BT PYRAMID MUTUAL FUNDS, 497, 1998-07-06

BT PYRAMID MUTUAL FUNDS
497, 1998-07-06

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o BT PYRAMID MUTUAL FUNDS o

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BT INSTITUTIONAL ASSET MANAGEMENT FUND

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An asset allocation fund that seeks high total return over the long term, as

well as reduced investment risk, through investment in stocks, bonds and

short-term instruments.

PROSPECTUS

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JUNE 30, 1998

BT Pyramid Mutual Funds (the "Trust") is an open-end, management investment

company (mutual fund) which consists of a number of separate investment funds.

Please read this Prospectus carefully before investing and retain it for future

reference. It contains important information about BT Institutional Asset

Management Fund (the "Fund") that you should know and can refer to in deciding

whether the Fund's goals match your own.

A Statement of Additional Information ("SAI") with the same date has been filed

with the Securities and Exchange Commission ("SEC"), and is incorporated herein

by reference. You may request a free copy of the SAI or a paper copy of this

prospectus, if you have received your prospectus electronically, free of charge

by calling the Fund's Service Agent at 1-800-368-4031. The SAI, material

incorporated by reference into this document, and other information regarding

the Trust is maintained electronically with the SEC at Internet Web site

(http://www.sec.gov).

UNLIKE OTHER MUTUAL FUNDS, THE FUND SEEKS TO ACHIEVE ITS INVESTMENT OBJECTIVE BY

INVESTING ALL OF ITS INVESTABLE ASSETS ("ASSETS") IN THE ASSET MANAGEMENT

PORTFOLIO (THE "PORTFOLIO"), A SEPARATE INVESTMENT COMPANY WITH AN IDENTICAL

INVESTMENT OBJECTIVE. THE INVESTMENT PERFORMANCE OF THE FUND WILL CORRESPOND

DIRECTLY TO THE INVESTMENT PERFORMANCE OF THE PORTFOLIO. SEE "SPECIAL

INFORMATION CONCERNING MASTER FEEDER FUND STRUCTURE" HEREIN.

BANKERS TRUST COMPANY ("BANKERS TRUST") IS THE INVESTMENT ADVISER (THE

"ADVISER") OF THE PORTFOLIO. SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS

OF, OR GUARANTEED OR ENDORSED BY, BANKERS TRUST OR ANY OTHER BANKING OR

DEPOSITORY INSTITUTION. SHARES ARE NOT FEDERALLY GUARANTEED OR INSURED BY THE

FEDERAL DEPOSIT INSURANCE CORPORATION, THE U.S. GOVERNMENT, THE FEDERAL RESERVE

BOARD OR ANY OTHER AGENCY AND ARE SUBJECT TO INVESTMENT RISK, INCLUDING THE

POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.

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.

EDGEWOOD SERVICES, INC.

5800 Corporate Drive o Pittsburgh, Pennsylvania 15237-5829

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TABLE OF CONTENTS

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PAGE

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The Fund.......................................................................3

Who May Invest.................................................................3

Summary of Fund Expenses.......................................................4

Financial Highlights...........................................................5

Investment Objective and Policies..............................................6

Risk Factors: Matching the Funds to Your Investment Needs......................8

Net Asset Value...............................................................11

Purchase and Redemption of Shares.............................................11

Dividends, Distributions and Taxes............................................14

Performance Information and Reports...........................................15

Management of the Trust and Portfolio.........................................16

Additional Information........................................................19

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THE FUND

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The Fund's investment objective is to seek high total return with reduced risk

over the long term by allocating investments among stocks, bonds, and short-term

instruments. The Fund offers investors a convenient means of diversifying their

holdings in various classes of assets while relieving those investors of the

administrative burdens typically associated with purchasing and holding these

instruments, such as coordinating maturities and reinvestments, providing for

safekeeping and maintaining detailed records.

The Trust seeks to achieve the investment objective of the Fund by investing all

of the Assets of the Fund in the Portfolio, which has the same investment

objective as the Fund.

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WHO MAY INVEST

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Shares of the Fund are offered through this Prospectus primarily to

institutional investors. The shares are generally available to shareholders who

invest at least $5 million in the Fund.

The Fund is designed for investors seeking high total returns from a variety of

investments selected at the discretion of the Portfolio's Adviser, yet subject

to parameters that generally limit risk and exposure to one asset class.

By itself, the Fund does not constitute a balanced investment plan, although it

may form one component of a well-rounded portfolio. The Fund's share price,

yield and total return fluctuate and your investment may be worth more or less

than your original cost when you redeem your shares.

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SUMMARY OF FUND EXPENSES

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The following table provides (i) a summary of expenses relating to purchases and

sales of the shares of the Fund, and the annual operating expenses of the Fund

and the Portfolio, as a percentage of average net assets of the Fund; and (ii)

an example illustrating the dollar cost of such expenses on a $1,000 investment

in the Fund.

THE TRUSTEES OF THE TRUST BELIEVE THAT THE AGGREGATE PER SHARE EXPENSES OF THE

FUND AND THE PORTFOLIO WILL BE LESS THAN OR APPROXIMATELY EQUAL TO THE EXPENSES

WHICH THE FUND WOULD INCUR IF THE TRUST RETAINED THE SERVICES OF AN INVESTMENT

ADVISER AND THE ASSETS OF THE FUND WERE INVESTED DIRECTLY IN THE TYPE OF

SECURITIES BEING HELD BY THE PORTFOLIO.

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<TABLE>

ANNUAL OPERATING EXPENSES

(as a percentage of the average daily net assets of the Fund)

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Investment advisory fee (after waiver)......................................................................... 0.51%

12b-1 fees..................................................................................................... 0.00

Other expenses (after reimbursements or waivers)............................................................... 0.09

----

Total operating expenses (after reimbursements or waivers)..................................................... 0.60%

----

EXAMPLE 1 Year 3 Years 5 Years 10 Years

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

You would pay the following expenses for each Fund on a $1,000 investment,

assuming (1) 5% annual return and (2) redemption at the end of each time

period.................................................................... $6 $19 $33 $75

</TABLE>

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The expense table and the example above show the costs and expenses that an

investor will bear directly or indirectly as a shareholder of the Fund. Bankers

Trust has voluntarily agreed to waive a portion of its investment advisory fee

with respect to the Portfolio. Without such waivers, the Portfolio's investment

advisory fee would have been equal to 0.65% of the Portfolio's average daily net

assets. The expense table and the example reflect a voluntary undertaking by

Bankers Trust to waive or reimburse expenses such that the total operating

expenses of the Portfolio and the Fund will not exceed 0.60% of the Fund's

average net assets. In the absence of this undertaking, for the fiscal year

ended March 31, 1998 "Total operating expenses" above would have been equal to

approximately 0.92% of the Fund's average net assets. THE EXAMPLE SHOULD NOT BE

CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES MAY

BE GREATER OR LESS THAN THOSE SHOWN. Moreover, while each example assumes a 5%

annual return, actual performance will vary and may result in a return greater

or less than 5%.

The Fund is distributed by Edgewood Services, Inc. ("Edgewood," or the

"Distributor") to investors including customers of Bankers Trust or to customers

of another bank or a dealer or other institution that has a sub-shareholder

servicing agreement with Bankers Trust (along with Bankers Trust, a "Service

Agent"). Some Service Agents may impose certain conditions on their customers in

addition to or different from those imposed by the Fund and may charge their

customers a direct fee for their services, including transaction fees on

purchases and redemptions of Fund shares. Each Service Agent has agreed to

transmit to shareholders, who are its customers, appropriate disclosures of any

fees that it may charge them directly.

For more information with respect to the expenses of the Fund and the Portfolio

see "Management of the Trust and Portfolio" herein.

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FINANCIAL HIGHLIGHTS

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The following table shows selected data for a share outstanding, total

investment return, ratios to average net assets and other supplemental data of

the Fund for the periods indicated and have been audited by Coopers & Lybrand

L.L.P., the Fund's independent accountants, whose report thereon appears in the

Fund's Annual Report which is incorporated by reference in the Fund's SAI.

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For the period

For the years ended September 16, 1993

March 31, (Commencement

-------------------------------------------- of Operations) to

1998 1997 1996 1995 March 31, 1994

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PER SHARE OPERATING PERFORMANCE:

NET ASSET VALUE, BEGINNING OF PERIOD.................... $ 12.05 $ 11.25 $ 9.99 $ 9.61 $ 10.00

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

INCOME FROM INVESTMENT OPERATIONS

Net Investment Income................................. 0.37 0.38 0.41 0.36 0.11

Net Realized and Unrealized Gain (Loss) on

Investments, Foreign Currencies and Futures

Contracts........................................... 3.60 1.19 1.52 0.30 (0.44)

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Total Income (Loss) from Investment Operations.......... 3.97 1.57 1.93 0.66 (0.33)

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DISTRIBUTIONS TO SHAREHOLDERS

Net Investment Income................................. (0.37) (0.45) (0.42) (0.28) (0.06)

Net Realized Gain from Investment Transactions........ (1.15) (0.32) (0.25) -- --

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

Total Distributions..................................... (1.52) (0.77) (0.67) (0.28) (0.06)

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

NET ASSET VALUE, END OF PERIOD.......................... $ 14.50 $ 12.05 $ 11.25 $ 9.99 $ 9.61

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

TOTAL INVESTMENT RETURN................................. 34.34% 14.31% 19.77% 7.13% (6.06)%

SUPPLEMENTAL DATA AND RATIOS:

Net Assets, End of Period (000s omitted).............. $496,798 $270,315 $183,767 $ 83,201 $ 75,021

Ratios to Average Net Assets:

Net Investment Income............................... 2.97% 3.12% 3.99% 3.78% 2.83%*

Expenses, Including Expenses of the Asset Management

Portfolio......................................... 0.60% 0.60% 0.60% 0.60% 0.60%*

Decrease Reflected in Above Expense Ratio Due to

Absorption of Expenses by Bankers Trust........... 0.32% 0.36% 0.39% 0.43% 0.73%*

</TABLE>

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* Annualized

Further information about the Fund's performance is contained in the Fund's

Annual Report, dated March 31, 1998, which can be obtained free of charge.

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INVESTMENT OBJECTIVE AND POLICIES

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The Fund seeks high total return with reduced risk over the long term by

allocating investments among stocks, bonds, and short-term instruments. The Fund

offers investors a convenient means of diversifying their holdings in various

classes of assets while relieving those investors of the administrative burdens

typically associated with purchasing and holding these instruments, such as

coordinating maturities and reinvestments, providing for safekeeping and

maintaining detailed records.

The Trust seeks to achieve the investment objective of the Fund by investing all

the Assets of the Fund in the Portfolio, which has the same investment objective

as the Fund. There can be no assurances that the investment objective of either

the Fund or the Portfolio will be achieved. The investment objective of the Fund

and the Portfolio is not a fundamental policy and may be changed upon notice to,

but without the approval of, the Fund's shareholders or the Portfolio's

investors, respectively. See "Special Information Concerning Master Feeder Fund

Structure" herein.

Since the investment characteristics of the Fund will correspond directly to

those of the Portfolio, the following is a discussion of the various investments

and investment policies of the Portfolio. Additional information about the

investment policies of the Portfolio appears in the SAI.

ASSET MANAGEMENT PORTFOLIO

INVESTMENT ALLOCATIONS. In seeking to achieve the Portfolio's investment

objective the Adviser allocates the Portfolio's assets among three principal

asset classes (as discussed below): stocks, bonds and short-term instruments.

The asset classes are based on risk characteristics and may not be identical to

the Portfolio's total aggregate holdings of the three types of instruments. For

example, the Portfolio may buy or sell a futures contract to increase or

decrease the Portfolio's exposure to the stock market. Bankers Trust will

normally allocate the Portfolio's assets among the asset classes within the

following parameters: 0-25% in short-term instruments; 25-55% in bonds

(intermediate to long term debt securities); and 40%-70% in stocks (equities).

The asset classes of the Portfolio fluctuate around a neutral position of 10% in

short-term instruments, 35% in bonds and 55% in stocks. As of March 31, 1998,

the Portfolio's asset classes were allocated as follows: short-term instruments

7%; bonds 28%; and stocks 65%.

The Portfolio may make substantial temporary investments in cash and money

market instruments for defensive purposes when, in Bankers Trust's judgment,

market conditions warrant.

Bankers Trust regularly reviews the Portfolio's investment allocations, and will

gradually vary them over time to favor asset classes that, in Bankers Trust's

current judgment, provide the most favorable total return outlook. In making

allocation decisions, Bankers Trust will evaluate projections of risk, market

and economic conditions, volatility, yields and expected return. Bankers Trust

will seek to reduce risk relative to an investment in common stocks by

emphasizing the bond and short-term classes when stocks appear overvalued.

Bankers Trust's management will include use of database systems to help analyze

past situations and trends, research specialists in each of the asset classes to

help in securities selection, portfolio management professionals to determine

asset allocation and to select individual securities, and its own credit

analysis as well as credit analysis provided by rating services to determine the

quality of debt securities.

SHORT-TERM INSTRUMENTS. These securities include all types of domestic and

foreign securities and money market instruments with remaining maturities of

thirteen months or less as well as shares of money market mutual funds (see

"Investment Company Securities" herein). Bankers Trust will seek to maximize

total return within the short-term class by taking advantage of yield

differentials between different instruments, issuers and currencies. Short-term

instruments may include 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 Moody's Investors Service, Inc. ("Moody's") or AA or higher by Standard &

Poor's ("S&P") or, if unrated, of comparable quality in the opinion of Bankers

Trust; (iii) commercial paper; (iv) bank obligations, including negotiable

certificates of deposit, time deposits and bankers' acceptances; and (v)

repurchase agreements. At the time the Portfolio invests in commercial paper,

bank obligations or repurchase agreements, the issuer or the issuer's parent

must have outstanding debt rated Aa or higher by Moody's or AA or higher by S&P

or outstanding commercial paper or bank obligations rated Prime 1 by Moody's or

A1 by S&P; 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.

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dollars or foreign currencies and will have been determined to be of high

quality by a nationally recognized statistical rating organization ("NRSRO") or,

if unrated, by Bankers Trust.

BONDS. These securities include investment grade domestic and foreign fixed

income securities with remaining maturities or durations greater than thirteen

months. Bankers Trust seeks to maximize total returns within the bond class by

adjusting the Portfolio's investments in securities with different credit

qualities, maturities, and coupon or dividend rates, as well as by exploiting

yield differentials between securities. Securities in this class may include

bonds, notes, adjustable rate preferred stocks, convertible bonds, mortgage

related and asset backed securities, domestic and foreign government and

government agency securities, zero coupon bonds, Rule 144A securities and other

intermediate and long term securities. As with the short-term class, these

securities may be denominated in U.S. dollars or foreign currency. No more than

5% of the Portfolio's net assets (at the time of investment) may be in lower

rated (BB/Ba or lower), high yield bonds. The Portfolio may retain any bond

whose rating drops below investment grade if it is in the best interest of the

Fund's shareholders. Securities rated BB/Ba by a NRSRO are considered to have

speculative characteristics. See the Appendix to the SAI for further information

on these securities.

STOCKS. These securities include domestic and foreign equity securities of all

types (other than adjustable rate preferred stocks included in the bond class).

Bankers Trust seeks to maximize total return within this asset class by actively

allocating assets to industry sectors expected to benefit from major trends, and

to individual stocks that it believes to have superior investment potential.

Securities in the stock class may include common stocks, fixed rate preferred

stocks (including convertible preferred stocks), warrants, rights, depositary

receipts, securities of closed end investment companies, and other equity

securities issued by companies of any size, located anywhere in the world.

Bankers Trust believes that diversification of the Portfolio's investments among

the asset classes will, under most market conditions, better enable the

Portfolio to reduce risk while seeking high total return over the long term.

MATURITY AND DURATION. The remaining maturity of a fixed income instrument is

the amount of time left before the bond's principal is due. The duration of an

instrument or a group of instruments measures the instrument's or group of

instruments' value's expected response to changes in interest rates.

FOREIGN INVESTMENTS AND CURRENCY MANAGEMENT. The Portfolio focuses on U.S.

investment opportunities, but may invest a portion of its assets in foreign

securities. The Portfolio will not invest more than 25% of its total assets in

equity securities of foreign issuers under normal conditions. The Portfolio also

will not invest more than 25% of its total assets in each of the bond and

short-term classes in foreign securities and securities denominated in foreign

currencies. Foreign securities of all types will normally constitute less than

50% of the Portfolio's assets.

In connection with the Portfolio's investments denominated in foreign

currencies, Bankers Trust may choose to utilize a variety of currency management

strategies. Bankers Trust seeks to take advantage of different yield, risk, and

return characteristics that different currencies, currency denominations, and

countries can provide to U.S. investors. In doing so, Bankers Trust will

consider such factors as the outlook for currency relationships, current and

anticipated interest rates, levels of inflation within various countries,

prospects for relative economic growth, and government policies influencing

currency exchange rates and business conditions.

To manage exposure to currency fluctuations, the Portfolio may enter into

forward currency exchange contracts (agreements to exchange one currency for

another at a future date), may buy and sell options and futures contracts

relating to foreign currencies, and may purchase securities indexed to foreign

currencies. The Portfolio will use currency exchange contracts in the normal

course of business to lock in an exchange rate in connection with purchases and

sales of securities denominated in foreign currencies. Other currency management

strategies allow Bankers Trust to hedge portfolio securities, to shift

investment exposure from one currency to another, or to attempt to profit from

anticipated declines in the value of a foreign currency relative to the U.S.

dollar. Some of these strategies will require the Portfolio to segregate liquid

assets in a custodial account to cover its obligations. For additional

information on foreign investments and currency management, see "Additional

Information" herein and in the SAI.

OPTIONS AND FUTURES CONTRACTS. The Portfolio may buy and sell options and

futures contracts to manage its exposure to changing interest rates, security

prices and

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currency exchange rates, and as an efficient means of managing allocations

between asset classes. The Portfolio may invest in options and futures based on

any type of security or index related to the Portfolio's investments, including

options and futures traded on foreign exchanges.

Some options and futures strategies, including selling futures, buying puts, and

writing calls, hedge the Portfolio's investments against price fluctuations.

Other strategies, including buying futures, writing puts, and buying calls, tend

to increase market exposure. Options and futures may be combined with each

other, or with forward contracts, in order to adjust the risk and return

characteristics of an overall strategy. See "Additional Information" herein for

further information on options on stocks, options and futures contracts on stock

indices, options on futures contracts, foreign currency exchange transactions,

and options on foreign currencies.

INVESTMENT COMPANY SECURITIES. Securities of other investment companies may be

acquired by the Portfolio to the extent permitted under the 1940 Act, that is,

the Portfolio may invest a maximum of up to 10% of its total assets in

securities of other investment companies so long as not more than 3% of the

total outstanding voting stock of any one investment company is held by the

Portfolio. In addition, not more than 5% of the Portfolio's total assets may be

invested in the securities of any one investment company. The Portfolio may be

permitted to exceed these limitations by an exemptive order of the SEC. It

should be noted that investment companies incur certain expenses such as

management, custodian, and transfer agency fees, and, therefore, any investment

by the Portfolio in shares of other investment companies would be subject to

such duplicate expenses.

OTHER INVESTMENTS AND INVESTMENT TECHNIQUES

The Portfolio may also utilize the following investments and investment

techniques and practices: when issued and delayed delivery securities, short

sales, indexed securities, securities lending, repurchase agreements, Rule 144A

securities, zero coupon debt securities, government securities, mortgage backed

securities, collateralized mortgage obligations, asset backed securities and

foreign investments. See "Additional Information" herein for further

information.

ADDITIONAL INVESTMENT LIMITATIONS

As a diversified fund, no more than 5% of the assets of the Portfolio may be

invested in the securities of one issuer (other than U.S. government

securities), except that up to 25% of the Portfolio's assets may be invested

without regard to this limitation. The Portfolio will not invest more than 25%

of its assets in the securities of issuers in any one industry. These are

fundamental investment policies of the Portfolio which may not be changed

without investor approval. No more than 15% of the Portfolio's net assets may be

invested in illiquid or not readily marketable securities (including repurchase

agreements and time deposits maturing in more than seven calendar days).

Additional investment policies of the Portfolio are contained in the SAI.

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RISK FACTORS: MATCHING THE FUNDS TO YOUR INVESTMENT NEEDS

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The Fund is designed for investors seeking high total returns from a variety of

investments selected at the discretion of the Portfolio's Adviser, yet subject

to parameters that generally limit risk and exposure to any one asset class. The

Fund is designed for investors who seek to diversify their investments among

short-term instruments, bonds and stocks as economic conditions change. The Fund

may also be appropriate for investors who wish to moderate risks over time by

taking advantage of the asset class with the best relative value. The Portfolio

allocates its investments within the parameters described in "Investment

Objective, Policies and Risks" herein. Since the Portfolio's asset allocation

involves significant investment in short-term instruments and bonds over time,

it is expected that the Portfolio will be less volatile than a fund that invests

primarily in common stocks. By itself, the Fund does not constitute a balanced

investment plan, although it may form one component of a well rounded portfolio.

The Fund's share price, yield and total return fluctuate and your investment may

be worth more or less than your original cost when you redeem your shares.

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The Fund's performance may be affected by many different factors depending on

the Portfolio's emphasis. Short-term instruments are generally the most stable

securities in which the Portfolio will invest. Their returns depend primarily on

current short-term interest rates although currency fluctuations can also be

significant with respect to short-term foreign securities.

The bond class is affected primarily by interest rates: prices of fixed income

securities tend to rise when interest rates fall, and fall when interest rates

rise. Interest rate changes will have a greater impact on the Portfolio if it is

heavily invested in long term or zero coupon bonds. Fixed income securities may

also be affected by changes in credit quality.

The stock class is subject to the risks of stock market investing, including the

possibility of sudden or prolonged market declines as well as the risks

associated with individual companies. These risks may be intensified for

investments in smaller or less well known companies or in foreign securities.

RISKS OF INVESTING IN FOREIGN SECURITIES

The investment in foreign securities may involve additional risks. Foreign

securities usually are denominated in foreign currencies, which means their

value will be affected by changes in the strength of foreign currencies relative

to the U.S. dollar as well as the other factors that affect security prices.

Foreign companies may not be subject to accounting standards or governmental

supervision comparable to U.S. companies, and there often is less publicly

available information about their operations. Generally, there is less

governmental regulation of foreign securities markets, and security trading

practices abroad may offer less protection to investors such as the Portfolio.

The value of such investments may be adversely affected by changes in political

or social conditions, diplomatic relations, confiscatory taxation,

expropriation, nationalization, limitation on the removal of funds or assets, or

imposition of (or change in) exchange control or tax regulations in those

foreign countries. Foreign securities may be less liquid or more volatile than

domestic investments. Bankers Trust considers these factors in making

investments for the Portfolio and limits the amount of the Portfolio's assets

that may be invested in foreign securities to 25% of its total assets for each

asset class and to less than 50% for all classes under normal conditions.

However, within the Portfolio's limitations, investments in any one country or

currency are not restricted.

DERIVATIVES

The 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. The Portfolio may

use futures and options for traditional hedging purposes to attempt to protect

the Portfolio from exposure to changing interest rates, securities prices or

currency exchange rates and for cash management or other investment purposes as

a low cost method of gaining exposure to a particular securities market without

investing directly in those securities. The use of derivatives may result in

some leverage. The Portfolio will limit the leverage created by its use of

derivatives for investment purposes by "covering" such positions as required by

the SEC. The Adviser will use derivatives only in circumstances where the

Adviser believes they offer the most economical means of improving the

risk/reward profile of the Portfolio. Derivatives will not be used to increase

portfolio risk above the level that could be achieved using only traditional

investment securities or to acquire exposure to changes in the value of assets

or indices that by themselves would not be purchased for the Portfolio. The use

of derivatives for non hedging purposes may be considered speculative. A

description of the derivatives that the Portfolio may use and some of their

associated risks is found under "Additional Information" herein.

The Portfolio's investments in options, futures or forward contracts, and

similar strategies depend on Bankers Trust's judgment as to the potential risks

and rewards of different types of strategies. Options and futures can be

volatile investments, and may not perform as expected. If Bankers Trust applies

a hedge at an inappropriate time or judges price trends incorrectly, options and

futures strategies may lower the Portfolio's return. Options and futures traded

on foreign exchanges generally are not regulated by U.S. authorities, and may

offer less liquidity and less protection to the Portfolio in the event of

default by the other party to the contract. The Portfolio could also experience

losses if the prices of its options and futures positions were poorly correlated

with its

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other investments, or if it could not close out its positions because of an

illiquid secondary market.

Further descriptions of a number of investments and investment techniques

available to the Portfolio, including foreign investments and the use of options

and futures and other investment techniques which may be considered

"derivatives," and certain risks associated with these investments and

techniques are included under "Additional Information" herein.

PORTFOLIO TURNOVER

The frequency of portfolio transactions -- the Portfolio's turnover rate -- will

vary from year to year depending on market conditions. The Portfolio's portfolio

turnover rates for the fiscal years ended March 31, 1998 and 1997, were 199% and

137%, respectively. Because a higher turnover rate increases transaction costs

and may increase taxable capital gains, Bankers Trust carefully weighs the

anticipated benefits of short-term investment against these consequences.

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

objectives 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 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 by contacting Bankers Trust at 1-800-368-4031.

The master feeder structure is relatively complex, so shareholders should

carefully consider this investment approach.

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. Whenever the Trust is requested to vote on matters pertaining to the

Portfolio, the Trust will, except as permitted by the SEC, 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 Fund 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 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 objectives as the Fund or the retaining of an

investment adviser to manage the Fund's assets in accordance with the investment

policies described below with respect to the Portfolio.

<PAGE>

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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. See "Investment Objective and Policies" herein and in the SAI for a

description of the fundamental policies of the Portfolio that cannot be changed

without approval by the holders of "a majority of the outstanding voting

securities" (as defined in the 1940 Act) of the Portfolio.

For descriptions of the investment objective, policies and restrictions of the

Portfolio, see "Investment Objective and Policies" herein and in the SAI. For

descriptions of the management and expenses of the Portfolio, see "Management of

the Trust and Portfolio" herein and in the SAI.

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NET ASSET VALUE

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

The net asset value ("NAV") per share of the Fund is calculated on each day on

which the New York Stock Exchange Inc. (the "NYSE") is open (each such day being

a "Valuation Day"). The NYSE is currently open on each day, Monday through

Friday, except (a) January 1st, Martin Luther King 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 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 once on each Valuation Day as of the

close of regular trading on the NYSE which is currently 4:00 p.m., New York time

or in the event that the NYSE closes early, at the time of such early closing

(the "Valuation Time"). The NAV per share of the Fund 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 its

shares outstanding. The 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 net

asset value and the recalculated net asset value divided by the recalculated net

asset value is 0.005 (1/2 of 1%) or less or shareholder transactions are

otherwise insubstantially affected, further action is not required.

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PURCHASE AND REDEMPTION OF SHARES

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HOW TO BUY SHARES

The Trust accepts purchase orders for shares of the Fund at the NAV per share

(and, if applicable, of the respective class of shares) next determined after

the order is received on each Valuation Day. See "Net Asset Value" herein.

Shares of the Fund may be available through Investment Professionals, such as

broker/dealers and investment advisers (including Service Agents).

Purchase orders for shares of the Fund (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. The Trust 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

<PAGE>

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Agent. It is the responsibility of each Service Agent to transmit to the

Transfer Agent purchase and redemption orders and to transmit to Bankers Trust

as the Trust's custodian (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.

The Trust and Bankers Trust have authorized one or more brokers to accept on the

Trust's behalf purchase and redemption orders. Such brokers are authorized to

designate other intermediaries to accept purchase and redemption orders on the

Trust's behalf. The Transfer Agent will be deemed to have received a purchase or

redemption order when an authorized broker or, if applicable, a broker's

authorized designee, accepts the order. Customer orders will be priced at the

appropriate Fund's NAV next computed after they are accepted by an authorized

broker or the broker's authorized designee.

Certificates for shares will not be issued. Each shareholder's account will be

maintained by a Service Agent or Transfer Agent.

If orders are placed through an Investment Professional, it is the

responsibility of the Investment Professional to transmit the order to buy

shares of each class to the Transfer Agent before the Valuation Time.

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.

MINIMUM INVESTMENTS

TO OPEN AN ACCOUNT $5 MILLION

TO ADD TO AN ACCOUNT $100,000

MINIMUM BALANCE $1 MILLION

The Fund and its service providers reserve the right to, from time to time in

their discretion, waive or reduce the investment minimums. Shares may be

purchased by employees of Bankers Trust, their spouses and minor children

without regard to the minimum investment requirements.

IF YOU ARE NEW TO BT PYRAMID MUTUAL FUNDS complete and sign an account

application and mail it along with your check to the address listed below. If

there is no account application accompanying this Prospectus, 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 ALREADY 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.

<PAGE>

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ADDITIONAL INFORMATION ABOUT BUYING SHARES

<TABLE>

TO OPEN AN ACCOUNT TO ADD TO AN ACCOUNT

BY WIRE Call the BT Service Center at 1-800-368-4031 to Call your Investment
Professional or wire

receive wire instructions for account additional investment to:

establishment. Routing No.: 021001033

Attn: Bankers Trust/IFTC Deposit

DDA No.: 00-226-296

FBO: (Account name)

(Account number)

Credit: BT Institutional Asset Management

Fund -- 482

Specify the complete name of the Fund of your

choice, and include your account number and your

name.

BY PHONE Contact your Service Agent, Investment Contact your Service Agent, Investment

Professional, or call BT's Service Center at Professional, or call BT's Service Center at

1-800-368-4031. If you are an existing 1-800-368-4031. If you are an existing

shareholder, you may exchange from another BT shareholder, you may exchange from another BT

account with the same registration, including, account with the same registration, including,

name, address, and taxpayer ID number. name, address, and taxpayer ID number.

BY MAIL Complete and sign the account application. Make Make your check payable to the complete name of

your check payable to the complete name of the the Fund of your choice. Indicate your Fund

Fund of your choice. Mail to appropriate address account number on your check and mail to the

indicated on the application. address printed on your account statement.

</TABLE>

HOW TO SELL 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 of the Fund received by the Service Agent and

transmitted to the Transfer Agent prior to the Valuation Time on each Valuation

Day will be effective at 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.

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 Shareholder Servicing 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. A 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 a change in market value. See "Minimum Investments" above for

minimum balance amounts.

<PAGE>

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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

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 $1 million.

EXCHANGE PRIVILEGE

Shareholders may exchange their shares for shares of certain other funds in the

BT Family of Funds registered in their state. The Fund reserves the right to

terminate or modify the exchange privilege in the future. To make an exchange,

follow the procedures indicated in "How to Buy Shares" and "How to Sell 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.

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DIVIDENDS, DISTRIBUTIONS AND TAXES

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

DISTRIBUTIONS. The Fund distributes substantially all of its net investment

income and capital gains to shareholders each year. Income dividends are

distributed quarterly. In addition, the 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 Trust to pay such dividends and distributions in cash, they will

be automatically reinvested in additional shares of the Fund.

FEDERAL TAXES. The Fund intends to qualify as a regulated investment company, as

defined in the Internal Revenue Code of 1986, as amended (the "Code"). Provided

the Fund meets the requirements imposed by the Code and distributes all of its

income and gains, the Fund will not pay any Federal income or excise taxes. The

Portfolio will also not be required to pay any Federal income or excise taxes.

Distributions from the Fund's income and short-term capital gains are taxed as

dividends, and long term capital gain distributions are taxed as long term

capital gains. The Fund's distributions are taxable when they are paid, whether

you take them in cash or reinvest them in additional shares. Distributions

declared in 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 past year.

CAPITAL GAINS. You may realize a capital gain or loss when you redeem (sell) or

exchange shares. Because the

<PAGE>

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

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.

"BUYING A DIVIDEND." On the ex-date for a distribution from income and/or

capital gains, the Fund's share value is reduced by the amount of the

distribution. If you buy shares just before the ex-date ("buying a dividend"),

you will pay the full price for the shares and then receive a portion of the

price back as a taxable distribution.

OTHER TAX INFORMATION. In addition to Federal taxes, you may be subject to state

or local taxes on your investment, depending on the laws in your area. Income

received by the Portfolio from sources within foreign countries may be subject

to withholding and other taxes imposed by such countries. You should consult

with your own tax adviser concerning the application of Federal, state and local

taxes to your distributions from the Fund.

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

PERFORMANCE INFORMATION AND REPORTS

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

The Fund's performance may be used from time to time in advertisements,

shareholder reports or other communications to shareholders or prospective

shareholders. Performance information may include the Fund's investment results

and/or comparisons of its investment results to the Lipper Flexible Funds

Average, S&P 500 Index, Salomon Broad Investment Grade Bond Index, Salomon U.S.

Dollar T-Bill Index and various unmanaged indices (or a blended rate of several

of such indices) or results of other mutual funds or investment or savings

vehicles. The Fund's investment results as used in such communications will be

calculated on a yield or total rate of return basis in the manner set forth

below. From time to time, fund rankings may be quoted from various sources, such

as Lipper Analytical Services, Inc., Value Line and Morningstar, Inc.

The Trust may provide period and average annualized "total return" quotations

for the Fund. The "total return" refers to the change in the value of an

investment in the Fund over a stated period based on any change in net asset

value per share and including the value of any shares purchasable with any

dividends or capital gains distributed during such period. Period total return

may be annualized. An average annual total return is a hypothetical rate of

return that, if achieved annually, would have produced the same cumulative total

return if performance had been constant over the entire period. Average annual

total return calculations smooth out variations in performance; they are not the

same as actual year-by-year results. Average annual total returns covering

periods of less than one year assume that performance will remain constant for

the rest of the year.

The Trust may provide annualized "yield" quotations for the Fund. The "yield" of

the Fund refers to the income generated by an investment in the Fund over a 30

day or one month period (which period shall be stated in any such advertisement

or communications). This income is then annualized; that is, the amount

generated by the investment over the period is assumed to be generated over a

one year period and is shown as a percentage of the investment.

Unlike some bank deposits or other investments which pay a fixed yield for a

stated period of time, the total return of the Fund will vary depending upon

interest rates, the current market value of the securities held by the Portfolio

and changes in the Fund's expenses. In addition, during certain periods for

which total return or yield quotations may be provided, Bankers Trust, as

Adviser, Service Agent or Administrator may have voluntarily agreed to waive

portions of its fees on a month to month basis. Such waivers will have the

effect of increasing the Fund's net income (and therefore its total return or

yield) during the period such waivers are in effect.

Shareholders will receive financial reports semi annually that include the

Portfolio's financial statements, including listings of investment securities

held by the Portfolio at those dates. Annual reports are audited by independent

accountants.

<PAGE>

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MANAGEMENT OF THE TRUST AND PORTFOLIO

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

BOARD OF TRUSTEES

The affairs of the Trust and the Portfolio are managed under the supervision of

their respective Boards of Trustees. By virtue of the responsibilities assumed

by Bankers Trust, as the Administrator of the Trust and the Portfolio, neither

the Trust nor the Portfolio requires employees other than its officers. None of

the Trust's or the Portfolio's officers devotes full time to the affairs of the

Trust or the Portfolio.

The Trustees of each of the Trust and the Portfolio who are not "interested

persons" (as defined in the 1940 Act) (the "Independent Trustees") of the Trust

or of the Portfolio, as the case may be, have adopted written procedures

reasonably appropriate to deal with potential conflicts of interest, up to and

including creating separate boards of trustees. For more information with

respect to the Trustees of both the Trust and the Portfolio, see "Management of

the Trust and Portfolio" in the SAI.

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 investment adviser.

BANKERS TRUST COMPANY AND ITS AFFILIATES

Bankers Trust, a New York banking corporation with principal offices at 130

Liberty Street, New York, New York 10006, is a wholly owned subsidiary of

Bankers Trust New York Corporation. Bankers Trust conducts a variety of general

banking and trust activities and is a major wholesale supplier of financial

services to the international and domestic institutional markets. As of 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.

Bankers Trust is a worldwide merchant bank dedicated to servicing the needs of

corporations, governments, financial institutions and private clients through a

global network of over 90 offices in more than 50 countries. Investment

management is a core business of Bankers Trust, built on a tradition of

excellence from its roots as a trust bank founded in 1903. The scope of Bankers

Trust's investment management capability is unique due to its leadership

positions in both active and passive quantitative management and its presence in

major equity and fixed income markets around the world. Bankers Trust is one of

the nation's largest and most experienced investment managers, with

approximately $277 billion in assets under management globally. Of that total,

approximately $1.2 billion are in tactical asset allocation funds. This makes

Bankers Trust one of the nation's leading managers of tactical asset allocation

funds.

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.

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 worldwide

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

Bankers Trust with broker dealers and other financial intermediaries that it

selects, including those affiliated with Bankers Trust. A Bankers Trust

affiliate will be used in connection with a purchase or sale of an investment

for the 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 or customers of Bankers Trust.

Under its Investment Advisory Agreement, Bankers Trust receives a fee from the

Portfolio computed daily and paid monthly at the annual rate of 0.65% of the

average daily net assets of the Portfolio. Under certain circumstances Banker

Trust has agreed to pay fees to certain securities brokers, dealers and other

entities that

<PAGE>

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facilitate the sale of Fund shares, and in connection therewith provide

administrative, shareholder, or distribution related services to the Funds or

their shareholders. Fees paid to entities that administer mutual fund

"supermarkets" may be higher than fees paid for other types of services.

Bankers Trust has been advised by its counsel that, in counsel's opinion,

Bankers Trust currently may perform the services for the Trust and the Portfolio

described in this Prospectus and the SAI without violation of the Glass Steagall

Act or other applicable banking laws or regulations. State laws on this issue

may differ from the interpretations of relevant Federal law and banks and

financial institutions may be required to register as dealers pursuant to state

securities law.

PORTFOLIO MANAGERS

Mr. Philip Green and Ms. Karen Keller are responsible for the day to day

management of the Portfolio.

Mr. Green, Managing Director, is a portfolio manager in the quantitative

investments group. Mr. Green joined Bankers Trust in 1985 and has over fourteen

years of investment experience. During his career, Mr. Green has held a wide

variety of portfolio management assignments including equity, currency and

balanced portfolios. He received his B.S.E. from the Wharton School of Business

and a M.B.A. from New York University. Mr. Green managed the Portfolio from

January, 1995, to July, 1996, and since March, 1997.

Ms. Keller, Vice President, is a portfolio manager in the quantitative

investments group. She also provides on going research for model development and

portfolio strategies. Ms. Keller joined Bankers Trust in 1988 and has over

eleven years of investment experience. She has a B.A. in Economics from Tufts

University and an M.B.A. in Finance from New York University. Ms. Keller has

been involved in the management of the Portfolio since its inception in 1993.

ADMINISTRATOR

Under its Administration and Services Agreement with the Trust, Bankers Trust

calculates the NAV 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 Bankers

Trust a fee computed daily and paid monthly at the annual rate of 0.15% of the

average daily net assets of the Fund.

Under an Administration and Services Agreement with the Portfolio, Bankers Trust

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 provides

for the Portfolio to pay Bankers Trust a fee computed daily and paid monthly at

the annual rate of 0.10% of the average daily net assets of the Portfolio. Under

each Administration and Services Agreement, Bankers Trust may delegate one or

more of its responsibilities to others, including Edgewood, at Bankers Trust's

expense. For more information, see the SAI.

For the fiscal year ended March 31, 1998, the Fund and the Portfolio, after a

partial waiver by Bankers Trust, paid Bankers Trust total administrative and

services fees equal to 0.07% of the average daily net assets of the Fund.

DISTRIBUTOR

Edgewood Services, Inc. is the principal distributor for shares of the Fund. In

addition, Edgewood and its affiliates provide the Trust with office facilities

and currently provide administration and distribution services for other

registered investment companies. The principal business address of Edgewood and

its affiliates is 5800 Corporate Drive, Pittsburgh, Pennsylvania 15237-5829.

SERVICE AGENT

All shareholders must be represented by a Service Agent. Bankers Trust 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 Bankers Trust 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

Trust, 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 Trust executed proxies and

obtaining such other information and performing such other services as

<PAGE>

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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 Bankers Trust, 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 acts as Custodian of the assets of each of the Trust and the

Portfolio and serves as the Transfer Agent for each of the Trust and the

Portfolio under the Trust's Administration and Services Agreement with each of

the Trust and the Portfolio.

ORGANIZATION OF THE TRUST AND FUND

The Trust was organized on February 28, 1992 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. No series of shares has any preference over any other series.

The Trust is an entity of the type commonly known as a "Massachusetts business

trust." Under Massachusetts law, shareholders of such a business trust may,

under certain circumstances, be held personally liable as partners for its

obligations. However, the risk of a shareholder incurring financial loss on

account of shareholder liability is limited to circumstances in which both

inadequate insurance existed and the Trust itself was unable to meet its

obligations.

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 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.

The Portfolio, in which all the Assets of the Fund will be invested, is

organized as a trust under the laws of the State of New York. The 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.

As of June 4, 1998, Bankers Trust Company as custodian for Kraft Thrift Plan,

Jersey City, New Jersey owned 31.89% 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.

Each series of the 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 the

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.

EXPENSES OF THE TRUST

The Fund bears its own expenses. Operating expenses for the Fund generally

consist of all costs not specifically borne by Bankers Trust or Edgewood,

including administration and service fees, fees for necessary professional

services, amortization of organizational expenses, and costs associated with

regulatory compliance and maintaining legal existence and shareholder relations.

Bankers Trust has agreed to reimburse the

<PAGE>

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Fund to the extent required by applicable state law for certain expenses that

are described in the SAI. The Portfolio bears its own expenses. Operating

expenses for the Portfolio generally consist of all costs not specifically borne

by Bankers Trust or Edgewood, including investment advisory and administration

and services fees, fees for necessary professional services, the costs

associated with regulatory compliance and maintaining legal existence and

investor relations.

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ADDITIONAL INFORMATION

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WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The Portfolio may buy and sell

securities on a when-issued or delayed delivery basis. These transactions

involve a commitment by the Portfolio to buy or sell securities at a set price,

with payment and delivery taking place at a future date. Purchasing securities

in this manner may cause greater fluctuations in the Portfolio's share price.

SHORT SALES. The Portfolio may engage in short sales with respect to securities

that it owns or has the right to obtain (for example, through conversion of a

convertible bond). These transactions, known as short sales "against the box,"

allow the Portfolio to hedge against price fluctuations by locking in a sale

price for securities it does not wish to sell immediately.

INDEXED SECURITIES. The Portfolio may invest in indexed securities whose value

depends on the price of foreign currencies, securities indices or other

financial values or statistics. Examples include debt securities whose value at

maturity is determined by reference to the relative prices of various currencies

or to the price of a stock index. These securities may be positively or

negatively indexed; that is, their value may increase or decrease if the

underlying instrument appreciates.

SECURITIES LENDING. The Portfolio is permitted to lend up to 30% of the total

value of its securities. 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 income on the loaned

securities as well as by the opportunity to receive interest on the collateral.

During the term of the loan the Portfolio continues to bear the risk of

fluctuations in the price of 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

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 may serve as the

Portfolio's lending agent and may share in revenue received from securities

lending transactions as compensation for this service.

REPURCHASE AGREEMENTS. The Portfolio may invest in repurchase agreements. In a

repurchase agreement the Portfolio buys a security and simultaneously agrees to

sell it back at a higher price. In the event of the bankruptcy of the other

party to either a repurchase agreement or a securities loan, the Portfolio could

experience delays in recovering either its cash or the securities it lent. To

the extent that, in the meantime, the value of the securities repurchased had

decreased or the value of the securities lent had increased, the Portfolio could

experience a loss. In all cases, Bankers Trust must find the creditworthiness of

the other party to the transaction satisfactory. A repurchase agreement is

considered a collateralized loan under the 1940 Act.

RULE 144A SECURITIES. The Portfolio may purchase securities in the United States

that are not registered for sale under Federal securities laws but which can be

resold to institutions under the SEC's Rule 144A. Provided that a dealer or

institutional trading market in such securities exists, these restricted

securities are treated as exempt from the Portfolio's 15% limit on illiquid

securities. Under the supervision of the Board of Trustees of the Portfolio,

Bankers Trust determines the liquidity of restricted securities and, through

reports from Bankers Trust, the Board will monitor trading activity in

restricted securities. Because Rule 144A is relatively new, it is not possible

to predict how these markets will develop. If institutional trading in

restricted securities were to decline, the liquidity of the Portfolio could be

adversely affected.

ZERO COUPON DEBT SECURITIES. Zero coupon debt securities do not make regular

interest payments. Instead they

<PAGE>

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are sold at a deep discount from their face value. Because a zero coupon bond

does not pay current income, its price can be very volatile when interest rates

change. In calculating its dividends the Fund takes into account as income a

portion of the difference between a zero coupon bond's purchase price and its

face value.

GOVERNMENT SECURITIES. Government securities may or may not be backed by the

full faith and credit of the U.S. government. U.S. Treasury bonds, notes and

bills and certain agency securities, such as those issued by the Federal Housing

Administration, are backed by the full faith and credit of the U.S. government

and are the highest quality government securities. The Portfolio may also invest

a substantial portion of its portfolio in securities issued by government

agencies or instrumentalities (such as executive departments of the U.S.

government or independent Federal organizations supervised by Congress), which

may have different degrees of government backing but which are not backed by the

full faith and credit of the U.S. government. There is no guarantee that the

government will support these types of securities, and therefore they involve

more risk than other government obligations.

MORTGAGE BACKED SECURITIES. Mortgage backed securities are securities

representing interests in a pool of mortgages. Principal and interest payments

made on the mortgages in the underlying mortgage pool are passed through to the

investor. Unscheduled prepayments of principal shorten the securities' weighted

average life and may lower their total return. When a mortgage in the underlying

pool is prepaid, an unscheduled principal prepayment is passed through to the

investor. This principal is returned to the investor at par. As a result, if a

mortgage security were trading at a premium, its total return would be lowered

by prepayments, and if a mortgage security were trading at a discount, its total

return would be increased by prepayments. The value of these securities also may

change because of changes in the market's perception of the creditworthiness of

the Federal agency that issued them. In addition, the mortgage securities market

in general may be adversely affected by changes in governmental regulation or

tax policies.

COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS"). CMOs are pay through securities

collateralized by mortgages or mortgage backed securities. CMOs are issued in

classes and series that have different maturities and often are retired in

sequence. CMOs may be issued by governmental or non governmental entities such

as banks and other mortgage lenders. Non government securities may offer a

higher yield but also may be subject to greater price fluctuation than

government securities.

ASSET BACKED SECURITIES. Asset backed securities consist of undivided fractional

interests in pools of consumer loans (unrelated to mortgage loans) held in a

trust. Payments of principal and interest are passed through to

certificateholders and are typically supported by some form of credit

enhancement, such as a letter of credit, surety bond, limited guarantee or

senior/subordination. The degree of credit enhancement varies, but generally

amounts to only a fraction of the asset backed security's par value until

exhausted. If the credit enhancement is exhausted, certificateholders may

experience losses or delays in payment if the required payments of principal and

interest are not made to the trust with respect to the underlying loans. The

value of these securities also may change because of changes in the market's

perception of the creditworthiness of the servicing agent for the loan pool, the

originator of the loans or the financial institution providing the credit

enhancement. Asset backed securities are ultimately dependent upon payment of

consumer loans by individuals, and the certificateholder generally has no

recourse to the entity that originated the loans. The underlying loans are

subject to prepayments which shorten the securities' weighted average life and

may lower their return. As prepayments flow through at par, total returns would

be affected by the prepayments: if a security were trading at a premium, its

total return would be lowered by prepayments, and if a security were trading at

a discount, its total return would be increased by prepayments.

FOREIGN INVESTMENTS. The Portfolio may invest in securities of foreign issuers

directly or in the form of American Depositary Receipts ("ADRs"), Global

Depositary Receipts ("GDRs"), European Depositary Receipts ("EDRs") or other

similar securities representing securities of foreign issuers. These securities

may not necessarily be denominated in the same currency as the securities they

represent. Designed for use in U.S. and European securities markets,

respectively, ADRs, GDRs, and EDRs are alternatives to the purchase of the

underlying securities in their national markets and currencies. but are subject

to the same risks as the foreign securities to which they relate.

With respect to certain countries in which capital markets are either less

developed or not easily accessed, investments by the Portfolio may be made

through

<PAGE>

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investment in other investment companies that in turn are authorized to invest

in the securities of such countries. Investment in other investment companies is

limited in amount by the 1940 Act, will involve the indirect payment of a

portion of the expenses, including advisory fees, of such other investment

companies and may result in a duplication of fees and expenses.

OPTIONS ON STOCKS. The Portfolio may write and purchase put and call options on

stocks. A call option gives the purchaser of the option the right to buy, and

obligates the writer to sell, the underlying stock at the exercise price at any

time during the option period. Similarly, a put option gives the purchaser of

the option the right to sell, and obligates the writer to buy, the underlying

stock at the exercise price at any time during the option period. A covered call

option, which is a call option with respect to which the Portfolio owns the

underlying stock, sold by the Portfolio exposes the Portfolio during the term of

the option to possible loss of opportunity to realize appreciation in the market

price of the underlying stock or to possible continued holding of a stock which

might otherwise have been sold to protect against depreciation in the market

price of the stock. A covered put option sold by the Portfolio exposes the

Portfolio during the term of the option to a decline in price of the underlying

stock. A put option sold by the Portfolio is covered when, among other things,

cash or liquid securities are placed in a segregated account to fulfill the

obligations undertaken.

To close out a position when writing covered options, the Portfolio may make a

"closing purchase transaction," which involves purchasing an option on the same

stock with the same exercise price and expiration date as the option which it

has previously written on the stock. 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.

The Portfolio intends to treat over the counter options ("OTC Options")

purchased and the assets used to "cover" OTC Options written as not readily

marketable and therefore subject to the limitations described in "Investment

Restrictions" in the SAI.

OPTIONS ON STOCK INDICES. The Portfolio may purchase and write put and call

options on stock indices listed on stock exchanges. A stock index fluctuates

with changes in the market values of the stocks included in the index.

Options on stock indices are generally similar to options on stock except that

the delivery requirements are different. Instead of giving the right to take or

make delivery of stock at a specified price, an option on a stock index gives

the holder the right to receive a cash "exercise settlement amount" equal to (a)

the amount, if any, by which the fixed exercise price of the option exceeds (in

the case of a put) or is less than (in the case of a call) the closing value of

the underlying index on the date of exercise, multiplied by (b) a fixed "index

multiplier." Receipt of this cash amount will depend upon the closing level of

the stock index upon which the option is based being greater than, in the case

of a call, or less than, in the case of a put, the exercise price of the option.

The amount of cash received will be equal to such difference between the closing

price of the index and the exercise price of the option expressed in dollars

times a specified multiple. The writer of the option is obligated, in return for

the premium received, to make delivery of this amount. The writer may offset its

position in stock index options prior to expiration by entering into a closing

transaction on an exchange or the option may expire unexercised.

Because the value of an index option depends upon movements in the level of the

index rather than the price of a particular stock, whether the Portfolio will

realize a gain or loss from the purchase or writing of options on an index

depends upon movements in the level of stock prices in the stock market

generally or, in the case of certain indices, in an industry or market segment,

rather than movements in the price of a particular stock. Accordingly,

successful use by the Portfolio of options on stock indices will be subject to

Bankers Trust's ability to predict correctly movements in the direction of the

stock market generally or of a particular industry. This requires different

skills and techniques than predicting changes in the price of individual stocks.

FUTURES CONTRACTS ON SECURITIES INDICES. The Portfolio may enter into contracts

providing for the making and acceptance of a cash settlement based upon changes

in the value of an index of securities ("futures contracts"). This investment

technique may be used to hedge against anticipated future change in general

market prices which otherwise might either adversely affect the value of

<PAGE>

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securities held by the Portfolio or adversely affect the prices of securities

which are intended to be purchased at a later date for the Portfolio or as an

efficient means of managing allocations between asset classes. A futures

contract may also be entered into to close out or offset an existing futures

position.

When used for hedging purposes, a futures contract involves the establishment of

a position which will move in a direction opposite to that of the investment

being hedged. If these hedging transactions are successful, the futures

positions taken for the Portfolio will rise in value by an amount which

approximately offsets the decline in value of the portion of the Portfolio's

investments that are being hedged. Should general market prices move in an

unexpected manner, the full anticipated benefits of futures contracts may not be

achieved or a loss may be realized.

Futures contracts do involve certain risks. These risks could include a lack of

correlation between the Futures Contract and the corresponding securities

market, a potential lack of liquidity in the secondary market and incorrect

assessments of market trends which may result in poorer overall performance than

if a Futures Contract had not been entered into.

Brokerage costs will be incurred and "margin" will be required to be posted and

maintained as a good faith deposit against performance of obligations under

futures contracts written for the Portfolio.

OPTIONS ON FUTURES CONTRACTS. The Portfolio may invest in options on such

futures contracts for similar purposes.

The Portfolio may not purchase or sell a futures contract or option thereon if

immediately thereafter its margin deposits on its outstanding futures contracts

(other than futures contracts entered into for bona fide hedging purposes) and

premiums paid for options thereon would exceed 5% of the market value of the

Portfolio's total assets.

FOREIGN CURRENCY EXCHANGE TRANSACTIONS. Because the Portfolio buys and sells

securities denominated in currencies other than the U.S. dollar and receives

interest, dividends and sale proceeds in currencies other than the U.S. dollar,

the Portfolio from time to time may enter into foreign currency exchange

transactions to convert to and from different foreign currencies and to convert

foreign currencies to and from the U.S. dollar. The Portfolio either enters into

these transactions on a spot (i.e., cash) basis at the spot rate prevailing in

the foreign currency exchange market or uses forward contracts to purchase or

sell foreign currencies.

A forward foreign currency exchange contract is an obligation by the 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 foreign currency exchange

contracts establish an exchange rate at a future date. These contracts are

transferable in the interbank market conducted directly between currency traders

(usually large commercial banks) and their customers. A forward foreign currency

exchange contract generally has no deposit requirement and is traded at a net

price without commission. Neither spot transactions nor forward foreign currency

exchange contracts eliminate fluctuations in the prices of the Portfolio's

securities or in foreign exchange rates, or prevent loss if the prices of these

securities should decline.

The Portfolio may enter into foreign currency hedging transactions in an attempt

to protect against changes in foreign currency exchange rates between the trade

and settlement dates of specific securities transactions or changes in foreign

currency exchange rates that would adversely affect a portfolio position or an

anticipated investment position. Since consideration of the prospect for

currency parities will be incorporated into Bankers Trust's long term investment

decisions, the Portfolio will not routinely enter into foreign currency hedging

transactions with respect to security transactions; however, Bankers Trust

believes that it is important to have the flexibility to enter into foreign

currency hedging transactions when it determines that the transactions would be

in the 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.

<PAGE>

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OPTIONS ON FOREIGN CURRENCIES. The Portfolio may write covered put and call

options and purchase put and call options on foreign currencies for the purpose

of protecting against declines in the dollar value of portfolio securities and

against increases in the dollar cost of securities to be acquired. The Portfolio

may use options on currency to cross hedge, which involves writing or purchasing

options on one currency to hedge against changes in exchange rates for a

different, but related currency. As with other types of options, however, the

writing of an option on foreign currency will constitute only a partial hedge up

to the amount of the premium received, and the Portfolio could be required to

purchase or sell foreign currencies at disadvantageous exchange rates, thereby

incurring losses. The purchase of an option on foreign currency may be used to

hedge against fluctuations in exchange rates although, in the event of exchange

rate movements adverse to the Portfolio's position, it may forfeit the entire

amount of the premium plus related transaction costs. In addition, the Portfolio

may purchase call options on currency when the Adviser anticipates that the

currency will appreciate in value.

There is no assurance that a liquid secondary market on an options exchange will

exist for any particular option, or at any particular time. If the Portfolio is

unable to effect a closing purchase transaction with respect to covered options

it has written, the Portfolio will not be able to sell the underlying currency

or dispose of assets held in a segregated account until the options expire or

are exercised. Similarly, if the Portfolio is unable to effect a closing sale

transaction with respect to options it has purchased, it would have to exercise

the options in order to realize any profit and will incur transaction costs upon

the purchase or sale of underlying currency. The Portfolio pays brokerage

commissions or spreads in connection with its options transactions.

As in the case of forward contracts, certain options on foreign currencies are

traded over the counter and involve liquidity and credit risks which may not be

present in the case of exchange traded currency options. The Portfolio's ability

to terminate over the counter options ("OTC options") will be more limited than

with exchange traded options. It is also possible that broker dealers

participating in OTC options transactions will not fulfill their obligations.

Until such time as the staff of the SEC changes its position, the Portfolio will

treat purchased OTC options and assets used to cover written OTC options as

illiquid securities. With respect to options written with primary dealers in

U.S. government securities pursuant to an agreement requiring a closing purchase

transaction at a formula price, the amount of illiquid securities may be

calculated with reference to the repurchase formula.

There can be no assurance that the use of these portfolio strategies will be

successful.

ASSET COVERAGE. To reduce the leverage created by the Portfolio's use of futures

and related options, as well as when-issued and delayed delivery securities and

foreign currency exchange transactions, the Portfolio will cover such

transactions, as required under applicable interpretations of the SEC, either by

owning the underlying securities or by a segregating with the Portfolio's

custodian liquid securities in an amount at all times equal to or exceeding the

Portfolio's commitment with respect to these instruments or contracts.

<PAGE>

BT PYRAMID MUTUAL FUNDS

BT INSTITUTIONAL ASSET MANAGEMENT FUND

INVESTMENT ADVISER OF THE PORTFOLIO AND ADMINISTRATOR

BANKERS TRUST COMPANY

130 Liberty Street

New York, NY 10006

DISTRIBUTOR

EDGEWOOD SERVICES, INC.

5800 Corporate Drive

Pittsburgh, PA 15237-5829

CUSTODIAN AND TRANSFER AGENT

BANKERS TRUST COMPANY

130 Liberty Street

New York, NY 10006

INDEPENDENT ACCOUNTANTS

COOPERS & LYBRAND L.L.P.

250 West Pratt Street, Suite 21

Baltimore, MD 21201

COUNSEL

WILLKIE FARR & GALLAGHER

787 7th Avenue

New York, NY 10019

..........................

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. 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 #055847404

STA482300 (6/98)

STATEMENT OF ADDITIONAL INFORMATION
JUNE 30, 1998

BT PYRAMID MUTUAL FUNDS
o BT Institutional Asset Management Fund

BT Pyramid Mutual 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 relates only to the BT Institutional Asset Management Fund (the
"Fund"). The Fund seeks high total return with reduced risk over the long term
by allocating investments among stocks, bonds and short-term instruments.

As described in the Prospectus, the Trust seeks to achieve the investment
objective of the Fund by investing all the investable assets ("Assets") of the
Fund in the Asset Management Portfolio, (the "Portfolio"), an open-end
management investment company having the same investment objective as the Fund.

Shares of the Fund are sold by Edgewood Services, Inc. ("Edgewood"), the Trust's
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 Trust's Prospectus for the Fund is dated June 30, 1998, and 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 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 Service Agent. Capitalized terms not otherwise
defined in this SAI have the meanings accorded to them in the Trust's
Prospectus.

BANKERS TRUST COMPANY

INVESTMENT ADVISER OF THE PORTFOLIO AND ADMINISTRATOR

EDGEWOOD SERVICES, INC.

DISTRIBUTOR

5800 CORPORATE DRIVE PITTSBURGH, PENNSYLVANIA 15237-48291-800-368-4031

<PAGE>

TABLE OF CONTENTS

Investment Objective and Policies 1

Performance Information 17

Valuation of Securities; Redemptions and Purchases in Kind.............20

Management of the Trust and Portfolio 22

Organization of the Trust 26

Taxation 27

Financial Statements 28

Appendix 29

INVESTMENT OBJECTIVE AND POLICIES

INVESTMENT OBJECTIVE

The investment objective of the Fund is described in the Fund's Prospectus.
There can, of course, be no assurance that the Fund will achieve its investment
objective.

INVESTMENT POLICIES

The Fund seeks to achieve its investment objective by investing all of its
Assets in the Portfolio. The Trust may withdraw the Fund's 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 Fund to do so.

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.

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 the Appendix.

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 calendar 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 calendar days. A mutual fund might also have to
register such restricted securities in order to dispose of them resulting in
additional expenses and delay. Adverse market conditions could impede such a
public offering of securities.

In recent years, however, a large institutional market has developed for certain
securities that are not registered under the 1933 Act, including repurchase
agreements, commercial paper, foreign securities, municipal securities and
corporate bonds and notes. Institutional investors depend on an efficient
institutional market in which the unregistered security can be readily resold or
on an issuer's ability to honor a demand for repayment. The fact that there are
contractual or legal restrictions on resale of such investments to the general
public or to certain institutions may not be indicative of their liquidity.

The Securities and Exchange Commission (the "SEC") has adopted Rule 144A, which
allows a broader institutional trading market for securities otherwise subject
to restriction on their resale to the general public. Rule 144A establishes a
"safe harbor" from the registration requirements of the 1933 Act for 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.

The Adviser will monitor the liquidity of Rule 144A securities in the
Portfolio's portfolio under the supervision of the Portfolio's Board of
Trustees. In reaching liquidity decisions, the Adviser will consider, among
other things, the following factors: (1) the frequency of trades and quotes for
the security; (2) the number of dealers and other potential purchasers wishing
to purchase or sell the security; (3) dealer undertakings to make a market in
the security; and (4) the nature of the security and of the marketplace trades
(e.g., the time needed to dispose of the security, the method of soliciting
offers and the mechanics of the transfer).

LENDING OF PORTFOLIO SECURITIES. The Portfolio has the authority to lend
portfolio securities to brokers, dealers and other financial organizations. 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 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.

FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS

GENERAL. The successful use of such instruments draws upon the Adviser's skill
and experience with respect to such instruments and usually depends on the
Adviser's ability to forecast interest rate and currency exchange rate movements
correctly. Should interest or exchange rates move in an unexpected manner, the
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 contracts or options on futures
contracts and movements in the price of the securities and currencies hedged or
used for cover will not be perfect and could produce unanticipated losses.

FUTURES CONTRACTS. The Portfolio may enter into contracts for the purchase or
sale for future delivery of fixed-income securities or foreign currencies, or
contracts based on financial indices including any index of U.S. government
securities, foreign government securities or corporate debt securities. U.S.
futures contracts have been designed by exchanges which have been designated
"contracts markets" by the Commodity Futures Trading Commission ("CFTC"), and
must be executed through a futures commission merchant, or brokerage firm, which
is a member of the relevant contract market. Futures contracts trade on a number
of exchange markets, and, through their clearing corporations, the exchanges
guarantee performance of the contracts as between the clearing members of the
exchange. The 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, Government National
Mortgage Association modified pass-through mortgage-backed securities and
three-month U.S. Treasury Bills. The Portfolio may also enter into futures
contracts which are based on bonds issued by entities other than the U.S.
government.

At the same time a futures contract is purchased or sold, the Portfolio must
allocate cash or securities as a deposit payment ("initial deposit"). It is
expected that the initial deposit would be approximately 1 1/2% to 5% of a
contract's face value. Daily thereafter, the futures contract is valued and the
payment of "variation margin" may be required, since each day the Portfolio
would provide or receive cash that reflects any decline or increase in the
contract's value.

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

Although futures contracts by their terms call for the actual delivery or
acquisition of securities, in most cases the contractual obligation is fulfilled
before the date of the contract without having to make or take delivery of the
securities. The offsetting of a contractual obligation is accomplished by buying
(or selling, as the case may be) on a commodities exchange an identical futures
contract calling for delivery in the same month. Such a transaction, which is
effected through a member of an exchange, cancels the obligation to make or take
delivery of the securities. Since all transactions in the futures market are
made, offset or fulfilled through a clearinghouse associated with the exchange
on which the contracts are traded, the Portfolio will incur brokerage fees when
it purchases or sells futures contracts.

The purpose of the acquisition or sale of a futures contract, in the case of a
Portfolio which holds or intends to acquire fixed-income securities, is to
attempt to protect the Portfolio from fluctuations in interest or foreign
exchange rates without actually buying or selling fixed-income securities or
foreign currencies. For example, if interest rates were expected to increase,
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.

Similarly, when it is expected that interest rates may decline, futures
contracts may be purchased to attempt to hedge against anticipated purchases of
debt securities at higher prices. Since the fluctuations in the value of futures
contracts should be similar to those of debt securities, the 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. To the extent the Portfolio enters into futures contracts
for this purpose, the assets in the segregated asset account maintained to cover
the Portfolio's obligations with respect to such futures contracts will consist
of cash, cash equivalents or high quality liquid debt securities from its
portfolio in an amount equal to the difference between the fluctuating market
value of such futures contracts and the aggregate value of the initial and
variation margin payments made by the Portfolio with respect to such futures
contracts.

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

In addition, futures contracts entail risks. Although the Adviser believes that
use of such contracts will benefit the Portfolio, if the Adviser's investment
judgment about the general direction of interest rates is incorrect, the
Portfolio's overall performance would be poorer than if it had not entered into
any such contract. For example, if the 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 the
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. The Portfolio may have to sell securities at a time when it may be
disadvantageous to do so.

OPTIONS ON FUTURES CONTRACTS. The 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. Depending on the pricing of the option compared to
either the price of the futures contract upon which it is based or the price of
the underlying debt securities, it may or may not be less risky than ownership
of the futures contract or underlying debt securities. As with the purchase of
futures contracts, when the Portfolio is not fully invested it may purchase a
call option on a futures contract to hedge against a market advance due to
declining interest rates.

<PAGE>

The writing of a call option on a futures contract constitutes a partial hedge
against declining prices of 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, the 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 holdings. The writing of a put
option on a futures contract constitutes a partial hedge against increasing
prices of 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 the
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.

The purchase of a put option on a futures contract is similar in some respects
to the purchase of protective put options on portfolio securities. For example,
the Portfolio may purchase a put option on a futures contract to hedge its
portfolio against the risk of rising interest rates.

The amount of risk the 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.

The Board of Trustees of the Portfolio has adopted a further restriction that
the 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 market value of the total assets
of the Portfolio.

OPTIONS ON FOREIGN CURRENCIES. The 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.

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 Portfolio may purchase call options thereon. The purchase of
such options could offset, at least partially, the effects of the adverse
movements in exchange rates. As in the case of other types of options, however,
the benefit to the 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.

The 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.

Similarly, instead of purchasing a call option to hedge against an anticipated
increase in the dollar cost of securities to be acquired, the 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.

The 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 cash,
U.S. government securities and other high quality liquid debt securities in a
segregated account with its Custodian.

The Portfolio intends to 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 U.S. government securities or
other high quality liquid debt securities in an amount not less than the value
of the underlying foreign currency in U.S. dollars priced daily.

ADDITIONAL RISKS OF OPTIONS ON FUTURES CONTRACTS, FORWARD CONTRACTS AND OPTIONS
ON FOREIGN CURRENCIES. Unlike transactions entered into by the 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 market-makers, 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. Similarly, options on currencies may be
traded over-the-counter. In an over-the-counter trading environment, many of the
protections afforded to exchange participants will not be available. For
example, there are no daily price fluctuation limits, and adverse market
movements could therefore continue to an unlimited extent over a period of time.
Although the purchaser of an option cannot lose more than the amount of the
premium plus related transaction costs, this entire amount could be lost.
Moreover, the option writer and a trader of forward contracts could lose amounts
substantially in excess of their initial investments, due to the margin and
collateral requirements associated with such positions.

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

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

As in the case of forward contracts, certain options on foreign currencies are
traded over-the-counter and involve liquidity and credit risks which may not be
present in the case of exchange-traded currency options. The 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, the Portfolio will
treat purchased over-the-counter options and assets used to cover written
over-the-counter options as illiquid securities. With respect to options written
with primary dealers in U.S. government securities pursuant to an agreement
requiring a closing purchase transaction at a formula price, the amount of
illiquid securities may be calculated with reference to the repurchase formula.

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.

OPTIONS ON SECURITIES. The 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 the 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 the 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 Portfolio wishes to acquire the securities at the exercise price.

The 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." 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 the 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.

The 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.

<PAGE>

The 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 Portfolio has adopted certain other nonfundamental policies concerning
option transactions which are discussed below. The Portfolio's activities in
options may also be restricted by the requirements of the Internal Revenue Code
of 1986, as amended (the "Code"), for qualification as a regulated investment
company.

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

The Portfolio may engage in over-the-counter options transactions with
broker-dealers who make markets in these options. At present, approximately ten
broker-dealers, including several of the largest primary dealers in U.S.
government securities, make these markets. The ability to terminate
over-the-counter option positions is more limited than with exchange-traded
option positions because the predominant market is the issuing broker rather
than an exchange, and may involve the risk that broker-dealers participating in
such transactions will not fulfill their obligations. To reduce this risk, the
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 Portfolio's Trustees.

OPTIONS ON SECURITIES INDICES. In addition to options on securities, the
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."

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.

<PAGE>

Use of options on securities indices also entails the risk that trading in such
options may be interrupted if trading in certain securities included in the
index is interrupted. The 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 the 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.

FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. Because the Portfolio buys and
sells securities denominated in currencies other than the U.S. dollar and
receives interest, dividends and sale proceeds in currencies other than the U.S.
dollar, the Portfolio from time to time may enter into foreign currency exchange
transactions to convert to and from different foreign currencies and to convert
foreign currencies to and from the U.S. dollar. The Portfolio either enters into
these transactions on a spot (I.E., cash) basis at the spot rate prevailing in
the foreign currency exchange market or uses forward contracts to purchase or
sell foreign currencies.

A forward foreign currency exchange contract is an obligation by the 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 foreign currency exchange
contracts establish an exchange rate at a future date. These contracts are
transferable in the interbank market conducted directly between currency traders
(usually large commercial banks) and their customers. A forward foreign currency
exchange contract generally has no deposit requirement and is traded at a net
price without commission. The 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 foreign currency exchange contract. Neither
spot transactions nor forward foreign currency exchange contracts eliminate
fluctuations in the prices of the Portfolio's securities or in foreign exchange
rates, or prevent loss if the prices of these securities should decline.

The Portfolio may enter into foreign currency hedging transactions in an attempt
to protect against changes in foreign currency exchange rates between the trade
and settlement dates of specific securities transactions or changes in foreign
currency exchange rates that would adversely affect a portfolio position or an
anticipated investment position. Since consideration of the prospect for
currency parities will be incorporated into Bankers Trust's long-term investment
decisions, the Portfolio will not routinely enter into foreign currency hedging
transactions with respect to security transactions; however, Bankers Trust
believes that it is important to have the flexibility to enter into foreign
currency hedging transactions when it determines that the transactions would be
in the 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 in the manner set forth in the
Prospectus may be restricted. Forward contracts may reduce the potential gain
from a positive change in the relationship between the U.S. dollar and foreign
currencies. Unanticipated changes in currency prices may result in poorer
overall performance for the Portfolio than if it had not entered into such
contracts. The use of foreign currency forward contracts may not eliminate
fluctuations in the underlying U.S. dollar equivalent value of the prices of or
rates of return on the Portfolio's foreign currency denominated portfolio
securities and the use of such techniques will subject the 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, the
Portfolio may not always be able to enter into foreign 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 the
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 the
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.

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.

RATING SERVICES

The ratings of rating services represent their opinions as to the quality of the
securities that they undertake to rate. It should be emphasized, however, that
ratings are relative and subjective and are not absolute standards of quality.
Although these ratings are an initial criterion for selection of portfolio
investments, Bankers Trust 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 Bankers Trust 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 Fund's Prospectus is set forth in the Appendix to this SAI.

INVESTMENT RESTRICTIONS

The following investment restrictions are "fundamental policies" of the Fund and
the 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 Investment Company Act of 1940, as amended (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
the Portfolio, the Trust will hold a meeting of the Fund's shareholders and will
cast its vote as instructed by that Fund's shareholders.

As a matter of fundamental policy, the Portfolio (or the Fund) may not (except
that no investment restriction of the Fund shall prevent the Fund from investing
all of its Assets in an open-end investment company with substantially the same
investment objective):

(1) borrow money or mortgage or hypothecate assets of the 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 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 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 the Portfolio's (Fund's) investment objective, up to 25% of
its total assets may be invested in any one industry;

(6) issue any senior security (as that term is defined in the 1940 Act) if
such issuance is specifically prohibited by the 1940 Act or the rules and
regulations promulgated thereunder, 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.

ADDITIONAL RESTRICTIONS. In order to comply with certain statutes and policies
the Portfolio (or the 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 objective):

(i) borrow money (including through reverse repurchase or dollar 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 Portfolio (Fund) has 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 limitations by an
exemptive order of the SEC; provided further that, except in the case of
merger or 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;

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

(viii)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 excluding (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
has determined that the commercial paper is of equivalent quality and is
liquid;

(ix) with respect to 75% of the Portfolio's (Fund's) total assets, purchase
securities of any issuer if such purchase at the time thereof would cause
the Portfolio (Fund) to hold more than 10% of any class of securities of
such issuer, for which purposes all indebtedness of an issuer shall be
deemed a single class and all preferred stock of an issuer shall be deemed
a single class, except that futures or option contracts shall not be
subject to this restriction;

(x) if the Portfolio (Fund) is a "diversified" fund with respect to 75% of its
assets, invest more than 5% of its total assets in the securities
(excluding U.S. government securities) of any one issuer;

(xi) invest in securities issued by an issuer any of whose officers, directors,
trustees or security holders is an officer or Trustee of the Portfolio
(Trust), or is an officer or partner of the Adviser, if after the purchase
of the securities of such issuer for the Portfolio (Fund) one or more of
such persons owns beneficially more than 1/2 of 1% of the shares or
securities, or both, all taken at market value, of such issuer, and such
persons owning more than 1/2 of 1% of such shares or securities together
own beneficially more than 5% of such shares or securities, or both, all
taken at market value;

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

<PAGE>

(xiii)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 policies 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 50% 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

(xiv) 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 restriction if that restriction is
complied with at the time the relevant action is taken notwithstanding a later
change in market value of an investment, in net or total assets, in the
securities rating of the investment, or any other later change.

The Fund will comply with the state securities laws and regulations of all
states in which it is registered. 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 registered investment company investing in
the Portfolio is registered.

PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS

The Adviser is responsible for decisions to buy and sell securities, futures
contracts and options on such securities and futures for the Portfolio, the
selection of brokers, dealers and futures commission merchants to effect
transactions and the negotiation of brokerage commissions, if any.
Broker-dealers may receive brokerage commissions on portfolio transactions,
including options, futures and options on futures transactions and the purchase
and sale of underlying securities upon the exercise of options. Orders may be
directed to any broker-dealer or futures commission merchant, including to the
extent and in the manner permitted by applicable law, Bankers Trust or its
subsidiaries or affiliates. Purchases and sales of certain portfolio securities
on behalf of the 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 the 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 the
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 Rules of Fair Practice of the
National Association of Securities Dealers, Inc. and such other policies as the
Trustees of the Portfolio may determine, the Adviser may consider sales of
shares of the Trust and of other investment company clients of Bankers Trust as
a factor in the selection of broker-dealers to execute portfolio transactions.
Bankers Trust will make such allocations if commissions are comparable to those
charged by nonaffiliated, qualified broker-dealers for similar services.

Higher commissions may be paid to firms that provide research services to the
extent permitted by law. Bankers Trust may use this research information in
managing the 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 the Portfolio and to the Adviser, it is the opinion of
the management of the Portfolio 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 Portfolio, and not
all such information is used by the Adviser in connection with the Portfolio.
Conversely, such information provided to the Adviser by brokers and dealers
through whom other clients of the Adviser effect securities transactions may be
useful to the Adviser in providing services to the Portfolio.

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

For the fiscal years ended March 31, 1998, 1997, and 1996, the Portfolio
paid brokerage commissions in the amount of $205,989, $193,354, and $132,995,
respectively.

PERFORMANCE INFORMATION

STANDARD PERFORMANCE INFORMATION

From time to time, quotations of the Fund's performance may be included in
advertisements, sales literature or shareholder reports. These performance
figures are calculated in the following manner:

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

Income calculated for the purposes of calculating the 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 the 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.

The Fund's 30- day SEC yield for the period ended March 31, 1998 was 2.96%.

TOTAL RETURN: The Fund's average annual total return will be calculated for
certain periods by determining the average annual compounded rates of return
over those periods that would cause an investment of $1,000 (made at the maximum
public offering price with all distributions reinvested) to reach the value of
that investment at the end of the periods. The Fund may also calculate total
return figures which represent aggregate performance over a period or
year-by-year performance.

For the fiscal year ended March 31, 1998, and for the period from September 16,
1993 (commencement of operations) to March 31, 1998, the average annual total
returns for the Fund were 34.34%, and 15.27% (annualized), respectively.

PERFORMANCE RESULTS: Any total return quotation provided for the Fund should not
be considered as representative of the performance of the Fund in the future
since the net asset value and public offering price of shares of the Fund will
vary based not only on the type, quality and maturities of the securities held
in the Portfolio, but also on changes in the current value of such securities
and on changes in the expenses of the Fund and the Portfolio. These factors and
possible differences in the methods used to calculate total return should be
considered when comparing the total return of the Fund to total returns
published for other investment companies or other investment vehicles. Total
return reflects the performance of both principal and income.

COMPARISON OF FUND PERFORMANCE

Comparison of the quoted nonstandardized performance of various investments is
valid only if performance is calculated in the same manner. Since there are
different methods of calculating performance, investors should consider the
effect of the methods used to calculate performance when comparing performance
of the Fund with performance quoted with respect to other investment companies
or types of investments.

In connection with communicating its performance to current or prospective
shareholders, the Fund also may compare these figures to the performance of
other mutual funds tracked by mutual fund rating services or to unmanaged
indices which may assume reinvestment of dividends but generally do not reflect
deductions for administrative and management costs. Evaluations of the Fund's
performance made by independent sources may also be used in advertisements
concerning the Fund. Sources for the Fund's performance information could
include the following:

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 Business Daily, a daily newspaper that features financial, economic
and business news.

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

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

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

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

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

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

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

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

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

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

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

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

ECONOMIC AND MARKET INFORMATION

Advertising and sales literature for the Fund may include discussions of
economic, financial and political developments and their effect on the
securities market. Such discussions may take 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.

VALUATION OF SECURITIES; REDEMPTIONS AND PURCHASES IN KIND

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

Securities for which market quotations are not available are valued by Bankers
Trust pursuant to procedures adopted by the 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
equivalent security which is readily marketable.

The problems inherent in making a good faith determination of value are
recognized in the codification effected by SEC Financial Reporting Release No. 1
("FRR 1" (formerly Accounting Series Release No. 113)) which concludes that
there is "no automatic formula" for calculating the value of restricted
securities. It recommends that the best method simply is to consider all
relevant factors before making any calculation.
According to FRR 1 such factors would include consideration of the:

type of security involved, financial statements, cost at date of
purchase, size of holding, discount from market value of
unrestricted securities of the same class at the time of purchase,
special reports prepared by analysts, information as to any
transactions or offers with respect to the security, existence of
merger proposals or tender offers affecting the security, price and
extent of public trading in similar securities of the issuer or
comparable companies, and other relevant matters.

To the extent that the 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.

The Trust, on behalf of the Fund, and the 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, may incur
transaction expenses in converting these securities into cash. The Trust, on
behalf of the Fund, and the Portfolio have elected, however, to be governed by
Rule 18f-1 under the 1940 Act as a result of which the Fund and the 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.

The Portfolio has agreed to make a redemption in kind to the Fund whenever the
Fund wishes to make redemption in kind and therefore shareholders of the Fund
that receive redemptions in kind will receive portfolio securities of such
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 the Portfolio, including the 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.

The 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 Portfolio. In addition, securities accepted in
payment for shares must: (i) meet the investment objective and policies of the
acquiring Fund's Portfolio; (ii) be acquired by the applicable Fund for
investment and not for resale (other than for resale to the Fund's 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. The 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

Trading in foreign markets may be completed at times which vary from the closing
of the New York Stock Exchange ("NYSE"). In computing the net asset value, 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 an 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 the portfolio securities, these securities may be
valued at their fair value as determined in good faith by the Trustees, although
the actual calculation may be done by others.

MANAGEMENT OF THE TRUST AND PORTFOLIO

The Trustees and officers of the Trust and 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 THE TRUST

MARTIN J. GRUBER (birthdate: July 15, 1937) -- Trustee; Chairman of the
Finance Department and 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.

KELVIN J. LANCASTER (birthdate: December 10, 1924) -- Trustee; Professor,
Department of Economics, Columbia University. His address is 35 Claremont
Avenue, New York, New York 10027.

HARRY VAN BENSCHOTEN (birthdate: February 18, 1928) -- Trustee; Director, Canada
Life Insurance Company of New York; Director, Competitive Technologies, Inc., a
public company listed on the American Stock Exchange; Retired (since 1987);
Corporate Vice President, Newmont Mining Corporation (prior to 1987). His
address is 6581 Ridgewood Drive, Naples, FL 33963.

TRUSTEES OF THE PORTFOLIO

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

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.

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.

RONALD M. PETNUCH (birthdate: February 27, 1960) -- President and
Treasurer; Senior Vice President, Federated Services Company ("FSC"); formerly,
Director of Proprietary Client Services, Federated Administrative Services
("FAS"), and Associate Corporate Counsel, Federated Investors, Inc. ("FI").

CHARLES L. DAVIS, JR. (birthdate: March 23, 1960) -- Vice President and
Assistant Treasurer; Vice President, FAS.

JAY S. NEUMAN (birthdate: April 22, 1950) -- Secretary; Corporate Counsel, FI.

Messrs. Petnuch, Davis, and Neuman also hold similar positions for other
investment companies for which Edgewood, 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
Edgewood or any of its affiliates will receive any compensation from the Trust
or the Portfolio for serving as an officer or Trustee of the Trust or the
Portfolio.

TRUSTEE COMPENSATION TABLE

NAME, AGGREGATE AGGREGATE TOTAL
POSITION WITH COMPENSATION COMPENSATION COMPENSATION FROM
TRUST/PORTFOLIO FROM TRUST* FROM PORTFOLIO* FUND COMPLEX**

Harry Van Benschoten,
Trustee of Trust $15,700 N/A $29,400

Martin J. Gruber,
Trustee of Trust $15,700 N/A $29,400

Kelvin J. Lancaster,
Trustee of Trust $12,500 N/A $29,400

Charles P. Biggar,
Trustee of Portfolio N/A $750 $30,600

S. Leland Dill,
Trustee of Portfolio N/A $750 $29,400

Philip Saunders, Jr.,
Trustee of Portfolio N/A $750 $29,400

* Information is furnished for the fiscal year ended March 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
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.
Information is provided for the last calendar year.

As of June 1, 1998, the Trustees and officers of the Trust and the
Portfolio owned in the aggregate less than 1% of the shares of the Fund or the
Trust (all series taken together).

As of June 4, 1998, the following shareholders of record owned 5% or more of the
outstanding shares of the Fund: Bankers Trust Company as custodian for Draft
Thrift Plan, Jersey City, New Jersey, owned approximately 11,527,323 shares
(31.89%); Bankers Trust Company as custodian for Philip Morris, Inc., Jersey
City, New Jersey, owned approximately 10,638,157 shares (29.43%); Northern
Telecom c/o Bankers Trust Company, Jersey City, New Jersey, owned approximately
5,340,320 shares (14.77%); and Bankers Trust Company as custodian for Matsushita
Electric Corp. of America 401(k), Jersey City, New Jersey, owned approximately
5.32%.

INVESTMENT ADVISER

Under the terms of the Portfolio's investment advisory agreement with Bankers
Trust (the "Advisory Agreement"), 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 the 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 the Portfolio in accordance with the
Portfolio's investment objective, restrictions and policies; (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 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, Edgewood 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.

For the fiscal years ended March 31, 1998, 1997, and 1996, Bankers Trust earned
$3,056,313, $1,882,677, and $1,092,488, respectively for compensation of
investment advisory services provided to the Portfolio. For the same periods,
Bankers Trust reimbursed $731,870, $462,108, and $279,200, 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.

The Fund's 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 administration and services agreements, 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 deem necessary for the proper
administration of the Trust or 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), 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 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.

For the fiscal years ended March 31, 1998, 1997, and 1996, Bankers Trust earned
$543,152, $333,419, and $197,633, respectively, in compensation for
administrative and other services provided to the Fund. During the same periods,
Bankers Trust reimbursed $605,979, $442,962, and $285,469, respectively, to the
Fund to cover expenses.

For the fiscal years ended March 31, 1998, 1997, and 1996, Bankers Trust
earned $470,202, $289,643, and $168,075, respectively, in compensation for
administrative and other services provided to the Portfolio.

CUSTODIAN AND TRANSFER AGENT

Bankers Trust, 130 Liberty Street, New York, New York 10006, serves as Custodian
for the Trust and for the Portfolio pursuant to the administration and services
agreements. As Custodian, it holds the Fund's and the Portfolio's assets.
Bankers Trust also serves as transfer agent of the Trust and of the Portfolio
pursuant to the respective administration and services agreement. Under its
transfer agency agreement with 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 may be reimbursed by the Fund
or the Portfolio for its out-of-pocket expenses. Bankers Trust will comply with
the self-custodian provisions of Rule 17f-2 under the 1940 Act.

USE OF NAME

The Trust and Bankers Trust have agreed that the Trust may use "BT" as part of
its name for so long as Bankers Trust serves as investment adviser to the
Portfolio. 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 investment
advisory agreement and other activities for the Fund and the Portfolio described
in the Prospectus and this SAI without violation of the Glass-Steagall Act or
other applicable banking laws or regulations. However, counsel has pointed out
that future changes in either Federal or state statutes and regulations
concerning the permissible activities of banks or trust companies, as well as
future judicial or administrative decisions or interpretations of present and
future statutes and regulations, might prevent Bankers Trust from continuing to
perform those services for the Trust and the Portfolio. State laws on this issue
may differ from the interpretations of relevant Federal law and banks and
financial institutions may be required to register as dealers pursuant to state
securities law. If the circumstances described above should change, the Boards
of Trustees would review the relationships with Bankers Trust and consider
taking all actions necessary in the circumstances.

COUNSEL AND INDEPENDENT ACCOUNTANTS

Willkie Farr & Gallagher, 787 7th Avenue, New York, New York 10019, serves as
Counsel to the Trust and the Portfolio. Coopers & Lybrand L.L.P., 250 West Pratt
Street, Suite 21, Baltimore, Maryland 21201 have been selected as Independent
Accountants for the Trust and the Portfolio.

ORGANIZATION OF THE TRUST

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

Massachusetts law provides that shareholders could under certain circumstances
be held personally liable for the obligations of the Trust. However, the Trust's
Declaration of Trust disclaims shareholder liability for acts or obligations of
the Trust and requires that notice of this disclaimer be given in each
agreement, obligation or instrument entered into or executed by the Trust or a
Trustee. The Declaration of Trust provides for indemnification from the Trust's
property for all losses and expenses of any shareholder held personally liable
for the obligations of the Trust. Thus, the risk of a shareholder's incurring
financial loss on account of shareholder liability is limited to circumstances
in which the Trust itself would be unable to meet its obligations, a possibility
that the Trust believes is remote. Upon payment of any liability incurred by 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 was organized on February 28, 1992.

Whenever the Trust is requested to vote on a matter pertaining to the Portfolio,
the Trust will vote its shares without a meeting of Fund shareholders if the
proposal, if made with respect to the Fund, would not require the vote of Fund
shareholders as long as such action is permissible under applicable statutory
and regulatory requirements. The Trust will hold a meeting of Fund shareholders
for all other matters requiring a vote, and the Trust will cast all of its votes
at the meeting of investors in a Portfolio in the same proportion as the votes
of the Fund shareholders. Other investors with a greater pro rata ownership of
the Portfolio could have effective voting control of the operations of the
Portfolio.

TAXATION

TAXATION OF THE FUND

The Trust intends to qualify annually and to elect the Fund to be treated as a
regulated investment company under the Code.

As a regulated investment company, the Fund will not be subject to U.S. Federal
income tax on its investment company taxable income and net capital gains (the
excess of net long-term capital gains over net short-term capital losses), if
any, that it distributes to shareholders. The Fund intends to distribute to its
shareholders, at least annually, substantially all of its investment company
taxable income and net capital gains and therefore does not anticipate incurring
a Federal income tax liability.

DISTRIBUTIONS

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 cost basis in each such share equal to the net asset value
of a share of the Fund on the reinvestment date. Shareholders will be notified
annually as to the U.S. Federal tax status of distributions. Shareholders should
consult their own tax adviser concerning the application of Federal, state and
local taxes to the distributions they receive from the Fund.

TAXATION OF THE PORTFOLIO

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.

FOREIGN WITHHOLDING TAXES

Income received by the Portfolio from sources within foreign countries may be
subject to withholding and other taxes imposed by such countries.

BACKUP WITHHOLDING

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

FOREIGN SHAREHOLDERS

The tax consequences to a foreign shareholder of an investment in the 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 the Fund.

OTHER TAXATION

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

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

FINANCIAL STATEMENTS

The financial statements for the Fund and the Portfolio for the fiscal year
ended March 31, 1998, are incorporated herein by reference to the Annual Report
to shareholders of the Fund dated March, 1998 (File Nos. 33-45973 and
811-06576). A copy of the Annual Report may be obtained without charge by
contacting the Fund.

<PAGE>

APPENDIX

BOND AND COMMERCIAL PAPER RATINGS

Set forth below are descriptions of ratings which represent opinions as to the
quality of the securities. It should be emphasized, however, that ratings are
relative and subjective and are not absolute standards of quality.

MOODY'S INVESTORS SERVICE, INC.'S CORPORATE 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-edged". 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 fluctuations of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risk appear somewhat larger than in Aaa securities.

A: Bonds which are 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 which are 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 which are 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 safe-guarded
during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.

B: Bonds which are rated B generally lack characteristics of the 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 which are 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 which are rated Ca represent obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.

<PAGE>

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

NOTE: Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond rating 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.

MOODY'S INVESTORS SERVICE, INC.'S SHORT-TERM DEBT RATINGS

Moody's short-term debt ratings are opinions of the ability of issuers to repay
punctually promissory obligations not having an original maturity in excess of
one year.

Issuers rated PRIME-1 or P-1 (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1 or P-1
repayment ability will often be evidenced by many of the following
characteristics:

o Leading market positions in well established industries.

o High rates of return on funds employed.

o Conservative capitalization structure with moderate reliance on debt and
ample asset protection.

o Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.

o Well established access to a range of financial markets and assured
sources of alternate liquidity.

Issuers rated PRIME-2 or P-2 (or supporting institutions) have a strong ability
for repayment of senior short-term debt obligations. This will normally be
evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.

STANDARD & POOR'S RATINGS GROUP'S CORPORATE BOND RATINGS

INVESTMENT GRADE

AAA: Debt rated AAA has the highest rating assigned by S&P's 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 than bonds in higher rated categories.

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 a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.

SPECULATIVE GRADE

Debt rated BB, B, CCC, CC, and C is regarded as having predominantly speculative
characteristics with respect to capacity to pay interest and repay principal. BB
indicates the least degree of speculation and C the highest. While such debt
will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major exposures to adverse conditions.

BB: Debt rated 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. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating.

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 or 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.

The CCC rating category is also used for debt subordinated to senior debt that
is assigned an actual or implied B or B- rating.

CC: The rating 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.

C1: The Rating C1 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 Standard & Poor's believes that
such payments will be made during such grace period. The D rating also will be
used upon the filing of a bankruptcy petition if debt service payments are
jeopardized.

PLUS (+) OR MINUS (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.

NY: Bonds may lack a S&P's rating because no public rating has been requested,
because there is insufficient information on which to base a rating, or because
S&P's does not rate a particular type of obligation as a matter of policy.

STANDARD & POOR'S RATINGS GROUP'S COMMERCIAL PAPER RATINGS

A: S&P's commercial paper rating is a current assessment of the likelihood
of timely payment of debt considered short-term in the relevant market.

A-1: This highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus (+) sign designation.

A-2: Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1 ".

A-3: Issues carrying this designation have adequate capacity for timely payment.
They are, however, more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations.

FITCH INVESTORS SERVICE, INC. BOND RATINGS

INVESTMENT GRADE

AAA: Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.

AA: Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated "AAA". Because bonds rated in the "AAA" and
"AA" categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated "F-1+".

A: Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.

BBB: Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have adverse impact on these bonds, and therefore, impair timely
payment. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.

HIGH YIELD GRADE

BB: Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements.

<PAGE>

B: Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.

CCC: Bonds have certain identifiable characteristics which, if not
remedied, may lead to default. The ability to meet obligations requires an
advantageous business and economic environment.

CC: Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.

C: Bonds are in imminent default in payment of interest or principal.

DDD, DD, AND D: Bonds are in default of interest and/or principal payments. Such
bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. "DDD"
represents the highest potential for recovery on these bonds, and "D" represents
the lowest potential for recovery.

PLUS (+) OR MINUS (-): The ratings from AA to C may be modified by the
addition of a plus or minus sign to indicate the relative position of a credit
within the rating category.

NR: Indicates that Fitch does not rate the specific issue.

CONDITIONAL: A conditional rating is premised on the successful completion
of a project or the occurrence of a specific event.

FITCH INVESTORS SERVICE, INC. SHORT-TERM RATINGS

Fitch's short-term ratings apply to debt obligations that are payable on demand
or have original maturities of generally up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and investment
notes.

F-1+: Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.

F-1: Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated
"F-1+".

F-2: Good Credit Quality. Issues assigned this rating have a satisfactory
degree of assurance for timely payment, but the margin of safety is not as great
as the "F-1+" and "F-1 " categories.

F-3: Fair Credit Quality. Issues assigned this rating have characteristics
suggesting that the degree of assurance for timely payment is adequate, however,
near-term adverse changes could cause these securities to be rated below
investment grade.

<PAGE>

DUFF & PHELPS BOND RATINGS

INVESTMENT GRADE

AAA: Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.

AA+, AA, AND AA-: High credit quality. Protection factors are strong. Risk is
modest but may vary slightly from time to time because of economic conditions.

A+, A, AND A-: Protection factors are average but adequate. However, risk
factors are more variable and greater in periods of economic stress.

BBB+, BBB, AND BBB-: Below average protection factors but still considered
sufficient for prudent investment. Considerable variability in risk during
economic cycles.

HIGH YIELD GRADE

BB+, BB, AND BB-: Below investment grade but deemed likely to meet obligations
when due. Present or prospective financial protection factors fluctuate
according to industry conditions or company fortunes. Overall quality may move
up or down frequently within this category.

B+, B, AND B-: Below investment grade and possessing risk that obligations will
not be met when due. Financial protection factors will fluctuate widely
according to economic cycles, industry conditions and/or company fortunes.
Potential exists for frequent changes in the rating within this category or into
a higher or lower rating grade.

CCC: Well below investment grade securities. Considerable uncertainty exists as
to timely payment of principal interest or preferred dividends. Protection
factors are narrow and risk can be substantial with unfavorable
economic/industry conditions, and/or with unfavorable company developments.

Preferred stocks are rated on the same scale as bonds but the preferred rating
gives weight to its more junior position in the capital structure. Structured
financings are also rated on this scale.

DUFF & PHELPS PAPER/CERTIFICATES OF DEPOSIT RATINGS

CATEGORY 1: TOP GRADE

Duff 1 plus: Highest certainty of timely payment. Short-term liquidity including
internal operating factors and/or ready 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.

DUFF 1 MINUS: High certainty of timely payment. Liquidity factors are strong and
supported by good fundamental protection factors. Risk factors are very small.

CATEGORY 2: GOOD GRADE

DUFF 2: Good certainty of timely payment. Liquidity factors and company
fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small.

CATEGORY 3: SATISFACTORY GRADE

DUFF 3: Satisfactory liquidity and other protection factors qualify issue as to
investment grade. Risk factors are larger and subject to more variation.
Nevertheless timely payment is expected.

No ratings are issued for companies whose paper is not deemed to be of
investment grade.

* * * * *

Bonds which are unrated expose the investor to risks with respect to capacity to
pay interest or repay principal which are similar to the risks of lower-rated
bonds. The Fund is dependent on the investment adviser's or investment
sub-adviser's judgment, analysis and experience in the evaluation of such bonds.

Investors should note that the assignment of a rating to a bond by a rating
service may not reflect the effect of recent developments on the issuer's
ability to make interest and principal payments.

NOTE:

1 The ratings indicated herein are believed to be the most recent ratings
available at the date of this SAI for the securities listed. Ratings are
generally given to securities at the time of issuance. While the rating
agencies may from time to time revise such ratings, they undertake no
obligation to do so, and the ratings indicated do not necessarily represent
ratings which would be given to these securities on the date of the Fund's
fiscal year end.

<PAGE>

INVESTMENT ADVISER OF THE 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

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No person has been authorized to give any information or to make any
representations other than those contained in the Trust's Prospectus, its SAI 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.

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Cusip #055847404

SAI482 (6/98)