating policy shall prevent THE Fund from
investing all of its ASSETS in an open-end investment company with
substantially the same investment objectives):

(i) borrow money (including through dollar roll transactions) for any
purpose in excess of 10% of the Portfolio's (Fund's) total assets
(taken at cost), except that the Portfolio (Fund) may borrow for
temporary or emergency purposes up to 1/3 of its total assets;

(ii) pledge, mortgage or hypothecate for any purpose in excess of 10% of the
Portfolio's (Fund's) total assets (taken at market value), 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;

(iv) 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;

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

(vi) 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 Portfolio (Fund) if such purchase at the time thereof
would cause (a) more than 10% of the Portfolio's (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 Portfolio's
(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
Portfolio (Fund) (unless permitted to do so by an exemptive order of
the SEC); and, provided further, that the Portfolio shall not invest in
any other open-end investment company unless the Portfolio (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 Portfolio
will not invest in another open-end registered investment company); ---

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

6
<PAGE>

least two nationally recognized statistical rating organizations and
the Portfolio's (Fund's) Board of Trustees have determined the commer-
cial paper to be liquid; or (iii) is rated in one of the two highest
categories by one nationally recognized statistical rating agency and
the Portfolio's (Fund's) Board of Trustees have determined that the
commercial paper is equivalent quality and is liquid;

(viii) make short sales of securities or maintain a short position, unless at
all times when a short position is open it owns an equal amount of such
securities or securities convertible into or exchangeable, without
payment of any further consideration, for securities of the same issue
and equal in amount to, the securities sold short, and unless not more
than 10% of the Portfolio's (Fund's) net assets (taken at market value)
is represented by such securities, or securities convertible into or
exchangeable for such securities, at any one time (the Portfolio (Fund)
has no current intention to engage in short selling).

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.

THE Fund will comply with the state securities laws and regulations of all
states in which it is registered. THE Portfolio will comply with the permitted
investments and investment limitations in the securities laws and regulations of
all states in which the Fund, or any other registered investment company
investing in the Portfolio, is registered.

PORTFOLIO TURNOVER

THE Portfolio may attempt to increase yields by trading to take advantage of
short-term market variations, which results in higher portfolio turnover.
However, this policy does not result in higher brokerage commissions to the
PORTFOLIO as the purchases and sales of portfolio securities are usually
effected as principal transactions. The PORTFOLIO'S turnover rates are not
expected to have a material effect on their income and have been and are
expected to be zero for regulatory reporting purposes.

PORTFOLIO TRANSACTIONS

Decisions to buy and sell securities and other financial instruments for THE
Portfolio are made by Bankers Trust, which also is responsible for placing these
transactions, subject to the overall review of the Board of Trustees. Although
investment requirements for THE Portfolio are reviewed independently from
those of the other accounts managed by Bankers Trust , investments of the type
the PORTFOLIO may make may also be made by these other accounts. When THE
Portfolio and one or more or accounts managed by Bankers Trust are prepared to
invest in, or desire to dispose of, the same security or other financial
instrument, available investments or opportunities for sales will be allocated
in a manner believed by Bankers Trust to be equitable to each. In some cases,
this procedure may affect adversely the price paid or received by THE
Portfolio or the size of the position obtained or disposed of by THE
Portfolio.

Purchases and sales of securities on behalf of the PORTFOLIO usually are
principal transactions. These securities are normally purchased directly from
the issuer or from an underwriter or market maker for the securities. The cost
of securities purchased from underwriters includes an underwriting commission or
concession and the prices at which securities are purchased from and sold to
dealers include a dealer's mark-up or mark-down. U.S. Government Obligations are
generally purchased from underwriters or dealers, although certain newly issued
U.S. Government Obligations may be purchased directly from the U.S. Treasury or
from the issuing agency or instrumentality.

Over-the-counter purchases and sales are transacted directly with principal
market makers except in those cases in which better prices and executions may be
obtained elsewhere and principal transactions are not entered into with persons
affiliated with the PORTFOLIO except pursuant to exemptive rules or orders
adopted by the Securities and Exchange Commission. Under rules adopted by the
SEC, broker-dealers may not execute transactions on the floor of any national
securities exchange for the accounts of affiliated persons, but may effect
transactions by transmitting orders for execution.

In selecting brokers or dealers to execute portfolio transactions on behalf of
THE Portfolio, Bankers Trust seeks the best overall terms available. In
assessing the best overall terms available for any transaction, Bankers Trust
will consider the factors it deems relevant, including the breadth of the market
in the investment, the price of the investment, the financial condition and
execution capability of the broker or dealer and the reasonableness of the
commission, if any, for the specific transaction and on a continuing basis. In
addition, Bankers Trust is authorized, in selecting parties to execute a
particular transaction and in evaluating the best overall terms available, to
consider the brokerage, but not research, services (as those terms are defined
in Section 28(e) of the Securities Exchange Act of 1934, as amended) provided to
the Portfolio and/or

7
<PAGE>

other accounts over which Bankers Trust or its affiliates exercise investment
discretion. Bankers Trust's fees under its agreements with the PORTFOLIO are not
reduced by reason of its receiving brokerage services.

NET ASSET VALUE

The NET ASSET VALUE ("NAV") PER SHARE IS CALCULATED ON EACH DAY ON WHICH THE
FUND IS OPEN (EACH SUCH DAY BEING A "VALUATION DAY"). THE FUND IS CURRENTLY OPEN
ON EACH DAY, MONDAY THROUGH FRIDAY, EXCEPT (A) JANUARY 1ST, MARTIN LUTHER KING,
JR.'S BIRTHDAY (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), COLUMBUS DAY (THE SECOND MONDAY IN
OCTOBER), VETERAN'S DAY (NOVEMBER 11TH), THANKSGIVING DAY (THE LAST THURSDAY IN
NOVEMBER) AND DECEMBER 25TH; AND (B) THE PRECEDING FRIDAY OR THE SUBSEQUENT
MONDAY WHEN ONE OF THE CALENDAR-DETERMINED HOLIDAYS FALLS ON A SATURDAY OR
SUNDAY, RESPECTIVELY.

THE NAV PER SHARE OF THE FUND IS CALCULATED ON EACH VALUATION DAY AS OF THE
CLOSE OF REGULAR TRADING ON THE NYSE, WHICH IS CURRENTLY 4:00 P.M., EASTERN TIME
OR IN THE EVENT THAT THE NYSE CLOSES EARLY, AT THE TIME OF SUCH EARLY CLOSING.
THE NAV PER SHARE IS COMPUTED BY DIVIDING THE VALUE OF THE FUND'S ASSETS (I.E.,
THE VALUE OF ITS INVESTMENT IN THE PORTFOLIO AND OTHER ASSETS), LESS ALL
LIABILITIES, BY THE TOTAL NUMBER OF SHARES OUTSTANDING. THE FUND'S NAV PER SHARE
WILL NORMALLY BE $1.00.

THE VALUATION OF THE Portfolio's securities is based on their amortized cost,
which does not take into account unrealized capital gains or losses. Amortized
cost valuation involves initially valuing an instrument at its cost and
thereafter assuming a constant amortization to maturity of any discount or
premium, generally without regard to the impact of fluctuating interest rates on
the market value of the instrument. Although this method provides certainty in
valuation, it may result in periods during which value, as determined by
amortized cost, is higher or lower than the price THE Portfolio would receive
if it sold the instrument.

The PORTFOLIO'S use of the amortized cost method of valuing ITS securities
is permitted by a rule adopted by the SEC. Under this rule, the PORTFOLIO must
maintain a dollar-weighted average portfolio maturity of 90 days or less,
purchase only instruments having remaining maturities of two years or less and
invest only in securities determined by or under the supervision of the Board of
Trustees to be of high quality with minimal credit risks.

Pursuant to the rule, the Board of Trustees of THE Portfolio also has
established procedures designed to allow investors in the Portfolio, such as the
TRUST, to stabilize, to the extent reasonably possible, the investors' price
per share as computed for the purpose of sales and redemptions at $1.00. These
procedures include review of THE Portfolio's holdings by the Portfolio's Board
of Trustees, at such intervals as it deems appropriate, to determine whether the
value of the Portfolio's assets calculated by using available market quotations
or market equivalents deviates from such valuation based on amortized cost.

The rule also provides that the extent of any deviation between the value of
THE Portfolio's assets based on available market quotations or market
equivalents and such valuation based on amortized cost must be examined by the
Portfolio's Board of Trustees. In the event the Portfolio's Board of Trustees
determines that a deviation exists that may result in material dilution or other
unfair results to investors or existing shareholders, pursuant to the rule, the
Portfolio's Board of Trustees must cause the Portfolio to take such corrective
action as such Board of Trustees regards as necessary and appropriate,
including: selling portfolio instruments prior to maturity to realize capital
gains or losses or to shorten average portfolio maturity; withholding dividends
or paying distributions from capital or capital gains; redeeming shares in kind;
or valuing the Portfolio's assets by using available market quotations.

Each investor in THE Portfolio, including the Fund, may add to or reduce its
investment in the Portfolio on each day the Portfolio determines its NAV. At the
close of each such business day, the value of each investor's beneficial
interest in the Portfolio will be determined by multiplying the NAV of the
Portfolio by the percentage, effective for that day, which represents that
investor's share of the aggregate beneficial interests in the Portfolio. 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 Portfolio 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 Portfolio 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 Portfolio effected as of the close of business
on such day, and (ii) the denominator of which is the aggregate NAV of the
Portfolio 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 Portfolio by all investors in the Portfolio. The percentage so determined
will then be applied to determine the value of the investor's interest in the
Portfolio as of the close of the following business day.

PURCHASE AND REDEMPTION INFORMATION

8
<PAGE>

The TRUST ACCEPTS PURCHASE ORDERS FOR SHARES OF THE FUND AT THE NAV PER SHARE
NEXT DETERMINED ON EACH VALUATION DAY. THERE IS NO SALES CHARGE ON THE PURCHASE
OF SHARES, BUT COSTS OF DISTRIBUTING SHARES OF THE FUND MAY BE REIMBURSED FROM
ITS ASSETS, AS DESCRIBED HEREIN. THERE IS NO MINIMUM REQUIRED INITIAL INVESTMENT
AMOUNT. THE SUBSEQUENT MINIMUM INVESTMENT IN THE FUND IS $500,000. SERVICE
AGENTS MAY IMPOSE INITIAL AND SUBSEQUENT INVESTMENT MINIMUMS THAT DIFFER FROM
THESE AMOUNTS. SHARES OF THE FUND MAY BE PURCHASED IN ONLY THOSE STATES WHERE
THEY MAY BE LAWFULLY SOLD.

PURCHASE ORDERS FOR SHARES OF THE FUND WILL RECEIVE, ON ANY VALUATION DAY, THE
NAV NEXT DETERMINED FOLLOWING RECEIPT BY THE SERVICE AGENT AND TRANSMISSION TO
BANKERS TRUST, AS THE TRUST'S TRANSFER AGENT (THE "TRANSFER AGENT") OF SUCH
ORDER. IF THE PURCHASE ORDER IS RECEIVED BY THE SERVICE AGENT AND TRANSMITTED TO
THE TRANSFER AGENT PRIOR TO 4:00 P.M. (EASTERN TIME OR EARLIER, SHOULD THE NYSE
CLOSE EARLIER) AND IF PAYMENT IN THE FORM OF FEDERAL FUNDS IS RECEIVED ON THAT
DAY BY BANKERS TRUST, AS THE TRUST'S CUSTODIAN (THE "CUSTODIAN"), THE
SHAREHOLDER WILL RECEIVE THE DIVIDEND DECLARED ON THAT DAY. IF THE PURCHASE
ORDER IS RECEIVED BY THE SERVICE AGENT AND TRANSMITTED TO THE TRANSFER AGENT
AFTER 4:00 P.M. (EASTERN TIME), THE SHAREHOLDER WILL RECEIVE THE DIVIDEND
DECLARED ON THE FOLLOWING DAY EVEN IF THE CUSTODIAN RECEIVES FEDERAL FUNDS ON
THAT DAY. THE TRUST AND TRANSFER AGENT RESERVE THE RIGHT TO REJECT ANY PURCHASE
ORDER. IF THE MARKET FOR THE PRIMARY INVESTMENTS IN THE FUND CLOSES EARLY, THE
FUND WILL CEASE TAKING PURCHASE ORDERS AT THAT TIME.

SHARES MUST BE PURCHASED IN ACCORDANCE WITH PROCEDURES ESTABLISHED BY THE
TRANSFER AGENT AND SERVICE AGENTS, INCLUDING BANKERS TRUST, IN CONNECTION WITH
CUSTOMERS' ACCOUNTS. IT IS THE RESPONSIBILITY OF EACH SERVICE AGENT TO TRANSMIT
TO THE TRANSFER AGENT PURCHASE AND REDEMPTION ORDERS AND TO TRANSMIT TO THE
CUSTODIAN PURCHASE PAYMENTS ON BEHALF OF ITS CUSTOMERS IN A TIMELY MANNER, AND A
SHAREHOLDER MUST SETTLE WITH THE SERVICE AGENT HIS OR HER ENTITLEMENT TO AN
EFFECTIVE PURCHASE OR REDEMPTION ORDER AS OF A PARTICULAR TIME. BECAUSE BANKERS
TRUST IS THE CUSTODIAN AND TRANSFER AGENT OF THE TRUST, FUNDS MAY BE TRANSFERRED
DIRECTLY FROM OR TO A CUSTOMER'S ACCOUNT WITH BANKERS TRUST TO OR FROM THE FUND
WITHOUT THE ADDITIONAL COSTS OR DELAYS ASSOCIATED WITH THE WIRING OF FEDERAL
FUNDS.

CERTIFICATES FOR SHARES WILL NOT BE ISSUED. EACH SHAREHOLDER'S ACCOUNT WILL BE
MAINTAINED BY A SERVICE AGENT OR TRANSFER AGENT.

AUTOMATIC INVESTMENT PLAN. THE FUND MAY OFFER SHAREHOLDERS AN AUTOMATIC
INVESTMENT PLAN, UNDER WHICH SHAREHOLDERS MAY AUTHORIZE SOME SERVICE AGENTS TO
PLACE A PURCHASE ORDER EACH MONTH OR QUARTER FOR FUND SHARES.

REDEMPTION OF SHARES

SHAREHOLDERS MAY REDEEM SHARES AT THE NAV PER SHARE NEXT DETERMINED ON EACH
VALUATION DAY. REDEMPTION REQUESTS SHOULD BE TRANSMITTED BY CUSTOMERS IN
ACCORDANCE WITH PROCEDURES ESTABLISHED BY THE TRANSFER AGENT AND THE
SHAREHOLDER'S SERVICE AGENT. REDEMPTION REQUESTS FOR SHARES RECEIVED BY THE
SERVICE AGENT AND TRANSMITTED TO THE TRANSFER AGENT PRIOR TO THE CLOSE OF THE
NYSE (CURRENTLY 4:00 P.M., EASTERN TIME OR EARLIER SHOULD THE NYSE CLOSE
EARLIER) ON EACH VALUATION DAY WILL BE REDEEMED AT THE NAV PER SHARE NEXT
DETERMINED AND THE REDEMPTION PROCEEDS NORMALLY WILL BE DELIVERED TO THE
SHAREHOLDER'S ACCOUNT WITH THE SERVICE AGENT ON THAT DAY; NO DIVIDEND WILL BE
PAID ON THE DAY OF REDEMPTION. REDEMPTION REQUESTS RECEIVED BY THE SERVICE AGENT
AND TRANSMITTED TO THE TRANSFER AGENT AFTER 4:00 P.M. (EASTERN TIME) OR AFTER
THE CLOSE OF THE NYSE ON EACH VALUATION DAY WILL BE REDEEMED AT THE NAV PER
SHARE NEXT DETERMINED AND THE REDEMPTION PROCEEDS NORMALLY WILL BE DELIVERED TO
THE SHAREHOLDER'S ACCOUNT WITH THE SERVICE AGENT THE FOLLOWING DAY; SHARES
REDEEMED IN THIS MANNER WILL RECEIVE THE DIVIDEND DECLARED ON THE DAY OF THE
REDEMPTION. PAYMENTS FOR REDEMPTIONS WILL IN ANY EVENT BE MADE WITHIN SEVEN
CALENDAR DAYS FOLLOWING RECEIPT OF THE REQUEST.

SERVICE AGENTS MAY ALLOW REDEMPTIONS BY TELEPHONE AND MAY DISCLAIM LIABILITY FOR
FOLLOWING INSTRUCTIONS COMMUNICATED BY TELEPHONE THAT THE SERVICE AGENT
REASONABLY BELIEVES TO BE GENUINE. THE SERVICE AGENT MUST PROVIDE THE INVESTOR
WITH AN OPPORTUNITY TO CHOOSE WHETHER OR NOT TO UTILIZE THE TELEPHONE REDEMPTION
PRIVILEGE. THE SERVICE AGENT MUST EMPLOY REASONABLE PROCEDURES TO CONFIRM THAT
INSTRUCTIONS COMMUNICATED BY TELEPHONE ARE GENUINE. IF THE SERVICE AGENT DOES
NOT DO SO, IT MAY BE LIABLE FOR ANY LOSSES DUE TO UNAUTHORIZED OR FRAUDULENT
INSTRUCTIONS. SUCH PROCEDURES MAY INCLUDE, AMONG OTHERS, REQUIRING SOME FORM OF
PERSONAL IDENTIFICATION PRIOR TO ACTING UPON INSTRUCTIONS RECEIVED BY TELEPHONE,
PROVIDING WRITTEN CONFIRMATION OF SUCH TRANSACTIONS AND/OR TAPE RECORDING OF
TELEPHONE INSTRUCTIONS.

REDEMPTION ORDERS ARE PROCESSED WITHOUT CHARGE BY THE TRUST. THE SERVICE AGENT
MAY ON AT LEAST 30 DAYS' NOTICE INVOLUNTARILY REDEEM A SHAREHOLDER'S ACCOUNT
WITH THE FUND HAVING A CURRENT VALUE OF LESS THAN $100,000.

9
<PAGE>

than customary weekend and holiday closings; (c) the SEC has by order permitted
such suspension; or (d) an emergency exists as determined by the SEC.

MANAGEMENT OF THE TRUST AND PORTFOLIO

THE TRUST AND THE PORTFOLIO ARE GOVERNED BY A BOARD OF TRUSTEES WHICH IS
RESPONSIBLE FOR PROTECTING THE INTERESTS OF INVESTORS. BY VIRTUE OF THE
RESPONSIBILITIES ASSUMED BY BANKERS TRUST, THE ADMINISTRATOR OF THE TRUST AND
THE PORTFOLIO, NEITHER THE TRUST NOR THE PORTFOLIO REQUIRE EMPLOYEES OTHER THAN
ITS EXECUTIVE OFFICERS. NONE OF THE EXECUTIVE OFFICERS OF THE TRUST OR THE
PORTFOLIO DEVOTES FULL TIME TO THE AFFAIRS OF THE TRUST OR THE PORTFOLIO.

A MAJORITY OF THE TRUSTEES WHO ARE NOT "INTERESTED PERSONS" (AS DEFINED IN THE
1940 ACT) OF THE TRUST OR THE PORTFOLIO, AS THE CASE MAY BE, HAVE ADOPTED
WRITTEN PROCEDURES REASONABLY APPROPRIATE TO DEAL WITH POTENTIAL CONFLICTS OF
INTEREST ARISING FROM THE FACT THAT SOME OF THE SAME INDIVIDUALS ARE TRUSTEES OF
THE TRUST AND THE PORTFOLIO, UP TO AND INCLUDING CREATING SEPARATE BOARDS OF
TRUSTEES.

Each Board of Trustees is composed of persons experienced in financial matters
who meet throughout the year to oversee the activities of the FUND or
PORTFOLIO they represent. In addition, the Trustees review contractual
arrangements with companies that provide services to the FUND/PORTFOLIO and
review the FUND'S performance.

The Trustees and officers of the TRUST and the PORTFOLIO, their birthdates
and their principal occupations during the past five years are set forth below.
Their titles may have varied during that period. Unless otherwise indicated, the
address of each officer is 5800 Corporate Drive, Pittsburgh, Pennsylvania
15237-5829.

TRUSTEES OF BT INSTITUTIONAL FUNDS

RICHARD J. HERRING (birthdate: February 18, 1946) -- Trustee; Vice Dean and
Director, Wharton Undergraduate Division, Professor, Finance Department, The
Wharton School, University of Pennsylvania. His address is THE WHARTON SCHOOL,
UNIVERSITY OF PENNSYLVANIA, FINANCE DEPARTMENT, 3303 STEINBERG HALL/DIETRICH
HALL, PHILADELPHIA, PENNSYLVANIA 19104.

TRUSTEES OF THE PORTFOLIO

CHARLES P. BIGGAR -- TRUSTEE.

* 3 moved from here; text not shown S. LELAND DILL (birthdate: March 28, 1930)
- -- Trustee; Retired; Director, Coutts Group, Coutts (U.S.A.) International;
Coutts Trust Holdings Ltd; Director, Zweig Series Trust; formerly Partner of
KPMG Peat Marwick; Director, Vinters International Company Inc.; General Partner
of Pemco (an investment company registered under the 1940 Act). His address is
5070 North Ocean Drive, Singer Island, Florida 33404.

** 3 PHILIP SAUNDERS, JR. (birthdate: October 11, 1935) -- Trustee; Principal,
Philip Saunders Associates (Consulting); former Director of Financial Industry
Consulting, Wolf & Company; President, John Hancock Home Mortgage Corporation;
and Senior Vice President of Treasury and Financial Services, John Hancock
Mutual Life Insurance Company, Inc. His address is 445 Glen Road, Weston,
Massachusetts 02193.

OFFICERS OF THE TRUST AND PORTFOLIO

Unless otherwise specified, each officer listed below holds the same position
with THE TRUST AND THE PORTFOLIO.

JOHN Y. KEFFER (BIRTHDATE: JULY 14, 1942) -- PRESIDENT AND CHIEF EXECUTIVE
OFFICER; PRESIDENT, FORUM FINANCIAL GROUP. HIS ADDRESS IS 2 PORTLAND SQUARE,
PORTLAND, MAINE 04101.

JOSEPH A. FINELLI (BIRTHDATE: JANUARY 24, 1957) -- Treasurer; Vice President,
BT ALEX. BROWN INCORPORATED AND VICE PRESIDENT, INVESTMENT COMPANY CAPITAL CORP.
(REGISTERED INVESTMENT ADVISER), SEPTEMBER 1995 TO PRESENT; FORMERLY, VICE
PRESIDENT AND TREASURER, THE DELAWARE GROUP OF FUNDS (REGISTERED INVESTMENT
COMPANIES) AND VICE PRESIDENT, DELAWARE MANAGEMENT COMPANY INC. (INVESTMENTS),
1980 TO AUGUST 1995. HIS ADDRESS IS ONE SOUTH STREET, BALTIMORE, MARYLAND 21202.

10
<PAGE>

MESSRS. KEFFER, FINELLI AND HIRSCH also hold similar positions for other
investment companies for which ICC DISTRIBUTORS, 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 or the PORTFOLIO. No director, officer or employee of
ICC DISTRIBUTORS or any of its affiliates will receive any compensation from the
TRUST or any Portfolio for serving as an officer or Trustee of the TRUST or
the PORTFOLIO.

11
<PAGE>

TRUSTEE COMPENSATION TABLE

AGGREGATE
COMPENSATION TOTAL COMPENSATION
NAME OF PERSON, FROM BT COMPENSATION FROM FUND COMPLEX
POSITION INSTITUTIONAL FUNDS* FROM PORTFOLIO+ PAID TO TRUSTEES++
- ----------------- -------------------- --------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
** 4 Charles P. Biggar,
TRUSTEE OF BT INSTITUTIONAL $______ $______ $______
- ---------------------------------------------------------------------------------------
FUNDS AND PORTFOLIO
- -------------------

** 5 Richard J. Herring,
TRUSTEE OF BT INSTITUTIONAL $______ N/A $______
- ---------------------------------------------------------------------------------------
** 6 Funds

Bruce E. Langton,
Trustee of BT Institutional $______ N/A $______ Funds * 5 moved from here;
text not shown* 6 moved from here; text not shown* 4 moved from here; text not
shown
S. Leland Dill,
Trustee of PORTFOLIO N/A $______ $______
--------------------------------------------------------------------------

Philip Saunders, Jr.,
Trustee of PORTFOLIO N/A $______ $______
--------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
</TABLE>

* THE INFORMATION PROVIDED IS for the BT Institutional Funds which is comprised
of 10 funds. Information PROVIDED IS for the year ended December 31,
1998.

+ INFORMATION PROVIDED IS FOR THE year ended December 31, 1998.

++Aggregated information is furnished for the BT Family of Funds which consists
of the following: BT Investment Funds, BT Institutional Funds, BT Pyramid
MUTUAL Funds, BT Advisor Funds, BT Investment Portfolios, Cash Management
Portfolio, Treasury Money Portfolio, Tax Free Money Portfolio, NY Tax Free
Money Portfolio, International Equity Portfolio, Intermediate Tax Free
Portfolio, Asset Management Portfolio, Equity 500 Index Portfolio, and
Capital Appreciation Portfolio. The compensation is provided for the calendar
year ended December 31, 1998.

As of _____ __, 1999, the following SHAREHOLDER of record owned 5% or more of
the outstanding SHARES OF THE FUND: [TO BE PROVIDED]

INVESTMENT ADVISER

THE TRUST HAS NOT RETAINED THE SERVICES OF AN INVESTMENT ADVISER SINCE THE TRUST
SEEKS TO ACHIEVE THE INVESTMENT OBJECTIVE OF THE FUND BY INVESTING ALL THE
ASSETS OF THE FUND IN THE PORTFOLIO. THE PORTFOLIO HAS RETAINED THE SERVICES OF
BANKERS TRUST AS 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 NEW YORK CORPORATION. BANKERS TRUST
CONDUCTS A VARIETY OF GENERAL BANKING AND TRUST ACTIVITIES AND IS A MAJOR
WHOLESALE SUPPLIER OF FINANCIAL SERVICES TO THE INTERNATIONAL AND DOMESTIC
INSTITUTIONAL MARKET. [AS OF MARCH 31, 1998, BANKERS TRUST NEW YORK CORPORATION
WAS THE SEVENTH LARGEST BANK HOLDING COMPANY IN THE UNITED STATES WITH TOTAL
ASSETS OF OVER $150 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 $300 BILLION IN ASSETS UNDER
MANAGEMENT GLOBALLY.]

BANKERS TRUST HAS MORE THAN 50 YEARS OF EXPERIENCE MANAGING RETIREMENT ASSETS
FOR THE NATION'S LARGEST CORPORATIONS AND INSTITUTIONS. IN THE PAST, THESE
CLIENTS HAVE BEEN SERVICED THROUGH SEPARATE ACCOUNT AND COMMINGLED FUND
STRUCTURES. NOW, THE BT FAMILY OF FUNDS BRINGS BANKERS TRUST'S EXTENSIVE
INVESTMENT MANAGEMENT EXPERTISE--ONCE AVAILABLE TO ONLY THE LARGEST INSTITUTIONS
IN THE U.S.--TO INDIVIDUAL INVESTORS. BANKERS TRUST'S OFFICERS HAVE HAD
EXTENSIVE EXPERIENCE IN MANAGING INVESTMENT PORTFOLIOS HAVING OBJECTIVES SIMILAR
TO THOSE OF THE PORTFOLIO.

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BANKERS TRUST, SUBJECT TO THE SUPERVISION AND DIRECTION OF THE BOARD OF TRUSTEES
OF THE PORTFOLIO, MANAGES THE PORTFOLIO IN ACCORDANCE WITH THE PORTFOLIO'S
INVESTMENT OBJECTIVE AND STATED INVESTMENT POLICIES, MAKES INVESTMENT DECISIONS
FOR THE PORTFOLIO, PLACES ORDERS TO PURCHASE AND SELL SECURITIES AND OTHER
FINANCIAL INSTRUMENTS ON BEHALF OF THE PORTFOLIO AND EMPLOYS PROFESSIONAL
INVESTMENT MANAGERS AND SECURITIES ANALYSTS WHO PROVIDE RESEARCH SERVICES TO THE
PORTFOLIO. BANKERS TRUST MAY UTILIZE THE EXPERTISE OF ANY OF ITS WORLD WIDE
SUBSIDIARIES AND AFFILIATES TO ASSIST IT IN ITS ROLE AS INVESTMENT ADVISER. ALL
ORDERS FOR INVESTMENT TRANSACTIONS ON BEHALF OF THE PORTFOLIO 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 PORTFOLIO
ONLY IF BANKERS TRUST BELIEVES THAT THE AFFILIATE'S CHARGE FOR THE TRANSACTION
DOES NOT EXCEED USUAL AND CUSTOMARY LEVELS. THE PORTFOLIO WILL NOT INVEST IN
OBLIGATIONS FOR WHICH BANKERS TRUST OR ANY OF ITS AFFILIATES IS THE ULTIMATE
OBLIGOR OR ACCEPTING BANK. THE PORTFOLIO MAY, HOWEVER, INVEST IN THE OBLIGATIONS
OF CORRESPONDENTS AND CUSTOMERS OF BANKERS TRUST.

THE 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 COMPANY 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 RETAIL AND COMMERCIAL BANKING, INVESTMENT BANKING AND
INSURANCE. THE TRANSACTION IS CONTINGENT UPON VARIOUS REGULATORY APPROVALS, AS
WELL AS THE APPROVAL OF THE FUND'S SHAREHOLDERS. IF THE TRANSACTION IS APPROVED
AND COMPLETED, DEUTSCHE BANK AG, AS THE ADVISER'S NEW PARENT COMPANY, WILL
CONTROL THE OPERATIONS OF THE ADVISER. BANKERS TRUST BELIEVES THAT, UNDER THIS
NEW ARRANGEMENT, THE SERVICES PROVIDED TO THE FUND WILL BE MAINTAINED AT THEIR
CURRENT LEVEL.

Under the terms of an investment advisory agreement (the "Advisory Agreement")
between THE Portfolio and Bankers Trust, the adviser manages THE Portfolio
subject to the supervision and direction of the Board of Trustees of the
Portfolio. Bankers Trust will: (i) act in strict conformity with THE
Portfolio's Declaration of Trust, the 1940 Act and the Investment Advisors Act
of 1940, as the same may from time to time be amended; (ii) manage THE
Portfolio in accordance with the Portfolio's and/or Fund's investment
objectives, restrictions and policies, as stated herein and in the Prospectus;
(iii) make investment decisions for THE Portfolio; and (iv) place purchase and
sale orders for securities and other financial instruments on behalf of THE
Portfolio.

Bankers Trust bears all expenses in connection with the performance of services
under the Advisory Agreement. The TRUST and THE Portfolio bear certain other
expenses incurred in their operation, including: taxes, interest, brokerage fees
and commissions, if any; fees of Trustees of THE Trust or Portfolio who are
not officers, directors or employees of Bankers Trust, ICC DISTRIBUTORS or any
of their affiliates; SEC fees and state Blue Sky qualification fees, if any;
administrative and services fees; 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; 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 PORTFOLIO; and any extraordinary
expenses.

UNDER THE ADVISORY AGREEMENT, BANKERS TRUST RECEIVES A FEE FROM THE PORTFOLIO,
COMPUTED DAILY AND PAID MONTHLY, AT THE ANNUAL RATE OF 0.15 OF THE AVERAGE DAILY
NET ASSETS OF THE PORTFOLIO. For the fiscal years ended December 31, 1998, 1997
AND 1996, Bankers Trust earned $_____, $3,616,531 AND $2,794,472,
respectively, in compensation for investment advisory services provided to THE
Portfolio. During the same periods, Bankers Trust reimbursed $_____, $2,208,146
AND $3,187,013, RESPECTIVELY, TO THE Portfolio 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
PORTFOLIO, including outstanding loans to such issuers which could be repaid in
whole or in part with the proceeds of securities so purchased. Such affiliates
deal, trade and invest for their own accounts in such obligations and are among
the leading dealers of various types of such obligations. Bankers Trust has
informed the PORTFOLIO 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
PORTFOLIO, Bankers Trust will not inquire or take into consideration whether an
issuer of securities proposed for purchase or sale by THE Portfolio 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.

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ADMINISTRATOR

Under ITS ADMINISTRATION AND SERVICES AGREEMENT WITH THE TRUST, THE ADVISER
CALCULATES THE NET ASSET VALUE OF THE FUND AND GENERALLY ASSISTS THE BOARD OF
TRUSTEES OF THE TRUST IN ALL ASPECTS OF THE ADMINISTRATION AND OPERATION OF THE
TRUST. THE ADMINISTRATION AND SERVICES AGREEMENT PROVIDES FOR THE TRUST TO PAY
THE ADVISER A FEE, COMPUTED DAILY AND PAID MONTHLY, EQUAL ON AN ANNUAL BASIS TO
0.05% OF THE AVERAGE DAILY NET ASSETS OF THE FUND.

UNDER ADMINISTRATION AND SERVICES AGREEMENT WITH THE PORTFOLIO, THE ADVISER
CALCULATES THE VALUE OF THE ASSETS OF THE PORTFOLIO AND GENERALLY ASSISTS THE
BOARD OF TRUSTEES OF THE PORTFOLIO IN ALL ASPECTS OF THE ADMINISTRATION AND
OPERATION OF THE PORTFOLIO. THE ADMINISTRATION AND SERVICES AGREEMENT PROVIDE
FOR THE PORTFOLIO TO PAY THE ADVISER A FEE, COMPUTED DAILY AND PAID MONTHLY,
EQUAL ON AN ANNUAL BASIS TO 0.05% OF THE PORTFOLIO'S AVERAGE DAILY NET ASSETS.
UNDER THE ADMINISTRATION AND SERVICES AGREEMENT, THE ADVISER MAY DELEGATE ONE OR
MORE OF ITS RESPONSIBILITIES TO OTHERS, INCLUDING AFFILIATES OF ICC
DISTRIBUTORS, AT THE ADVISER'S EXPENSE.

UNDER THE ADMINISTRATION AND SERVICES AGREEMENT, Bankers Trust is obligated on a
continuous basis to provide such administrative services as the Board of
Trustees of THE Trust and THE Portfolio reasonably deems necessary for the
proper administration of THE Trust and THE Portfolio. Bankers Trust will
generally assist in all aspects of the FUND'S and PORTFOLIO'S operations;
supply and maintain office facilities (which may be in Bankers Trust'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 of the TRUST or the
PORTFOLIO), 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 each Trust's and
THE Portfolio's Declaration of Trust, by-laws, investment objectives and
policies and with Federal and state securities laws; arrange for appropriate
insurance coverage; calculate the NAV, net income and realized capital gains or
losses of THE Trust; and negotiate arrangements with, and supervise and
coordinate the activities of, agents and others retained to supply services.

Pursuant to a sub-administration agreement (the "Sub-Administration Agreement")
FSC performs such sub-administration duties for the TRUST and THE Portfolio
as from time to time may be agreed upon by Bankers Trust and FSC. The
Sub-Administration Agreement provides that FSC will receive such compensation as
from time to time may be agreed upon by FSC and Bankers Trust. All such
compensation will be paid by Bankers Trust.

Bankers Trust has agreed that if in any fiscal year the aggregate expenses of
THE Fund and THE Portfolio (including fees pursuant to the Advisory Agreement,
but excluding interest, taxes, brokerage and, if permitted by the relevant state
securities commissions, extraordinary expenses) exceed the expense limitation of
any state having jurisdiction over the Fund, Bankers Trust will reimburse the
Fund for the excess expense to the extent required by state law. As of the date
of this SAI, the most restrictive annual expense limitation applicable to any
Fund is 2.50% of the Fund's first $30 million of average annual net assets,
2.00% of the next $70 million of average annual net assets and 1.50% of the
remaining average annual net assets.

For the fiscal years ended December 31, 1998, 1997 AND 1996, Bankers Trust
earned $_____, $1,202,275 and $929,288, respectively, in compensation for
administrative and other services provided to THE Fund. During the same
periods, Bankers Trust reimbursed $_____, $67,932 and $879,347,
respectively, to the Fund to cover expenses.

For the fiscal YEAR ended December 31, 1998, 1997 AND 1996, Bankers Trust
earned COMPENSATION OF $_____, $1,205,510 AND $931,490, RESPECTIVELY, for
administrative and other services provided to THE PORTFOLIO.

DISTRIBUTOR

ICC DISTRIBUTORS IS THE PRINCIPAL DISTRIBUTOR FOR SHARES OF THE FUND. ICC
DISTRIBUTORS IS A REGISTERED BROKER/DEALER AND IS UNAFFILIATED WITH BANKERS
TRUST. THE PRINCIPAL BUSINESS ADDRESS OF ICC DISTRIBUTORS IS TWO PORTLAND
SQUARE, PORTLAND, MAINE 04101. IN ADDITION TO ICC DISTRIBUTORS'S DUTIES AS
DISTRIBUTOR, ICC DISTRIBUTORS AND ITS AFFILIATES MAY, IN THEIR DISCRETION,
PERFORM ADDITIONAL FUNCTIONS IN CONNECTION WITH TRANSACTIONS IN THE SHARES OF
THE FUND.

SERVICE AGENT

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AND PROCESSING REDEMPTION TRANSACTIONS AT THE REQUEST OF CLIENTS, ASSISTING
CLIENTS IN CHANGING DIVIDEND OPTIONS, ACCOUNT DESIGNATIONS AND ADDRESSES,
PROVIDING PERIODIC STATEMENTS SHOWING THE CLIENT'S ACCOUNT BALANCE AND
INTEGRATING THESE STATEMENTS WITH THOSE OF OTHER TRANSACTIONS AND BALANCES IN
THE CLIENT'S OTHER ACCOUNTS SERVICED BY THE SERVICE AGENT, TRANSMITTING PROXY
STATEMENTS, PERIODIC REPORTS, UPDATED PROSPECTUSES AND OTHER COMMUNICATIONS TO
SHAREHOLDERS AND, WITH RESPECT TO MEETINGS OF SHAREHOLDERS, COLLECTING,
TABULATING AND FORWARDING TO THE TRUST EXECUTED PROXIES, ARRANGING FOR BANK
WIRES AND OBTAINING SUCH OTHER INFORMATION AND PERFORMING SUCH OTHER SERVICES AS
THE ADMINISTRATOR OR THE SERVICE AGENT'S CLIENTS MAY REASONABLY REQUEST AND
AGREE UPON WITH THE SERVICE AGENT. SERVICE AGENTS MAY SEPARATELY CHARGE THEIR
CLIENTS ADDITIONAL FEES ONLY TO COVER PROVISION OF ADDITIONAL OR MORE
COMPREHENSIVE SERVICES NOT ALREADY PROVIDED UNDER THE ADMINISTRATION AND
SERVICES AGREEMENT WITH THE ADVISER, OR OF THE TYPE OR SCOPE NOT GENERALLY
OFFERED BY A MUTUAL FUND, SUCH AS CASH MANAGEMENT SERVICES OR ENHANCED
RETIREMENT OR TRUST REPORTING. IN ADDITION, INVESTORS MAY BE CHARGED A
TRANSACTION FEE IF THEY EFFECT TRANSACTIONS IN FUND SHARES THROUGH A BROKER OR
AGENT. EACH SERVICE AGENT HAS AGREED TO TRANSMIT TO SHAREHOLDERS, WHO ARE ITS
CUSTOMERS, APPROPRIATE DISCLOSURES OF ANY FEES THAT IT MAY CHARGE THEM DIRECTLY.

CUSTODIAN AND TRANSFER AGENT
Bankers Trust, 130 Liberty Street (One Bankers Trust Plaza), New York, New York
10006, serves as custodian and transfer agent for the TRUST and as custodian
for THE Portfolio pursuant to the administration and services agreements
discussed above. As custodian, Bankers Trust holds the FUND'S and THE
Portfolio's assets. For such services, Bankers Trust receives monthly fees from
THE Fund and THE Portfolio, which are included in the administrative services
fees discussed above. As transfer agent for THE Trust, Bankers Trust maintains
the shareholder account records for THE Fund, handles certain communications
between shareholders and THE Trust and causes to be distributed any dividends
and distributions payable by THE Trust. Bankers Trust is also reimbursed by
the FUND for its out-of-pocket expenses. Bankers Trust will comply with the
self-custodian provisions of Rule 17f-2 under the 1940 Act.

EXPENSES

THE FUND BEARS ITS OWN EXPENSES. OPERATING EXPENSES FOR THE FUND GENERALLY
CONSIST OF ALL COSTS NOT SPECIFICALLY BORNE BY THE ADVISER OR ICC DISTRIBUTORS,
INCLUDING ADMINISTRATION AND SERVICES FEES, FEES FOR NECESSARY PROFESSIONAL
SERVICES, AMORTIZATION OF ORGANIZATIONAL EXPENSES AND COSTS ASSOCIATED WITH
REGULATORY COMPLIANCE AND MAINTAINING LEGAL EXISTENCE AND SHAREHOLDER RELATIONS.
THE PORTFOLIO BEARS ITS OWN EXPENSES. OPERATING EXPENSES FOR THE PORTFOLIO
GENERALLY CONSIST OF ALL COSTS NOT SPECIFICALLY BORNE BY THE ADVISER OR ICC
DISTRIBUTORS, INCLUDING INVESTMENT ADVISORY AND ADMINISTRATION AND SERVICE FEES,
FEES FOR NECESSARY PROFESSIONAL SERVICES, AMORTIZATION OF ORGANIZATIONAL
EXPENSES, THE COSTS ASSOCIATED WITH REGULATORY COMPLIANCE AND MAINTAINING LEGAL
EXISTENCE AND INVESTOR RELATIONS.

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 Adviser. 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 PORTFOLIO contemplated by the Advisory
Agreements and other activities for the TRUST and the PORTFOLIO 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 or the PORTFOLIO. If the circumstances
described above should change, the BOARD of Trustees would review THE
Trust's relationship with Bankers Trust and consider taking all actions
necessary in the circumstances.

COUNSEL AND INDEPENDENT ACCOUNTANTS

Willkie Farr & Gallagher, 787 SEVENTH AVENUE, New York, New York 10019-6099,
serve as Counsel to the TRUST and from time to time provides certain legal
services to Bankers Trust. PRICEWATERHOUSECOOPERS LLP, 1100 Main Street, Suite
900, Kansas City, Missouri 64105 has been selected as Independent Accountants
for the TRUST.

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ORGANIZATION OF THE TRUST

BT Institutional Funds was organized on March 26, 1990 as a series Trust. THE
FUND IS A SEPARATE SERIES OF THE TRUST. THE TRUST OFFERS SHARES OF BENEFICIAL
INTEREST OF SEPARATE SERIES, PAR VALUE $0.001 PER SHARE. THE SHARES OF THE OTHER
SERIES OF THE TRUST ARE OFFERED THROUGH SEPARATE PROSPECTUSES AND STATEMENTS OF
ADDITIONAL INFORMATION. The shares of each series participate equally in the
earnings, dividends and assets of the particular series. The TRUST may create
and issue additional series of shares. THE Trust's Declaration of Trust
permits the Trustees to divide or combine the shares into a greater or lesser
number of shares without thereby changing the proportionate beneficial interest
in a series. Each share represents an equal proportionate interest in a series
with each other share. Shares when issued are fully paid and non-assessable,
except as set forth below. Shareholders are entitled to one vote for each share
held. NO SERIES OF SHARES HAS ANY PREFERENCE OVER ANY OTHER SERIES.

THE TRUST IS AN ENTITY COMMONLY KNOWN AS A "MASSACHUSETTS BUSINESS TRUST."
Massachusetts law provides that shareholders could under certain circumstances
be held personally liable for the obligations of the TRUST. However, the
DECLARATION of Trust DISCLAIMS shareholder liability for acts or obligations
of the TRUST and REQUIRES that notice of this disclaimer be given in each
agreement, obligation or instrument entered into or executed by THE Trust or a
Trustee. The DECLARATION of Trust PROVIDES for indemnification from THE
TRUST'S property for all losses and expenses of any shareholder held personally
liable for the obligations of the Trust. Thus, the risk of shareholders
incurring financial loss on account of shareholder liability is limited to
circumstances in which BOTH INADEQUATE INSURANCE EXISTED AND the Trust itself
WAS unable to meet its obligations, a possibility that the TRUST BELIEVES is
remote. Upon payment of any liability incurred by THE Trust, the shareholder
paying the liability will be entitled to reimbursement from the general assets
of the Trust. The Trustees intend to conduct the operations of THE Trust in a
manner so as to avoid, as far as possible, ultimate liability of the
shareholders for liabilities of the Trust.

THE TRUST IS NOT REQUIRED TO HOLD ANNUAL MEETINGS OF SHAREHOLDERS BUT WILL HOLD
SPECIAL MEETINGS OF SHAREHOLDERS WHEN IN THE JUDGMENT OF THE TRUSTEES IT IS
NECESSARY OR DESIRABLE TO SUBMIT MATTERS FOR A SHAREHOLDER VOTE. SHAREHOLDERS
HAVE UNDER CERTAIN CIRCUMSTANCES THE RIGHT TO COMMUNICATE WITH OTHER
SHAREHOLDERS IN CONNECTION WITH REQUESTING A MEETING OF SHAREHOLDERS FOR THE
PURPOSE OF REMOVING ONE OR MORE TRUSTEES WITHOUT A MEETING. WHEN MATTERS ARE
SUBMITTED FOR SHAREHOLDER VOTE, SHAREHOLDERS OF THE FUND WILL HAVE ONE VOTE FOR
EACH FULL SHARE HELD AND PROPORTIONATE, FRACTIONAL VOTES FOR FRACTIONAL SHARES
HELD. A SEPARATE VOTE OF THE FUND IS REQUIRED ON ANY MATTER AFFECTING THE FUND
ON WHICH SHAREHOLDERS ARE ENTITLED TO VOTE. SHAREHOLDERS GENERALLY VOTE BY FUND,
EXCEPT WITH RESPECT TO THE ELECTION OF TRUSTEES AND THE RATIFICATION OF THE
SELECTION OF INDEPENDENT ACCOUNTANTS. SHAREHOLDERS OF THE FUND ARE NOT ENTITLED
TO VOTE ON TRUST MATTERS THAT DO NOT AFFECT THE FUND. THERE NORMALLY WILL BE NO
MEETINGS OF SHAREHOLDERS FOR THE PURPOSE OF ELECTING TRUSTEES UNLESS AND UNTIL
SUCH TIME AS LESS THAN A MAJORITY OF TRUSTEES HOLDING OFFICE HAVE BEEN ELECTED
BY SHAREHOLDERS, AT WHICH TIME THE TRUSTEES THEN IN OFFICE WILL CALL A
SHAREHOLDERS' MEETING FOR THE ELECTION OF TRUSTEES. ANY TRUSTEE MAY BE REMOVED
FROM OFFICE UPON THE VOTE OF SHAREHOLDERS HOLDING AT LEAST TWO-THIRDS OF THE
TRUST'S OUTSTANDING SHARES AT A MEETING CALLED FOR THAT PURPOSE. THE TRUSTEES
ARE REQUIRED TO CALL SUCH A MEETING UPON THE WRITTEN REQUEST OF SHAREHOLDERS
HOLDING AT LEAST 10% OF THE TRUST'S OUTSTANDING SHARES.

SHARES OF THE TRUST DO NOT HAVE CUMULATIVE VOTING RIGHTS, WHICH MEANS THAT
HOLDERS OF MORE THAN 50% OF THE SHARES VOTING FOR THE ELECTION OF TRUSTEES CAN
ELECT ALL TRUSTEES. SHARES ARE TRANSFERABLE BUT HAVE NO PREEMPTIVE, CONVERSION
OR SUBSCRIPTION RIGHTS. UPON LIQUIDATION OF THE FUND, SHAREHOLDERS OF THAT FUND
WOULD BE ENTITLED TO SHARE PRO RATA IN THE NET ASSETS OF THE FUND AVAILABLE FOR
DISTRIBUTION TO SHAREHOLDERS.

THE PORTFOLIO IS A SUBTRUST (OR "SERIES") OF BT INVESTMENT PORTFOLIOS, AN
OPEN-END MANAGEMENT INVESTMENT COMPANY. BT INVESTMENT PORTFOLIOS WAS ORGANIZED
AS A MASTER TRUST FUND UNDER THE LAWS OF THE STATE OF NEW YORK. BT INVESTMENT
PORTFOLIO'S DECLARATION OF TRUST PROVIDES THAT THE FUND AND OTHER ENTITIES
INVESTING IN THE PORTFOLIO (E.G., OTHER INVESTMENT COMPANIES, INSURANCE COMPANY
SEPARATE ACCOUNTS AND COMMON AND COMMINGLED TRUST FUNDS) WILL EACH BE LIABLE FOR
ALL OBLIGATIONS OF THE PORTFOLIO. HOWEVER, THE RISK OF THE FUND INCURRING
FINANCIAL LOSS ON ACCOUNT OF SUCH LIABILITY IS LIMITED TO CIRCUMSTANCES IN WHICH
BOTH INADEQUATE INSURANCE EXISTED AND THE PORTFOLIO ITSELF WAS UNABLE TO MEET
ITS OBLIGATIONS. ACCORDINGLY, THE TRUSTEES OF THE TRUST BELIEVE THAT NEITHER THE
FUND NOR ITS SHAREHOLDERS WILL BE ADVERSELY AFFECTED BY REASON OF THE FUND'S
INVESTING IN THE PORTFOLIO. THE INTERESTS IN BT INVESTMENT PORTFOLIOS ARE
DIVIDED INTO SEPARATE SERIES, SUCH AS THE PORTFOLIO. NO SERIES OF BT INVESTMENT
PORTFOLIOS HAS ANY PREFERENCE OVER ANY OTHER SERIES.

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the meeting of investors in THE Portfolio, the Trust will cast all of its
votes in the same proportion as the votes all its shares at the Portfolio
meeting, other investors with a greater pro rata ownership of the Portfolio
could have effective voting control of the operations of the Portfolio.

THE SERIES OF BT INVESTMENT PORTFOLIOS WILL VOTE SEPARATELY OR TOGETHER IN THE
SAME MANNER AS THE SERIES OF THE TRUST. UNDER CERTAIN CIRCUMSTANCES, THE
INVESTORS IN ONE OR MORE SERIES OF BT INVESTMENT PORTFOLIOS COULD CONTROL THE
OUTCOME OF THESE VOTES.

AS OF _______ __, 1998, THE FOLLOWING SHAREHOLDERS OF RECORD OWNED 25% OR MORE
OF THE VOTING SECURITIES OF THE 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: [TO BE PROVIDED]

TAXES

The following is only a summary of certain tax considerations generally
affecting the FUND and ITS shareholders, and is not intended as a substitute
for careful tax planning. Shareholders are urged to consult their tax advisers
with specific reference to their own tax situations.

THE Fund is designed to provide investors with current income. The FUND IS
not intended to constitute A balanced investment PROGRAM and IS not designed
for investors seeking capital gains or maximum income irrespective of
fluctuations in principal.

THE Fund intends TO CONTINUE to qualify as a separate regulated investment
company under the Internal Revenue Code of 1986, as amended (the "Code").
Provided that THE Fund is a regulated investment company, THE Fund will not
be liable for Federal income taxes to the extent all of its taxable net
investment income and net realized long- and short-term capital gains, if any,
are distributed to its shareholders. Although THE Trust expects the FUND to
be relieved of all or substantially all Federal income taxes, depending upon the
extent of their activities in states and localities in which their offices are
maintained, in which their agents or independent contractors are located or in
which they are otherwise deemed to be conducting business, that portion of THE
Fund's income which is treated as earned in any such state or locality could be
subject to state and local tax. Any such taxes paid by THE Fund would reduce
the amount of income and gains available for distribution to its shareholders.

IF FOR ANY TAXABLE YEAR THE 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.

THE PORTFOLIO IS NOT SUBJECT TO THE FEDERAL INCOME TAXATION. INSTEAD, THE FUND
AND OTHER INVESTORS INVESTING IN THE PORTFOLIO MUST TAKE INTO ACCOUNT, IN
COMPUTING THEIR FEDERAL INCOME TAX LIABILITY, THEIR SHARE OF THE PORTFOLIO'S
INCOME, GAINS, LOSSES, DEDUCTIONS, CREDITS AND TAX PREFERENCE ITEMS, WITHOUT
REGARD TO WHETHER THEY HAVE RECEIVED ANY CASH DISTRIBUTIONS FROM THE PORTFOLIO.
THE PORTFOLIO DETERMINES ITS NET INCOME AND REALIZED CAPITAL GAINS, IF ANY, ON
EACH VALUATION DAY AND ALLOCATES ALL SUCH INCOME AND GAIN PRO RATA AMONG THE
FUND AND THE OTHER INVESTORS IN THE PORTFOLIO AT THE TIME OF SUCH DETERMINATION.

THE FUND DECLARES DIVIDENDS FROM ITS NET INCOME DAILY AND PAYS THE DIVIDENDS
MONTHLY. THE FUND RESERVES THE RIGHT TO INCLUDE REALIZED SHORT-TERM GAINS, IF
ANY, IN SUCH DAILY DIVIDENDS. DISTRIBUTIONS OF THE FUND'S PRO RATA SHARE OF THE
PORTFOLIO'S NET REALIZED long-term capital gains, IF ANY, AND ANY
UNDISTRIBUTED NET REALIZED SHORT-TERM CAPITAL GAINS ARE NORMALLY DECLARED AND
PAID ANNUALLY AT THE END OF THE FISCAL YEAR IN WHICH THEY WERE EARNED TO THE
EXTENT THEY ARE NOT OFFSET BY ANY CAPITAL LOSS CARRYFORWARDS. UNLESS A
SHAREHOLDER INSTRUCTS THE TRUST TO PAY DIVIDENDS OR CAPITAL GAINS DISTRIBUTIONS
IN CASH, DIVIDENDS AND DISTRIBUTIONS WILL AUTOMATICALLY BE REINVESTED AT NAV IN
ADDITIONAL SHARES OF THE FUND.

DISTRIBUTIONS OF NET REALIZED LONG-TERM CAPITAL GAINS ("capital gain
dividends"), if any, will be taxable to shareholders as long-term capital gains,
regardless of how long a shareholder has held Fund shares, and will be
designated as capital gain dividends in a written notice mailed by the Fund to
shareholders after the close of the FUND'S prior taxable year. DIVIDENDS PAID
BY THE FUND FROM ITS TAXABLE NET INVESTMENT INCOME AND DISTRIBUTIONS BY THE FUND
OF ITS NET REALIZED SHORT-TERM CAPITAL GAINS ARE TAXABLE TO SHAREHOLDERS AS
ORDINARY INCOME, WHETHER RECEIVED IN CASH OR REINVESTED IN ADDITIONAL SHARES OF
THE FUND. THE FUND'S DIVIDENDS AND DISTRIBUTIONS WILL NOT QUALIFY FOR THE
DIVIDENDS-RECEIVED DEDUCTION FOR CORPORATIONS.

17
<PAGE>

STATEMENTS AS TO THE TAX STATUS OF EACH SHAREHOLDER'S DIVIDENDS AND
DISTRIBUTIONS, IF ANY, ARE MAILED ANNUALLY. EACH SHAREHOLDER WILL ALSO RECEIVE,
IF APPROPRIATE, VARIOUS WRITTEN NOTICES AFTER THE END OF THE FUND'S PRIOR
TAXABLE YEAR AS TO THE FEDERAL INCOME TAX STATUS OF HIS OR HER DIVIDENDS AND
DISTRIBUTIONS WHICH WERE RECEIVED FROM THE FUND DURING THAT YEAR. SHAREHOLDERS
SHOULD CONSULT THEIR TAX ADVISERS TO ASSESS THE CONSEQUENCES OF INVESTING IN THE
FUND UNDER STATE AND LOCAL LAWS AND TO DETERMINE WHETHER DIVIDENDS PAID BY THE
FUND THAT REPRESENT INTEREST DERIVED FROM U.S.
GOVERNMENT OBLIGATIONS ARE EXEMPT FROM ANY APPLICABLE STATE OR LOCAL INCOME
TAXES.

If a shareholder fails to furnish a correct taxpayer identification number,
fails to report fully dividend or interest income or fails to certify that he or
she has provided a correct taxpayer identification number and that he or she is
not subject to "backup withholding," then the shareholder may be subject to a
31% backup withholding tax with respect to any taxable dividends and
distributions . An individual's taxpayer identification number is his or her
social security number. The 31% backup withholding tax is not an additional tax
and may be credited against a taxpayer's regular Federal income tax liability.

18
<PAGE>

PERFORMANCE INFORMATION

From time to time, THE TRUST MAY ADVERTISE "CURRENT YIELD," AND/OR "EFFECTIVE
YIELD" FOR THE FUND. ALL YIELD FIGURES ARE BASED ON HISTORICAL EARNINGS AND ARE
NOT INTENDED TO INDICATE FUTURE PERFORMANCE. THE "CURRENT YIELD" OF THE FUND
REFERS TO THE INCOME GENERATED BY AN INVESTMENT IN THE FUND OVER A SEVEN-DAY
PERIOD (WHICH PERIOD WILL BE STATED IN THE ADVERTISEMENT). THIS INCOME IS THEN
"ANNUALIZED;" THAT IS, THE AMOUNT OF INCOME GENERATED BY THE INVESTMENT DURING
THAT WEEK IS ASSUMED TO BE GENERATED EACH WEEK OVER A 52-WEEK PERIOD AND IS
SHOWN AS A PERCENTAGE OF THE INVESTMENT. THE "EFFECTIVE YIELD" IS CALCULATED
SIMILARLY BUT, WHEN ANNUALIZED, THE INCOME EARNED BY AN INVESTMENT IN THE FUND
IS ASSUMED TO BE REINVESTED. THE "EFFECTIVE YIELD" WILL BE SLIGHTLY HIGHER THAN
THE "CURRENT YIELD" BECAUSE OF THE COMPOUNDING EFFECT OF THIS ASSUMED
REINVESTMENT. THE TRUST MAY INCLUDE THIS INFORMATION IN SALES MATERIAL AND
ADVERTISEMENTS FOR THE FUND.

YIELD IS A FUNCTION OF THE QUALITY, COMPOSITION AND MATURITY OF THE SECURITIES
HELD BY THE PORTFOLIO AND OPERATING EXPENSES OF THE FUND AND THE PORTFOLIO. IN
PARTICULAR, THE FUND'S YIELD WILL RISE AND FALL WITH SHORT-TERM INTEREST RATES,
WHICH CAN CHANGE FREQUENTLY AND SHARPLY. IN PERIODS OF RISING INTEREST RATES,
THE YIELD OF THE FUND WILL TEND TO BE SOMEWHAT LOWER THAN THE PREVAILING MARKET
RATES, AND IN PERIODS OF DECLINING INTEREST RATES, THE YIELD WILL TEND TO BE
SOMEWHAT HIGHER. IN ADDITION, WHEN INTEREST RATES ARE RISING, THE INFLOW OF NET
NEW MONEY TO THE FUND FROM THE CONTINUOUS SALE OF ITS SHARES WILL LIKELY BE
INVESTED BY THE PORTFOLIO IN INSTRUMENTS PRODUCING HIGHER YIELDS THAN THE
BALANCE OF THE PORTFOLIO'S SECURITIES, THEREBY INCREASING THE CURRENT YIELD OF
THE FUND. IN PERIODS OF FALLING INTEREST RATES, THE OPPOSITE CAN BE EXPECTED TO
OCCUR. ACCORDINGLY, YIELDS WILL FLUCTUATE AND DO NOT NECESSARILY INDICATE FUTURE
RESULTS. WHILE YIELD INFORMATION MAY BE USEFUL IN REVIEWING THE PERFORMANCE OF
THE FUND, IT MAY NOT PROVIDE A BASIS FOR COMPARISON WITH BANK DEPOSITS, OTHER
FIXED RATE INVESTMENTS, OR OTHER INVESTMENT COMPANIES THAT MAY USE A DIFFERENT
METHOD OF CALCULATING YIELD. ANY FEES CHARGED BY SERVICE AGENTS FOR PROCESSING
PURCHASE AND/OR REDEMPTION TRANSACTIONS WILL EFFECTIVELY REDUCE THE YIELD FOR
THOSE SHAREHOLDERS.

FROM TIME TO TIME, ADVERTISEMENTS OR REPORTS TO SHAREHOLDERS MAY COMPARE THE
YIELD OF THE FUND TO THAT OF OTHER MUTUAL FUNDS WITH SIMILAR INVESTMENT
OBJECTIVES OR TO THAT OF A PARTICULAR INDEX. THE YIELD OF THE FUND MIGHT BE
COMPARED WITH, FOR EXAMPLE, THE IBC FIRST TIER INSTITUTIONS ONLY ALL TAXABLE
MONEY FUND AVERAGE, WHICH IS AN AVERAGE COMPILED BY IBC MONEY FUND REPORT, A
WIDELY RECOGNIZED, INDEPENDENT PUBLICATION THAT MONITORS THE PERFORMANCE OF
MONEY MARKET MUTUAL FUNDS. SIMILARLY, THE YIELD OF THE FUND MIGHT BE COMPARED
WITH RANKINGS PREPARED BY MICROPAL LIMITED AND/OR LIPPER ANALYTICAL SERVICES,
INC., WHICH ARE WIDELY RECOGNIZED, INDEPENDENT SERVICES THAT MONITOR THE
INVESTMENT PERFORMANCE OF MUTUAL FUNDS. THE YIELD OF THE FUND MIGHT ALSO BE
COMPARED WITHOUT THE AVERAGE YIELD REPORTED BY THE BANK RATE MONITOR FOR MONEY
MARKET DEPOSIT ACCOUNTS OFFERED BY THE 50 LEADING BANKS AND THRIFT INSTITUTIONS
IN THE TOP FIVE STANDARD METROPOLITAN AREAS. SHAREHOLDERS MAY MAKE INQUIRIES
REGARDING THE FUND, INCLUDING CURRENT YIELD QUOTATIONS AND PERFORMANCE
INFORMATION, BY CONTACTING ANY SERVICE AGENT.

SHAREHOLDERS WILL RECEIVE FINANCIAL REPORTS SEMI-ANNUALLY THAT INCLUDE LISTINGS
OF INVESTMENT SECURITIES HELD BY THE PORTFOLIO AT THOSE DATES. ANNUAL REPORTS
ARE AUDITED BY INDEPENDENT ACCOUNTANTS.

The effective yield is an annualized yield based on a compounding of the
unannualized base period return. These yields are each computed in accordance
with a standard method prescribed by the rules of the SEC, by first determining
the "net change in account value" for a hypothetical account having a share
balance of one share at the beginning of a seven-day period (the "beginning
account value"). The net change in account value equals the value of additional
shares purchased with dividends from the original share and dividends declared
on both the original share and any such additional shares. The unannualized
"base period return" equals the net change in account value divided by the
beginning account value. Realized gains or losses or changes in unrealized
appreciation or depreciation are not taken into account in determining the net
change in account value.

19
<PAGE>

The yields are then calculated as follows:

Base Period Return = Net Change in Account Value
Beginning Account Value

Current Yield = Base Period Return x 365/7

Effective Yield = [(1 + Base Period Return)365/7] - 1

Tax Equivalent Yield = Current Yield

(1 - Tax Rate)

FOR the seven days ended December 31, 1998, THE FUND'S CURRENT YIELD WAS ____%
AND THE FUND'S EFFECTIVE YIELD WAS
- ---%.

ECONOMIC AND MARKET INFORMATION

Advertising and sales literature of THE 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 Fund. 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"). For example, according to the ICI,
thirty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $4.4 trillion to the more than 6,700 funds available.

FINANCIAL STATEMENTS

The financial statements for THE Fund and THE Portfolio for the period ended
December 31, 1998, are incorporated herein by reference to the Annual Report
to shareholders for THE Fund dated December 31, 1998. A copy of THE Fund's
Annual Report may be obtained without charge by contacting the Fund.

20
<PAGE>

APPENDIX

DESCRIPTION OF SECURITIES RATINGS

DESCRIPTION OF S&P'S CORPORATE BOND RATINGS:

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

AA--Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in small degree.

S&P's letter ratings may be modified by the addition of a plus or a minus sign,
which is used to show relative standing within the major categories, except in
the AAA rating category.

DESCRIPTION OF MOODY'S CORPORATE BOND RATINGS:

Aaa--Bonds which are rated Aaa are judged to be 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 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 which are 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.

Moody's applies the numerical modifiers 1, 2 and 3 to each generic rating
classification from Aa through B. 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 FITCH INVESTORS SERVICE'S CORPORATE BOND RATINGS:

AAA--Securities of this rating are regarded as strictly high-grade, broadly
marketable, suitable for investment by trustees and fiduciary institutions, and
liable to but slight market fluctuation other than through changes in the money
rate. The factor last named is of importance varying with the length of
maturity. Such securities are mainly senior issues of strong companies, and are
most numerous in the railway and public utility fields, though some industrial
obligations have this rating. The prime feature of an AAA rating is showing of
earnings several times or many times interest requirements with such stability
of applicable earnings that safety is beyond reasonable question whatever
changes occur in conditions. Other features may enter in, such as a wide margin
of protection through collateral security or direct lien on specific property as
in the case of high class equipment certificates or bonds that are first
mortgages on valuable real estate. Sinking funds or voluntary reduction of the
debt by call or purchase are often factors, while guarantee or assumption by
parties other than the original debtor may also influence the rating.

AA--Securities in this group are of safety virtually beyond question, and as a
class are readily salable while many are highly active. Their merits are not
greatly unlike those of the AAA class, but a security so rated may be of junior
though strong lien in many cases directly following an AAA security or the
margin of safety is less strikingly broad. The issue may be the obligation of a
small company, strongly secured but influenced as to ratings by the lesser
financial power of the enterprise and more local type of market.

DESCRIPTION OF DUFF & PHELPS' CORPORATE BOND RATINGS:

AAA--Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury Funds.

AA+, AA, AA--High credit quality. Protection factors are strong. Risk is modest
but may vary slightly from time to time because of economic conditions.

DESCRIPTION OF S&P'S MUNICIPAL BOND RATINGS:

AAA--Prime--These are obligations of the highest quality. They have the
strongest capacity for timely payment of debt service.

21
<PAGE>

General Obligation Bonds--In a period of economic stress, the issuers will
suffer the smallest declines in income and will be least susceptible to
autonomous decline. Debt burden is moderate. A strong revenue structure appears
more than adequate to meet future expenditure requirements. Quality of
management appears superior.

Revenue Bonds--Debt service coverage has been, and is expected to remain,
substantial; stability of the pledged revenues is also exceptionally strong due
to the competitive position of the municipal enterprise or to the nature of the
revenues. Basic security provisions (including rate covenant, earnings test for
issuance of additional bonds and debt service reserve requirements) are
rigorous. There is evidence of superior management.

AA--High Grade--The investment characteristics of bonds in this group are only
slightly less marked than those of the prime quality issues. Bonds rated AA have
the second strongest capacity for payment of debt service.

S&P's letter ratings may be modified by the addition of a plus or a minus sign,
which is used to show relative standing within the major rating categories,
except in the AAA rating category.

DESCRIPTION OF MOODY'S MUNICIPAL BOND RATINGS:

Aaa--Bonds which are 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 which are 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.

Moody's may apply the numerical modifier in each generic rating classification
from Aa through B. The modifier 1 indicates that the security within its generic
rating classification possesses the strongest investment attributes.

DESCRIPTION OF S&P'S MUNICIPAL NOTE RATINGS:

Municipal notes with maturities of three years or less are usually given note
ratings (designated SP-1 or SP-2) to distinguish more clearly the credit quality
of notes as compared to bonds. Notes rated SP-1 have a very strong or strong
capacity to pay principal and interest. Those issues determined to possess
overwhelming safety characteristics are given the designation of SP-1+. Notes
rated SP-2 have a satisfactory capacity to pay principal and interest.

22
<PAGE>

DESCRIPTION OF MOODY'S MUNICIPAL NOTE RATINGS:

Moody's ratings for state and municipal notes and other short-term loans are
designated Moody's Investment Grade (MIG) and for variable rate demand
obligations are designated Variable Moody's Investment Grade (VMIG). This
distinction recognizes the differences between short-term credit risk and
long-term risk. Loans bearing the designation MIG-1/VMIG-1 are of the best
quality, enjoying strong protection from established cash flows of funds for
their servicing or from established and broad-based access to the market for
refinancing, or both. Loans bearing the designation MIG-2/VMIG-2 are of high
quality, with ample margins of protection, although not as large as the
preceding group.

DESCRIPTION OF S&P COMMERCIAL PAPER RATINGS:

Commercial paper rated A-1 by S&P indicates that the degree of safety regarding
timely payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted A-1+.

DESCRIPTION OF MOODY'S COMMERCIAL PAPER RATINGS:

The rating Prime-1 is the highest commercial paper rating assigned by Moody's.
Issuers rated Prime-1 (or related supporting institutions) are considered to
have a superior capacity for repayment of short-term promissory obligations.

DESCRIPTION OF FITCH INVESTORS SERVICE'S COMMERCIAL PAPER RATINGS:

F1+--Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.

F1--Very Strong Credit Quality. Issues assigned this rating reflect an assurance
of timely payment only slightly less in degree than the strongest issue.

DESCRIPTION OF DUFF & PHELPS' COMMERCIAL PAPER RATINGS:

Duff 1+--Highest certainty of timely payment. Short term liquidity, including
internal operating factors and/or access to alternative sources of funds, is
outstanding, and safety is just below risk free U.S. Treasury short term
obligations.

Duff 1--Very high certainty of timely payment. Liquidity factors are excellent
and supported by good fundamental protection factors. Risk factors are minor.

DESCRIPTION OF THOMSON BANK WATCH SHORT-TERM RATINGS:

T-1--The highest category; indicates a very high likelihood that principal and
interest will be paid on a timely basis.

T-2--The second-highest category; while the degree of safety regarding timely
repayment of principal and interest is strong, the relative degree of safety is
not as high as for issues rated "TBW-1".

T-3--The lowest investment-grade category; indicates that while the obligation
is more susceptible to adverse developments (both internal and external) than
those with higher ratings, the capacity to service principal and interest in a
timely fashion is considered adequate.

T-4--The lowest rating category; this rating is regarded as non-investment grade
and therefore speculative.

DESCRIPTION OF THOMSON BANKWATCH LONG-TERM RATINGS:

AAA--The highest category; indicates that the ability to repay principal and
interest on a timely basis is extremely high.

AA--The second-highest category; indicates a very strong ability to repay
principal and interest on a timely basis, with limited incremental risk compared
to issues rated in the highest category.

A--The third-highest category; indicates the ability to repay principal and
interest is strong. Issues rated "a" could be more vulnerable to adverse
developments (both internal and external) than obligations with higher ratings.

BBB--The lowest investment-grade category; indicates an acceptable capacity to
repay principal and interest. Issues rated "BBB" are, however, more vulnerable
to adverse developments (both internal and external) than obligations with
higher ratings.

NON-INVESTMENT GRADE

(ISSUES REGARDED AS HAVING SPECULATIVE CHARACTERISTICS IN THE LIKELIHOOD OF
TIMELY REPAYMENT OF PRINCIPAL AND INTEREST.)

BB--While not investment grade, the "BB" rating suggests that the likelihood of
default is considerably less than for lower-rated issues. However, there are
significant uncertainties that could affect the ability to adequately service
debt obligations.

23
<PAGE>

B--Issues rated "B" show a higher degree of uncertainty and therefore greater
likelihood of default than higher-rated issues. Adverse development could well
negatively affect the payment of interest and principal on a timely basis.

CCC--Issues rated "CCC" clearly have a high likelihood of default, with little
capacity to address further adverse changes in financial circumstances.

CC--"CC" is applied to issues that are subordinate to other obligations rated
"CCC" and are afforded less protection in the event of bankruptcy or
reorganization.

D--Default

These long-term debt ratings can also be applied to local currency debt. In such
cases the ratings defined above will be preceded by the designation "local
currency".

RATINGS IN THE LONG-TERM DEBT CATEGORIES MAY INCLUDE A PLUS (+) OR MINUS (-)
DESIGNATION, WHICH INDICATES WHERE WITHIN THE RESPECTIVE CATEGORY THE ISSUE IS
PLACED.

24
<PAGE>

INVESTMENT ADVISER OF EACH PORTFOLIO AND ADMINISTRATOR
BANKERS TRUST COMPANY

DISTRIBUTOR
ICC DISTRIBUTORS, INC.

CUSTODIAN AND TRANSFER AGENT
BANKERS TRUST COMPANY

INDEPENDENT ACCOUNTANTS
PRICEWATERHOUSECOOPERS LLP

COUNSEL
WILLKIE FARR & GALLAGHER

--------------------

No person has been authorized to give any information or to make any
representations other than those contained in the Fund's Prospectus, its SAI or
the Fund's official sales literature in connection with the offering of the
Fund's shares and, if given or made, such other information or representations
must not be relied on as having been authorized by the Trust. This Prospectus
does not constitute an offer in any state in which, or to any person to whom,
such offer may not lawfully be made.

--------------------

Cusip #055924104
Cusip #055924872
Cusip #055924864
Cusip #055924203
Cusip #055847206
COMINSTMM400 (4/98)

25
<PAGE>

(A redherring appears here, rotated 90 degrees, with the following text:)

Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
any offers to buy be accepted prior to the time the registration statement
becomes effective. This Statement of Additional Information does not constitute
prospectus.

STATEMENT OF ADDITIONAL INFORMATION

APRIL 30, 1999
BT INSTITUTIONAL FUNDS
o INSTITUTIONAL CASH RESERVES

BT Institutional Funds (THE "TRUST"), IS AN open-end management investment
COMPANY that offer investors a selection of investment portfolios, each having
distinct investment objectives and policies. This Statement of Additional
Information ("SAI") relates to the INSTITUTIONAL CASH RESERVES FUND (THE
"FUND").

THE FUND'S INVESTMENT OBJECTIVE IS TO SEEK a high level of current income
consistent with liquidity and the preservation of capital through investment in
a portfolio of high quality money market instruments. THE TRUST SEEKS to
achieve the investment OBJECTIVE of THE Fund by investing all the investable
assets of the Fund in THE CASH MANAGEMENT PORTFOLIO, a diversified open-end
management investment company having the same investment objectives as THE FUND
(THE "PORTFOLIO"). THE PORTFOLIO IS A SERIES OF BT INVESTMENT Portfolios.

Shares of the FUND ARE SOLD BY ICC DISTRIBUTORS, INC. ("ICC DISTRIBUTORS"),
THE TRUST'S distributor ("Distributor"), to clients and customers (including
affiliates and correspondents) of Bankers Trust Company ("Bankers Trust"), the
PORTFOLIO'S investment adviser ("Adviser"), and to clients and customers of
other organizations.

The FUND'S PROSPECTUSES DATED APRIL 30, 1999, which may be amended from time
to time, PROVIDES the basic information investors should know before investing.
This 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 PROSPECTUS. 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 Trust at the telephone number listed below or by
contacting any BANKERS TRUST SERVICE AGENT ("SERVICE AGENT"). Capitalized
terms not otherwise defined in this SAI have the meanings accorded to them in
the FUND'S PROSPECTUS. THE FINANCIAL STATEMENTS FOR THE FUND AND THE PORTFOLIO
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998, ARE INCORPORATED HEREIN BY
REFERENCE TO THE ANNUAL REPORT TO SHAREHOLDERS FOR THE FUND AND PORTFOLIO DATED
DECEMBER 31, 1998. A COPY OF THE FUND'S AND THE PORTFOLIO'S ANNUAL REPORT MAY BE
OBTAINED WITHOUT CHARGE BY CALLING THE FUND AT THE TELEPHONE NUMBER LISTED
BELOW.

BANKERS TRUST COMPANY

INVESTMENT ADVISER OF THE PORTFOLIO AND ADMINISTRATOR

ICC DISTRIBUTORS, INC.

DISTRIBUTOR

TWO PORTLAND SQUARE PORTLAND, MAINE 04101 1-800-368-4031
--------------------------------------------------

<PAGE>

TABLE OF CONTENTS

PAGE

<S> <C> <C>
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS...........................................................................1

INVESTMENT POLICIES....................................................................................................1
BANK OBLIGATIONS....................................................................................................1
* 2 moved from here; text not shownCOMMERCIAL PAPER.................................................................1
VARIABLE RATE MASTER DEMAND NOTES...................................................................................1
U.S. GOVERNMENT OBLIGATIONS.........................................................................................2
* 3 moved from here; text not shown* 4 moved from here; text not shownOTHER DEBT OBLIGATIONS........................2
ASSET-BACKED SECURITIES.............................................................................................2
REPURCHASE AGREEMENTS...............................................................................................2
** 1REVERSE REPURCHASE AGREEMENTS...................................................................................2
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES.........................................................................3
INVESTMENT IN OTHER INVESTMENT COMPANIES............................................................................3
CREDIT ENHANCEMENT..................................................................................................3
LENDING OF PORTFOLIO SECURITIES.....................................................................................3
QUALITY AND MATURITY OF THE PORTFOLIO'S SECURITIES..................................................................4
ADDITIONAL RISK FACTORS................................................................................................4
YEAR 2000 MATTERS...................................................................................................4
SPECIAL INFORMATION CONCERNING MASTER-FEEDER FUND STRUCTURE.........................................................4
RATING SERVICES.....................................................................................................5
INVESTMENT RESTRICTIONS................................................................................................5
FUNDAMENTAL POLICIES................................................................................................5
ADDITIONAL RESTRICTIONS.............................................................................................7
PORTFOLIO TURNOVER.....................................................................................................8
PORTFOLIO TRANSACTIONS.................................................................................................8

NET ASSET VALUE...........................................................................................................8

PURCHASE AND REDEMPTION INFORMATION......................................................................................10

REDEMPTION OF SHARES..................................................................................................10
AUTOMATIC CASH WITHDRAWAL PLAN.....................................................................................10
CHECKWRITING.......................................................................................................10
EXCHANGE PRIVILEGE.................................................................................................11

MANAGEMENT OF THE TRUSTS AND PORTFOLIOS..................................................................................11

TRUSTEES OF BT INSTITUTIONAL FUNDS....................................................................................11
TRUSTEES OF THE PORTFOLIO.............................................................................................12
OFFICERS OF THE TRUST AND PORTFOLIO...................................................................................12
TRUSTEE COMPENSATION TABLE............................................................................................13
INVESTMENT ADVISER....................................................................................................13
ADMINISTRATOR.........................................................................................................14
DISTRIBUTOR...........................................................................................................15
SERVICE AGENT.........................................................................................................15
CUSTODIAN AND TRANSFER AGENT..........................................................................................16
EXPENSES..............................................................................................................16
USE OF NAME...........................................................................................................16
BANKING REGULATORY MATTERS............................................................................................16
COUNSEL AND INDEPENDENT ACCOUNTANTS...................................................................................17

ORGANIZATION OF THE TRUSTS...............................................................................................17
</TABLE>

i
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
TAXES....................................................................................................................18

PERFORMANCE INFORMATION..................................................................................................19

ECONOMIC AND MARKET INFORMATION.......................................................................................20

FINANCIAL STATEMENTS.....................................................................................................20

APPENDIX.................................................................................................................21
</TABLE>

ii
<PAGE>

INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS

INVESTMENT POLICIES

SINCE THE INVESTMENT CHARACTERISTICS OF THE FUND WILL CORRESPOND DIRECTLY TO
THOSE OF THE PORTFOLIO, THE FOLLOWING IS A DISCUSSION OF THE VARIOUS INVESTMENTS
OF AND TECHNIQUES EMPLOYED BY THE PORTFOLIO. THE PORTFOLIO, IN PURSUING ITS
INVESTMENT OBJECTIVE, WILL COMPLY WITH RULE 2A-7 ("RULE 2A-7") UNDER THE
INVESTMENT COMPANY ACT OF 1940, AS AMENDED (THE "1940 ACT"). THUS, DESCRIPTIONS
OF INVESTMENT TECHNIQUES AND PORTFOLIO INSTRUMENTS ARE QUALIFIED BY THE
PROVISIONS AND LIMITATIONS OF RULE 2A-7.

OBLIGATIONS OF BANKS AND OTHER FINANCIAL INSTITUTIONS. THE PORTFOLIO MAY INVEST
IN U.S. DOLLAR-DENOMINATED FIXED RATE OR VARIABLE RATE OBLIGATIONS OF U.S. OR
FOREIGN FINANCIAL INSTITUTIONS, INCLUDING BANKS, WHICH ARE RATED IN THE HIGHEST
SHORT-TERM RATING CATEGORY BY ANY TWO NATIONALLY RECOGNIZED STATISTICAL RATING
ORGANIZATIONS ("NRSROS") (OR ONE NRSRO IF THAT NRSRO IS THE ONLY SUCH NRSRO
WHICH RATES SUCH OBLIGATIONS) OR, IF NOT SO RATED, ARE BELIEVED BY BANKERS
TRUST, ACTING UNDER THE SUPERVISION OF the Board of Trustees OF THE
PORTFOLIO, TO BE OF COMPARABLE QUALITY. OBLIGATIONS OF DOMESTIC AND FOREIGN
FINANCIAL INSTITUTIONS IN WHICH THE PORTFOLIO MAY INVEST INCLUDE, BUT ARE NOT
LIMITED TO, CERTIFICATES OF DEPOSIT, BANKERS' ACCEPTANCES, BANK TIME DEPOSITS,
COMMERCIAL PAPER, AND OTHER U.S. DOLLAR-DENOMINATED INSTRUMENTS ISSUED OR
SUPPORTED BY THE CREDIT OF U.S. OR FOREIGN FINANCIAL INSTITUTIONS, INCLUDING
BANKS.

* 1 moved from here; text not shown** 2 For purposes of the PORTFOLIO'S
investment policies with respect to bank obligations, the assets of a bank will
be deemed to include the assets of its domestic and foreign branches.
Obligations of foreign branches of U.S. banks and foreign banks may be general
obligations of the parent bank in addition to the issuing bank or may be limited
by the terms of a specific obligation and by government regulation. If Bankers
Trust, acting under the supervision of the Board of Trustees, deems the
instruments to present minimal credit risk, THE Portfolio may invest in
obligations of foreign banks or foreign branches of U.S. banks which include
banks located in the United Kingdom, Grand Cayman Island, Nassau, Japan and
Canada. Investments in these obligations may entail risks that are different
from those of investments in obligations of U.S. domestic banks because of
differences in political, regulatory and economic systems and conditions. These
risks include future political and economic developments, currency blockage, the
possible imposition of withholding taxes on interest payments, possible seizure
or nationalization of foreign deposits, difficulty or inability of pursuing
legal remedies and obtaining judgments in foreign courts, possible establishment
of exchange controls or the adoption of other foreign governmental restrictions
that might affect adversely the payment of principal and interest on bank
obligations. Foreign branches of U.S. banks and foreign banks may also be
subject to less stringent reserve requirements and to different accounting,
auditing, reporting and recordkeeping standards that those applicable to
domestic branches of U.S. banks.

COMMERCIAL PAPER. THE PORTFOLIO MAY INVEST IN FIXED RATE OR VARIABLE RATE
COMMERCIAL PAPER, ISSUED BY U.S. OR FOREIGN ENTITIES. COMMERCIAL PAPER WHEN
PURCHASED BY THE PORTFOLIO MUST BE RATED IN THE HIGHEST SHORT-TERM RATING
CATEGORY BY ANY TWO NRSROS (OR ONE NRSRO IF THAT NRSRO IS THE ONLY SUCH NRSRO
WHICH RATES SUCH SECURITY) OR, IF NOT SO RATED, MUST BE BELIEVED BY BANKERS
TRUST, ACTING UNDER THE SUPERVISION OF THE BOARD OF TRUSTEES OF THE PORTFOLIO,
TO BE OF COMPARABLE QUALITY. ANY COMMERCIAL PAPER ISSUED BY A FOREIGN ENTITY
CORPORATION AND PURCHASED BY THE PORTFOLIO MUST BE U.S. DOLLAR-DENOMINATED AND
MUST NOT BE SUBJECT TO FOREIGN WITHHOLDING TAX AT THE TIME OF PURCHASE.
INVESTING IN FOREIGN COMMERCIAL PAPER GENERALLY INVOLVES RISKS SIMILAR TO THOSE
DESCRIBED ABOVE RELATING TO OBLIGATIONS OF FOREIGN BANKS OR FOREIGN BRANCHES AND
SUBSIDIARIES OF U.S. AND FOREIGN BANKS.
<PAGE>

** 3 U.S. GOVERNMENT OBLIGATIONS. THE PORTFOLIO may invest in direct obligations
issued by the U.S. Treasury or in obligations issued or guaranteed by the U.S.
Treasury or by agencies or instrumentalities of the U.S. government ("U.S.
Government Obligations"). Certain short-term U.S. Government Obligations, such
as those issued by the Government National Mortgage Association, are supported
by the "full faith and credit" of the U.S. government; others, such as those of
the Export-Import Bank of the United States, are supported by the right of the
issuer to borrow from the U.S. Treasury; others, such as those of the Federal
National Mortgage Association are solely the obligations of the issuing entity
but are supported by the discretionary authority of the U.S. government to
purchase the agency's obligations; and still others, such as those of the
Student Loan Marketing Association, are supported by the credit of the
instrumentality. No assurance can be given that the U.S. government would
provide financial support to U.S. government-sponsored instrumentalities if it
is not obligated to do so by law.

** 4 Examples of the types of U.S. Government Obligations that the PORTFOLIO
may hold include, but are not limited to, in addition to those described above
and direct U.S. Treasury obligations, the obligations of the Federal Housing
Administration, Farmers Home Administration, Small Business Administration,
General Services Administration, Central Bank for Cooperatives, Farm Credit
Banks, Federal Home Loan Banks, Federal Home Loan Mortgage Corporation, Federal
Intermediate Credit Banks, Federal Land Banks and Maritime Administration.

OTHER DEBT OBLIGATIONS. THE PORTFOLIO MAY INVEST IN DEPOSITS, BONDS, NOTES AND
DEBENTURES AND OTHER DEBT OBLIGATIONS THAT AT THE TIME OF PURCHASE HAVE, OR ARE
COMPARABLE IN PRIORITY AND SECURITY TO OTHER SECURITIES OF SUCH ISSUER WHICH
HAVE, OUTSTANDING SHORT-TERM OBLIGATIONS MEETING THE ABOVE SHORT-TERM RATING
REQUIREMENTS, OR IF THERE ARE NO SUCH SHORT-TERM RATINGS, ARE DETERMINED BY
BANKERS TRUST, ACTING UNDER THE SUPERVISION OF THE BOARD OF TRUSTEES OF THE
PORTFOLIO, TO BE OF COMPARABLE QUALITY AND ARE RATED IN THE TOP THREE HIGHEST
LONG-TERM RATING CATEGORIES BY THE NRSROS RATING SUCH SECURITY.

** 5 ASSET-BACKED SECURITIES. The Portfolio may also invest in securities
generally referred to as asset-backed securities, which directly or indirectly
represent a participation interest in, or are secured by and payable from, a
stream of payments generated by particular assets such as motor vehicle or
credit card receivables. Asset-backed securities may provide periodic payments
that consist of interest and/or principal payments. Consequently, the life of an
asset-backed security varies with the prepayment and loss experience of the
underlying assets."

2
<PAGE>

PREVENTED FROM EXERCISING ITS RIGHTS TO DISPOSE OF THE COLLATERALIZED
SECURITIES, INCLUDING THE RISK OF A POSSIBLE DECLINE IN THE VALUE OF THE
UNDERLYING SECURITIES DURING THE PERIOD IN WHICH THE PORTFOLIO SEEKS TO ASSERT
THESE RIGHTS. BANKERS TRUST, ACTING UNDER THE SUPERVISION OF THE BOARD OF
TRUSTEES OF THE PORTFOLIO, REVIEWS THE CREDITWORTHINESS OF THOSE BANKS AND
DEALERS WITH WHICH THE PORTFOLIO ENTERS INTO REPURCHASE AGREEMENTS AND MONITORS
ON AN ONGOING BASIS THE VALUE OF THE SECURITIES SUBJECT TO REPURCHASE AGREEMENTS
TO ENSURE THAT IT IS MAINTAINED AT THE REQUIRED LEVEL.

* 5 moved from here; text not shown INVESTMENT IN OTHER INVESTMENT COMPANIES.
IN ACCORDANCE WITH APPLICABLE LAW, THE PORTFOLIO MAY INVEST ITS ASSETS IN OTHER
MONEY MARKET FUNDS WITH COMPARABLE INVESTMENT OBJECTIVES. IN GENERAL, THE
PORTFOLIO MAY NOT (1) PURCHASE MORE THAN 3% OF ANY OTHER MONEY MARKET FUND'S
VOTING STOCK; (2) INVEST MORE THAN 5% OF ITS ASSETS IN ANY SINGLE MONEY MARKET
FUND; AND (3) INVEST MORE THAN 10% OF ITS ASSETS IN OTHER MONEY MARKET FUNDS
UNLESS PERMITTED TO EXCEED THESE LIMITATIONS BY AN EXEMPTIVE ORDER OF THE
SECURITIES AND EXCHANGE COMMISSION (THE "SEC").

LENDING OF PORTFOLIO SECURITIES. THE PORTFOLIO IS PERMITTED TO LEND UP TO 33
1/3% 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. BY LENDING ITS SECURITIES, THE
PORTFOLIO 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.

3
<PAGE>

GOVERNMENT OBLIGATIONS ARE USED AS COLLATERAL. THE PORTFOLIO WILL ADHERE TO THE
FOLLOWING CONDITIONS WHENEVER ITS SECURITIES ARE LOANED: (I) THE PORTFOLIO 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 PORTFOLIO
MUST BE ABLE TO TERMINATE THE LOAN AT ANY TIME; (IV) THE PORTFOLIO 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 THE PORTFOLIO'S LENDING AGENT AND MAY SHARE IN
REVENUE RECEIVED FROM SECURITIES LENDING TRANSACTIONS AS COMPENSATION FOR THIS
SERVICE.

ADDITIONAL RISK FACTORS

IN ADDITION TO THE RISKS DISCUSSED ABOVE, THE PORTFOLIO'S INVESTMENTS MAY BE
SUBJECT TO THE FOLLOWING RISK FACTORS:

4
<PAGE>

SHARE OF THE PORTFOLIO'S EXPENSES. HOWEVER, THE OTHER INVESTORS INVESTING IN THE
PORTFOLIO ARE NOT REQUIRED TO SELL THEIR SHARES AT THE SAME PUBLIC OFFERING
PRICE AS THE FUND DUE TO VARIATIONS IN SALES COMMISSIONS AND OTHER OPERATING
EXPENSES. THEREFORE, INVESTORS IN THE FUND SHOULD BE AWARE THAT THESE
DIFFERENCES MAY RESULT IN DIFFERENCES IN RETURNS EXPERIENCED BY INVESTORS IN THE
DIFFERENT FUNDS THAT INVEST IN THE PORTFOLIO. SUCH DIFFERENCES IN RETURNS ARE
ALSO PRESENT IN OTHER MUTUAL FUND STRUCTURES. INFORMATION CONCERNING OTHER
HOLDERS OF INTERESTS IN THE PORTFOLIO IS AVAILABLE FROM BANKERS TRUST AT
1-800-730-1313.

5
<PAGE>

INVESTMENT RESTRICTIONS

FUNDAMENTAL POLICIES. THE FOLLOWING investment restrictions have been adopted by
the TRUST with respect to the FUND and by the PORTFOLIO as fundamental policies.
Under the 1940 ACT, a "fundamental" policy may not be changed without the vote
of a majority of the outstanding voting securities of the Fund or Portfolio,
respectively, which is defined in the 1940 Act as the lesser of (a) 67% or more
of the shares present at a shareholder meeting if the holders of more than 50%
of the outstanding shares are present or represented by proxy, or (b) more than
50% of the outstanding shares. WHENEVER THE Fund is requested to vote on a
change in the investment restrictions of THE Portfolio, THE Trust will hold a
meeting of Fund shareholders and will cast its votes as instructed by the
shareholders. Fund shareholders who do not vote will not affect THE Trust's
votes at the Portfolio meeting. The percentage of THE Trust's votes representing
Fund shareholders not voting will be voted by the Trustees of the Trust in the
same proportion as the Fund shareholders who do, in fact, vote.

Under investment policies adopted by the TRUST, on behalf of THE FUND'S,
and by the PORTFOLIO, THE Fund and THE Portfolio may not:

1. Borrow money, except for temporary or emergency (not leveraging)
purposes in an amount not exceeding 5% of the value of the Fund's or
the Portfolio's total assets (including the amount borrowed), as the
case may be, calculated in each case at the lower of cost or market.

2. Pledge, hypothecate, mortgage or otherwise encumber more than 5% of the
total assets of the Fund or the Portfolio, as the case may be, and only
to secure borrowings for temporary or emergency purposes.

3. Invest more than 5% of the total assets of the Fund or the Portfolio,
as the case may be, in any one issuer (other than U.S. Government
Obligations) or purchase more than 10% of any class of securities of
any one issuer; provided, however, that (i) up to 25% of the assets of
the Fund and the Portfolio may be invested without regard to this
restriction; provided, however, that nothing in this investment
restriction shall prevent THE Trust from investing all or part of
THE Fund's assets in an open-end management investment company with
substantially the same investment objectives as THE Fund.

4. Invest more than 25% of the total assets of the Fund or the Portfolio,
as the case may be, in the securities of issuers in any single
industry; provided that: (i) this limitation shall not apply to the
purchase of U.S. Government Obligations; (ii) under normal market
conditions more than 25% of the total assets THE FUND (AND THE
Portfolio) will be invested in obligations of foreign and U.S. Banks
provided, however, that nothing in this investment restriction shall
prevent THE Trust from investing all or part of THE Fund's ASSETS
in an open-end management investment company with substantially the
same investment objectives as THE Fund.

5. Make short sales of securities, maintain a short position or purchase
any securities on margin, except for such short-term credits as are
necessary for the clearance of transactions.

7. Purchase or sell real estate, real estate investment trust securities,
commodities or commodity contracts, or oil, gas or mineral interests,
but this shall not prevent the Fund or the Portfolio from investing in
obligations secured by real estate or interests therein.

8. Make loans to others, except through the purchase of qualified debt
obligations, the entry into repurchase agreements and the lending of
portfolio securities.

9. Invest more than an aggregate of 10% of the net assets of the Fund or
the Portfolio's, respectively, (taken, in each case, at current value)
in (i) securities that cannot be readily resold to the public because
of legal or contractual restrictions or because there are no market
quotations readily available or (ii) other "illiquid" securities
(including time deposits and repurchase agreements maturing in more
than seven calendar

6
<PAGE>

days); provided, however, that nothing in this investment restriction
shall prevent THE Trust from investing all or part of THE Fund's assets
in an open-end management investment company with substantially the
same investment objectives as THE Fund.

10. Purchase more than 10% of the voting securities of any issuer or invest
in companies for the purpose of exercising control or management;
provided, however, that nothing in this investment restriction shall
prevent THE Trust from investing all or part of THE Fund's ASSETS
in an open-end management investment company with substantially the
same investment objectives as THE Fund.

11. Purchase securities of other investment companies, except to the extent
permitted under the 1940 Act or in connection with a merger,
consolidation, reorganization, acquisition of assets or an offer of
exchange; provided, however, that nothing in this investment
restriction shall prevent THE Trust from investing all or part of
THE Fund's ASSETS in an open-end management investment company with
substantially the same investment objectives as THE Fund.

12. Issue any senior securities, except insofar as it may be deemed to have
issued a senior security by reason of (i) entering into a reverse
repurchase agreement or (ii) borrowing in accordance with terms
described in the Prospectus and this SAI.

13. Purchase or retain the securities of any issuer if any of the officers
or trustees of the Fund or the Portfolio or its Adviser owns
individually more than 1/2 of 1% of the securities of such issuer, and
together such officers and directors own more than 5% of the securities
of such issuer.

14. Invest in warrants, except that the Fund or the Portfolio may invest in
warrants if, as a result, the investments (valued in each case at the
lower of cost or market) would not exceed 5% of the value of the net
assets of the Fund or the Portfolio, as the case may be, of which not
more than 2% of the net assets of the Fund or the Portfolio, as the
case may be, may be invested in warrants not listed on a recognized
domestic stock exchange. Warrants acquired by the Fund or the Portfolio
as part of a unit or attached to securities at the time of acquisition
are not subject to this limitation.

15. WITH RESPECT TO 75% OF THE FUND'S (PORTFOLIO'S) TOTAL ASSETS, INVEST
MORE THAN 5% of its total assets IN THE SECURITIES OF ANY ONE ISSUER
(EXCLUDING CASH AND CASH-EQUIVALENTS, U.S. GOVERNMENT SECURITIES AND
THE SECURITIES OF OTHER INVESTMENT COMPANIES) OR OWN MORE THAN 10% OF
THE VOTING SECURITIES OF ANY ISSUER.

(ii) pledge, mortgage or hypothecate for any purpose in excess of 10% of the
Portfolio's (Fund's) total assets (taken at market value), 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;

7
<PAGE>

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

(vi) 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 Portfolio (Fund) if such purchase at the time thereof
would cause (a) more than 10% of the Portfolio's (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 Portfolio's
(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
Portfolio (Fund) (unless permitted to do so by an exemptive order of
the SEC); and, provided further, that the Portfolio shall not invest in
any other open-end investment company unless the Portfolio (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 Portfolio
will not invest in another open-end registered investment company); ---

(vii) make short sales of securities or maintain a short position, unless at
all times when a short position is open it owns an equal amount of such
securities or securities convertible into or exchangeable, without
payment of any further consideration, for securities of the same issue
and equal in amount to, the securities sold short, and unless not more
than 10% of the Portfolio's (Fund's) net assets (taken at market value)
is represented by such securities, or securities convertible into or
exchangeable for such securities, at any one time (the Portfolio (Fund)
has no current intention to engage in short selling).

Each Fund will comply with the state securities laws and regulations of all
states in which it is registered. Each Portfolio will comply with the permitted
investments and investment limitations in the securities laws and regulations of
all states in which the Fund, or any other registered investment company
investing in the Portfolio, is registered.

PORTFOLIO TURNOVER

Each Portfolio may attempt to increase yields by trading to take advantage of
short-term market variations, which results in higher portfolio turnover.
However, this policy does not result in higher brokerage commissions to the
PORTFOLIO as the purchases and sales of portfolio securities are usually
effected as principal transactions. The PORTFOLIO'S turnover rates are not
expected to have a material effect on their income and have been and are
expected to be zero for regulatory reporting purposes.

PORTFOLIO TRANSACTIONS

Decisions to buy and sell securities and other financial instruments for THE
Portfolio are made by Bankers Trust, which also is responsible for placing these
transactions, subject to the overall review of the Board of Trustees. Although
investment requirements for THE Portfolio are reviewed independently from
those of the other accounts managed by Bankers Trust , investments of the type
the PORTFOLIO may make may also be made by these other accounts . When THE
Portfolio and one or more accounts managed by Bankers Trust are prepared to
invest in, or desire to dispose of, the same security or other financial
instrument, available investments or opportunities for sales will be allocated
in a manner believed by Bankers Trust to be equitable to each. In some cases,
this procedure may affect adversely the price paid or received by THE
Portfolio or the size of the position obtained or disposed of by THE
Portfolio.

8
<PAGE>

Government Obligations are generally purchased from underwriters or dealers,
although certain newly issued U.S. Government Obligations may be purchased
directly from the U.S. Treasury or from the issuing agency or instrumentality.

NET ASSET VALUE

The PORTFOLIO'S use of the amortized cost method of valuing ITS securities
is permitted by a rule adopted by the SEC. Under this rule, the PORTFOLIO must
maintain a dollar-weighted average portfolio maturity of 90 days or less,
purchase only instruments having remaining maturities of 397 DAYS OR LESS and
invest only in securities determined by or under the supervision of the Board of
Trustees to be of high quality with minimal credit risks.

9
<PAGE>

PURCHASE AND REDEMPTION INFORMATION

The TRUST ACCEPTS PURCHASE ORDERS FOR SHARES OF THE FUND AT THE NAV PER SHARE
NEXT DETERMINED ON EACH VALUATION DAY. THERE IS NO SALES CHARGE ON THE PURCHASE
OF SHARES, BUT COSTS OF DISTRIBUTING SHARES OF THE FUND MAY BE REIMBURSED FROM
ITS ASSETS, AS DESCRIBED HEREIN. EXCLUDING RETIREMENT PLANS, THE MINIMUM INITIAL
INVESTMENT IN THE TRUST IS $50 MILLION WHICH MAY BE ALLOCATED IN AMOUNTS NOT
LESS THAN $1,000,000 PER FUND IN CERTAIN FUNDS IN THE BT FAMILY OF FUNDS. THE
SUBSEQUENT MINIMUM INVESTMENT IN THE FUND IS $1,000,000 (EXCLUDING RETIREMENT
PLANS). SERVICE AGENTS MAY IMPOSE INITIAL AND SUBSEQUENT INVESTMENT MINIMUMS
THAT DIFFER FROM THESE AMOUNTS. SHARES OF THE FUND MAY BE PURCHASED IN ONLY
THOSE STATES WHERE THEY MAY BE LAWFULLY SOLD.

PURCHASE ORDERS FOR SHARES OF THE FUND WILL RECEIVE, ON ON ANY VALUATION DAY,
THE NAV NEXT DETERMINED FOLLOWING RECEIPT BY THE SERVICE AGENT AND TRANSMISSION
TO BANKERS TRUST, AS THE TRUST'S TRANSFER AGENT (THE "TRANSFER AGENT") OF SUCH
ORDER. IF THE PURCHASE ORDER IS RECEIVED BY THE SERVICE AGENT AND TRANSMITTED TO
THE TRANSFER AGENT PRIOR TO 12:00 NOON (EASTERN TIME), AND IF PAYMENT IN THE
FORM OF FEDERAL FUNDS IS RECEIVED ON THAT DAY BY BANKERS TRUST, AS THE TRUST'S
CUSTODIAN (THE "CUSTODIAN"), THE SHAREHOLDER WILL RECEIVE THE DIVIDEND DECLARED
ON THAT DAY. THE TRUST AND TRANSFER AGENT RESERVE THE RIGHT TO REJECT ANY
PURCHASE ORDER. IF THE MARKET FOR THE PRIMARY INVESTMENTS IN THE FUND CLOSES
EARLY, THE FUND WILL CEASE TAKING PURCHASE ORDERS AT THAT TIME.

CERTIFICATES FOR SHARES WILL NOT BE ISSUED. EACH SHAREHOLDER'S ACCOUNT WILL BE
MAINTAINED BY A SERVICE AGENT OR TRANSFER AGENT.

REDEMPTION OF SHARES

10
<PAGE>

SHAREHOLDER'S SERVICE AGENT. REDEMPTION REQUESTS FOR SHARES RECEIVED BY THE
SERVICE AGENT AND TRANSMITTED TO THE TRANSFER AGENT PRIOR TO THE CLOSE OF THE
NYSE (CURRENTLY 4:00 P.M., EASTERN TIME OR EARLIER SHOULD THE NYSE CLOSE
EARLIER) ON EACH VALUATION DAY WILL BE REDEEMED AT THE NAV PER SHARE AS OF 4:00
P.M. (EASTERN TIME) OR AFTER THE CLOSE OF THE NYSE AND THE REDEMPTION PROCEEDS
NORMALLY WILL BE DELIVERED TO THE SHAREHOLDER'S ACCOUNT WITH THE SERVICE AGENT
ON THAT DAY; NO DIVIDEND WILL BE PAID ON THE DAY OF REDEMPTION. PAYMENTS FOR
REDEMPTIONS WILL IN ANY EVENT BE MADE WITHIN SEVEN CALENDAR DAYS FOLLOWING
RECEIPT OF THE REQUEST.

SERVICE AGENTS MAY ALLOW REDEMPTIONS OR EXCHANGES BY TELEPHONE AND MAY DISCLAIM
LIABILITY FOR FOLLOWING INSTRUCTIONS COMMUNICATED BY TELEPHONE THAT THE SERVICE
AGENT REASONABLY BELIEVES TO BE GENUINE. THE SERVICE AGENT MUST PROVIDE THE
INVESTOR WITH AN OPPORTUNITY TO CHOOSE WHETHER OR NOT TO UTILIZE THE TELEPHONE
REDEMPTION OR EXCHANGE PRIVILEGE. THE SERVICE AGENT MUST EMPLOY REASONABLE
PROCEDURES TO CONFIRM THAT INSTRUCTIONS COMMUNICATED BY TELEPHONE ARE GENUINE.
IF THE SERVICE AGENT DOES NOT DO SO, IT MAY BE LIABLE FOR ANY LOSSES DUE TO
UNAUTHORIZED OR FRAUDULENT INSTRUCTIONS. SUCH PROCEDURES MAY INCLUDE, AMONG
OTHERS, REQUIRING SOME FORM OF PERSONAL IDENTIFICATION PRIOR TO ACTING UPON
INSTRUCTIONS RECEIVED BY TELEPHONE, PROVIDING WRITTEN CONFIRMATION OF SUCH
TRANSACTIONS AND/OR TAPE RECORDING OF TELEPHONE INSTRUCTIONS.

AUTOMATIC CASH WITHDRAWAL PLAN. THE FUND MAY OFFER SHAREHOLDERS AN AUTOMATIC
CASH WITHDRAWAL PLAN, UNDER WHICH SHAREHOLDERS WHO OWN SHARES OF THE FUND MAY
ELECT TO RECEIVE PERIODIC CASH PAYMENTS. RETIREMENT PLAN ACCOUNTS ARE ELIGIBLE
FOR AUTOMATIC CASH WITHDRAWAL PLANS ONLY WHERE THE SHAREHOLDER IS ELIGIBLE TO
RECEIVE QUALIFIED DISTRIBUTIONS. FOR FURTHER INFORMATION REGARDING THE AUTOMATIC
CASH WITHDRAWAL PLAN, SHAREHOLDERS SHOULD CONTACT THEIR SERVICE AGENT.

CHECKWRITING. SHAREHOLDERS OF THE FUND MAY REDEEM SHARES BY CHECK. CHECKS MAY
NOT BE USED TO CLOSE AN ACCOUNT. SHAREHOLDERS WILL CONTINUE TO EARN DIVIDENDS ON
SHARES TO BE REDEEMED UNTIL THE CHECK CLEARS. CHECKS WILL BE RETURNED TO
SHAREHOLDERS AT THE END OF THE MONTH. THERE IS NO CHARGE FOR REDEMPTION OF
SHARES BY CHECK. ADDITIONAL INFORMATION REGARDING THE CHECKWRITING PRIVILEGE MAY
BE OBTAINED FROM A SERVICE AGENT.

EXCHANGE PRIVILEGE

SHAREHOLDERS MAY EXCHANGE THEIR SHARES FOR SHARES OF CERTAIN OTHER FUNDS IN THE
BT FAMILY OF FUNDS REGISTERED IN THEIR STATE. TO MAKE AN EXCHANGE, FOLLOW THE
PROCEDURES INDICATED IN "PURCHASE OF SHARES" AND "REDEMPTION OF SHARES." BEFORE
MAKING AN EXCHANGE, PLEASE NOTE THE FOLLOWING:

o CALL YOUR SERVICE AGENT FOR INFORMATION AND A PROSPECTUS. READ THE
PROSPECTUS FOR RELEVANT INFORMATION.

o COMPLETE AND SIGN AN APPLICATION, TAKING CARE TO REGISTER YOUR NEW
ACCOUNT IN THE SAME NAME, ADDRESS AND TAXPAYER IDENTIFICATION NUMBER AS
YOUR EXISTING ACCOUNT(S).

o EACH EXCHANGE REPRESENTS THE SALE OF SHARES OF ONE FUND AND THE
PURCHASE OF SHARES OF ANOTHER, WHICH MAY PRODUCE A GAIN OR LOSS FOR TAX
PURPOSES. YOUR SERVICE AGENT WILL RECEIVE A WRITTEN CONFIRMATION OF
EACH EXCHANGE TRANSACTION.

o THE FUND RESERVES THE RIGHT TO TERMINATE OR MODIFY THE EXCHANGE
PRIVILEGE IN THE FUTURE.

THE TRUST may suspend the right of redemption or postpone the date of payment
for shares of the FUND during any period when: (a) trading on the NYSE is
restricted by applicable rules and regulations of the SEC; (b) the NYSE is
closed for other than customary weekend and holiday closings; (c) the SEC has by
order permitted such suspension; or (d) an emergency exists as determined by the
SEC.

11
<PAGE>

MANAGEMENT OF THE TRUSTS AND PORTFOLIOS

TRUSTEES OF BT INSTITUTIONAL FUNDS

RICHARD J. HERRING (birthdate: February 18, 1946) -- Trustee; Vice Dean and
Director, Wharton Undergraduate Division, Professor, Finance Department, The
Wharton School, University of Pennsylvania. His address is THE WHARTON SCHOOL,
UNIVERSITY OF PENNSYLVANIA, FINANCE DEPARTMENT, 3303 STEINBERG HALL/DIETRICH
HALL, PHILADELPHIA, PENNSYLVANIA 19104.

TRUSTEES OF THE PORTFOLIO

CHARLES P. BIGGAR -- TRUSTEE.

* 6 moved from here; text not shown S. LELAND DILL (birthdate: March 28, 1930)
- -- Trustee; Retired; Director, Coutts Group, Coutts (U.S.A.) International;
Coutts Trust Holdings Ltd; Director, Zweig Series Trust; formerly Partner of
KPMG Peat Marwick; Director, Vinters International Company Inc.; General Partner
of Pemco (an investment company registered under the 1940 Act). His address is
5070 North Ocean Drive, Singer Island, Florida 33404.

** 6 PHILIP SAUNDERS, JR. (birthdate: October 11, 1935) -- Trustee; Principal,
Philip Saunders Associates (Consulting); former Director of Financial Industry
Consulting, Wolf & Company; President, John Hancock Home Mortgage Corporation;
and Senior Vice President of Treasury and Financial Services, John Hancock
Mutual Life Insurance Company, Inc. His address is 445 Glen Road, Weston,
Massachusetts 02193.

OFFICERS OF THE TRUST AND PORTFOLIO

Unless otherwise specified, each officer listed below holds the same position
with THE TRUST AND THE PORTFOLIO.

JOHN Y. KEFFER (BIRTHDATE: JULY 14, 1942) -- PRESIDENT AND CHIEF EXECUTIVE
OFFICER; PRESIDENT, FORUM FINANCIAL GROUP. HIS ADDRESS IS 2 PORTLAND SQUARE,
PORTLAND, MAINE 04101.

JOSEPH A. FINELLI (BIRTHDATE: JANUARY 24, 1957) -- Treasurer; Vice President, BT
ALEX. BROWN INCORPORATED AND VICE PRESIDENT, INVESTMENT COMPANY CAPITAL CORP.
(REGISTERED INVESTMENT ADVISER),

12
<PAGE>

SEPTEMBER 1995 TO PRESENT; FORMERLY, VICE PRESIDENT AND TREASURER, THE DELAWARE
GROUP OF FUNDS (REGISTERED INVESTMENT COMPANIES) AND VICE PRESIDENT, DELAWARE
MANAGEMENT COMPANY INC. (INVESTMENTS), 1980 TO AUGUST 1995. HIS ADDRESS IS ONE
SOUTH STREET, BALTIMORE, MARYLAND 21202.

MESSRS. KEFFER, FINELLI AND HIRSCH also hold similar positions for other
investment companies for which ICC DISTRIBUTORS, 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 or the PORTFOLIO. No director, officer or employee of ICC
DISTRIBUTORS or any of its affiliates will receive any compensation from the
TRUST or any Portfolio for serving as an officer or Trustee of the TRUST or the
PORTFOLIO.

13
<PAGE>
<TABLE>
<CAPTION>

TRUSTEE COMPENSATION TABLE

AGGREGATE
COMPENSATION AGGREGATE TOTAL COMPENSATION
NAME OF PERSON, FROM BT COMPENSATION FROM FUND COMPLEX
POSITION INSTITUTIONAL FUNDS* FROM PORTFOLIO+ PAID TO TRUSTEES++
<S> <C> <C> <C>
** 7 Charles P. Biggar,
TRUSTEE OF BT INSTITUTIONAL $_____ $_____ $_____
- --------------------------------------------------------------------------------------
FUNDS AND PORTFOLIO
- -------------------

** 8 Richard J. Herring,
TRUSTEE OF BT INSTITUTIONAL $_____ N/A $_____
- --------------------------------------------------------------------------------------
** 9 Funds

Bruce E. Langton,
Trustee of BT Institutional $_____ N/A $_____
Funds
* 8 moved from here; text not shown* 9 moved from here; text not shown* 7 moved from here; text not
shown
S. Leland Dill,
Trustee of PORTFOLIO N/A $_____ $_____
-------------------------------------------------------------------------

Philip Saunders, Jr.,
Trustee of PORTFOLIO N/A $_____ $_____
-------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>

* THE INFORMATION PROVIDED IS for the BT Institutional Funds which is comprised
of 10 funds. Information PROVIDED IS for the year ended December 31,
1998.

+ INFORMATION PROVIDED IS FOR THE year ended December 31, 1998.

++ Aggregated information is furnished for the BT Family of Funds which consists
of the following: BT Investment Funds, BT Institutional Funds, BT Pyramid
MUTUAL Funds, BT Advisor Funds, BT Investment Portfolios, Cash Management
Portfolio, Treasury Money Portfolio, Tax Free Money Portfolio, NY Tax Free
Money Portfolio, International Equity Portfolio, Intermediate Tax Free
Portfolio, Asset Management Portfolio, Equity 500 Index Portfolio, and
Capital Appreciation Portfolio. The compensation provided IS for the
calendar year ended December 31, 1998.

As of _______ __, 1999, the following shareholders of record owned 5% or more of
the outstanding SHARES OF THE FUND: [TO BE PROVIDED]

INVESTMENT ADVISER

14
<PAGE>

Bankers Trust bears all expenses in connection with the performance of services
under the Advisory Agreement. The TRUST and THE Portfolio bear certain other
expenses incurred in their operation, including: taxes, interest, brokerage fees
and commissions, if any; fees of Trustees of each Trust or Portfolio who are not
officers, directors or employees of Bankers Trust, ICC DISTRIBUTORS or any of
their affiliates; SEC fees and state Blue Sky qualification fees, if any;
administrative and services fees; 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; 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 PORTFOLIO; and any extraordinary
expenses.

UNDER THE ADVISORY AGREEMENT, BANKERS TRUST RECEIVES A FEE FROM THE PORTFOLIO,
COMPUTED DAILY AND PAID MONTHLY, AT THE ANNUAL RATE OF 0.15 OF THE AVERAGE DAILY
NET ASSETS OF THE PORTFOLIO. For the fiscal years ended December 31, 1998, 1997
AND 1996, Bankers Trust earned $______, $6,544,181 AND $4,935,288,
respectively, in compensation for investment advisory services provided to THE
Portfolio. During the same periods, Bankers Trust reimbursed $_____, $940,530
AND $761,230, RESPECTIVELY, TO THE Portfolio to cover expenses.

15
<PAGE>

repaid in whole or in part with the proceeds of securities so purchased. Such
affiliates deal, trade and invest for their own accounts in such obligations and
are among the leading dealers of various types of such obligations. Bankers
Trust has informed the PORTFOLIO 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 PORTFOLIO, Bankers Trust will not inquire or take into consideration whether
an issuer of securities proposed for purchase or sale by THE Portfolio 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

UNDER THE ADMINISTRATION AND SERVICES AGREEMENT, Bankers Trust is obligated on a
continuous basis to provide such administrative services as the Board of
Trustees of each Trust and THE Portfolio reasonably deems necessary for the
proper administration of each Trust and THE Portfolio. Bankers Trust will
generally assist in all aspects of the FUND'S and PORTFOLIO'S operations;
supply and maintain office facilities (which may be in Bankers Trust'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 of the TRUST or the
PORTFOLIO), 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 each Trust's and
THE Portfolio's Declaration of Trust, by-laws, investment objectives and
policies and with Federal and state securities laws; arrange for appropriate
insurance coverage; calculate the NAV, net income and realized capital gains or
losses of THE Trust; and negotiate arrangements with, and supervise and
coordinate the activities of, agents and others retained to supply services.

Bankers Trust has agreed that if in any fiscal year the aggregate expenses of
any Fund and THE Portfolio (including fees pursuant to the Advisory Agreement,
but excluding interest, taxes, brokerage and, if permitted by the relevant state
securities commissions, extraordinary expenses) exceed the expense limitation of
any state having jurisdiction over the Fund, Bankers Trust will reimburse the
Fund for the excess expense to the extent required by state law. As of the date
of this SAI, the most restrictive annual expense limitation applicable to any
Fund is 2.50% of the Fund's first $30 million of average annual net assets,
2.00% of the next $70 million of average annual net assets and 1.50% of the
remaining average annual net assets.

For the fiscal years ended December 31, 1998, 1997 AND 1996, Bankers Trust
earned $_____, $931,345 AND $622,176, respectively, in compensation for
administrative and other services provided to THE Fund. During

16
<PAGE>

the same periods, Bankers Trust reimbursed $_____, $108,093 AND $280,146,
respectively, to the Fund to cover expenses.

For the fiscal years ended December 31, 1998, 1997 AND 1996, Bankers Trust
earned compensation of $_____, $2,181,394 AND $1,645,096, respectively, for
administrative and other services provided to the PORTFOLIO.

DISTRIBUTOR

SERVICE AGENT

ALL SHAREHOLDERS MUST BE REPRESENTED BY A SERVICE AGENT. THE ADVISER ACTS AS A
SERVICE AGENT PURSUANT TO ITS ADMINISTRATION AND SERVICES AGREEMENT WITH THE
TRUST AND RECEIVES NO ADDITIONAL COMPENSATION FROM THE FUND FOR SUCH SHAREHOLDER
SERVICES. THE SERVICE FEES OF ANY OTHER SERVICE AGENTS, INCLUDING
BROKER-DEALERS, WILL BE PAID BY THE ADVISER FROM ITS FEES. THE SERVICES PROVIDED
BY A SERVICE AGENT MAY INCLUDE ESTABLISHING AND MAINTAINING SHAREHOLDER
ACCOUNTS, PROCESSING PURCHASE AND REDEMPTION TRANSACTIONS, PERFORMING
SHAREHOLDER SUB-ACCOUNTING, ANSWERING CLIENT INQUIRIES REGARDING THE TRUST,
INVESTING CLIENT CASH ACCOUNT BALANCES AUTOMATICALLY IN FUND SHARES AND
PROCESSING REDEMPTION TRANSACTIONS AT THE REQUEST OF CLIENTS, ASSISTING CLIENTS
IN CHANGING DIVIDEND OPTIONS, ACCOUNT DESIGNATIONS AND ADDRESSES, PROVIDING
PERIODIC STATEMENTS SHOWING THE CLIENT'S ACCOUNT BALANCE AND INTEGRATING THESE
STATEMENTS WITH THOSE OF OTHER TRANSACTIONS AND BALANCES IN THE CLIENT'S OTHER
ACCOUNTS SERVICED BY THE SERVICE AGENT, TRANSMITTING PROXY STATEMENTS, PERIODIC
REPORTS, UPDATED PROSPECTUSES AND OTHER COMMUNICATIONS TO SHAREHOLDERS AND, WITH
RESPECT TO MEETINGS OF SHAREHOLDERS, COLLECTING, TABULATING AND FORWARDING TO
THE TRUST EXECUTED PROXIES, ARRANGING FOR BANK WIRES AND OBTAINING SUCH OTHER
INFORMATION AND PERFORMING SUCH OTHER SERVICES AS THE ADMINISTRATOR OR THE
SERVICE AGENT'S CLIENTS MAY REASONABLY REQUEST AND AGREE UPON WITH THE SERVICE
AGENT. SERVICE AGENTS MAY SEPARATELY CHARGE THEIR CLIENTS ADDITIONAL FEES ONLY
TO COVER PROVISION OF ADDITIONAL OR MORE COMPREHENSIVE SERVICES NOT ALREADY
PROVIDED UNDER THE ADMINISTRATION AND SERVICES AGREEMENT WITH THE ADVISER, OR OF
THE TYPE OR SCOPE NOT GENERALLY OFFERED BY A MUTUAL FUND, SUCH AS CASH
MANAGEMENT SERVICES OR ENHANCED RETIREMENT OR TRUST REPORTING. IN ADDITION,
INVESTORS MAY BE CHARGED A TRANSACTION FEE IF THEY EFFECT TRANSACTIONS IN FUND
SHARES THROUGH A BROKER OR AGENT. EACH SERVICE AGENT HAS AGREED TO TRANSMIT TO
SHAREHOLDERS, WHO ARE ITS CUSTOMERS, APPROPRIATE DISCLOSURES OF ANY FEES THAT IT
MAY CHARGE THEM DIRECTLY.

CUSTODIAN AND TRANSFER AGENT

Bankers Trust, 130 Liberty Street (One Bankers Trust Plaza), New York, New York
10006, serves as custodian and transfer agent for the TRUST and as custodian
for THE Portfolio pursuant to the administration and services agreements
discussed above. As custodian, Bankers Trust holds the FUND'S and THE
Portfolio's assets. For such services, Bankers Trust receives monthly fees from
THE Fund and THE Portfolio, which are included in the administrative services
fees discussed above. As transfer agent for each Trust, Bankers Trust maintains
the shareholder account records for THE Fund, handles certain communications
between shareholders and each Trust and causes to be distributed any dividends
and distributions payable by each Trust. Bankers Trust is also reimbursed by the
FUND for its out-of-pocket expenses. Bankers Trust will comply with the
self-custodian provisions of Rule 17f-2 under the 1940 Act.

EXPENSES

17
<PAGE>

PROFESSIONAL SERVICES, AMORTIZATION OF ORGANIZATIONAL EXPENSES, THE COSTS
ASSOCIATED WITH REGULATORY COMPLIANCE AND MAINTAINING LEGAL EXISTENCE AND
INVESTOR RELATIONS.

USE OF NAME

BANKING REGULATORY MATTERS

Bankers Trust has been advised by its counsel that in its opinion Bankers Trust
may perform the services for the PORTFOLIO contemplated by the Advisory
Agreements and other activities for the TRUST and the PORTFOLIO 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 or the PORTFOLIO. If the circumstances
described above should change, the Boards of Trustees would review each Trust's
relationship with Bankers Trust and consider taking all actions necessary in the
circumstances.

COUNSEL AND INDEPENDENT ACCOUNTANTS

Willkie Farr & Gallagher, 787 SEVENTH AVENUE, New York, New York 10019-6099,
SERVES as Counsel to the TRUST and from time to time provides certain legal
services to Bankers Trust. PRICEWATERHOUSECOOPERS LLP, 1100 Main Street, Suite
900, Kansas City, Missouri 64105 has been selected as Independent Accountants
for the TRUST.

ORGANIZATION OF THE TRUST

BT Institutional Funds was organized on March 26, 1990 UNDER THE LAWS OF THE
COMMONWEALTH OF MASSACHUSETTS. THE FUND IS A SEPARATE SERIES OF THE TRUST. THE
TRUST OFFERS SHARES OF BENEFICIAL INTEREST OF SEPARATE SERIES, PAR VALUE $0.001
PER SHARE. THE SHARES OF THE OTHER SERIES OF THE TRUST ARE OFFERED THROUGH
SEPARATE PROSPECTUSES AND STATEMENTS OF ADDITIONAL INFORMATION. The shares of
each series participate equally in the earnings, dividends and assets of the
particular series. The TRUST may create and issue additional series of shares.
Each Trust's Declaration of Trust permits the Trustees to divide or combine the
shares into a greater or lesser number of shares without thereby changing the
proportionate beneficial interest in a series. Each share represents an equal
proportionate interest in a series with each other share. Shares when issued are
fully paid and non-assessable, except as set forth below. Shareholders are
entitled to one vote for each share held. NO SERIES OF SHARES HAS ANY PREFERENCE
OVER ANY OTHER SERIES.

THE TRUST IS AN ENTITY COMMONLY KNOWN AS A "MASSACHUSETTS BUSINESS TRUST."
Massachusetts law provides that shareholders could under certain circumstances
be held personally liable for the obligations of the TRUST. However, the
DECLARATION of Trust DISCLAIMS shareholder liability for acts or obligations of
the TRUST and REQUIRES that notice of this disclaimer be given in each
agreement, obligation or instrument entered into or executed by THE Trust or a
Trustee. The DECLARATION of Trust PROVIDES for indemnification from THE TRUST'S
property for all losses and expenses of any shareholder held personally liable
for the obligations of the Trust. Thus, the risk of shareholders incurring
financial loss on account of shareholder liability is limited to circumstances
in which BOTH INADEQUATE INSURANCE EXISTED AND the Trust itself WAS unable to
meet its obligations, a possibility that the TRUST BELIEVES is remote. Upon
payment of any liability incurred by THE Trust, the shareholder paying the
liability will be entitled to reimbursement from the general assets of the
Trust. The Trustees intend to conduct the operations of THE Trust in a manner so
as to avoid, as far as possible, ultimate liability of the shareholders for
liabilities of the Trust.

18
<PAGE>

WHENEVER THE Trust is requested to vote on a matter pertaining to THE
Portfolio, the Trust will vote its shares without a meeting of shareholders of
the Fund if the proposal is one, if which made with respect to THE Fund,
would not require the vote of shareholders of THE Fund as long as such action
is permissible under applicable statutory and regulatory requirements. For all
other matters requiring a vote, THE Trust will hold a meeting of shareholders
of the FUND and, at the meeting of investors in THE Portfolio, the Trust
will cast all of its votes in the same proportion as the votes all its shares at
the Portfolio meeting, other investors with a greater pro rata ownership of the
Portfolio could have effective voting control of the operations of the
Portfolio.

TAXES

19
<PAGE>

THE Fund is designed to provide investors with current income. The FUND IS not
intended to constitute A balanced investment PROGRAM and IS not designed for
investors seeking capital gains or maximum income irrespective of fluctuations
in principal.

THE Fund intends TO CONTIUE to qualify as a separate regulated investment
company under the Internal Revenue Code of 1986, as amended (the "Code").
Provided that THE Fund is a regulated investment company, THE Fund will not be
liable for Federal income taxes to the extent all of its taxable net investment
income and net realized long- and short-term capital gains, if any, are
distributed to its shareholders. Although THE Trust expects the FUND to be
relieved of all or substantially all Federal income taxes, depending upon the
extent of ITS activities in states and localities in which ITS offices are
maintained, in which ITS agents or independent contractors are located or in
which IT IS otherwise deemed to be conducting business, that portion of THE
Fund's income which is treated as earned in any such state or locality could be
subject to state and local tax. Any such taxes paid by THE Fund would reduce the
amount of income and gains available for distribution to its shareholders.

STATEMENTS AS TO THE TAX STATUS OF EACH SHAREHOLDER'S DIVIDENDS AND
DISTRIBUTIONS, IF ANY, ARE MAILED ANNUALLY. EACH SHAREHOLDER WILL ALSO RECEIVE,
IF APPROPRIATE, VARIOUS WRITTEN NOTICES AFTER THE END OF THE FUND'S PRIOR
TAXABLE YEAR AS TO THE FEDERAL INCOME TAX STATUS OF HIS OR HER DIVIDENDS AND
DISTRIBUTIONS WHICH WERE RECEIVED FROM THE FUND DURING THAT YEAR. SHAREHOLDERS
SHOULD CONSULT THEIR TAX ADVISERS TO ASSESS THE CONSEQUENCES OF INVESTING IN THE
FUND UNDER STATE AND LOCAL LAWS AND TO DETERMINE WHETHER DIVIDENDS PAID BY THE
FUND THAT REPRESENT INTEREST DERIVED FROM U.S. GOVERNMENT OBLIGATIONS ARE EXEMPT
FROM ANY APPLICABLE STATE OR LOCAL INCOME TAXES.

20
<PAGE>

her social security number. The 31% backup withholding tax is not an additional
tax and may be credited against a taxpayer's regular Federal income tax
liability.

PERFORMANCE INFORMATION

From time to time , THE TRUST MAY ADVERTISE "CURRENT YIELD," AND/OR "EFFECTIVE
YIELD" FOR THE FUND. ALL YIELD FIGURES ARE BASED ON HISTORICAL EARNINGS AND ARE
NOT INTENDED TO INDICATE FUTURE PERFORMANCE. THE "CURRENT YIELD" OF THE FUND
REFERS TO THE INCOME GENERATED BY AN INVESTMENT IN THE FUND OVER A SEVEN-DAY
PERIOD (WHICH PERIOD WILL BE STATED IN THE ADVERTISEMENT). THIS INCOME IS THEN
"ANNUALIZED;" THAT IS, THE AMOUNT OF INCOME GENERATED BY THE INVESTMENT DURING
THAT WEEK IS ASSUMED TO BE GENERATED EACH WEEK OVER A 52-WEEK PERIOD AND IS
SHOWN AS A PERCENTAGE OF THE INVESTMENT. THE "EFFECTIVE YIELD" IS CALCULATED
SIMILARLY BUT, WHEN ANNUALIZED, THE INCOME EARNED BY AN INVESTMENT IN THE FUND
IS ASSUMED TO BE REINVESTED. THE "EFFECTIVE YIELD" WILL BE SLIGHTLY HIGHER THAN
THE "CURRENT YIELD" BECAUSE OF THE COMPOUNDING EFFECT OF THIS ASSUMED
REINVESTMENT. THE TRUST MAY INCLUDE THIS INFORMATION IN SALES MATERIAL AND
ADVERTISEMENTS FOR THE FUND.

SHAREHOLDERS WILL RECEIVE FINANCIAL REPORTS SEMI-ANNUALLY THAT INCLUDE LISTINGS
OF INVESTMENT SECURITIES HELD BY THE PORTFOLIO AT THOSE DATES. ANNUAL REPORTS
ARE AUDITED BY INDEPENDENT ACCOUNTANTS.

The yields are then calculated as follows:

Base Period Return = Net Change in Account Value
---------------------------
Beginning Account Value

21
<PAGE>

Current Yield = Base Period Return x 365/7

Effective Yield = [(1 + Base Period Return)365/7] - 1

Tax Equivalent Yield = Current Yield
--------------

(1 - Tax Rate)

FOR the seven days ended December 31, 1998, THE FUND'S CURRENT YIELD WAS ____%
AND THE FUND'S EFFECTIVE YIELD WAS____%.

ECONOMIC AND MARKET INFORMATION

FINANCIAL STATEMENTS

22
<PAGE>

APPENDIX

DESCRIPTION OF SECURITIES RATINGS

DESCRIPTION OF S&P'S CORPORATE BOND RATINGS:

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

AA--Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in small degree.

S&P's letter ratings may be modified by the addition of a plus or a minus sign,
which is used to show relative standing within the major categories, except in
the AAA rating category.

DESCRIPTION OF MOODY'S CORPORATE BOND RATINGS:

DESCRIPTION OF FITCH INVESTORS SERVICE'S CORPORATE BOND RATINGS:

DESCRIPTION OF DUFF & PHELPS' CORPORATE BOND RATINGS:

AAA--Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury Funds.

AA+, AA, AA--High credit quality. Protection factors are strong. Risk is modest
but may vary slightly from time to time because of economic conditions.

23
<PAGE>

DESCRIPTION OF S&P'S MUNICIPAL BOND RATINGS:

AAA--Prime--These are obligations of the highest quality. They have the
strongest capacity for timely payment of debt service.

AA--High Grade--The investment characteristics of bonds in this group are only
slightly less marked than those of thE prime quality issues. Bonds rated AA have
the second strongest capacity for payment of debt service.

S&P's letter ratings may be modified by the addition of a plus or a minus sign,
which is used to show relative standing within the major rating categories,
except in the AAA rating category.

DESCRIPTION OF MOODY'S MUNICIPAL BOND RATINGS:

Aa--Bonds which are 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.

DESCRIPTION OF S&P'S MUNICIPAL NOTE RATINGS:

24
<PAGE>

DESCRIPTION OF MOODY'S MUNICIPAL NOTE RATINGS:

DESCRIPTION OF S&P COMMERCIAL PAPER RATINGS:

DESCRIPTION OF MOODY'S COMMERCIAL PAPER RATINGS:

DESCRIPTION OF FITCH INVESTORS SERVICE'S COMMERCIAL PAPER RATINGS:

F1+--Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.

F1--Very Strong Credit Quality. Issues assigned this rating reflect an assurance
of timely payment only slightly less in degree than the strongest issue.

DESCRIPTION OF DUFF & PHELPS' COMMERCIAL PAPER RATINGS:

Duff 1--Very high certainty of timely payment. Liquidity factors are excellent
and supported by good fundamental protection factors. Risk factors are minor.

DESCRIPTION OF THOMSON BANK WATCH SHORT-TERM RATINGS:

T-1--The highest category; indicates a very high likelihood that principal and
interest will be paid on a timely basis.

T-2--The second-highest category; while the degree of safety regarding timely
repayment of principal and interest is strong, the relative degree of safety is
not as high as for issues rated "TBW-1".

T-4--The lowest rating category; this rating is regarded as non-investment grade
and therefore speculative.

DESCRIPTION OF THOMSON BANKWATCH LONG-TERM RATINGS:

AAA--The highest category; indicates that the ability to repay principal and
interest on a timely basis is extremely high.

AA--The second-highest category; indicates a very strong ability to repay
principal and interest on a timely basis, with limited incremental risk compared
to issues rated in the highest category.

25
<PAGE>

NON-INVESTMENT GRADE

(ISSUES REGARDED AS HAVING SPECULATIVE CHARACTERISTICS IN THE LIKELIHOOD OF
TIMELY REPAYMENT OF PRINCIPAL AND INTEREST.)

CCC--Issues rated "CCC" clearly have a high likelihood of default, with little
capacity to address further adverse changes in financial circumstances.

CC--"CC" is applied to issues that are subordinate to other obligations rated
"CCC" and are afforded less protection in the event of bankruptcy or
reorganization.

D--Default

These long-term debt ratings can also be applied to local currency debt. In such
cases the ratings defined above will be preceded by the designation "local
currency".

RATINGS IN THE LONG-TERM DEBT CATEGORIES MAY INCLUDE A PLUS (+) OR MINUS (-)
DESIGNATION, WHICH INDICATES WHERE WITHIN THE RESPECTIVE CATEGORY THE ISSUE IS
PLACED.

26
<PAGE>

INVESTMENT ADVISER OF EACH PORTFOLIO AND ADMINISTRATOR
BANKERS TRUST COMPANY

DISTRIBUTOR
EDGEWOOD SERVICES, INC.

CUSTODIAN AND TRANSFER AGENT
BANKERS TRUST COMPANY

INDEPENDENT ACCOUNTANTS
COOPERS & LYBRAND L.L.P.

COUNSEL
WILLKIE FARR & GALLAGHER

--------------------

<PAGE>

STATEMENT OF
ADDITIONAL INFORMATION
April 30, 1999
BT Investment Funds
o Cash Management Fund
o Tax Free Money Fund
o NY Tax Free Money Fund

BT Institutional Funds
o Institutional Cash Management Fund
o Institutional Treasury Money Fund

BT Investment Funds and BT Institutional Funds (each, a "Trust" and,
collectively, the "Trusts") are open-end management investment companies that
offer investors a selection of investment portfolios, each having distinct
investment objectives and policies. The Investment Cash Management Fund,
Investment Tax Free Money Fund, Investment NY Tax Free Money Fund, Institutional
Cash Management Fund and Institutional Treasury Money Fund (each a "Fund" and,
collectively, the "Funds") are described herein.

* 1 moved from here; text not shown* 2 moved from here; text not shown Unlike
other mutual funds, the Trusts seek to achieve the investment objectives of
each Fund by investing all the investable assets of the Fund in a diversified
(or nondiversified, in the case of the NY Tax Free Money Fund) open-end
management investment company having the same investment objective as such Fund.
These investment companies are, respectively, Cash Management Portfolio, Tax
Free Money Portfolio, NY Tax Free Money Portfolio and Treasury Money Portfolio
(collectively, the "Portfolios").

* 3 moved from here; text not shownShares of the Funds are sold by ICC
Distributors, Inc. ("ICC Distributors"), the Trust's distributor (the
"Distributor"), to clients and customers (including affiliates and
correspondents) of Bankers Trust Company ("Bankers Trust"), the Portfolios'
investment adviser ("Adviser"), and to clients and customers of other
organizations.

The Trusts' Prospectuses for the Funds, dated April 30, 1999, provide 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
Trusts and should be read in conjunction with the Prospectuses. You may
request a copy of the Prospectuses or a paper copy of this SAI, if you have
received it electronically, free of charge by calling the Trusts at the
telephone number listed below or by contacting any Bankers Trust service agent
("Service Agent"). Capitalized terms not otherwise defined in this Statement of
Additional Information have the meanings accorded to them in the Trusts'
Prospectuses. The financial statements for each Fund and the corresponding
Portfolio for the fiscal year ended December 31, 1998, are incorporated herein
by reference to the Annual Report to shareholders for each Fund and each
Portfolio dated December 31, 1998. A copy of each Fund's and the corresponding
Portfolio's Annual Report may be obtained without charge by calling each Fund at
the telephone number listed below.

Investment Adviser of the Portfolio and Administrator
BANKERS TRUST COMPANY
Distributor
ICC DISTRIBUTORS, INC.

Two Portland Square Portland, Maine 04101 1-800-730-1313

(A redherring appears here, rotated 90 degrees, with the following text:)

Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may any
offers to buy be accepted prior to the time the registration statement becomes
effective. This Statement of Additional Information does not constitute a
prospectus.

<PAGE>
TABLE OF CONTENTS

PAGE

INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS.............................1

Investment Objectives.....................................................1

Investment Policies.......................................................1

Additional Risk Factors...................................................6

Investment Restrictions...................................................8

NET ASSET VALUE.............................................................12

PURCHASE AND REDEMPTION INFORMATION.........................................13

Purchase of Shares.......................................................13

Redemption of Shares.....................................................16

MANAGEMENT OF THE TRUST AND PORTFOLIOS......................................19

Trustees of BT Investment Funds..........................................19

Trustees of BT Institutional Funds.......................................20

Trustees of the Portfolios...............................................20

Officers of the Trust and the Portfolios.................................20

Trustee Compensation Table...............................................21

Investment Adviser.......................................................21

Administrator............................................................23

Distributor..............................................................24

Service Agent............................................................25

Custodian and Transfer Agent.............................................25

Expenses.................................................................25

Use of Name..............................................................25

Banking Regulatory Matters...............................................26

Counsel and Independent Accountants......................................26

ORGANIZATION OF THE TRUST...................................................26
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DIVIDENDS AND TAXES.........................................................27

PERFORMANCE INFORMATION.....................................................29

FINANCIAL STATEMENTS........................................................31

APPENDIX: DESCRIPTION OF RATINGS............................................32
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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.

Investment Cash Management Fund seeks a high level of current income consistent
with liquidity and the preservation of capital through investment in a Portfolio
of high quality money market instruments.

** 1 Investment Tax Free Money Fund seeks a high level of current income
exempt from Federal income taxes consistent with liquidity and the preservation
of capital through investment in a Portfolio primarily of obligations issued by
states and their authorities, agencies, instrumentalities and political
subdivisions.

** 2 Investment NY Tax Free Money Fund seeks a high level of current income
exempt from Federal and New York income taxes consistent with liquidity and the
preservation of capital through investment in a Portfolio primarily of
obligations of the State of New York and its authorities, agencies,
instrumentalities and political subdivisions.

Institutional Cash Management Fund seeks a high level of current income
consistent with liquidity and the preservation of capital through investment in
a portfolio of high quality money market instruments.

Institutional Treasury Money Fund seeks a high level of current income
consistent with liquidity and the preservation of capital through investment in
a portfolio of direct obligations of the U.S. Treasury and repurchase agreements
in respect of those obligations.

Investment Policies

Each Fund seeks to achieve its investment objective(s) by investing all of its
assets in the corresponding Portfolio, which has the same investment objective
as the Fund. Each Trust may withdraw a Fund's investment from the corresponding
Portfolio at any time if the Board of Trustees of the Trust determines that it
is in the best interests of the Fund to do so.

** 3 Since the investment characteristics of each Fund will correspond directly
to those of the respective Portfolio in which the Fund invests all of its
assets, the following is a discussion of the various investments of and
techniques employed by the Portfolios.

QUALITY AND MATURITY OF THE PORTFOLIO'S SECURITIES. Each Portfolio will maintain
a dollar-weighted average maturity of 90 days or less. All securities in which
each Portfolio invests will have, or be deemed to have, remaining maturities of
397 days or less on the date of their purchase, will be denominated in U.S.
dollars and will have been granted the required ratings established herein by
two nationally recognized statistical rating organizations ("NRSROs") (or one
such NRSRO if that NRSRO is the only such NRSRO which rates the security), or if
unrated, are believed by Bankers Trust, under the supervision of the respective
Portfolio's Board of Trustees, to be of comparable quality. Currently, there are
five rating agencies which have been designated by the Securities and Exchange
Commission (the "SEC") as an NRSRO. These organizations and their highest
short-term rating category (which may also be modified by a "+") are: Duff and
Phelps Credit Rating Co., D-1; Fitch IBCA, Inc. F1; Moody's Investors Service
Inc. ("Moody's"), Prime-1; Standard & Poor's, A-1; and Thomson BankWatch, Inc.,
T-1. A description of such ratings is provided in the Appendix. Bankers Trust,
acting under the supervision of and procedures adopted by the Board of Trustees
of each Portfolio, will also determine that all securities purchased by a
Portfolio present minimal credit risks. Bankers Trust will cause a Portfolio to
dispose of any security as soon as practicable if the security is no longer of
the requisite quality, unless such action would not be in the best interest of
that Portfolio. High-quality, short-term instruments may result in a lower yield
than instruments with a lower quality or longer term.

OBLIGATIONS OF BANKS AND OTHER FINANCIAL INSTITUTIONS. For purposes of the
Portfolios' investment policies with respect to bank obligations, the assets of
a bank will be deemed to include the assets of its domestic and foreign
branches. Obligations of foreign branches of U.S. banks and foreign banks may be
general obligations of the parent bank in addition to the issuing bank or may be
limited by the terms of a specific obligation and by government regulation. If
Bankers Trust, acting under the supervision of the Board of Trustees, deems the
instruments to present minimal credit risk, each Portfolio other than Treasury
Money Portfolio may invest in obligations of foreign banks or foreign branches
of U.S. banks, which include banks located in the United Kingdom, Grand Cayman
Island, Nassau, Japan and Canada.

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Investments in these obligations may entail risks that are different from those
of investments in obligations of U.S. domestic banks because of differences in
political, regulatory and economic systems and conditions. These risks include
future political and economic developments, currency blockage, the possible
imposition of withholding taxes on interest payments, differing reserve
requirements, reporting and recordkeeping requirements and accounting standards,
possible seizure or nationalization of foreign deposits, difficulty or inability
of pursuing legal remedies and obtaining judgments in foreign courts, possible
establishment of exchange controls or the adoption of other foreign governmental
restrictions that might affect adversely the payment of principal and interest
on bank obligations. Foreign branches of U.S. banks and foreign banks may also
be subject to less stringent reserve requirements and to different accounting,
auditing, reporting and recordkeeping standards than those applicable to
domestic branches of U.S. banks.

COMMERCIAL PAPER. Commercial paper obligations in which the Portfolios may
invest are short-term, unsecured negotiable promissory notes of U.S. or foreign
corporations that at the time of purchase meet the rating criteria described in
the Prospectus. Investments in foreign commercial paper generally involve risks
similar to those described above relating to obligations of foreign banks or
foreign branches of U.S. banks.

VARIABLE RATE MASTER DEMAND NOTES. Variable rate master demand notes are
unsecured instruments that permit the indebtedness thereunder to vary and
provide for periodic adjustments in the interest rate. Because variable rate
master demand notes are direct lending arrangements between a Portfolio and the
issuer, they are not ordinarily traded. Although no active secondary market may
exist for these notes, a Portfolio will purchase only those notes under which it
may demand and receive payment of principal and accrued interest daily or may
resell the note to a third party. While the notes are not typically rated by
credit rating agencies, issuers of variable rate master demand notes must
satisfy Bankers Trust, acting under the supervision of the Board of Trustees of
a Portfolio, that the same criteria as set forth above for issuers of commercial
paper are met. In the event an issuer of a variable rate master demand note
defaulted on its payment obligation, a Portfolio might be unable to dispose of
the note because of the absence of a secondary market and could, for this or
other reasons, suffer a loss to the extent of the default. The face maturities
of variable rate notes subject to a demand feature may exceed 397 days in
certain circumstances. (See "Quality and Maturity of the Fund's Securities"
herein.)

U.S. GOVERNMENT OBLIGATIONS. The Portfolios may invest in direct obligations
issued by the U.S. Treasury or, in the case of the Portfolios other than
Treasury Money Portfolio, in obligations issued or guaranteed by the U.S.
Treasury or by agencies or instrumentalities of the U.S. government ("U.S.
Government Obligations"). Certain short-term U.S. Government Obligations, such
as those issued by the Government National Mortgage Association ("GNMA"), are
supported by the "full faith and credit" of the U.S. government; others, such as
those of the Export-Import Bank of the United States, are supported by the right
of the issuer to borrow from the U.S. Treasury; others, such as those of the
Federal National Mortgage Association are solely the obligations of the issuing
entity but are supported by the discretionary authority of the U.S. government
to purchase the agency's obligations; and still others, such as those of the
Student Loan Marketing Association, are supported by the credit of the
instrumentality. No assurance can be given that the U.S. government would
provide financial support to U.S. government-sponsored instrumentalities if it
is not obligated to do so by law.

Examples of the types of U.S. Government Obligations that the Portfolios may
hold include, but are not limited to, in addition to those described above and
direct U.S. Treasury obligations, the obligations of the Federal Housing
Administration ("FHA"), Farmers Home Administration, Small Business
Administration, General Services Administration, Central Bank for Cooperatives,
Federal Farm Credit Banks, Federal Farm Credit Banks Funding Corp., Federal Home
Loan Banks, Federal Home Loan Mortgage Corporation, Federal Intermediate Credit
Banks, Federal Land Banks and Maritime Administration.

OTHER DEBT OBLIGATIONS. The Portfolios may invest in deposits, bonds, notes
and debentures and other debt obligations that at the time of purchase have, or
are comparable in priority and security to other securities of such issuer which
have, outstanding short-term obligations meeting the above short-term rating
requirements, or if there are no such short-term ratings, are determined by
Bankers Trust, acting under the supervision of the Board of Trustees of the
Portfolio, to be of comparable quality and are rated in the top three highest
long-term rating categories by the NRSROs rating such security.

CREDIT ENHANCEMENT. Certain of a Portfolio's acceptable investments may be
credit-enhanced by a guaranty, letter of credit, or insurance from a third
party. Any bankruptcy, receivership, default, or change in the credit quality of

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the third party providing the credit enhancement could adversely affect the
quality and marketability of the underlying security and could cause losses to
the Portfolio and affect the Portfolio's share price. Subject to the
diversification limits contained in Rule 2a-7, each Portfolio may have more than
25% of its total assets invested in securities issued by or credit-enhanced by
banks or other financial institutions.

LENDING OF PORTFOLIO SECURITIES. The Portfolios, other than Tax Free Money
Portfolio and NY Tax Free Money Portfolio, have the authority to lend portfolio
securities to brokers, dealers and other financial organizations. By lending its
securities, a Portfolio 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 Portfolio
will adhere to the following conditions whenever its securities are loaned: (i)
the Portfolio 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 Portfolio must be able to terminate the loan at any time; (iv) the
Portfolio 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.
Cash collateral may be invested in a money market fund managed by Bankers Trust
(or its affiliates) and Bankers Trust may serve as a Portfolio's lending agent
and may share in revenue received from securities lending transactions as
compensation for this service.

REPURCHASE AGREEMENTS. The Portfolios may engage in repurchase agreement
transactions with banks and governmental securities dealers approved by the
Portfolio's Board of Trustees. Under the terms of a typical repurchase
agreement, a Portfolio would acquire U.S. Government Obligations (or any other
securities permitted by Rule 2a-7) regardless of maturity any remaining maturity
for a relatively short period (usually not more than one week), subject to an
obligation of the seller to repurchase, and the Portfolio to resell, the
obligation at an agreed price and time, thereby determining the yield during the
Portfolio's holding period. This arrangement results in a fixed rate of return
that is not subject to market fluctuations during the Portfolio's holding
period. The value of the underlying securities will be at least equal at all
times to the total amount of the repurchase obligations, including interest.
Each Portfolio bears a risk of loss in the event that the other party to a
repurchase agreement defaults on its obligations and the Portfolio is delayed in
or prevented from exercising its rights to dispose of the collateralized
securities, including the risk of a possible decline in the value of the
underlying securities during the period in which the Portfolio seeks to assert
these rights. Bankers Trust, acting under the supervision of the Board of
Trustees of each Portfolio, reviews the creditworthiness of those banks and
dealers with which the Portfolios enter into repurchase agreements and monitors
on an ongoing basis the value of the securities subject to repurchase agreements
to ensure that it is maintained at the required level.

REVERSE REPURCHASE AGREEMENTS. The Portfolios 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 Portfolio 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 Portfolio may
decline below the repurchase price of those securities. Reverse repurchase
agreements are considered to be borrowings by a Portfolio.

WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES. To secure prices deemed
advantageous at a particular time, the Cash Management Portfolio and Treasury
Money Portfolio may purchase securities on a when-issued or delayed-delivery
basis, in which case delivery of the securities occurs beyond the normal
settlement period; payment for or delivery of the securities would be made
prior to the reciprocal delivery or payment by the other party to the
transaction. A Portfolio will enter into when-issued or delayed-delivery
transactions for the purpose of acquiring securities and not for the purpose of
leverage. When-issued securities purchased by a Portfolio may include securities
purchased on a "when, as, and if issued" basis under which the issuance of the
securities depends on the occurrence of a subsequent event.

Securities purchased on a when-issued or delayed-delivery basis may expose a
Portfolio to risk because the securities may experience fluctuations in value
prior to their actual delivery. A Portfolio does not accrue income with respect
to a when-
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issued or delayed-delivery security prior to its stated delivery date.
Purchasing securities on a when-issued or delayed-delivery basis can involve the
additional risk that the yield available in the market when the delivery takes
place may be higher than that obtained in the transaction itself. Upon
purchasing a security on a when-issued or delayed-delivery basis, a Portfolio
will identify, as part of a segregated account, cash or liquid securities in
an amount at least equal to the when-issued or delayed-delivery commitment.

ASSET-BACKED SECURITIES. The Cash Management Portfolio may also invest in
securities generally referred to as asset-backed securities, which directly or
indirectly represent a participation interest in, or are secured by and payable
from, a stream of payments generated by particular assets such as motor vehicle
or credit card receivables. Asset-backed securities may provide periodic
payments that consist of interest and/or principal payments. Consequently, the
life of an asset-backed security varies with the prepayment and loss experience
of the underlying assets."

PARTICIPATION INTERESTS. Tax Free Money Portfolio and NY Tax Free Money
Portfolio may purchase from financial institutions participation interests in
Municipal Obligations. A participation interest gives the Portfolio an undivided
interest in the Municipal Obligation in the proportion that the Portfolio's
participation interest bears to the total principal amount of the Municipal
Obligation. These instruments may be variable rate or fixed rate with remaining
maturities of one year or less. If the participation interest is unrated or has
been given a rating below that which otherwise is permissible for purchase by
the Portfolio, the participation interest will be backed by an irrevocable
letter of credit or guarantee of a bank that the Portfolio's Board of Trustees
has determined meets the prescribed quality standards for the Portfolio, or the
payment obligation otherwise will be collateralized by U.S. government
securities or other securities deemed appropriate by the Portfolio's Board of
Trustees, or, in the case of an unrated participation interest that is not
backed or collateralized as described above, but that otherwise meets the
Trustees' procedures and standards for creditworthiness and high quality, the
underlying Municipal Obligation must be a permissible investment for the
Portfolio. For certain participation interests, the Portfolio will have the
right to demand payment, on seven days' notice, for all or any part of the
Portfolio's participation interest in the Municipal Obligation, plus accrued
interest. As to these instruments, each Portfolio intends to exercise its right
to demand payment from the issuer of the demand feature only upon a default
under the terms of the Municipal Obligation, as needed to provide liquidity to
meet redemptions or to maintain a high quality investment portfolio. In the
event an issuer of a demand feature defaulted on its payment obligation, the
Portfolio might be unable to dispose of the participation interest because of
the absence of a secondary market and could, for this or other reasons, suffer a
loss to the extent of the default.

Neither Portfolio currently intends to invest more than 5% of its total assets
in participation interests.

STANDBY COMMITMENTS. Tax Free Money Portfolio and NY Tax Free Money Portfolio
each may acquire standby commitments or "puts" solely to facilitate portfolio
liquidity; neither Portfolio intends to exercise its rights thereunder for
trading purposes. The maturity of a Municipal Obligation is not to be considered
shortened by any standby commitment to which the obligation is subject. Thus,
standby commitments do not affect the dollar-weighted average maturity of a
Portfolio.

When Municipal Obligations are subject to puts separate from the underlying
securities, no value is assigned to the put. Because of the difficulty of
evaluating the likelihood of exercise or the potential benefit of a put, the
Board of Trustees has determined that puts shall have a fair market value of
zero, regardless of whether any direct or indirect consideration was paid.

Since the value of the put is partly dependent on the ability of the put writer
to meet its obligation to repurchase, each Portfolio's policy is to enter into
put transactions only with put writers who are approved by Bankers Trust. It is
the Portfolios' general policy to enter into put transactions only with those
put writers which are determined to present minimal credit risks. In connection
with this determination, the Board of Trustees will review regularly Bankers
Trust's list of approved put writers, taking into consideration, among other
things, the ratings, if available, of their equity and debt securities, their
reputation in the municipal securities markets, their net worth, their
efficiency in consummating transactions and any collateral arrangements, such as
letters of credit securing the puts written by them. Commercial banks normally
will be members of the Federal Reserve System, and other dealers will be members
of the National Association of Securities Dealers, Inc. or members of a national
securities exchange. Other put writers will have outstanding debt rated Aa or
better by Moody's or AA or better by Standard & Poor's Ratings Group ("S&P"),
or will be of comparable quality in Bankers Trust's opinion, or such put
writers' obligations will be collateralized and of comparable quality in Bankers
Trust's opinion. The Board of Trustees has directed Bankers Trust not to enter
into put

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transactions with any put writer that, in the judgment of Bankers Trust using
the above-described criteria, is or becomes a recognizable credit risk. Neither
Portfolio is able to predict whether all or any portion of any loss sustained
could subsequently be recovered from a put writer in the event that a put writer
should default on its obligation to repurchase an underlying security.

Neither Portfolio currently intends to invest more than 5% of its net assets in
standby commitments.

MUNICIPAL OBLIGATIONS. The two principal classifications of Municipal
Obligations are "notes" and "bonds." Municipal Obligations are further
classified as "general obligation" and "revenue" issues and the securities held
by the Tax Free Money Portfolio and NY Tax Free Money Portfolio may include
"moral obligations" which are normally issued by special purpose authorities.

Municipal Notes. Municipal notes generally fund short-term capital needs and
have maturities of one year or less. Tax Free Money Portfolio and NY Tax Free
Money Portfolio may invest in municipal notes, which include:

Tax Anticipation Notes. Tax anticipation notes are issued to finance working
capital needs of municipalities. Generally, they are issued in anticipation of
various seasonal tax revenue, such as income, sales, use and business taxes, and
are payable from these specific future taxes.

Revenue Anticipation Notes. Revenue anticipation notes are issued in expectation
of receipt of other types of revenue, such as Federal revenues available under
Federal revenue sharing programs.

Bond Anticipation Notes. Bond anticipation notes are issued to provide interim
financing until long-term financing can be arranged. In most cases, the
long-term bonds provide funds for the repayment of these notes.

Miscellaneous, Temporary and Anticipatory Instruments. These instruments may
include notes issued to obtain interim financing pending entering into alternate
financial arrangements, such as receipt of anticipated Federal, state or other
grants or aid, passage of increased legislative authority to issue longer-term
instruments or obtaining other refinancing.

Construction Loan Notes. Construction loan notes are sold to provide
construction financing. Permanent financing, the proceeds of which are applied
to the payment of construction loan notes, is sometimes provided by a commitment
of the GNMA to purchase the loan, accompanied by a commitment by the FHA to
insure mortgage advances thereunder. In other instances, permanent financing is
provided by commitments of banks to purchase the loan. A Portfolio will only
purchase construction loan notes that are subject to permanent GNMA or bank
purchase commitments.

Tax-Exempt Commercial Paper. Tax-exempt commercial paper is a short-term
obligation with a stated maturity of 365 days or less. It is issued by agencies
of state and local governments to finance seasonal working capital needs or as
short-term financing in anticipation of longer-term financing.

Municipal Bonds. Municipal bonds generally fund longer-term capital needs than
municipal notes and have maturities exceeding one year when issued. Tax Free
Money Portfolio and NY Tax Free Money Portfolio may invest in municipal bonds,
but only to the extent that their remaining maturities are determined not to
exceed 397 days under rules promulgated under the Investment Company Act of 1940
(the "1940 Act"). Municipal bonds include:

General Obligation Bonds. Issuers of general obligation bonds include states,
counties, cities, towns and regional districts. The proceeds of these
obligations are used to fund a wide range of public projects, including
construction or improvement of schools, highways and roads, and water and sewer
systems. The basic security behind general obligation bonds is the issuer's
pledge of its full faith and credit and taxing power for the payment of
principal and interest. The taxes that can be levied for the payment of debt
service may be limited or unlimited as to the rate or amount of special
assessments.

Revenue Bonds. The principal security for a revenue bond is generally the net
revenues derived from a particular facility, group of facilities or, in some
cases, the proceeds of a special excise tax or other specific revenue source.
Revenue bonds are issued to finance a wide variety of capital projects,
including electric, gas, water and sewer systems; highways, bridges, and
tunnels; port and airport facilities; colleges and universities; and hospitals.
Although the principal security behind these bonds may vary, many provide
additional security in the form of a debt service reserve fund that may be used
to make principal and interest payments on the issuer's obligations. Housing
finance authorities have a wide range of security, including partially or fully
insured mortgages, rent subsidized and/or collateralized mortgages, certificates
of deposit and/or the net revenues from housing or other public projects. Some
authorities provide further security in the form of a state's ability (without
obligation) to make up deficiencies in the debt service reserve fund.

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Private Activity Bonds. Private activity bonds, which are considered Municipal
Obligations if the interest paid thereon is excluded from gross income for
Federal income tax purposes and is not a specific tax preference item for
Federal individual and corporate alternative minimum tax purposes, are issued by
or on behalf of public authorities to raise money to finance various privately
operated facilities such as manufacturing facilities, certain hospital and
university facilities and housing projects. These bonds are also used to finance
public facilities such as airports, mass transit systems and ports. The payment
of the principal and interest on these bonds is dependent solely on the ability
of the facility's user to meet its financial obligations and generally the
pledge, if any, of real and personal property so financed as security for
payment.

Additional Risk Factors

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

SPECIAL CONSIDERATIONS RELATING TO NEW YORK MUNICIPAL OBLIGATIONS. The NY Tax
Free Money Portfolio invests in obligations of New York (the "State") issuers
which results in its performance being subject to risks associated with the
overall conditions present within the State. The following information is a
general summary of the State's financial condition and a brief summary of the
prevailing economic conditions. This information is based on official statements
relating to securities that are believed to be reliable but should not be
considered as a complete description of all relevant information.

The State has achieved fiscal balance for the past several years after years of
recording large deficits during the 1980's. Fiscal balance has been achieved as
a result of growth in tax receipts and a focus on reducing governmental
disbursements. Evidence of the State's improved financial condition is seen in
the reduction of the 1996-1997 fiscal year end accumulated General Fund deficit
(GAAP Basis) to $995 million compared to a recent high of $3.3 billion (recorded
in fiscal year 1994-1995). On a cash basis, the State is projecting to close
fiscal year 1997-1998 (current fiscal year) with a surplus of $465 million.

The State's fiscal year 1997-1998 Financial Plan (current fiscal year) through
December 1997 continued to be balanced with a projected cash surplus of $1.83
billion, $1.3 billion higher than estimated through the first two quarters of
fiscal year 1997-1998 (the "Mid-Year Update"). The State will use a majority of
the surplus to accelerate $1.18 billion in personal income tax refund payments
by increasing the reserve for such payments. This acceleration decreases
reported personal income receipts by $1.18 billion in fiscal year 1997-1998,
while increasing available personal income receipts in fiscal year 1998-1999, as
these refunds will no longer be a charge against current revenues in fiscal year
1998-1999. As a result, projections of available receipts in fiscal year
1997-1998 (current fiscal year) have been increased only $103 million over the
Mid-Year Update.

The State projects that disbursements will increase by $565 million over the
Mid-Year Update as a result of prepaying General Fund expenditures for fiscal
year 1998-1999. In the absence of this one-time payment of expenditures, General
Fund disbursements would have remained nearly unchanged.

The General Fund closing balance is projected to be $465 million at the end of
fiscal year 1997-1998, a decline of almost 50% (over the Mid-Year Update), as a
result of using the surplus generated from higher than anticipated receipts to
prepay fiscal year 1998-1999 expenditures (discussed above).

The Governor presented his 1998-1999 Executive Budget to the Legislature on
January 20, 1998. The Executive Budget also contains financial projections for
the State's 1999-2000 to 2000-2001 fiscal years, detailed estimates of receipts
and a proposed Capital Program and Financing Plan for the 1999-2000 through
2002-2003 fiscal years. There can be no assurance that the Legislature will
enact into law the Executive Budget, as proposed by the Governor, or that the
State's adopted budget projections will not differ materially and adversely from
the projections set forth below.

The fiscal year 1998-1999 Financial Plan is projected to be balanced on a cash
basis in the General fund, with the use of only $62 million in non-recurring
resources (less than 0.2% of General fund disbursements compared to $2.3 billion
for the current fiscal year). Total General Fund receipts, including transfers
from other funds, are projected to be $36.22 billion, a 2.9% increase over
projected receipts in the current fiscal year. The increase in General Fund
receipts is anticipated from an increase in personal income tax receipts and
user taxes (primarily sales tax). Total General Fund disbursements, including
transfers to other funds, are projected to be $36.18 billion or 2.9% over
projected expenditures (including the prepayments discussed above), for the
current fiscal year. The increase in spending primarily reflects increases in
school aid and Medicare programs. The Executive Budget projects a closing
General Fund balance of $500

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million, slightly higher than projected for the current fiscal year.

The State's economy continued to improve, as the rate of growth in
non-agricultural employment increased to 1.4% through November 1997 compared to
0.7% growth in 1995. New York's rate of growth in employment was below the rate
of growth of the United States, resulting in a stable unemployment rate of 6.3%
since 1995. New York's growth in personal income also underperformed the United
States expanding 4.7% and 5.4%, in 1996 and 1997 respectively, compared to 5.6%
and 5.8% for the United States. New York's growth in personal income has been
driven primarily by the exceptional performance of the financial markets.

Moderate economic growth is projected to continue in 1998 and 1999 for
employment, wages, and personal income, although growth will lessen gradually
during the course of the next two years. Personal income is projected to
increase 4.7% in 1998 and 4.4% in 1999 (compared to 5.1% and 4.3% growth in
United States personal income, as projected by the State Division of the
Budget). Overall employment growth is expected to continue at a modest rate,
reflecting the slowing growth in the national economy, continued spending
restraint in government and restructuring in health care, social service and
banking sectors.

The State's financial health is evidenced by its debt ratings. The State's
improved financial condition is evidenced by the recent upgrade in the State's
debt rating to A from A- by S&P. The State is rated A2 by Moody's.

The Fund's concentration in municipal securities issued by the State and its
political subdivisions provides a greater level of risk than a fund which is
diversified across numerous states and municipal entities. The ability of the
State or its municipalities to meet their obligations will depend upon the
availability of tax and other revenues, economic, political, and demographic
conditions within the State, and the underlying fiscal condition of the State,
its counties, and its municipalities.

YEAR 2000 MATTERS. Like other mutual funds, financial and business
organizations and individuals around the world, the Funds could be adversely
affected if the computer systems used by Bankers Trust and other service
providers do not properly process and calculate date-related information and
data from and after January 1, 2000. This is commonly known as the "Year 2000
Problem." Bankers Trust is taking steps that it believes are reasonably designed
to address the Year 2000 Problem with respect to computer systems that it uses
and to obtain reasonable assurances that comparable steps are being taken by the
Funds' other major service providers. At this time, however, there can be no
assurance that these steps will be sufficient to avoid any adverse impact to the
Funds nor can there be any assurance that the Year 2000 Problem will not have an
adverse effect on the companies whose securities are held by the Funds or on
global markets or economies, generally.

SPECIAL INFORMATION CONCERNING MASTER-FEEDER FUND STRUCTURE. Unlike other
open-end management investment companies (mutual funds) which directly acquire
and manage their own portfolio securities, each Fund seeks to achieve its
investment objective by investing all of its assets in the corresponding
Portfolio, a separate registered investment company with the same investment
objective as the corresponding Fund. Therefore, an investor's interest in the
corresponding Portfolio's securities is indirect. In addition to selling a
beneficial interest to the corresponding Fund, each Portfolio may sell
beneficial interests to other mutual funds, investment vehicles or institutional
investors. Such investors will invest in a Portfolio on the same terms and
conditions and will pay a proportionate share of a Portfolio's expenses.
However, the other investors investing in a Portfolio are not required to sell
their shares at the same public offering price as the Fund due to variations in
sales commissions and other operating expenses. Therefore, investors in a Fund
should be aware that these differences may result in differences in returns
experienced by investors in the different funds that invest in each Portfolio.
Such differences in returns are also present in other mutual fund structures.
Information concerning other holders of interests in each Portfolio is available
from Bankers Trust at 1-800-730-1313.

7
<PAGE>

not vote will not affect the Trust's votes at the Portfolio meeting. The
percentage of the Trust's votes representing the Fund's shareholders not voting
will be voted by the Trustees or officers of the Trust in the same proportion as
the Fund shareholders who do, in fact, vote.

The Fund may withdraw its investment from a Portfolio at any time, if the Board
of Trustees of the Trust determines that it is in the best interests of the
shareholders of the Fund to do so. Upon any such withdrawal, the Board of
Trustees of the Trust would consider what action might be taken, including the
investment of all the assets of the Fund in another pooled investment entity
having the same investment objective as the Fund or the retaining of an
investment adviser to manage the Fund's assets in accordance with the investment
policies described herein with respect to the corresponding Portfolio.

Each 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. The investment objective of each Portfolio is also not a
fundamental policy. Shareholders of the Funds will receive 30 days prior written
notice with respect to any change in the investment objective of the Fund or the
corresponding Portfolio.

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 Portfolio, an obligation may cease to be
rated or its rating may be reduced below the minimum required for purchase by
the Portfolio. Neither event would require a Portfolio to eliminate the
obligation from its portfolio, but the Adviser will consider such an event in
its determination of whether a Portfolio 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 have been
adopted by the Trust with respect to each of the Funds and by the Portfolios as
fundamental policies. Under the 1940 Act, a "fundamental" policy may not be
changed without the vote of a majority of the outstanding voting securities of
the Fund or Portfolio, respectively, to which it relates, which is defined in
the 1940 Act as the lesser of (a) 67% or more of the shares present at a
shareholder meeting if the holders of more than 50% of the outstanding shares
are present or represented by proxy, or (b) more than 50% of the outstanding
shares. Whenever a Fund is requested to vote on a change in the investment
restrictions of a Portfolio, the Trust will hold a meeting of Fund shareholders
and will cast its votes as instructed by the shareholders. Fund shareholders who
do not vote will not affect the Trust's votes at the Portfolio meeting. The
percentage of the Trust's votes representing Fund shareholders not voting will
be voted by the Trustees of the Trust in the same proportion as the Fund
shareholders who do, in fact, vote.

ALL FUNDS AND PORTFOLIOS

Under investment policies adopted by the Trust, on behalf of each Fund, and by
the Portfolios, each Fund and each Portfolio may not:

1. Borrow money, except for temporary or emergency (not
leveraging) purposes in an amount not exceeding 5% of the
value of the Fund's or the Portfolio's total assets (including
the amount borrowed), as the case may be, calculated in each
case at the lower of cost or market.

2. Pledge, hypothecate, mortgage or otherwise encumber more than
5% of the total assets of the Fund or the Portfolio, as the
case may be, and only to secure borrowings for temporary or
emergency purposes.

3. Invest more than 5% of the total assets of the Fund or

8
<PAGE>

the Portfolio, as the case may be, in any one issuer (other
than U.S. Government Obligations) or purchase more than 10% of
any class of securities of any one issuer; provided, however,
that (i) up to 25% of the assets of the Cash Management Fund,
the Treasury Money Fund and the Tax Free Money Fund (and Cash
Management Portfolio, Treasury Money Portfolio and Tax Free
Money Portfolio), and all of the assets of the NY Tax Free
Money Fund (and NY Tax Free Money Portfolio), may be invested
without regard to this restriction, and (ii) this restriction
shall not preclude the purchase by the Tax Free Money Fund (or
Tax Free Money Portfolio) of issues guaranteed by the U.S.
government, its agencies or instrumentalities or backed by
letters of credit or guarantees of one or more commercial
banks or other financial institutions, even though any one
such commercial bank or financial institution provides a
letter of credit or guarantee with respect to securities which
in the aggregate represent more than 5%, but not more than
10%, of the total assets of the Fund or the Portfolio, as the
case may be; provided, however, that nothing in this
investment restriction shall prevent the Trust from investing
all or part of a Fund's assets in an open-end management
investment company with the same investment objectives as such
Fund.

4. Invest more than 25% of the total assets of the Fund or the
Portfolio, as the case may be, in the securities of issuers in
any single industry; provided that (i) this limitation shall
not apply to the purchase of U.S. Government Obligations, (ii)
under normal market conditions more than 25% of the total
assets of the Cash Management Fund (or Cash Management
Portfolio) will be invested in obligations of U.S. and
foreign banks and other financial institutions, and (iii) with
respect to the Tax Free Money Fund and the NY Tax Free Money
Fund (or Tax Free Money Portfolio or NY Tax Free Money
Portfolio), this limitation shall not apply to the purchase of
Municipal Obligations or letters of credit or guarantees of
banks that support Municipal Obligations; provided, however,
that nothing in this investment restriction shall prevent the
Trust from investing all or part of a Fund's assets in an
open-end management investment company with the same
investment objectives as such Fund.

5. Make short sales of securities, maintain a short position or
purchase any securities on margin, except for such short-term
credits as are necessary for the clearance of transactions.

6. Underwrite the securities issued by others (except to the
extent the Fund or Portfolio may be deemed to be an
underwriter under the Federal securities laws in connection
with the disposition of its portfolio securities) or knowingly
purchase restricted securities, except that the Tax Free Money
Fund and the NY Tax Free Money Fund (and Tax Free Money
Portfolio and NY Tax Free Money Portfolio) each may bid,
separately or as part of a group, for the purchase of
Municipal Obligations directly from an issuer for its own
portfolio in order to take advantage of any lower purchase
price available. To the extent these securities are illiquid,
they will be subject to the Fund's or the Portfolio's 10%
limitation on investments in illiquid securities; provided,
however, that nothing in this investment restriction shall
prevent the Trust from investing all or part of a Fund's
assets in an open-end management investment company with the
same investment objectives as such Fund.

7. Purchase or sell real estate, real estate investment trust
securities, commodities or commodity contracts, or oil, gas or
mineral interests, but this shall not prevent the Fund or the
Portfolio from investing in obligations secured by real estate
or interests therein.

8. Make loans to others, except through the purchase of qualified
debt obligations, the entry into repurchase agreements and,
with respect to the Cash Management Fund, the Treasury Money
Fund (or Cash Management Portfolio and Treasury Money
Portfolio), the lending of portfolio securities.

9. Invest more than an aggregate of 10% of the net assets of the
Fund or the Portfolio, respectively, (taken, in each case, at
current value) in (i) securities that cannot be readily resold
to the public because of legal or contractual restrictions or
because there are no market quotations readily available or
(ii) other "illiquid" securities (including time deposits and
repurchase agreements maturing in more than seven calendar
days); provided, however, that nothing in this investment
restriction shall prevent the Trust from investing all or part
of a Fund's assets in an open-end management investment
company with the same investment objectives as such Fund.

9
<PAGE>

10. Purchase more than 10% of the voting securities of any issuer
or invest in companies for the purpose of exercising control
or management; provided, however, that nothing in this
investment restriction shall prevent the Trust from investing
all or part of a Fund's assets in an open-end management
investment company with the same investment objectives as such
Fund.

11. Purchase securities of other investment companies, except to
the extent permitted under the 1940 Act or in connection with
a merger, consolidation, reorganization, acquisition of assets
or an offer of exchange; provided, however, that nothing in
this investment restriction shall prevent the Trust from
investing all or part of a Fund's assets in an open-end
management investment company with the same investment
objectives as such Fund.

12. Issue any senior securities, except insofar as it may be
deemed to have issued a senior security by reason of (i)
entering into a repurchase agreement or (ii) borrowing in
accordance with terms described in the Prospectus and this
SAI.

13. Purchase or retain the securities of any issuer if any of the
officers or trustees of the Fund or the Portfolio or its
investment adviser owns individually more than 1/2 of 1% of
the securities of such issuer, and together such officers and
directors own more than 5% of the securities of such issuer.

14. Invest in warrants, except that the Fund or the Portfolio may
invest in warrants if, as a result, the investments (valued in
each case at the lower of cost or market) would not exceed 5%
of the value of the net assets of the Fund or the Portfolio,
as the case may be, of which not more than 2% of the net
assets of the Fund or the Portfolio, as the case may be, may
be invested in warrants not listed on a recognized domestic
stock exchange. Warrants acquired by the Fund or the Portfolio
as part of a unit or attached to securities at the time of
acquisition are not subject to this limitation.

15. As to the Tax Free Money Fund and the NY Tax Free Money Fund
(or Tax Free Money Portfolio and NY Tax Free Money Portfolio),
neither the Fund (nor the Portfolio as the case may be) will
invest less than 80% of its net assets in Municipal
Obligations under normal market conditions; provided, however,
that nothing in this restriction shall prevent the Trust from
investing all or part of a Fund's assets in an open-end
management investment company with the same investment
objectives as such Fund.

16. Except for NY Tax Free Money Fund, with respect to 75% of the
Fund's (Portfolio's) total assets, invest more than 5% of its
total assets in the securities of any one issuer (excluding
cash and cash-equivalents, U.S. government securities and the
securities of other investment companies) or own more than 10%
of the voting securities of any issuer.

Additional Restrictions. In order to comply with certain statutes and policies
each Portfolio (or Trust, on behalf of the Fund) will not as a matter of
operating policy (except that no operating policy shall prevent a Fund from
investing all of its assets in an open-end investment company with
substantially the same investment objectives):

(i) borrow money (including through dollar roll transactions) for
any purpose in excess of 10% of the Portfolio's (Fund's) total
assets (taken at cost), except that the Portfolio (Fund) may
borrow for temporary or emergency purposes up to 1/3 of its
total assets;

(ii) pledge, mortgage or hypothecate for any purpose in excess of
10% of the Portfolio's (Fund's) total assets (taken at market
value), 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;

(iii) 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;

(iv) 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;

10
<PAGE>

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

(vi) 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 Portfolio
(Fund) if such purchase at the time thereof would cause (a)
more than 10% of the Portfolio's (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
Portfolio's (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 Portfolio
(Fund); and, provided further, that the Portfolio shall not
invest in any other open-end investment company unless the
Portfolio (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, each Portfolio will
not invest in another open-end registered investment company);

(vii) make short sales of securities or maintain a short position,
unless at all times when a short position is open it owns an
equal amount of such securities or securities convertible into
or exchangeable, without payment of any further consideration,
for securities of the same issue and equal in amount to, the
securities sold short, and unless not more than 10% of the
Portfolio's (Fund's) net assets (taken at market value) is
represented by such securities, or securities convertible into
or exchangeable for such securities, at any one time (the
Portfolio (Fund) has no current intention to engage in short
selling);

Each Fund will comply with the state securities laws and regulations of all
states in which it is registered. Each Portfolio will comply with the permitted
investments and investment limitations in the securities laws and regulations of
all states in which the corresponding Fund, or any other registered investment
company investing in the Portfolio, is registered.

For purposes of diversification under the 1940 Act, identification of the
"issuer" of a Municipal Obligation depends on the terms and conditions of the
obligation. If the assets and revenues of an agency, authority, instrumentality
or other political subdivision are separate from those of the government
creating the subdivision, and the obligation is backed only by the assets and
revenues of the subdivision, the subdivision will be regarded as the sole
issuer. Similarly, if a private activity bond is backed only by the assets and
revenues of the nongovernmental user, the nongovernmental user will be deemed to
be the sole issuer. If in either case the creating government or another entity
guarantees an obligation or issues a letter of credit to secure the obligation,
the guarantee or letter of credit will be considered a separate security issued
by the government or entity and would be separately valued.

Portfolio Turnover

Each of the Portfolios may attempt to increase yields by trading to take
advantage of short-term market variations, which results in higher portfolio
turnover. This policy does not result in higher brokerage commissions to the
Portfolios, however, as the purchases and sales of portfolio securities are
usually effected as principal transactions. The Portfolios' turnover rates are
not expected to have a material effect on their income and have been and are
expected to be zero for regulatory reporting purposes.

Portfolio Transactions

Decisions to buy and sell securities and other financial instruments for a
Portfolio are made by Bankers Trust, which also is responsible for placing these
transactions, subject to the overall review of the Board of Trustees. Although
investment requirements for each Portfolio are reviewed independently from those
of the other accounts managed by Bankers Trust and those of the other
Portfolios, investments of the type the Portfolios may make may also be made by
these other accounts or Portfolios. When a Portfolio and one or more other
Portfolios or accounts managed by Bankers Trust are prepared to invest in, or
desire to dispose of, the same security or other financial instrument, available
investments or opportunities for sales will be allocated in a manner believed by
Bankers Trust to be equitable to each. In some cases, this

11
<PAGE>

procedure may affect adversely the price paid or received by a Portfolio or the
size of the position obtained or disposed of by a Portfolio.

Purchases and sales of securities on behalf of the Portfolios usually are
principal transactions. These securities are normally purchased directly from
the issuer or from an underwriter or market maker for the securities. The cost
of securities purchased from underwriters includes an underwriting commission or
concession and the prices at which securities are purchased from and sold to
dealers include a dealer's mark-up or mark-down. U.S. Government Obligations are
generally purchased from underwriters or dealers, although certain newly issued
U.S. Government Obligations may be purchased directly from the U.S. Treasury or
from the issuing agency or instrumentality.

Over-the-counter purchases and sales are transacted directly with principal
market makers except in those cases in which better prices and executions may be
obtained elsewhere and principal transactions are not entered into with persons
affiliated with the Portfolios except pursuant to exemptive rules or orders
adopted by the Securities and Exchange Commission. Under rules adopted by the
SEC, broker-dealers may not execute transactions on the floor of any national
securities exchange for the accounts of affiliated persons, but may effect
transactions by transmitting orders for execution.

In selecting brokers or dealers to execute portfolio transactions on behalf of a
Portfolio, Bankers Trust seeks the best overall terms available. In assessing
the best overall terms available for any transaction, Bankers Trust will
consider the factors it deems relevant, including the breadth of the market in
the investment, the price of the investment, the financial condition and
execution capability of the broker or dealer and the reasonableness of the
commission, if any, for the specific transaction and on a continuing basis. In
addition, Bankers Trust is authorized, in selecting parties to execute a
particular transaction and in evaluating the best overall terms available, to
consider the brokerage, but not research services (as those terms are defined in
Section 28(e) of the Securities Exchange Act of 1934, as amended) provided to
the Portfolio involved, the other Portfolios and/or other accounts over which
Bankers Trust or its affiliates exercise investment discretion. Bankers Trust's
fees under its agreements with the Portfolios are not reduced by reason of its
receiving brokerage services.

NET ASSET VALUE

The net asset value ("NAV") per share of each Fund is calculated on each day
on which the Fund is open (each such day being a "Valuation Day"). The Funds are
currently open on each day, Monday through Friday, except (a) January 1st,
Martin Luther King, Jr.'s Birthday (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), Columbus Day (the
second Monday in October), Veteran's Day (November 11th), Thanksgiving Day (the
last Thursday in November) and December 25th; and (b) the preceding Friday or
the subsequent Monday when one of the calendar-determined holidays falls on a
Saturday or Sunday, respectively.

The NAV per share of each Fund (except the Institutional Cash Management Fund
and Institutional Treasury Money Fund) is calculated twice on each Valuation Day
as of 12:00 noon, Eastern time, and as of the close of regular trading on the
NYSE, which is currently 4:00 p.m., Eastern time or in the event that the NYSE
closes early, at the time of such early closing. The NAV of the Institutional
Cash Management Fund and Institutional Treasury Money Fund is calculated on each
Valuation Day as of the close of regular trading on the NYSE, which is currently
4:00 p.m., Eastern time or in the event that the NYSE closes early, at the time
of such early closing (each time at which the NAV of a Fund is calculated is
referred to herein as the "Valuation Time"). The NAV per share of each Fund is
computed by dividing the value of the Fund's assets (i.e., the value of its
investment in the corresponding Portfolio and other assets), less all
liabilities, by the total number of its shares outstanding. Each Fund's NAV per
share will normally be $1.00.

The valuation of each Portfolio's securities is based on their amortized cost,
which does not take into account unrealized capital gains or losses. Amortized
cost valuation involves initially valuing an instrument at its cost and
thereafter assuming a constant amortization to maturity of any discount or
premium, generally without regard to the impact of fluctuating interest rates on
the market value of the instrument. Although this method provides certainty in
valuation, it may result in periods during which value, as determined by
amortized cost, is higher or lower than the price a Portfolio would receive if
it sold the instrument.

The Portfolios' use of the amortized cost method of valuing their securities is
permitted by a rule adopted by the SEC. Each Portfolio will also maintain a
dollar-weighted average portfolio maturity of 90 days or less, purchase only

12
<PAGE>

instruments having remaining maturities of two years or less and invest only in
securities determined by or under the supervision of the Board of Trustees to be
of high quality with minimal credit risks.

Pursuant to the rule, the Board of Trustees of each Portfolio also has
established procedures designed to allow investors in the Portfolio, such as the
Trust, to stabilize, to the extent reasonably possible, the investors' price per
share as computed for the purpose of sales and redemptions at $1.00. These
procedures include review of each Portfolio's holdings by the Portfolio's Board
of Trustees, at such intervals as it deems appropriate, to determine whether the
value of the Portfolio's assets calculated by using available market quotations
or market equivalents deviates from such valuation based on amortized cost.

The rule also provides that the extent of any deviation between the value of
each Portfolio's assets based on available market quotations or market
equivalents and such valuation based on amortized cost must be examined by the
Portfolio's Board of Trustees. In the event the Portfolio's Board of Trustees
determines that a deviation exists that may result in material dilution or other
unfair results to investors or existing shareholders, pursuant to the rule, the
respective Portfolio's Board of Trustees must cause the Portfolio to take such
corrective action as such Board of Trustees regards as necessary and
appropriate, including: selling portfolio instruments prior to maturity to
realize capital gains or losses or to shorten average portfolio maturity;
withholding dividends or paying distributions from capital or capital gains;
redeeming shares in kind; or valuing the Portfolio's assets by using available
market quotations.

Each investor in a Portfolio, including the corresponding Fund, may add to or
reduce its investment in the Portfolio on each day the Portfolio determines its
net asset value. At the close of each such business day, the value of each
investor's beneficial interest in the Portfolio will be determined by
multiplying the net asset value of the Portfolio by the percentage, effective
for that day, which represents that investor's share of the aggregate beneficial
interests in the Portfolio. 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 Portfolio
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 Portfolio
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
Portfolio effected as of the close of business on such day, and (ii) the
denominator of which is the aggregate net asset value of the Portfolio 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 Portfolio
by all investors in the Portfolio. The percentage so determined will then be
applied to determine the value of the investor's interest in the Portfolio as of
the close of the following business day.

PURCHASE AND REDEMPTION INFORMATION

Purchase of Shares

BT Investment Funds accepts purchase orders for shares of each Fund at the NAV
per share next determined after the order is received on each Valuation Day.
Shares may be available through Investment Professionals, such as broker/dealers
and investment advisers (including Service Agents).

Purchase orders for shares (including those purchased through a Service Agent)
that are transmitted to the Trust's Transfer Agent (the "Transfer Agent"), prior
to the Valuation Time on any Valuation Day will be effective at that day's
Valuation Time. If the purchase order is received by the Service Agent and
transmitted to the Transfer Agent after 12:00 noon (Eastern time) and prior to
the close of the NYSE, the shareholder will receive the dividend declared on the
following day even if Bankers Trust, as the BT Investment Funds' custodian (the
"Custodian"), receives federal funds on that day. If the purchase order is
received prior to 12:00 noon, the shareholder will receive that Valuation Day's
dividend. BT Investment Funds and Transfer Agent reserve the right to reject any
purchase order. If the market for the primary investments in a Fund closes
early, the Fund will cease taking purchase orders at that time.

Another mutual fund investing in the corresponding Portfolio may accept purchase
orders up until a time later than 12:00 noon, Eastern time. Such orders, when
transmitted to and executed by the Portfolio, may have an impact on the Fund's
performance.

13
<PAGE>

Minimum Investments (BT Investment Funds)

To Open an Account $2,500
For retirement accounts 500
Through automatic investment plans 1,000

To Add to an Account $ 250
For retirement accounts 100
Through automatic investment plan 100

Minimum Balance $1,000
For retirement accounts None

BT Institutional Funds accepts purchase orders for shares of each Fund at the
NAV per share next determined on each Valuation Day. There is no sales charge on
the purchase of shares, but costs of distributing shares of each Fund may be
reimbursed from its assets, as described herein. The minimum initial and
subsequent investment amounts are set forth below. The minimum initial
investment in each Fund may be allocated in amounts not less than $100,000 per
fund in certain funds in the BT Family of Funds. Service Agents may impose
initial and subsequent investment minimums that differ from these amounts.
Shares of the Fund may be purchased in only those states where they may be
lawfully sold.

Purchase orders for shares of each Fund will receive, on any Valuation Day, the
NAV next determined following receipt by the Service Agent and transmission to
Bankers Trust, as BT Institutional Funds' Transfer Agent (the "Transfer Agent")
of such order. If the purchase order for shares of the Institutional Treasury
Money Fund is received by the Service Agent and transmitted to the Transfer
Agent prior to 2:00 p.m. (Eastern time), and if payment in the form of federal
funds is received on that day by Bankers Trust, as BT Institutional Funds's
custodian (the "Custodian"), the shareholder will receive the dividend declared
on that day. If the purchase order is received by the Service Agent and
transmitted to the Transfer Agent after 2:00 p.m. (Eastern time), the
shareholder will receive the dividend declared on the following day even if the
Custodian receives federal funds on that day. If the purchase order for shares
of the Institutional Cash Management Fund is received by the Service Agent and
transmitted to the Transfer Agent prior to 4:00 p.m. (Eastern time), and if
payment in the form of federal funds is received on that day by the Custodian,
the shareholder will receive the dividend declared on that day. BT Institutional
Funds and the Transfer Agent reserve the right to reject any purchase order. If
the market for the primary investments in a Fund closes early, the Fund will
cease taking purchase orders at that time.

AUTOMATIC INVESTMENT PLAN. The Fund may offer shareholders an automatic
investment plan, under which shareholders may authorize some Service Agents to
place a purchase order each month or quarter for Fund shares.

Minimum Investments (BT Institutional Funds)

To Open an Account $1 million

To Add to an Account $100,000

Minimum Balance $ 1,000

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<PAGE>

transactions with the Fund without incurring the additional costs or delays
associated with the wiring of federal funds.

Certificates for shares will not be issued. Each shareholder's account will be
maintained by a Service Agent or Transfer Agent.

If you are new to BT Investment Funds, complete and sign an account application
and mail it along with your check to the address listed below. For an account
application, call the BT Service Center at 1-800-730-1313.

BT Service Center
P.O. Box 419210
Kansas City, MO 64141-6210

Overnight mailings:

BT Service Center
210 West 10th Street, 8th Floor
Kansas City, MO 64105-1716

If you have money invested in a fund in the BT Family of Funds, you can:

o Mail an account application with a check,
o Wire money into your account,
o Open an account by exchanging from another fund in the BT Family of Funds, or
o Contact your Service Agent or Investment Professional.
If you are investing through a tax-sheltered retirement plan, such as an IRA,
for the first time, you will need a special application. Contact your Investment
Professional for more information and a retirement account application.

Additional Information About Buying Shares
<TABLE>
<CAPTION>
<S> <C>
To Open an Account To Add to an Account
------------------ --------------------
By Wire Call the BT Service Center at 1-800-730-1313 to Call your Investment Professional or wire additional
receive wire instructions for account investment to:
establishment.
Routing No.: 021001033
Attn: Bankers Trust/IFTC Deposit
DDA No.: 00-226-296
FBO: (Account name)
(Account Number)
Credit: BT Investment Cash Management
Fund - 472
BT Investment NY Tax Free
Money Fund - 470
BT Investment Tax Free Money
Fund - 469

Specify the complete name of the
Fund, including your account number
and your name.

By Phone Contact your Service Agent, Investment Professional, Contact your Service Agent, Investment Professional,
or call BT's Service Center at 1-800-730-1313. If or call BT's Service Center at 1-800-730-1313. If
you are an existing shareholder, you may exchange you are an existing shareholder, you may exchange
from another BT account with the same registration, from another BT account with the same registration,
including name, address, and taxpayer ID number. including name, address, and taxpayer ID number.

15
<PAGE>
To Open an Account To Add to an Account
------------------ --------------------

By Mail Complete and sign the account application. Make your check payable to the complete name
Make your check payable to the complete name of the Fund of your choice. Indicate your Fund
of the Fund of your choice. Mail to the account number on your check and mail to the
appropriate address indicated on the application. address printed on your account statement.

</TABLE>
Redemption of Shares

BT Investment Funds. You can arrange to take money out of your fund account at
any time by selling (redeeming) some or all of your shares. Your shares shall be
sold at the next NAV calculated after an order is received by the Transfer
Agent. Redemption requests should be transmitted by customers in accordance with
procedures established by the Transfer Agent and the shareholder's Service
Agent. Redemption requests for shares of the Fund received by the Service Agent
and transmitted to the Transfer Agent prior to the 12:00 noon (Eastern time) on
a Valuation Day will not receive the dividend declared on the day of redemption;
the redemption proceeds normally will be will be delivered to the shareholder's
account with the Service Agent on that day. Redemption requests received by the
Service Agent and transmitted to the Transfer Agent after 12:00 noon (Eastern
time) on a Valuation Day and prior to the close of the NYSE will receive the
dividend declared on the day of the redemption; the redemption proceeds normally
will be delivered to the shareholder's account with the Service Agent the next
day; but in any event within seven calendar days following receipt of the
request.

BT Institutional Funds. Shareholders may redeem shares at the NAV per share next
determined on each Valuation Day. Redemption requests should be transmitted by
customers in accordance with procedures established by the Transfer Agent and
the shareholder's Service Agent. Redemption requests for shares of the
Institutional Treasury Money Fund received by the Service Agent and transmitted
to the Transfer Agent prior to 2:00 p.m. (Eastern time) on each Valuation Day
will be redeemed at the NAV per share next determined and the redemption
proceeds normally will be delivered to the shareholder's account with the
Service Agent on that day; no dividend will be paid on the day of redemption.
Redemption requests received by the Service Agent and transmitted to the
Transfer Agent after 2:00 p.m. (Eastern time) on each Valuation Day will be
redeemed at the NAV per share next determined and the redemption proceeds
normally will be delivered to the shareholder's account with the Service Agent
the following day; shares redeemed in this manner will receive the dividend
declared on the day of the redemption. Redemption requests for shares of the
Institutional Cash Management Money Fund received by the Service Agent and
transmitted to the Transfer Agent prior to the close of the NYSE (currently 4:00
p.m., Eastern time or earlier should the NYSE close earlier) on each Valuation
Day will be redeemed at the NAV per share next determined for the Fund and the
redemption proceeds normally will be delivered to the shareholder's account with
the Service Agent on that day; no dividend will be paid on the day of
redemption. Redemption requests received by the Service Agent and transmitted to
the Transfer Agent after 4:00 p.m. (Eastern time) or after the close of the NYSE
on each Valuation Day will be redeemed at the NAV per share next determined and
the redemption proceeds normally will be delivered to the shareholder's account
with the Service Agent the following day. Payments for redemptions will in any
event be made within seven calendar days following receipt of the request.

Service Agents may allow redemptions or exchanges by telephone and may disclaim
liability for following instructions communicated by telephone that the Service
Agent reasonably believes to be genuine. The Service Agent must provide the
investor with an opportunity to choose whether or not to utilize the telephone
redemption or exchange privilege. The Transfer Agent and the Service Agent must
employ reasonable procedures to confirm that instructions communicated by
telephone are genuine. If the Service Agent does not do so, it may be liable for
any losses due to unauthorized or fraudulent instructions. Such procedures may
include, among others, requiring some form of personal identification prior to
acting upon instructions received by telephone, providing written confirmation
of such transactions and/or tape recording of telephone instructions.

Redemption orders are processed without charge by the Trust. The Service Agent
may on at least 30 days' notice involuntarily redeem a shareholder's account
with a Fund having a balance below the minimum, but not if an account is below
the minimum due to change in market value. See "Minimum Investments" above for
minimum balance amounts.

16
<PAGE>

CHECKWRITING. Shareholders of the Fund may redeem shares by check. Checks may
not be used to close an account. Shareholders will continue to earn dividends on
shares to be redeemed until the check clears. Checks will be returned to
shareholders at the end of the month. There is no charge for redemption of
shares by check. Additional information regarding the checkwriting privilege may
be obtained from a Service Agent.

To sell shares in a retirement account, your request must be made in writing,
except for exchanges to other eligible funds in the BT Family of Funds, which
can be requested by phone or in writing. For information on retirement
distributions, contact your Service Agent or call the BT Service Center at
1-800-730-1313.

If you are selling some but not all of your non-retirement account shares, leave
at least $1,000 worth of shares in the account to keep it open.

To sell shares by bank wire you will need to sign up for these services in
advance when completing your account application.

o Your account registration has changed within the last 30 days,

o The check is being mailed to a different address than the one on your
account (record address),

o The check is being made payable to someone other than the account
owner,

o The redemption proceeds are being transferred to a BT account with a
different registration, or

o You wish to have redemption proceeds wired to a non-predesignated bank
account.

A signature guarantee is also required if you change the pre-designated bank
information for receiving redemption proceeds on your account.

Additional Information About Selling Shares

By Wire - You must sign up for the wire feature before using it. To verify that
it is in place, call 1-800-730-1313. Minimum wire: $1,000. Your wire redemption
request must be received by the Transfer Agent before 4:00 p.m. Eastern time for
money to be wired on the next business day.

BT Service Center
P.O. Box 419210
Kansas City, MO 64141-6210

Overnight mailings:

BT Service Center
210 West 10th Street, 8th Floor
Kansas City, MO 64105-1716

For a Business or Organization account, at least one person authorized by
corporate resolution to act on the account must sign the letter.

17
<PAGE>

Investor Services

BT Investment Funds provide a variety of services to help you manage your
account.

Information Services

Statements and reports that your Investment Professional or the Transfer Agent
may send to you include the following:

o Confirmation statements (after every transaction that affects your
account balance, including distributions or your account registration)

o Account statements (monthly)

o Financial reports (every six months)

To reduce expenses, only one copy of most financial reports will be mailed, even
if you have more than one account in the Fund. Call your Investment Professional
or the BT Service Center at 1-800-730-1313 if you need additional copies of
financial reports.

Exchange Privilege

o Call your Service Agent for information and a prospectus. Read the
prospectus for relevant information.

o Complete and sign an application, taking care to register your new
account in the same name, address and taxpayer identification number as
your existing account(s).

o Each exchange represents the sale of shares of one fund and the
purchase of shares of another, which may produce a gain or loss for tax
purposes. Your Service Agent will receive a written confirmation of
each exchange transaction.

o Exchanges out of the Fund may be limited to four per calendar year and
any exchange may have tax consequences for you.

o The Fund reserves the right to terminate or modify the exchange
privilege in the future.

Systematic Programs

To move money from your bank account to BT Investment Funds
<TABLE>
<CAPTION>
<S> <C>
Minimum Minimum
Initial Subsequent Frequency Setting up or changing
------- ---------- --------- ----------------------

$1,000 $100 Monthly, bimonthly, For a new account, complete the appropriate section
quarterly or semi-annually on the application.

For existing accounts, call your Investment Professional for
an application. To change the amount or frequency of your
investment, contact your Investment Professional directly or
call 1-800-730-1313. Call at least 10 business days prior to
your next scheduled investment date.
</TABLE>
18
<PAGE>

Systematic Withdrawal Program lets you set up periodic redemptions from your
account.
<TABLE>
<CAPTION>
<S> <C>
Minimum Frequency Setting up or changing
------- --------- ----------------------

$100 Monthly, quarterly, To establish, call your Investment Professional or call
semi-annually or annually 1-800-730-1313 after your account is open. The accounts from
which the withdrawals will be processed must have a minimum
balance of $10,000, other than retirement accounts subject to
required minimum distributions.
</TABLE>
Tax-Saving Retirement Plans

Retirement plans offer significant tax savings and are available to individuals,
partnerships, small businesses, corporations, nonprofit organizations and other
institutions. Contact Bankers Trust for further information. Bankers Trust can
set up your new account in the Fund under a number of several tax-savings or
tax-deferred plans. Minimums may differ from those listed elsewhere in this SAI.

o Individual Retirement Accounts (IRAs): personal savings plans that
offer tax advantages for individuals to set aside money for retirement
and allow new contributions of $2,000 per tax year.

o Rollover IRAs: tax-deferred retirement accounts that retain the special
tax advantages of lump sum distributions from qualified retirement
plans and transferred IRA accounts.

The Trust may suspend the right of redemption or postpone the date of payment
for shares during any period when: (a) trading on the NYSE is restricted by
applicable rules and regulations of the SEC; (b) the NYSE is closed for other
than customary weekend and holiday closings; (c) the SEC has by order permitted
such suspension; or (d) an emergency exists as determined by the SEC.

MANAGEMENT OF THE TRUST AND PORTFOLIOS

The Trustees and officers of the Trusts and the Portfolios, their birthdates,
and their principal occupations during the past five years are set forth below.
Their titles may have varied during that period. Unless otherwise indicated, the
address of each officer is 5800 Corporate Drive, Pittsburgh, Pennsylvania
15237-5829.

Trustees of BT Investment Funds

S. LELAND DILL (birthdate: March 28, 1930) -- Trustee; Retired; Director, Coutts
Group, Coutts (U.S.A.) International; Coutts Trust Holdings Ltd; Director, Zweig
Series Trust; formerly Partner of KPMG Peat Marwick; Director, Vinters
International Company Inc.; General Partner of Pemco (an investment company
registered under the 1940 Act). His address is 5070 North Ocean Drive, Singer
Island, Florida 33404.

KELVIN J. LANCASTER (birthdate: December 10, 1924) -- Trustee; John Bates Clark
Professor of Economics, Columbia University; Distinguished Fellow, American
Economics Association; Fellow, American Academy of Arts and Sciences; Fellow,
Econometric Society; Former Chairman, Columbia University Department of
Economics;

19
<PAGE>

Former Director, National Bureau of Economic Research. His address is 35
Claremont Avenue, New York, New York 10027.

Trustees of BT Institutional Funds

Trustees of the Portfolios

CHARLES P. BIGGAR -- Trustee.

S. LELAND DILL-- Trustee.

PHILIP SAUNDERS, JR.-- Trustee.

Officers of the Trusts and the Portfolios

Unless otherwise specified, each officer listed below holds the same position
with each Trust and each Portfolio.

JOHN Y. KEFFER (birthdate: July 14, 1942) -- President and Chief Executive
Officer; President, Forum Financial Group. His address is 2 Portland Square,
Portland, Maine 04101.

JOSEPH A. FINELLI (birthdate: January 24, 1957) -- Treasurer; Vice President,
BT Alex. Brown Incorporated and Vice President, Investment Company Capital
Corp. (registered investment adviser), September 1995 to present; formerly, Vice
President and Treasurer, The Delaware Group of Funds (registered investment
companies) and Vice President, Delaware Management Company Inc. (investments),
1980 to August 1995. His address is One South Street, Baltimore, Maryland 21202.

DANIEL O. HIRSCH (birthdate: March 27, 1954) -- Secretary; Principal, BT Alex.
Brown since July 1998; Assistant General Counsel in the Office of the General
Counsel at the United States Securities and Exchange Commission from 1993 to
1998. His address is 2901 Dorset Avenue, Chevy Chase, Maryland 20815.

Messrs. Keffer, Finelli and Hirsch also hold similar positions for other
investment companies for which ICC Distributors, 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 or the Portfolios. No director, officer or employee of
ICC Distributors or any of its affiliates will receive any compensation from the
Trust or any Portfolio for serving as an officer or Trustee of the Trust or the
Portfolios.

20
<PAGE>
Trustee Compensation Table

<TABLE>
<CAPTION>
<S> <C>
Aggregate Compensation Aggregate Compensation
from BT Investment from BT Institutional Aggregate Compensation
Name of Person, Funds*+ Funds**+ from Portfolios+
Position

S. Leland Dill, Trustee of BT Investment $ N/A $
Funds and the Portfolios

Kelvin Lancaster,Trustee of BT $ N/A N/A
Investment Funds

Philip Saunders, Jr., Trustee of BT $ N/A $
Investment Funds and the Portfolios
- ---------------- ---

Charles Biggar, Trustee of BT N/A $ $
Institutional Funds and the Portfolios

Richard J. Herring, Trustee of BT N/A $ N/A
Institutional Funds

Bruce E. Langton, Trustee of BT N/A $ N/A
Institutional Funds

Total Compensation from
Name of Person, Fund Complex
Position Paid to Trustees***

S. Leland Dill, Trustee of BT Investment $
Funds and the Portfolios

Kelvin Lancaster,Trustee of BT $
Investment Funds

Philip Saunders, Jr., Trustee of BT $
Investment Funds and the Portfolios

Charles Biggar, Trustee of BT $
Institutional Funds and the Portfolios

Richard J. Herring, Trustee of BT $
Institutional Funds

Bruce E. Langton, Trustee of BT $
Institutional Funds
</TABLE>

* The information provided is for the BT Investment Funds which is
comprised of 16 funds.

** The information provided is for the BT Institutional Funds which is
comprised of 10 funds.

+ Information provided is for the year ended December 31, 1998.

*** Aggregated information is furnished for the BT Family of Funds which
consists of the following: BT Investment Funds, BT Institutional Funds,
BT Pyramid Mutual Funds, BT Advisor Funds, BT Investment Portfolios,
Cash Management Portfolio, Treasury Money Portfolio, Tax Free Money
Portfolio, NY Tax Free Money Portfolio, International Equity
Portfolio, Intermediate Tax Free Portfolio, Asset Management
Portfolio, Equity 500 Index Portfolio, and Capital Appreciation
Portfolio. The compensation provided is for the calendar year ended
December 31, 1998.

Bankers Trust reimbursed the Funds and Portfolios for a portion of
their Trustees fees for the period above. See "Investment Adviser" and
"Administrator" below.
- ----------
[As of April 1, 1999, the Trustees and officers of the Trust and the
Portfolios owned in the aggregate less than 1% of the shares of any Fund or of
the Trust (all series taken together).]

As of April 1, 1999, the following shareholders of record owned 5% or more of
the outstanding shares of Cash Management Fund:[TO BE UPDATED]

As of April 1, 1999, the following shareholders of record owned 5% or more of
the outstanding shares of Tax Free Money Fund: [TO BE UPDATED]

As of April 1, 1999, the following shareholder of record owned 5% or more of
the outstanding shares of NY Tax Free Money Fund: [TO BE UPDATED]

As of April 1, 1998, the following shareholders of record owned 5% or more of
the outstanding shares of the Cash Management Fund: [TO BE UPDATED]

As of April 1, 1998, the following shareholder of record owned 5% or more of
the outstanding shares of Treasury Money Fund: [TO BE UPDATED]

Investment Adviser

The Trust has not retained the services of an investment adviser since the Trust
seeks to achieve the investment objective of each of its Funds by investing all
the assets of the Fund in the Portfolio. The Portfolio has retained the services
of Bankers Trust as Adviser.

21
<PAGE>

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 New York Corporation. Bankers Trust
conducts a variety of general banking and trust activities and is a major
wholesale supplier of financial services to the international and domestic
institutional market. [As of March 31, 1998, Bankers Trust New York Corporation
was the seventh largest bank holding company in the United States with total
assets of over $150 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 $300 billion in assets under
management globally.]

Under the terms of an investment advisory agreement between each Portfolio and
Bankers Trust (the "Advisory Agreements"), Bankers Trust manages each
Portfolio subject to the supervision and direction of the Board of Trustees.
Bankers Trust will: (i) act in strict conformity with each Portfolio's
Declaration of Trust, the 1940 Act and the Investment Advisors Act of 1940, as
the same may from time to time be amended; (ii) manage each Portfolio in
accordance with the Portfolio's investment objectives, restrictions and policies
as stated in the relevant Prospectus and herein; (iii) make investment decisions
for each Portfolio; and (iv) place purchase and sale orders for securities and
other financial instruments on behalf of each Portfolio.

Bankers Trust bears all expenses in connection with the performance of services
under the Advisory Agreements. The Trust and each Portfolio bears certain
other expenses incurred in its operation, including: taxes, interest, brokerage
fees and commissions, if any; fees of Trustees of the Trust or the Portfolio who
are not officers, directors or employees of Bankers Trust, ICC Distributors or
any of their affiliates; SEC fees and state Blue Sky qualification fees;
administrative and services fees; 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 Prospectus 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 Portfolio; and any extraordinary
expenses.

The Investment Advisory Agreements provide for each Portfolio 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 each Portfolio for its then-current fiscal
year.

For the fiscal years ended December 31, 1998, 1997 and 1996, Bankers Trust
earned $_________, $6,544,181 and

22
<PAGE>

$4,935,288, respectively, as compensation for investment advisory services
provided to Cash Management Portfolio. During the same periods, Bankers Trust
reimbursed $___________, $940,530 and $761,230, respectively, to Cash Management
Portfolio to cover expenses.

* 4 moved from here; text not shownFor the fiscal years ended December 31, 1998,
1997 and 1996, Bankers Trust earned $_________ $205,614 and $187,326,
respectively, as compensation for investment advisory services provided to Tax
Free Money Portfolio. During the same periods, Bankers Trust reimbursed
$________, $37,359 and $43,832, respectively, to Tax Free Money Portfolio to
cover expenses.

For the fiscal years ended December 31, 1998, 1997 and 1996, Bankers Trust
earned $______, $141,157 and $129,423, respectively, as compensation for
investment advisory services provided to NY Tax Free Money Portfolio. During the
same periods, Bankers Trust reimbursed $______, $29,305 and $41,003,
respectively, to NY Tax Free Money Portfolio to cover expenses.

** 4 For the fiscal years ended December 31, 1998, 1997 and 1996, Bankers
Trust earned $_______, $3,067,422 and $2,787,544, respectively, in
compensation for investment advisory services provided to Treasury Money
Portfolio. During the same periods, Bankers Trust reimbursed $_______, $60,612
and $60,530, respectively, to Treasury Money Portfolio 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
Portfolios, including outstanding loans to such issuers which could be repaid in
whole or in part with the proceeds of securities so purchased. Such affiliates
deal, trade and invest for their own accounts in such obligations and are among
the leading dealers of various types of such obligations. Bankers Trust has
informed the Portfolios 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
Portfolios, Bankers Trust will not inquire or take into consideration whether an
issuer of securities proposed for purchase or sale by a Portfolio 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

Under its Administration and Services Agreements with the Trusts, the Adviser
calculates the net asset value of the Fund and generally assists the Board of
Trustees of the Trusts in all aspects of the administration and operation of the
Trusts. The Administration and Services Agreements provides for each Trust to
pay the Adviser a fee, computed daily and paid monthly, equal on an annual basis
to 0.55% of the average daily net assets of Investment Cash Management Fund,
Investment Tax Free Money Fund and Investment NY Tax Free Money Fund, and 0.05%
of the average daily net assets of Institutional Cash Management Fund and
Institutional Treasury Money Fund.

Under the Administration and Services Agreements, Bankers Trust is obligated on
a continuous basis to provide such administrative services as the respective
Board of Trustees of the Trust and each Portfolio reasonably deems necessary for
the proper administration of the Trust and each Portfolio. Bankers Trust will
generally assist in all aspects of the Funds' and Portfolios' operations; supply
and maintain office facilities (which may be in Bankers Trust'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 of the Trust or the
Portfolios), 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 Trust's and each
Portfolio's Declaration of Trust, by-laws, investment objectives

23
<PAGE>

and policies and with Federal and state securities laws; arrange for appropriate
insurance coverage; calculate the net asset value, net income and realized
capital gains or losses of the Trust; and negotiate arrangements with, and
supervise and coordinate the activities of, agents and others retained to supply
services.

Pursuant to a sub-administration agreement (the "Sub-Administration Agreement")
FSC performs such sub-administration duties for the Trust and each Portfolio as
from time to time may be agreed upon by Bankers Trust and FSC. The
Sub-Administration Agreement provides that FSC will receive such compensation as
from time to time may be agreed upon by FSC and Bankers Trust. All such
compensation will be paid by Bankers Trust.

Bankers Trust has agreed that if in any fiscal year the aggregate expenses of
any Fund and its respective Portfolio (including fees pursuant to the Advisory
Agreement, but excluding interest, taxes, brokerage and, if permitted by the
relevant state securities commissions, extraordinary expenses) exceed the
expense limitation of any state having jurisdiction over the Fund, Bankers Trust
will reimburse the Fund for the excess expense to the extent required by state
law. As of the date of this SAI, the most restrictive annual expense limitation
applicable to any Fund is 2.5% of the Fund's first $30 million of average annual
net assets, 2.0% of the next $70 million of average annual net assets and 1.5%
of the remaining average annual net assets.

For the fiscal years ended December 31, 1998, 1997 and 1996, Bankers Trust
earned compensation of $_____, $717,130 and $762,676, respectively, for
administrative and other services provided to the Cash Management Fund and
reimbursed $_______, $12,060 and $19,705, respectively, to the Cash
Management Fund to cover expenses.

* 5 moved from here; text not shown * 7 moved from here; text not shownFor the
fiscal years ended December 31, 1998, 1997 and 1996, Bankers Trust earned
$______, $752,445 and $685,637, respectively, for administrative and other
services provided to the Tax Free Money Fund and reimbursed $______, $37,359
and $46,825, respectively, to the Tax Free Money Fund to cover expenses.

* 6 moved from here; text not shownFor the fiscal years ended December 31, 1998,
1997 and 1996, Bankers Trust earned compensation of $______, $516,579 and
$473,735, respectively, for administrative and other services provided to the
NY Tax Free Money Fund and reimbursed $________, $29,632, and $34,578,
respectively, to the NY Tax Free Money Fund to cover expenses.

For the fiscal years ended December 31, 1998, 1997 and 1996, Bankers Trust
earned $______, $931,345, and $622,176, respectively, in compensation for
administrative and other services provided to Institutional Cash Management
Fund. During the same periods, Bankers Trust reimbursed $______, $108,093 and
$280,146, respectively, to the Institutional Cash Management Fund to cover
expenses.

For the fiscal years ended December 31, 1998, 1997 and 1996, Bankers Trust
earned $______, $819,884 and $640,788, respectively, in compensation for
administrative and other services provided to Institutional Treasury Money Fund.
During the same periods, Bankers Trust reimbursed $______, $356,801 and $48,531,
respectively, to Institutional Treasury Money Fund to cover expenses.

** 5 For the fiscal years ended December 31, 1998, 1997 and 1996, Bankers
Trust earned compensation of $______, $2,181,394 and $1,645,096,
respectively, for administrative and other services provided to the Cash
Management Portfolio.

For the fiscal years ended December 31, 1998, 1997 and 1996, Bankers Trust
earned $______, $68,538 and $62,442, respectively, for administrative and
other services provided to Tax Free Money Portfolio.

** 6 For the fiscal years ended December 31, 1998, 1997 and 1996, Bankers
Trust earned $______, $47,052 and $43,141, respectively, for administrative
and other services provided to the NY Tax Free Money Portfolio.

** 7 For the fiscal years ended December 31, 1998, 1997 and 1996, Bankers
Trust earned compensation of $______, $1,022,474 and $929,181, respectively,
for administrative and other services provided to the Treasury Money Portfolio.

Distributor

ICC Distributors is the principal distributor for shares of the Fund. ICC
Distributors is a registered broker/dealer and is unaffiliated with Bankers
Trust. The principal business address of ICC Distributors is Two Portland
Square, Portland, Maine 04101.

24
<PAGE>

Service Agent

Custodian and Transfer Agent

Bankers Trust, 130 Liberty Street, (One Bankers Trust Plaza), New York, New York
10006, serves as custodian and transfer agent for the Trust and as custodian for
each Portfolio pursuant to the Administration and Services Agreements discussed
above. As custodian, Bankers Trust holds the Funds' and each Portfolio's assets.
For such services, Bankers Trust receives monthly fees from each Fund and
Portfolio, which are included in the administrative services fees discussed
above. As transfer agent for the Trust, Bankers Trust maintains the shareholder
account records for each Fund, handles certain communications between
shareholders and the Trust and causes to be distributed any dividends and
distributions payable by the Trust. Bankers Trust is also reimbursed by the
Funds for its out-of-pocket expenses. Bankers Trust will comply with the
self-custodian provisions of Rule 17f-2 under the 1940 Act.

Expenses

Use of Name

The Trust and Bankers Trust have agreed that the Trust may use "BT" as part of
its name for so long as Bankers Trust serves as investment adviser. 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.

25
<PAGE>
Banking Regulatory Matters

Bankers Trust has been advised by its counsel that in its opinion Bankers Trust
may perform the services for the Portfolios contemplated by the Advisory
Agreements and other activities for the Trust and the Portfolios described in
the Prospectus and this SAI without violation of the Glass-Steagall Act or other
applicable banking laws or regulations. However, counsel has pointed out that
future changes in either Federal or state statutes and regulations concerning
the permissible activities of banks or trust companies, as well as future
judicial or administrative decisions or interpretations of present and future
statutes and regulations, might prevent Bankers Trust from continuing to perform
those services for the Trust or the Portfolios. If the circumstances described
above should change, the Trust's Board of Trustees would review the Trust's
relationship with Bankers Trust and consider taking all actions necessary in the
circumstances.

Counsel and Independent Accountants

Willkie Farr & Gallagher, 787 Seventh Avenue, New York, New York 10019-6099,
serves as Counsel to the Trust and from time to time provides certain legal
services to Bankers Trust. PricewaterhouseCoopers LLP, 1100 Main Street, Suite
900, Kansas City, Missouri 64105 has been selected as Independent Accountants
for the Trust.

ORGANIZATION OF THE TRUST

BT Investment Funds was organized on July 21, 1986 and BT Institutional Funds
was organized on March 26, 1990 under the laws of the Commonwealth of
Massachusetts. Each Fund is a separate series of the respective Trust. Each
Trust offers shares of beneficial interest of separate series, par value $0.001
per share. The shares of the other series of the Trust are offered through
separate prospectuses and statements of additional information. The shares of
each series participate equally in the earnings, dividends and assets of the
particular series. The Trusts may create and issue additional series of shares.
Each Trust's Declaration of Trust permits the Trustees to divide or combine the
shares into a greater or lesser number of shares without thereby changing the
proportionate beneficial interest in a series. Each share represents an equal
proportionate interest in a series with each other share. Shares when issued are
fully paid and non-assessable, except as set forth below. Shareholders are
entitled to one vote for each share held. No series of shares has any preference
over any other series.

Each Trust is an entity commonly known as a "Massachusetts business trust."
Massachusetts law provides that shareholders could under certain circumstances
be held personally liable for the obligations of the Trusts. However, each
Declaration of Trust disclaims shareholder liability for acts or obligations of
the respective Trust and requires that notice of this disclaimer be given in
each agreement, obligation or instrument entered into or executed by a Trust
or a Trustee. Each Declaration of Trust provides for indemnification from
such Trust's property for all losses and expenses of any shareholder held
personally liable for the obligations of the Trust. Thus, the risk of
shareholders incurring financial loss on account of shareholder liability is
limited to circumstances in which both inadequate insurance existed and the
Trust itself was unable to meet its obligations, a possibility that each
Trust believes is remote. Upon payment of any liability incurred by a Trust,
the shareholder paying the liability will be entitled to reimbursement from the
general assets of the Trust. The Trustees intend to conduct the operations of
each Trust in a manner so as to avoid, as far as possible, ultimate liability of
the shareholders for liabilities of the Trust.

The Trusts are not required to hold annual meetings of shareholders but will
hold special meetings of shareholders when in the judgment of the Trustees it is
necessary or desirable to submit matters for a shareholder vote. Shareholders
have under certain circumstances the right to communicate with other
shareholders in connection with requesting a meeting of shareholders for the
purpose of removing one or more Trustees without a meeting. When matters are
submitted for shareholder vote, shareholders of a Fund will have one vote for
each full share held and proportionate, fractional votes for fractional shares
held. A separate vote of the Fund is required on any matter affecting the Fund
on which shareholders are entitled to vote. Shareholders generally vote by Fund,
except with respect to the election of Trustees and the ratification of the
selection of independent accountants. Shareholders of a Fund are not entitled to
vote on Trust matters that do not affect the Fund. There normally will be no
meetings of shareholders for the purpose of electing Trustees unless and until
such time as less than a majority of Trustees holding office have been elected
by shareholders, at which time the Trustees then in office will call a
shareholders' meeting for the election of Trustees. Any Trustee may be removed
from office upon the vote of shareholders holding at least two-thirds of such
Trust's outstanding shares at a meeting called for that purpose. The Trustees
are required to call such

26
<PAGE>

a meeting upon the written request of shareholders holding at least 10% of the
Trust's outstanding shares.

Shares of the Trusts do not have cumulative voting rights, which means that
holders of more than 50% of the shares voting for the election of Trustees can
elect all Trustees. Shares are transferable but have no preemptive, conversion
or subscription rights. Upon liquidation of a Fund, shareholders of that Fund
would be entitled to share pro rata in the net assets of the Fund available for
distribution to shareholders.

Each Portfolio is a subtrust (or "series") of BT Investment Portfolios, an
open-end management investment company. BT Investment Portfolios was organized
as a master trust fund under the laws of the State of New York. BT Investment
Portfolio's Declaration of Trust provides that each Fund and other entities
investing in a Portfolio (e.g., other investment companies, insurance company
separate accounts and common and commingled trust funds) will each be liable for
all obligations of the Portfolio. However, the risk of a Fund incurring
financial loss on account of such liability is limited to circumstances in which
both inadequate insurance existed and the Portfolio itself was unable to meet
its obligations. Accordingly, the Trustees of each Trust believe that neither a
Fund nor its shareholders will be adversely affected by reason of the Funds'
investing in the corresponding Portfolio. The interests in BT Investment
Portfolios are divided into separate series, such as the Portfolio. No series of
BT Investment Portfolios has any preference over any other series.

Whenever a Trust is requested to vote on a matter pertaining to a Portfolio,
the Trust will vote its shares without a meeting of shareholders of the
corresponding Fund if the proposal is one, if which made with respect to the
Fund, would not require the vote of shareholders of the Fund as long as such
action is permissible under applicable statutory and regulatory requirements.
For all other matters requiring a vote, a Trust will hold a meeting of
shareholders of the Fund and, at the meeting of investors in the Portfolio,
the Trust will cast all of its votes in the same proportion as the votes all its
shares at the Portfolio meeting, other investors with a greater pro rata
ownership of the Portfolio could have effective voting control of the operations
of the Portfolio.

The series of BT Investment Portfolios will vote separately or together in the
same manner as the series of the Trust. Under certain circumstances, the
investors in one or more series of BT Investment Portfolios could control the
outcome of these votes.

As of _______ __, 1998, the following shareholders of record owned 25% or more
of the voting securities of the Fund, and, therefore, may, for certain purposes,
be deemed to control the Investment Cash Management Fund and be able to affect
the outcome of certain matters presented for a vote of its shareholders: [TO BE
PROVIDED]

As of _______ __, 1998, the following shareholders of record owned 25% or more
of the voting securities of the Fund, and, therefore, may, for certain purposes,
be deemed to control the Investment Tax Free Money Fund and be able to affect
the outcome of certain matters presented for a vote of its shareholders: [TO BE
PROVIDED]

As of _______ __, 1998, the following shareholders of record owned 25% or more
of the voting securities of the Fund, and, therefore, may, for certain purposes,
be deemed to control the Investment NY Tax Free Money Fund and be able to affect
the outcome of certain matters presented for a vote of its shareholders: [TO BE
PROVIDED]

As of _______ __, 1998, the following shareholders of record owned 25% or more
of the voting securities of the Fund, and, therefore, may, for certain purposes,
be deemed to control the Institutional Cash Management Fund and be able to
affect the outcome of certain matters presented for a vote of its shareholders:
[TO BE PROVIDED]

As of _______ __, 1998, the following shareholders of record owned 25% or more
of the voting securities of the Fund, and, therefore, may, for certain purposes,
be deemed to control the Institutional Treasury Money Fund and be able to affect
the outcome of certain matters presented for a vote of its shareholders: [TO BE
PROVIDED]

BT Investment Funds was organized under the name BT Tax-Free Investment Trust
and assumed its current name on May 16, 1988.

DIVIDENDS AND TAXES

The following is only a summary of certain tax considerations generally
affecting the Funds and their shareholders, and is not intended as a substitute
for careful tax planning. Shareholders are urged to consult their tax advisers
with specific reference to their own tax situations.

27
<PAGE>

Dividends

Each Fund declares dividends from its net income daily and pays the dividends
monthly. Each Fund reserves the right to include realized short-term gains, if
any, in such daily dividends. Distributions of each Fund's pro rata share of the
corresponding Portfolio's net realized long-term capital gains, if any, and any
undistributed net realized short-term capital gains are normally declared and
paid annually at the end of the fiscal year in which they were earned to the
extent they are not offset by any capital loss carryforwards. Unless a
shareholder instructs a Trust to pay dividends or capital gains distributions in
cash, dividends and distributions will automatically be reinvested at NAV in
additional shares of the Fund that paid the dividend or distribution.

Taxation of the Funds and Their Investments

** 8 Each Fund intends to continue to qualify as a separate regulated investment
company under the Internal Revenue Code of 1986, as amended (the "Code").
Provided that each Fund is a regulated investment company, each Fund will not be
liable for Federal income taxes to the extent all of its taxable net investment
income and net realized long-and short-term capital gains, if any, are
distributed to its shareholders. Although the Trusts expect the Funds to be
relieved of all or substantially all Federal income taxes, depending upon the
extent of their activities in states and localities in which their offices are
maintained, in which their agents or independent contractors are located or in
which they are otherwise deemed to be conducting business, that portion of a
Fund's income which is treated as earned in any such state or locality could be
subject to state and local tax. Any such taxes paid by a Fund would reduce the
amount of income and gains available for distribution to its shareholders.

The Portfolios are not subject to the Federal income taxation. Instead, the Fund
and other investors investing in a Portfolio must take into account, in
computing their Federal income tax liability, their share of the Portfolio's
income, gains, losses, deductions, credits and tax preference items, without
regard to whether they have received any cash distributions from the Portfolio.
Each Portfolio determines its net income and realized capital gains, if any, on
each Valuation Day and allocates all such income and gain pro rata among the
corresponding Fund and the other investors in that Portfolio at the time of such
determination.

Taxation of Shareholders

As described above: (i) the Cash Management Fund and the Treasury Money Fund
are designed to provide investors with current income; (ii) the Tax Free Money
Fund is designed to provide investors with current income excluded from gross
income for Federal income tax purposes and (iii) the NY Tax Free Money Fund is
designed to provide investors with current income excluded from gross income for
Federal income tax purposes and exempt from New York State and New York City
personal income taxes. The Funds are not intended to constitute balanced
investment programs and are not designed for investors seeking capital gains,
maximum income or maximum tax-exempt income irrespective of fluctuations in
principal. Investment in the Tax Free Money Fund or the NY Tax Free Money Fund
would not be suitable for tax-exempt institutions, qualified retirement plans,
H.R. 10 plans and individual retirement accounts since such investors would not
gain any additional tax benefit from the receipt of tax-exempt income.

* 8 moved from here; text not shown Distributions of net realized long-term
capital gains ("capital gain dividends"), if any, will be taxable to
shareholders as long-term capital gains, regardless of how long a shareholder
has held Fund shares, and will be designated as capital gain dividends in a
written notice mailed by the Fund to shareholders after the close of the Fund's
prior taxable year. Dividends paid by the Fund from its taxable net investment
income and distributions by the Fund of its net realized short-term capital
gains are taxable to shareholders as ordinary income, whether received in cash
or reinvested in additional shares of the Fund. Each Fund's dividends and
distributions will not qualify for the dividends-received deduction for
corporations.

Shareholders should consult their tax advisers to assess the consequences of
investing in a Fund under state

28
<PAGE>

and local laws and to determine whether dividends paid by a Fund that represent
interest derived from U.S. Government Obligations are exempt from any applicable
state or local income taxes.

* 9 moved from here; text not shownExempt-interest dividends may be excluded by
shareholders of a Fund from their gross income for federal income tax purposes.
Because the Tax Free Money Fund and the NY Tax Free Money Fund will distribute
exempt-interest dividends, all or a portion of any interest on indebtedness
incurred by a shareholder to purchase or carry shares of these Funds will not be
deductible for Federal income and New York State and New York City personal
income tax purposes. In addition, the Code may require a shareholder of these
Funds, if he receives exempt-interest dividends, to treat as taxable income a
portion of certain otherwise nontaxable social security and railroad retirement
benefit payments. Furthermore, that portion of any exempt-interest dividend paid
by one of these Funds which represents income from private activity bonds held
by the Fund may not retain its tax-exempt status in the hands of a shareholder
who is a "substantial user" of a facility financed by such bonds, or a "related
person" thereof. Moreover, as noted in the Prospectus for these Funds, some or
all of a Fund's dividends and distributions may be specific preference items, or
a component of an adjustment item, for purposes of the Federal individual and
corporate alternative minimum taxes. In addition, the receipt of Fund
dividends and distributions may affect a foreign corporate shareholder's Federal
"branch profits" tax liability and a Subchapter S corporate shareholder's
Federal "excess net passive income" tax liability. Shareholders should consult
their own tax advisers as to whether they are (i) "substantial users" with
respect to a facility or "related" to such users within the meaning of the Code
and (ii) subject to a Federal alternative minimum tax, the Federal "branch
profits" tax or the Federal "excess net passive income" tax.

** 9 If a shareholder fails to furnish a correct taxpayer identification number,
fails to report fully dividend or interest income or fails to certify that he or
she has provided a correct taxpayer identification number and that he or she is
not subject to "backup withholding," then the shareholder may be subject to a
31% backup withholding tax with respect to any taxable dividends and
distributions. An individual's taxpayer identification number is his or her
social security number. The 31% backup withholding tax is not an additional tax
and may be credited against a taxpayer's regular Federal income tax liability.

Shareholders should consult their tax advisers as to any state and local taxes
that may apply to these dividends and distributions.

Statements as to the tax status of each shareholder's dividends and
distributions, if any, are mailed annually. Each shareholder will also receive,
if appropriate, various written notices after the end of a Fund's prior taxable
year as to the federal income tax status of his or her dividends and
distributions which were received from that Fund during that year. Each Tax
Free Money Fund and NY Tax Free Money Fund shareholder will receive after the
close of the calendar year an annual statement as to the Federal income (and,
in the case of the NY Tax Free Money Fund, New York State and City) personal
income tax status of his dividends and distributions from the Fund for the
prior calendar year. These statements will also designate the amount of
exempt-interest dividends that is a specific preference item for purposes of the
Federal individual and corporate alternative minimum taxes. The dollar amount
of dividends excluded from Federal income taxation or exempt from New York State
and City personal income taxation, and the dollar amount subject to such income
taxation, if any, will vary for each shareholder depending upon the size and
duration of each shareholder's investment in a Fund. To the extent that the
Funds earn taxable net investment income, each of the Funds intends to designate
as taxable dividends the same percentage of each day's dividend as its taxable
net investment income bears to its total net investment income earned on that
day. Therefore, the percentage of each day's dividend designated as taxable, if
any, may vary from day to day.

PERFORMANCE INFORMATION

From time to time, the Trust may advertise "current yield," "effective yield"
and/or "tax equivalent yield" for a Fund. All yield figures are based on
historical earnings and are not intended to indicate future performance. The
"current yield" of a Fund refers to the income generated by an investment in the
Fund over a seven-day period (which period will be stated in the advertisement).
This income is then "annualized;" that is, the amount of income generated by the
investment during that week is assumed to be generated each week over a 52-week
period and is shown as a percentage of the investment. The "effective yield" is
calculated similarly but, when annualized, the income earned by an investment in
a Fund is assumed to be reinvested. The "effective yield" will be slightly
higher than the "current yield" because of the compounding effect of this
assumed reinvestment. The "tax equivalent yield"

29
<PAGE>

demonstrates the yield on a taxable investment necessary to produce an after-tax
yield equal to a Fund's tax free yield. It is calculated by increasing the yield
shown for the Fund to the extent necessary to reflect the payment of specified
tax rates. The Trust may include this information in sales material and
advertisements for a Fund.

Yield is a function of the quality, composition and maturity of the securities
held by the corresponding Portfolio and operating expenses of a Fund and the
corresponding Portfolio. In particular, a Fund's yield will rise and fall with
short-term interest rates, which can change frequently and sharply. In periods
of rising interest rates, the yield of a Fund will tend to be somewhat lower
than the prevailing market rates, and in periods of declining interest rates,
the yield will tend to be somewhat higher. In addition, when interest rates are
rising, the inflow of net new money to a Fund from the continuous sale of its
shares will likely be invested by the corresponding Portfolio in instruments
producing higher yields than the balance of that Portfolio's securities, thereby
increasing the current yield of the Fund. In periods of falling interest rates,
the opposite can be expected to occur. Accordingly, yields will fluctuate and do
not necessarily indicate future results. While yield information may be useful
in reviewing the performance of a Fund, it may not provide a basis for
comparison with bank deposits, other fixed rate investments, or other investment
companies that may use a different method of calculating yield. Any fees charged
by Service Agents for processing purchase and/or redemption transactions will
effectively reduce the yield for those shareholders.

From time to time, advertisements or reports to shareholders may compare the
yield of a Fund to that of other mutual funds with similar investment objectives
or to that of a particular index. The yield of the Cash Management Fund might be
compared with, for example, the IBC First Tier All Taxable Money Fund Average,
that of the Treasury Money Fund might be compared with IBC U.S. Treasury and
Repo All Taxable Money Fund Average, and that of Tax Free Money Fund and the NY
Tax Free Money Fund might be compared with IBC State Specific All Tax Free Money
Fund Average and IBC Stockbroker and General Purpose All Tax Free Money Fund
Average, which are averages compiled by IBC Money Fund Report, a widely
recognized, independent publication that monitors the performance of money
market mutual funds. Similarly, the yield of a Fund might be compared with
rankings prepared by Micropal Limited and/or Lipper Analytical Services, Inc.,
which are widely recognized, independent services that monitor the investment
performance of mutual funds. The yield of a Fund might also be compared without
the average yield reported by the Bank Rate Monitor for money market deposit
accounts offered by the 50 leading banks and thrift institutions in the top five
standard metropolitan areas. Shareholders may make inquiries regarding the
Funds, including current yield quotations and performance information, by
contacting any Service Agent.

Shareholders will receive financial reports semi-annually that include listings
of investment securities held by a Fund's corresponding Portfolio at those
dates. Annual reports are audited by independent accountants.

From time to time a Fund may quote its performance in terms of "current yield,"
"effective yield" or "tax equivalent yield" in reports or other communications
to shareholders or in advertising material.

The yields are then calculated as follows:

Base Period Return = Net Change in Account Value
Current Yield = Base Period Return x 365/7

Effective Yield = [(1 + Base Period Return)365/7] - 1

Tax Equivalent Yield = Current Yield
(1 - Tax Rate)

30
<PAGE>

The following table sets forth various measures of the performance for each of
the Funds for the seven days ended December 31, 1998.
<TABLE>
<CAPTION>
<S> <C>
Investment Cash Investment Tax Investment NY Tax Institutional Institutional
Management Fund Free Money Fund Free Money Fund Cash Management Treasury
Fund Money Fund
Current Yield
Effective Yield
Tax Equivalent Yield N/A N/A N/A

</TABLE>
- ---------------------------
* Assumes a maximum Federal rate of 31%.
** Assumes a maximum combined Federal, New York State and New York City
tax rate of 39%

FINANCIAL STATEMENTS

The financial statements for the Funds and the Portfolios for the fiscal year
ended December 31, 1998, are incorporated herein by reference to the Funds'
Annual Report dated December 31, 1998. A copy of the Funds' Annual Report may
be obtained without charge by contacting the respective Fund.

31
<PAGE>

APPENDIX:
DESCRIPTION OF RATINGS

DESCRIPTION OF S&P CORPORATE BOND RATINGS:

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

AA - Bonds rated AA have a very strong capacity to pay interest and
repay principal and differ from the highest rated issues only in small degree.

S&P's letter ratings may be modified by the addition of a plus or a
minus sign, which is used to show relative standing within the major categories,
except in the AAA rating category.

DESCRIPTION OF MOODY'S CORPORATE BOND RATINGS:

Aaa - Bonds which are rated Aaa are judged to be 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 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 which are 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.

Moody's applies the numerical modifiers 1, 2 and 3 to each generic
rating classification from Aa through B. 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 FITCH IBCA, INC. ("FITCH") CORPORATE BOND RATINGS:

AAA--Securities of this rating are regarded as strictly high-grade,
broadly marketable, suitable for investment by trustees and fiduciary
institutions, and liable to but slight market fluctuation other than through
changes in the money rate. The factor last named is of importance varying with
the length of maturity. Such securities are mainly senior issues of strong
companies, and are most numerous in the railway and public utility fields,
though some industrial obligations have this rating. The prime feature of an AAA
rating is showing of earnings several times or many times interest requirements
with such stability of applicable earnings that safety is beyond reasonable
question whatever changes occur in conditions. Other features may enter in, such
as a wide margin of protection through collateral security or direct lien on
specific property as in the case of high class equipment certificates or bonds
that are first mortgages on valuable real estate. Sinking funds or voluntary
reduction of the debt by call or purchase are often factors, while guarantee or
assumption by parties other than the original debtor may also influence the
rating.

AA--Securities in this group are of safety virtually beyond question,
and as a class are readily salable while many are highly active. Their merits
are not greatly unlike those of the AAA class, but a security so rated may be of
junior though strong lien f in many cases directly following an AAA security f
or the margin of safety is less strikingly broad. The issue may be the
obligation of a small company, strongly secured but influenced as to ratings by
the lesser financial power of the enterprise and more local type of market.

32
<PAGE>

DESCRIPTION OF DUFF & PHELPS' CORPORATE BOND RATINGS:

AAA--Highest credit quality. The risk factors are negligible, being
only slightly more than for risk-free U.S. Treasury Funds.

AA+, AA, AA--High credit quality. Protection factors are strong. Risk
is modest but may vary slightly from time to time because of economic
conditions.

DESCRIPTION OF S&P'S MUNICIPAL BOND RATINGS:

AAA--Prime--These are obligations of the highest quality. They have the
strongest capacity for timely payment of debt service.

General Obligation Bonds--In a period of economic stress, the issuers
will suffer the smallest declines in income and will be least susceptible to
autonomous decline. Debt burden is moderate. A strong revenue structure appears
more than adequate to meet future expenditure requirements. Quality of
management appears superior.

Revenue Bonds--Debt service coverage has been, and is expected to
remain, substantial; stability of the pledged revenues is also exceptionally
strong due to the competitive position of the municipal enterprise or to the
nature of the revenues. Basic security provisions (including rate covenant,
earnings test for issuance of additional bonds and debt service reserve
requirements) are rigorous. There is evidence of superior management.

AA--High Grade--The investment characteristics of bonds in this group
are only slightly less marked than those of the prime quality issues. Bonds
rated AA have the second strongest capacity for payment of debt service.

S&P's letter ratings may be modified by the addition of a plus or a
minus sign, which is used to show relative standing within the major rating
categories, except in the AAA rating category.

DESCRIPTION OF MOODY'S MUNICIPAL BOND RATINGS:

Aaa - Bonds which are 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 which are 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.

Moody's may apply the numerical modifier 1 in each generic rating
classification from Aa through B. The modifier 1 indicates that the security
within its generic rating classification possesses the strongest investment
attributes.

33
<PAGE>

DESCRIPTION OF S&P MUNICIPAL NOTE RATINGS:

Municipal notes with maturities of three years or less are usually
given note ratings (designated SP-1 or SP-2) to distinguish more clearly the
credit quality of notes as compared to bonds. Notes rated SP-1 have a very
strong or strong capacity to pay principal and interest. Those issues determined
to possess overwhelming safety characteristics are given the designation of
SP-1+. Notes rated SP-2 have a satisfactory capacity to pay principal and
interest.

DESCRIPTION OF MOODY'S MUNICIPAL NOTE RATINGS:

Moody's ratings for state and municipal notes and other short-term
loans are designated Moody's Investment Grade (MIG) and for variable rate demand
obligations are designated Variable Moody's Investment Grade (VMIG). This
distinction recognizes the differences between short-term credit risk and
long-term risk. Loans bearing the designation MIG-1/VMIG-1 are of the best
quality, enjoying strong protection from established cash flows of funds for
their servicing or from established and broad-based access to the market for
refinancing, or both. Loans bearing the designation MIG-1/VMIG-2 are of high
quality, with ample margins of protection, although not as large as the
preceding group.

DESCRIPTION OF S&P COMMERCIAL PAPER RATINGS:

Commercial paper rated A-1 by S&P indicates that the degree of safety
regarding timely payment is either overwhelming or very strong. Those issues
determined to possess overwhelming safety characteristics are denoted A-1+.

DESCRIPTION OF MOODY'S COMMERCIAL PAPER RATINGS:

The rating Prime-1 is the highest commercial paper rating assigned by
Moody's. Issuers rated Prime-1 (or related supporting institutions) are
considered to have a superior capacity for repayment of short-term promissory
obligations.

DESCRIPTION OF FITCH COMMERCIAL PAPER RATINGS:

F1+--Exceptionally Strong Credit Quality. Issues assigned this rating
are regarded as having the strongest degree of assurance for timely payment.

F1--Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than the strongest
issue.

DESCRIPTION OF DUFF & PHELPS' COMMERCIAL PAPER RATINGS:

Duff 1+--Highest certainty of timely payment. Short term liquidity,
including internal operating factors and/or access to alternative sources of
funds, is outstanding, and safety is just below risk free U.S. Treasury short
term obligations.

Duff 1--Very high certainty of timely payment. Liquidity factors are
excellent and supported by good fundamental protection factors. Risk factors are
minor.

DESCRIPTION OF THOMPSON BANK WATCH SHORT-TERM RATINGS:

T-1--The highest category; indicates a very high likelihood that
principal and interest will be paid on a timely basis.

34
<PAGE>

T-2--The second-highest category; while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree of
safety is not as high as for issues rated "TBW-1".

T-3--The lowest investment-grade category; indicates that while the
obligation is more susceptible to adverse developments (both internal and
external) than those with higher ratings, the capacity to service principal and
interest in a timely fashion is considered adequate.

T-4--The lowest rating category; this rating is regarded as
non-investment grade and therefore speculative.

DESCRIPTION OF THOMPSON BANKWATCH LONG-TERM RATINGS:

AAA--The highest category; indicates that the ability to repay
principal and interest on a timely basis is extremely high.

AA--The second-highest category; indicates a very strong ability to
repay principal and interest on a timely basis, with limited incremental risk
compared to issues rated in the highest category.

A--The third-highest category; indicates the ability to repay principal
and interest is strong. Issues rated "a" could be more vulnerable to adverse
developments (both internal and external) than obligations with higher ratings.

BBB--The lowest investment-grade category; indicates an acceptable
capacity to repay principal and interest. Issues rated "BBB" are, however, more
vulnerable to adverse developments (both internal and external) than obligations
with higher ratings.

NON-INVESTMENT GRADE

(ISSUES REGARDED AS HAVING SPECULATIVE CHARACTERISTICS IN THE LIKELIHOOD OF
TIMELY REPAYMENT OF PRINCIPAL AND INTEREST.)
BB--While not investment grade, the "BB" rating suggests that the
likelihood of default is considerably less than for lower-rated issues. However,
there are significant uncertainties that could affect the ability to adequately
service debt obligations.

B--Issues rated "B" show a higher degree of uncertainty and therefore
greater likelihood of default than higher-rated issues. Adverse development
could well negatively affect the payment of interest and principal on a timely
basis.

CCC--Issues rated "CCC" clearly have a high likelihood of default, with
little capacity to address further adverse changes in financial circumstances.

CC--"CC" is applied to issues that are subordinate to other obligations
rated "CCC" and are afforded less protection in the event of bankruptcy or
reorganization.

D--Default

These long-term debt ratings can also be applied to local currency
debt. In such cases the ratings defined above will be preceded by the
designation "local currency".

RATINGS IN THE LONG-TERM DEBT CATEGORIES MAY INCLUDE A PLUS (+) OR MINUS (-)
DESIGNATION, WHICH INDICATES WHERE WITHIN THE RESPECTIVE CATEGORY THE ISSUE IS
PLACED.

35
<PAGE>

Investment Adviser of the Portfolios and Administrator
BANKERS TRUST COMPANY
Distributor
ICC DISTRIBUTORS, INC.
Custodian and Transfer Agent
BANKERS TRUST COMPANY
Independent Accountants
PRICEWATERHOUSECOOPERS 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 Prospectus, 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 Prospectus nor this SAI constitutes an
offer in any state in which, or to any person to whom, such offer may not
lawfully be made.

--------------------

Cusip #055922108
Cusip #055922405
Cusip #055922306
Cusip #055922207
COMBMMKT400 (4/98)

<PAGE>

PART C OTHER INFORMATION

Item 23.
<TABLE>
<CAPTION>
<S> <C>

(a) (i) Amended and Restated Declaration of Trust dated March 29, 1990; 1
(ii) Fifteenth Amended and Restated Establishment and Designation of Series
dated December 9, 1998; 9
(b) By-Laws; 1
(c) Incorporated by reference to (b) above;
(d) (i) Investment Advisory Agreement dated August 6, 1996; 2
(ii) Exhibit A to Investment Advisory Agreement dated August 6, 1996, as
revised October 31, 1997; 3
(e) (i) Distribution Agreement dated August 11, 1998; 3
(ii) Appendix A to Distribution Agreement dated August 11, 1998, as revised December 9, 1998; 9
(iii) Exclusive Placement Agent Agreement dated September 30, 1996 on behalf of Institutional Daily Assets Fund; 10
(iv) Exclusive Placement Agent Agreement dated October 31, 1997 on behalf of Institutional Treasury Assets Fund; 5
(f) Bonus or Profit Sharing Contracts -- Not applicable;
(g) (i) Custodian Agreement dated July 1, 1996; 4
(ii) Amendment #1 to Exhibit A dated March 26, 1997 of the Custodian Agreement; 4
(iii) Amendment #2 to Exhibit A dated October 8, 1997 of Custodian Agreement; 5
(iv) Amendment #3 to Exhibit A dated October 31, 1997 of Custodian Agreement; 5
(v) Cash Services Addendum dated December 18, 1999 to Custodian Agreement; 6
(vi) Amendment #4 to Exhibit A dated December 9, 1998 of Custodian Agreement; 9
(vii) Custodian Agreement dated September 10, 1996 on behalf of Institutional Daily Assets Fund; 4
(h) (i) Administration and Services Agreement dated October 28, 1992; 1
(ii) Exhibit D dated December 9, 1998 to the Administration and Services Agreement; 9
(iii) Expense Limitation Agreement dated September 30, 1998 on behalf of International Equity Fund, International
Small Company Equity Fund and Global Emerging Markets Equity Fund; 8
(i) Legal Opinion - Not Applicable;
(j) Other Opinions -- Not Applicable;
(k) Omitted Financial Statements -- Not Applicable;
(l) (i) Investment representation letter of initial shareholder of the
Equity 500 Index Fund; 7
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>

(ii) Investment representation letter of
initial shareholder of the Institutional Liquid Assets Fund; 1
(iii)Investment representation letter of initial shareholder of the
Institutional Daily Assets Fund; 2
(m) Rule 12b-1 Plans -- Not Applicable;
(n) Financial Data Schedule - To be filed;
(o) Multiple Class Expense Allocation Plan Adopted Pursuant to Rule 18f-3
dated March 26, 1997; 4
- --------------------
</TABLE>

1. Incorporated by reference to Post-Effective Amendment No. 14 to the
Registration Statement as filed with the Commission on July 5, 1995.
2. Incorporated by reference to Amendment No. 21 to the Registration
Statement as filed with the Commission on September 24, 1996.
3. Incorporated by reference to Post-Effective Amendment No. 24 to the
Registration Statement as filed with the Commission on November 24,
1998.
4. Incorporated by reference to Post-Effective Amendment No. 20 to the
Registration Statement as filed with the Commission on September 10,
1997.
5. Incorporated by reference to Post-Effective Amendment No. 21 to the
Registration Statement as filed with the Commission on January 28,
1998.
6. Incorporated by reference to Amendment No. 31 to the Registration
Statement as filed with the Commission on October 27, 1998.
7. Incorporated by reference to Post-Effective Amendment No. 4 to the
Registration Statement as filed with the Commission on April 30, 1992.
8. Incorporated by reference to Post-Effective Amendment No. 26 to the
Registration Statement as filed with the Commission on January 28,
1999.
9. Incorporated by reference to Post-Effective Amendment No. 27 to the
Registration Statement as filed with the Commission on February 8,
1999.
10. Incorporated by reference to Post-Effective Amendment No. 19 to the
Registration Statement as filed with the Commission on March 17, 1997.

Item 24. Persons Controlled by or under Common Control with Registrant:

None

Item 25. Indemnification:

Incorporated by reference to Post-Effective Amendment No. 17 to the Registration
Statement as filed with the Commission on April 30, 1996.

Item 26. Business and Other Connections of Investment Adviser:
<PAGE>

Bankers Trust Company ("Bankers Trust") serves as investment adviser to the
Fund's Portfolio. Bankers Trust, a New York banking corporation, is a wholly
owned subsidiary of Bankers Trust Corporation. Bankers Trust conducts a variety
of commercial banking and trust activities and is a major wholesale supplier of
financial services to the international institutional market. To the knowledge
of the Trust, none of the directors or officers of Bankers Trust, except those
set forth below, is or has been at anytime during the past two fiscal years
engaged in any other business, profession, vocation or employment of a
substantial nature, except that certain directors and officers also hold various
positions with and engage in business for Bankers Trust Corporation. Set forth
below are the names and principal businesses of the directors and officers of
Bankers Trust who are or during the past two fiscal years have been engaged in
any other business, profession, vocation or employment of a substantial nature.
These persons may be contacted c/o Bankers Trust, 130 Liberty Street, New York,
New York 10006.

George B. Beitzel, International Business Machines Corporation ("IBM"), Old
Orchard Road, Armonk, NY 10504. Director, Bankers Trust; Retired Senior Vice
President and Director, IBM; Director, Computer Task Group; Director, Phillips
Petroleum Company; Director, Caliber Systems, Inc. (formerly, Roadway Services
Inc.); Director, Rohm and Haas Company; Director, TIG Holdings; Chairman
Emeritus, Amherst College; and Chairman, Colonial Williamsburg Foundation.

Richard H. Daniel, Bankers Trust, 130 Liberty Street, New York, New York 10006.
Vice Chairman and Chief Financial Officer, Bankers Trust and Bankers Trust
Corporation; Beneficial owner, General Partner, Daniel Brothers, Daniel Lingo &
Assoc., Daniel Pelt & Assoc.; and beneficial owner, Rhea C. Daniel Trust.

Philip A. Griffiths, Bankers Trust, 130 Liberty Street, New York, New York
10006. Director, Institute for Advanced Study; Director, Bankers Trust;
Chairman, Committee on Science, Engineering and Public Policy of the National
Academies of Sciences and Engineering & the Institute of Medicine; Chairman and
member, Nominations Committee and Committee on Science and Engineering
Indicators, National Science Board; and Trustee, North Carolina School of
Science and Mathematics and the Woodward Academy.

William R. Howell, J.C. Penney Company, Inc., P.O. Box 10001, Plano, TX
75301-0001. Chairman Emeritus, J.C. Penney Company, Inc.; Director, Bankers
Trust; Director, Exxon Corporation; Director, Halliburton Company; Director,
Warner-Lambert Corporation; Director, The Williams Companies, Inc.; and
Director, National Retail Federation.

Vernon E. Jordan, Jr., Akin, Gump, Strauss, Hauer & Feld, LLP, 1333 New
Hampshire Ave., N.W., Washington, DC 20036. Senior Partner, Akin, Gump, Strauss,
Hauer & Feld, LLP; Director, Bankers Trust; Director, American Express Company;
Director, Dow-Jones, Inc.; Director, J.C. Penney Company, Inc.; Director, Revlon
Group Incorporated; Director, Ryder System, Inc.; Director, Sara Lee
Corporation; Director,
<PAGE>

Union Carbide Corporation; Director, Xerox Corporation; Trustee, Brookings
Institution; Trustee, The Ford Foundation; and Trustee, Howard University.

David Marshall, Bankers Trust, 130 Liberty Street, New York, New York 10006.
Chief Information Officer and Executive Vice President, Bankers Trust
Corporation; Senior Managing Director, Bankers Trust.

Hamish Maxwell, Philip Morris Companies Inc., 120 Park Avenue, New York, NY
10006. Retired Chairman and Chief Executive Officer, Philip Morris Companies
Inc.; Director, Bankers Trust; Director, The News Corporation Limited; Director,
Sola International Inc.; and Chairman, WWP Group plc.

Frank N. Newman, Bankers Trust, 130 Liberty Street, New York, New York 10006.
Chairman of the Board, Chief Executive Officer and President, Bankers Trust
Corporation and Bankers Trust; Director, Bankers Trust; Director, Dow-Jones,
Inc.; and Director, Carnegie Hall.

N.J. Nicholas Jr., 745 Fifth Avenue, New York, NY 10020. Director, Bankers
Trust; Director, Boston Scientific Corporation; and Director, Xerox Corporation.

Russell E. Palmer, The Palmer Group, 3600 Market Street, Suite 530,
Philadelphia, PA 19104. Chairman and Chief Executive Officer, The Palmer Group;
Director, Bankers Trust; Director, Allied-Signal Inc.; Director, Federal Home
Loan Mortgage Corporation; Director, GTE Corporation; Director, The May
Department Stores Company; Director, Safeguard Scientifics, Inc.; and Trustee,
University of Pennsylvania.

Donald L. Staheli, Bankers Trust, 130 Liberty Street, New York, New York 10006.
Chairman of the Board and Chief Executive Officer, Continental Grain Company;
Director, Bankers Trust; Director, ContiFinancial Corporation; Director,
Prudential Life Insurance Company of America; Director, Fresenius Medical Care,
A.g.; Director, America-China Society; Director, National Committee on United
States-China Relations; Director, New York City Partnership; Chairman,
U.S.-China Business Council; Chairman, Council on Foreign Relations; Chairman,
National Advisor Council of Brigham Young University's Marriott School of
Management; Vice Chairman, The Points of Light Foundation; and Trustee, American
Graduate School of International Management.

Patricia Carry Stewart, Bankers Trust, Office of the Secretary, 130 Liberty
Street, New York, NY 10006. Director, Bankers Trust; Director, CVS Corporation;
Director, Community Foundation for Palm Beach and Martin Counties; Trustee
Emeritus, Cornell University.

George J. Vojta, Bankers Trust, 130 Liberty Street, New York, NY 10006. Vice
Chairman, Bankers Trust Corporation and Bankers Trust; Director, Bankers Trust;
Director, Alicorp S.A.; Director; Northwest Airlines; Director, Private Export
Funding
<PAGE>

Corp.; Director, New York State Banking Board; Director, St. Lukes-Roosevelt
Hospital Center; Partner, New York City Partnership; and Chairman, Wharton
Financial Services Center.

Paul A. Volcker, Bankers Trust, 130 Liberty Street, New York, New York 10006.
Director, Bankers Trust; Director, American Stock Exchange; Director, Nestle
S.A.; Director, Prudential Insurance Company; Director, UAL Corporation;
Chairman, Group of 30; North American Chairman, Trilateral Commission;
Co-Chairman, Bretton Woods Committee; Co-Chairman, U.S./Hong Kong Economic
Cooperation Committee; Director, American Council on Germany; Director, Aspen
Institute; Director, Council on Foreign Relations; Director, The Japan Society;
and Trustee, The American Assembly.

Melvin A. Yellin, Bankers Trust, 130 Liberty Street, New York, New York 10006.
Senior Managing Director and General Counsel, Bankers Trust Corporation and
Bankers Trust; Director, 1136 Tenants Corporation; and Director, ABA Securities
Association.

Item 27. Principal Underwriters:

(a) ICC Distributors, Inc., the Distributor for shares of the Registrant, also
acts as principal underwriter for the following open-end investment companies:
BT Advisor Funds, BT Pyramid Mutual Funds, and BT Investment Funds.

(b) Unless otherwise stated, the principal business address for the following
persons is Two Portland Square, Portland, Maine 04101.
<TABLE>
<CAPTION>

(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Distributor With Registrant

<S> <C> <C>
John Y. Keffer President None

Sara M. Morris Treasurer None

David I. Goldstein Secretary None

Benjamin L. Niles Vice President None

Margaret J. Fenderson Assistant Treasurer None

Dana L. Lukens Assistant Secretary None

Nanette K. Chern Chief Compliance Officer None
</TABLE>

ITEM 28. Location of Accounts and Records:

BT Institutional Funds (Registrant): One South Street, Baltimore, MD 21202.

Bankers Trust Company (Investment Adviser, Administrator, Custodian and Transfer
Agent): 130 Liberty Street, New York, NY 10006.

ICC Distributors, Inc. (Distributor): Two Portland Square, Portland, ME 04101.

Item 29. Management Services:

Not applicable.

Item 30. Undertakings:

The Registrant undertakes to comply with Section 16(c) of the 1940 Act as though
such provisions of the Act were applicable to the Registrant except that the
request referred to in the third full paragraph thereof may only be made by
shareholders who hold in the aggregate at least 10% of the outstanding shares of
the Registrant, regardless of the net asset value or values of shares held by
such requesting shareholders.

Registrant hereby undertakes to furnish each person to whom a prospectus is
delivered with a copy of the Registrant's latest annual report to shareholders,
upon request and without charge.

<PAGE>

SIGNATURES

Pursuant to the requirements of the Investment Company Act of 1940, the
Registrant, BT INSTITUTIONAL FUNDS, has duly caused this Amendment to its
Registration Statement to be signed on its behalf by the undersigned, thereto
duly authorized, in the City of Baltimore and the State of Maryland on this 26th
day of February, 1999.

BT INSTITUTIONAL FUNDS

By: /s/ Daniel O. Hirsch
Daniel O. Hirsch, Secretary
February 26, 1999

Pursuant to the requirements of the Securities Act of 1933, this
Amendment to its Registration Statement has been signed below by the following
persons in the capacity and on the date indicated:

NAME TITLE DATE

By: /s/ Daniel O. Hirsch Secretary February 26, 1999
Daniel O. Hirsch (Attorney in Fact
For the Persons
Listed Below)

/s/ John Y. Keffer* President and
John Y. Keffer Chief Executive Officer

/s/ Joseph A. Finelli* Treasurer (Principal
Joseph A. Finelli Financial and
Accounting Officer)

/s/ RICHARD J. HERRING** Trustee
Richard J. Herring

/s/ BRUCE E. LANGTON** Trustee
Bruce E. Langton

/s/ CHARLES P. BIGGAR** Trustee
Charles P. Biggar

* By Power of Attorney - Incorporated by reference to Post-Effective Amendment
No. 28 to the Registration Statement as filed with the Commission on February 8,
1999.

** By Power of Attorney -- Incorporated by reference to Post-Effective Amendment
No. 18 to the Registration Statement as filed with the Commission on January 3,
1997.

<PAGE>

SIGNATURES

BT INVESTMENT PORTFOLIOS has duly caused this Post Effective Amendment
No. 28 to the Registration Statement on Form N-1A of BT Institutional Funds to
be signed on their behalf by the undersigned, thereto duly authorized, in the
City of Baltimore and the State of Maryland on the 26th day of February, 1999.

BT INVESTMENT PORTFOLIOS

By: /s/ Daniel O. Hirsch
Daniel O. Hirsch, Secretary
February 26, 1999

This Post Effective Amendment No. 28 to the Registration Statement of
BT Institutional Funds has been signed below by the following persons in the
capacities indicated with respect to Liquid Assets Portfolio, a series of BT
INVESTMENT PORTFOLIOS.

NAME TITLE DATE

By: /s/ Daniel O. Hirsch Secretary February 26, 1999
Daniel O. Hirsch (Attorney in Fact
For the Persons
Listed Below)

/s/ John Y. Keffer* President and
John Y Keffer Chief Executive Officer

/s/ Joseph A. Finelli* Treasurer (Principal
Joseph A. Finelli Financial and Accounting
Officer)

/s/ CHARLES P. BIGGAR* Trustee
Charles P. Biggar

/s/ S. LELAND DILL* Trustee
S. Leland Dill

/s/ PHILIP SAUNDERS, JR.* Trustee
Philip Saunders, Jr.

* By Power of Attorney - Incorporated by reference to Post-Effective Amendment
No. 28 to the Registration Statement as filed with the Commission on February 8,
1999.

** By Power of Attorney -- Incorporated by reference to Post-Effective Amendment
No. 18 to the Registration Statement as filed with the Commission on January 3,
1997.

<PAGE>

SIGNATURES

CASH MANAGEMENT PORTFOLIO has duly caused this Post Effective Amendment
No. 28 to the Registration Statement on Form N-1A of BT Institutional Funds to
be signed on its behalf by the undersigned, thereto duly authorized, in the City
of Baltimore and the State of Maryland on the 26th day of February, 1999.

CASH MANAGEMENT PORTFOLIO

By: /s/ Daniel O. Hirsch
Daniel O. Hirsch, Secretary
February 26, 1999

NAME TITLE DATE

By: /s/ Daniel O. Hirsch Secretary February 26, 1999
Daniel O. Hirsch (Attorney in Fact
For the Persons
Listed Below)

/s/ John Y. Keffer* President and
John Y. Keffer Chief Executive Officer

/s/ Joseph A. Finelli* Treasurer (Principal
Joseph A. Finelli Financial and
Accounting Officer)

/s/ CHARLES P. BIGGAR** Trustee
Charles P. Biggar

/s/ S. LELAND DILL** Trustee
S. Leland Dill

/s/ PHILIP SAUNDERS, JR.** Trustee
Philip Saunders, Jr.

* By Power of Attorney - Incorporated by reference to Post-Effective Amendment
No. 28 to the Registration Statement as filed with the Commission on February 8,
1999.

** By Power of Attorney -- Incorporated by reference to Post-Effective Amendment
No. 18 to the Registration Statement as filed with the Commission on January 3,
1997.

<PAGE>

SIGNATURES

TREASURY MONEY PORTFOLIO has duly caused this Post Effective Amendment
No. 28 to the Registration Statement on Form N-1A of BT Institutional Funds to
be signed on its behalf by the undersigned, thereto duly authorized, in the City
of Baltimore and the State of Maryland on the 26th day of February, 1999.

TREASURY MONEY PORTFOLIO

By: /s/ Daniel O. Hirsch
Daniel O. Hirsch, Secretary
February 26, 1999

NAME TITLE DATE

By: /s/ Daniel O. Hirsch Secretary February 26, 1999
Daniel O. Hirsch (Attorney in Fact
For the Persons
Listed Below)

/s/ John Y. Keffer* President and
John Y. Keffer Chief Executive Officer

/s/ Joseph A. Finelli* Treasurer (Principal
Joseph A. Finelli Financial and
Accounting Officer)

/s/ CHARLES P. BIGGAR** Trustee
Charles P. Biggar

/s/ S. LELAND DILL** Trustee
S. Leland Dill

/s/ PHILIP SAUNDERS, JR.** Trustee
Philip Saunders, Jr.

* By Power of Attorney - Incorporated by reference to Post-Effective Amendment
No. 28 to the Registration Statement as filed with the Commission on February 8,
1999.

** By Power of Attorney -- Incorporated by reference to Post-Effective Amendment
No. 18 to the Registration Statement as filed with the Commission on January 3,
1997.

<PAGE>

SIGNATURES

EQUITY 500 INDEX PORTFOLIO has duly caused this Post Effective
Amendment No. 28 to the Registration Statement on Form N-1A of BT Institutional
Funds to be signed on its behalf by the undersigned, thereto duly authorized, in
the City of Baltimore and the State of Maryland on the 26th day of February,
1999.

EQUITY 500 INDEX PORTFOLIO

By: /s/ Daniel O. Hirsch
Daniel O. Hirsch, Secretary
February 26, 1999

NAME TITLE DATE

By: /s/ Daniel O. Hirsch Secretary February 26, 1999
Daniel O. Hirsch (Attorney in Fact
For the Persons
Listed Below)

/s/ John Y. Keffer* President and
John Y. Keffer Chief Executive Officer

/s/ Joseph A. Finelli* Treasurer (Principal
Joseph A. Finelli Financial and
Accounting Officer)

/s/ CHARLES P. BIGGAR** Trustee
Charles P. Biggar

/s/ S. LELAND DILL** Trustee
S. Leland Dill

/s/ PHILIP SAUNDERS, JR.** Trustee
Philip Saunders, Jr.

* By Power of Attorney - Incorporated by reference to Post-Effective Amendment
No. 28 to the Registration Statement as filed with the Commission on February 8,
1999.

** By Power of Attorney -- Incorporated by reference to Post-Effective Amendment
No. 18 to the Registration Statement as filed with the Commission on January 3,
1997.

<PAGE>

BT INSTITUTIONAL FUNDS
One South Street
Baltimore, Maryland 21202

February 26, 1999

EDGAR Operations Branch
Securities and Exchange Commission
Division of Investment Management
450 Fifth Street, Northwest
Washington, DC 20549

Re: BT INSTITUTIONAL FUNDS (the "Trust")
1933 Act File No. 33-34079
1940 Act File No. 811-6071
------------------------------------

Dear Sir or Madam:

Post-Effective No. 28 under the Securities Act of 1933, as amended (the
"1933 Act") and Amendment No. 36 under the Investment Company Act of 1940 to the
Registration Statement of the above-referenced Trust is hereby electronically
transmitted. This filing is being made pursuant to paragraph (a) of Rule 485
under the 1933 Act, to reflect the addition of two new series to the Trust.

Pursuant to Securities Act release No. 6510 and Investment Company
Release No. 13768 (February 15, 1984), we request selective review of the above
referenced Post-Effective Amendment.

The disclosure, design and format contained in this Post-Effective
Amendment is substantially similar to disclosure provided pursuant to new Form
N-1A for BT Institutional International Equity Fund in the BT Mutual Funds
family previously reviewed by the Staff (BT Institutional Funds (File no.
33-34079) filed on November 24, 1998).

The following sections of the Fund's prospectuses and statement of
additional information differ from those of the Institutional International
Equity Fund only so far as necessary to include Fund-specific disclosure:

The Prospectuses:
1. Cover page
2. Overview
3. Who Should Consider Investing in the Fund
<PAGE>

4. Annual Fund Operating Expenses
5. Objective
6. Strategy
7. Principal Investments
8. Investment Process
9. Portfolio Managers

If you have any questions regarding this filing, please call me at
(410) 895-3776.

Very truly yours,

/s/ Daniel O. Hirsch

Daniel O. Hirsch
Secretary

Enclosures