BT GLOBAL INVESTORS, N-1A EL/A, 1996-01-12

BT GLOBAL INVESTORS
N-1A EL/A, 1996-01-12

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 12, 1996
File Nos. 33-62103 and 811-7347
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM N-1A
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
PRE-FFECTIVE AMENDMENT NO. 3

AND

REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 3

BT ADVISOR FUNDS
(FORMERLY, BT GLOBAL INVESTORS)
(Exact Name of Registrant as Specified in Charter)

6 ST. JAMES AVENUE, BOSTON MASSACHUSETTS 02116
(Address of Principal Executive Offices) (Zip Code)

Registrant's Telephone Number, including Area Code: (617) 423-0800

THOMAS M. LENZ
SIGNATURE FINANCIAL GROUP, INC.
6 ST. JAMES AVENUE
BOSTON, MASSACHUSETTS 02116
(Name and Address of Agent for Service)

copies to:
Burton S. Leibert, Esq. Anne B. McMillen
Willkie Farr & Gallagher Bankers Trust Company
One Citicorp Center One Bankers Trust Plaza
153 East 53rd Street 130 Liberty Street
New York, New York 10022-4669 New York, New York 10006

APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: AS SOON AS PRACTICABLE AFTER THE
EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.

PURSUANT TO RULE 24F-2(A)(1), REGISTRANT HEREBY DECLARES THAT AN INDEFINITE
NUMBER OF ITS SHARES OF BENEFICIAL INTEREST (PAR VALUE $0.00001 PER SHARE) IS
BEING REGISTERED BY THIS REGISTRATION STATEMENT.

BT Investment Portfolios, International Equity Portfolio and Capital
Appreciation Portfolio have also executed this Registration Statement.

================================================================================
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.

<PAGE>

BT0499A
BT ADVISOR FUNDS

FORM N-1A
CROSS REFERENCE SHEET
Part A
ITEM NO. HEADINGS IN PROSPECTUS

1. Cover Page . . . . . . . . . . .Cover Page

2. Synopsis . . . . . . . . . . . .The Funds -- Expense Summary

3. Condensed Financial
Information . . . . . . . . . .Not applicable

4. General Description of
Registrant . . . . . . . . . . .Cover Page; The Funds -- Who May Want
to Invest; The Funds in Detail --
Risk Factors and Certain Securities
and Investment Practices

5. Management of the Fund . . . . .The Funds -- Expense Summary; The
Funds in Detail -- Management of the
Trust and the Portfolios

6. Capital Stock and Other
Securities . . . . . . . . . . .Cover Page; The Funds in Detail --
Performance; Your Account -- Types of
Accounts, How to Buy Shares, How to
Sell Shares; Shareholder and Account
Policies -- Dividends, Capital Gains
and Taxes, Exchange Restrictions,
Sales Charge Reductions and Waivers,
Additional Information About the
Trust and Portfolios

7. Purchase of Securities Being
Offered . . . . . . . . . . . .Your Account -- How to Buy Shares;
Shareholder and Account Policies --
Valuation Details, Exchange
Restrictions, Sales Charge Reductions
and Waivers

8. Redemption or Repurchase . . . .Your Account -- How to Sell Shares;
Shareholder and Account Policies --
Valuation Details, Exchange
Restrictions

9. Pending Legal Proceedings . . .Not applicable

<PAGE>

Part B Headings in Statement of
ITEM NO. ADDITIONAL INFORMATION

10. Cover Page . . . . . . . . . . .Cover Page

11. Table of Contents . . . . . . .Table of Contents

12. General Information and
History . . . . . . . . . . . .Not applicable

13. Investment Objectives and
Policies . . . . . . . . . . . .Risk Factors and Certain Securities
and Investment Practices

14. Management of the Fund . . . . .Management of the Trust and the
Portfolios

15. Control Persons and Principal
Holders of Securities . . . . .Management of the Trust and the
Portfolios (See also Prospectus--
"Additional Information About the
Trust and Portfolios")
16. Investment Advisory and Other
Services . . . . . . . . . . . .Management of the Trust and the
Portfolios

17. Brokerage Allocation and Other
Practices . . . . . . . . . . .Risk Factors and Certain Securities
and Investment Practices

18. Capital Stock and Other
Securities . . . . . . . . . . .Organization of the Trust; (see also
Prospectus--"Dividends, Capital Gains
and Taxes")

19. Purchase, Redemption and Pricing
of Securities Being Offered . .Valuation of Securities; Redemptions
and Purchases in Kind

20. Tax Status . . . . . . . . . . .Taxation (see also Prospectus--
"Dividends, Capital Gains and Taxes")

21. Underwriters . . . . . . . . . .See Prospectus--"Breakdown of
Expenses"

22. Calculations of Yield Quotations
of Money Market Funds . . . . .Performance Information

23. Financial Statements . . . . . .Financial Statements

<PAGE>

BT0472F
BT ADVISOR FUNDS
Prospectus - Institutional Class Shares
January , 1996

U.S. Bond Index Fund
Equity 500 Equal Weighted Index Fund
Small Cap Index Fund

EAFE(R) Equity Index Fund
Institutional Equity 500 Index Fund

BT Advisor Funds (the "Trust") is an open-end, management investment company
(mutual fund) which currently consists of ten funds. With the exception of the
Institutional Equity 500 Index Fund (the "Equity 500 Index Fund"), each of the
diversified funds listed above (each, a "Fund") is a separate series of the
Trust and each offers two classes of shares. The shares offered by this
prospectus are the Institutional Class Shares (the "Shares"). The Equity 500
Index Fund is a series of BT Institutional Funds, an open-end management
investment company (together with the Trust, the "Trusts"). Each Fund seeks to
replicate as closely as possible the performance of a selected market index
before the deduction of the expenses, allocable to the Shares of the Fund and
the corresponding Portfolio (the "Expenses"). There is no assurance, however,
that each Fund will achieve its stated objective.

Unlike other open-end management investment companies (mutual funds), each Fund
seeks to achieve its investment objective by investing all of its investable
assets ("Assets") in the corresponding Portfolio which is a separate fund with
an identical investment objective. See "Special Information Concerning Master-
Feeder Fund Structure" on page __.

Bankers Trust Company ("Bankers Trust") is the investment adviser (the
"Adviser") of each Portfolio.

Please read this Prospectus before investing, and keep it on file for future
reference. It contains important information, including how each Fund invests
and the services available to shareholders.

To learn more about each Fund and its investments, investors can obtain a copy
of the Funds' Statement of Additional Information (the "SAI"), dated January ,
1996, which contains each Portfolio's most recent financial report and portfolio
listing. The SAI has been filed with the Securities and Exchange Commission (the
"SEC") and is incorporated herein by reference . For a free copy of this
document, call (800) 730-1313 or contact the Trusts at 6 St. James Avenue,
Boston, MA 02116, or a Service Agent.

Mutual fund shares are not deposits or obligations of, or guaranteed by, Bankers
Trust or any depository institution. Shares are not insured by the FDIC, the
Federal Reserve Board or any other agency, and are subject to investment risk,
including the possible loss of principal.

<PAGE>

LIKE SHARES OF ALL MUTUAL FUNDS, THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

<PAGE>

<TABLE>
<S> <C> <C>
Contents

THE FUNDS -- WHO MAY WANT TO INVEST
-- INVESTMENT PRINCIPLES AND RISKS Each Fund's
overall approach to investing.
-- EXPENSE SUMMARY Each Fund's annual operating
expenses.
-- FUND FINANCIAL HIGHLIGHTS Selected
data for a share outstanding, total
investment return, ratios to average
net assets and other supplemental
data for the Fund.
THE FUNDS IN DETAIL -- INVESTMENT OBJECTIVES AND POLICIES
-- RISK FACTORS AND CERTAIN SECURITIES AND INVESTMENT
PRACTICES
-- SPECIAL INFORMATION CONCERNING MASTER-FEEDER FUND
STRUCTURE
-- SECURITIES AND INVESTMENT PRACTICES
-- PERFORMANCE How each Fund has done over time.
-- MANAGEMENT OF THE TRUSTS AND THE PORTFOLIOS

ACCOUNT INFORMATION -- TYPES OF ACCOUNTS Different ways to setup
your account, including tax-sheltered
retirement plans.

-- HOW TO BUY SHARES Opening an account and making
additional investments.
-- HOW TO SELL SHARES Taking money out and closing
your account.
-- INVESTOR SERVICES To help you manage your
account.
SHAREHOLDER AND
ACCOUNT POLICIES -- DIVIDENDS, CAPITAL GAINS AND TAXES
-- VALUATION DETAILS Share price calculations and
the timing of purchases and redemptions.
-- EXCHANGE LIMITATIONS

-- ADDITIONAL INFORMATION ABOUT THE TRUSTS
AND THE PORTFOLIOS

</TABLE>

<PAGE>

THE FUNDS

The Trusts seek to achieve the investment objective of each Fund by investing
all the Assets of the Fund in the corresponding Portfolio.

The U.S. Bond Index Fund seeks to replicate as closely as possible (before
deduction of Expenses) the investment performance of the Lehman Brothers
Aggregate Bond Index (the "Aggregate Bond Index"), a broad market weighted index
which encompasses U.S. Treasury and agency securities, corporate investment
grade bonds, international (dollar-denominated) investment grade bonds, and
mortgage-backed securities. The Fund will be invested primarily in fixed income
securities of the U.S. Government or any agency thereof, publicly issued fixed
rate domestic debt of industrial, financial, and utility corporations, and U.S.
dollar denominated fixed income securities of foreign and supranational entities
issued publicly in the United States. The Fund will also invest in mortgage
pass-through securities issued by the Government National Mortgage Association,
the Federal Home Loan Mortgage Corporation, and the Federal National Mortgage
Association. The U.S. Bond Index Fund invests all of its Assets in the U.S. Bond
Index Portfolio.

The Equity 500 Equal Weighted Index Fund seeks to replicate as closely as
possible the total return of the Standard & Poor's 500 Equal Weighted Index (the
"S&P 500 Equal Weighted Index"). The S&P 500 Equal Weighted Index is comprised
of all stocks that make up the Standard & Poor's 500 Composite Stock Price Index
with each security having the same weight. The S&P 500 Equal Weighted Index is
re-balanced to these equal weights at the end of each calendar month. The Fund
will include the common stock of each company included in the S&P 500, other
than Bankers Trust New York Corporation, in such a manner that the market value
of the Fund's holding of each stock will be approximately equal to the market
value of each other stock held in the Fund. The Equity 500 Equal Weighted Index
Fund invests all of its Assets in the Equity 500 Equal Weighted Index Portfolio.

The Small Cap Index Fund seeks to replicate as closely as possible (before
deduction of Expenses) the total return of the Russell 2000 Small Stock Index
(the "Russell 2000"), an index consisting of 2,000 small-capitalization common
stocks. The Fund will include the common stock of one or more companies included
in the Russell 2000 Index, on the basis of computer-generated statistical data,
that are deemed representative of the industry diversification of the entire
Russell 2000 Index. The Small Cap Index Fund invests all of its Assets in the
Small Cap Index Portfolio.

The EAFE(R) Equity Index Fund seeks to replicate as closely as possible (before
deduction of Expenses) the total return of the Morgan Stanley Capital
International Europe, Australia, Far East (EAFE) Index with net dividends (the
"EAFE Index"), a capitalization-weighted index containing approximately 1,100
equity securities of companies located outside the United States. The Fund will
be invested primarily in equity securities of business enterprises organized and
domiciled outside of the United States or for which the principal trading market
is outside the United States. Statistical methods will be employed to

<PAGE>

replicate the Index by buying most of the relevant Index securities. Securities
purchased for the Fund will generally, but not necessarily, be traded on a
foreign securities exchange. The EAFE(R) Equity Index Fund invests all of its
Assets in the International Equity Index Portfolio.

The EAFE index is the exclusive property of Morgan Stanley. Morgan Stanley
Capital International is a service mark of Morgan Stanley and has been licensed
for use by Bankers Trust Company.

The Equity 500 Index Fund seeks to replicate as closely as possible (before
deduction of Expenses) the total return of the Standard & Poor's 500 Composite
Stock Price Index (the "S&P 500"), an index emphasizing large-capitalization
stocks. The Fund will include the common stock of those companies included in
the S&P 500, other than Bankers Trust New York Corporation, selected on the
basis of computer generated statistical data, that are deemed representative of
the industry diversification of the entire S&P 500. The Equity 500 Index Fund
invests all of its Assets in the Equity 500 Index Portfolio.

WHO MAY WANT TO INVEST

Shares of each Fund are offered through this Prospectus to institutional
investors.

The Portfolios are not managed according to traditional methods of "active"
investment management, which involve the buying and selling of securities based
upon economic, financial and market analysis and investment judgment. Instead,
the Portfolios, utilizing a "passive" or "indexing" investment approach and
attempt to duplicate the investment performance of their respective indices
through statistical procedures.

The U.S. Bond Index Portfolio represents all major sectors of the investment
grade fixed-income securities markets. The U.S. Bond Index Fund may be a
suitable investment vehicle for those investors seeking ownership in the "bond
market" as a whole, without regard to particular sectors. The U.S. Bond Index
Fund is also suitable for those investors with common stock holdings who are
seeking a complementary fixed-income investment to create a more balanced asset
mix.

The Equity 500 Equal Weighted, Small Cap Index, International Equity Index and
Equity 500 Index Funds may be appropriate for investors who are willing to ride
out domestic and/or foreign stock market fluctuations in pursuit of potentially
higher long-term returns. Each corresponding Portfolio invests for growth and
does not pursue income. Over time, stocks, although more volatile, have shown
greater growth potential than other types of securities. In the shorter term,
however, stock prices can fluctuate dramatically in response to market factors.

The EAFE(R) Equity Index Fund may be appropriate for investors who want to
pursue their investment goals in markets outside of the United States. By
including international investments in their portfolio, investors can achieve an
extra level of diversification and also participate in opportunities around the
world. However, there are additional risks involved with international

<PAGE>

investing. The performance of international funds depends upon currency values,
the political and regulatory environment, and overall economic factors in the
countries in which a Portfolio invests.

The Trusts are intended to be a long-term investment vehicle and is not
designated to provide investors with a means of speculating on short-term market
movements. Investors who engage in excessive account activity generate
additional costs which are borne by all the Trusts' shareholders. In order to
minimize such costs, each Trust has adopted the following policies. Each Trust
reserves the right to reject any purchase request (including exchange purchases
from other BT Advisor Funds portfolios) that is reasonably deemed to be
disruptive to efficient portfolio management, either because of the timing of
the investment or previous excessive trading by the investor. Additionally, each
Trust has adopted exchange privilege limitations as described in the section
"Exchange Limitations." Finally, each Trust reserves the right to suspend the
offering of its shares.

Each Fund is not in itself a balanced investment plan. Investors should consider
their investment objective and tolerance for risk when making an investment
decision. When investors sell their Fund Shares, they may be worth more or less
than what they paid for them.

INVESTMENT PRINCIPLES AND RISKS

The value of each Portfolio's investments varies based on many factors. The
value of bonds fluctuates based on changes in domestic or foreign interest
rates, the credit quality of the issuer, market conditions, and other economic
and political news. In general, bond prices rise when interest rates fall, and
vice versa. This effect is usually more pronounced for longer-term securities.
Lower-quality securities offer higher yields, but also carry more risk.

Stock values fluctuate, sometimes dramatically, in response to the activities of
individual companies and general market and economic conditions. Over time,
however, stocks have shown greater long-term growth potential than other types
of securities.

Because many foreign investments are denominated in foreign currencies, changes
in the value of these currencies can significantly affect the EAFE(R) Equity
Index Fund's share price. General economic factors in the various world markets
can also impact the value of an investor's investment. When an investor sell
their Fund Shares, they may be worth more or less than what they paid for them.
See "Risk Factors and Certain Securities and Investment Practices" for more
information.

EXPENSE SUMMARY

Annual operating expenses are paid out of the assets of each Portfolio and Fund.
Each Portfolio pays an investment advisory fee and an administrative services
fee to Bankers Trust. Each Fund incurs expenses such as maintaining shareholder
records and furnishing shareholder statements. Each Fund must provide financial
reports.

<PAGE>

The following table provides: (i) a summary of expenses relating to purchases
and sales of the Shares of each Fund and the annual operating expenses of the
Fund and expenses of the corresponding Portfolio, in the aggregate, as a
percentage of average daily net assets of each Fund; and (ii) an example
illustrating the dollar cost of such expenses on a $1,000 investment in each
Fund. The Trustees of each Trust believe that the Expenses of each Fund and
expenses of the corresponding Portfolio, in the aggregate, will be less than or
approximately equal to the expenses which the Fund would incur if each Trust
retained the services of an investment adviser and the Assets of each Fund were
invested directly in the type of securities being held by the corresponding
Portfolio.

Shareholder Transaction Expenses

Maximum Sales Charge on Purchases
(as a percentage of offering price) None*

Maximum Sales Charge on Reinvested
Distributions None

Redemption Fee None*

Exchange Fee None

Shareholder transaction expenses are charges paid when investors buy, sell,
exchange, or hold Shares of a Fund. See "Transaction Details," on page __, for
an explanation of how and when these charges apply.

* A transaction fee of 0.25% is deducted from purchases, redemptions and
exchanges into and out of the Small Cap Index Fund and the EAFE(R) Equity Index
Fund. These transaction fees are paid to the respective Funds and are deducted
automatically from the amount invested, exchanged or redeemed. The fee applies
to all redemptions and an initial investment in either of these Funds and all
subsequent purchases (including purchases made by exchange from another BT
Advisor Funds Fund), but not to reinvested dividend or capital gain
distributions.

The purpose of the 0.25% transaction fee is to allocate transaction costs
associated with purchases, redemptions and exchanges to investors making those
purchases, redemptions and exchanges, thus insulating existing shareholders from
those transaction costs. These costs include: (1) brokerage costs; (2) the
effect of the "bid-ask" spread in small and medium sized company stock and
international markets; and (3) taxes in some countries. Since the investors, not
the Fund, bears these costs, the Fund is expected to be able track its benchmark
index more closely.

Annual Operating Expenses

U.S. Bond Index Fund
Investment advisory fee
(after reimbursement or waiver) 0.10%
Other expenses

<PAGE>

(after reimbursements or waivers) 0.15%
Total operating expenses
(after reimbursements or waivers) 0.25%

Equity 500 Equal Weighted Index Fund
Investment advisory fee
(after reimbursement or waiver) 0.15%
Other expenses
(after reimbursements or waivers) 0.15%
Total operating expenses
(after reimbursements or waivers) 0.30%

Small Cap Index Fund
Investment advisory fee
(after reimbursement or waiver) 0.10%
Other expenses
(after reimbursements or waivers) 0.15%
Total operating expenses
(after reimbursements or waivers) 0.25%

EAFE(R) Equity Index Fund

Investment advisory fee
(after reimbursement or waiver) 0.20%
Other expenses
(after reimbursements or waivers) 0.20%
Total operating expenses
(after reimbursements or waivers) 0.40%

Equity 500 Index Fund
Investment advisory fee
(after reimbursement or waiver) 0.07%
12b-1 fees 0.00
Other expenses
(after reimbursements or waivers) 0.03%
----
Total operating expenses
(after reimbursements or waivers) 0.10%

Expense Table Example: An investor would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return and (2) redemption at the end of each
time period:

Examples
U.S. Bond Index Fund 1 year 3 years

$3 $8

Equity 500 Equal Weighted Index Fund 1 year 3 years

$4 $11

Small Cap Index Fund 1 year 3 years

$3 $8

<PAGE>

EAFE(R)Equity Index Fund 1 year 3 years

$4 $13

Equity 500 Index Fund 1 year 3 years 5 year 10 years
$1 $3 $6 $13

The expense table and the example above show the costs and expenses that an
investor will bear directly or indirectly as a shareholder of a Fund. Bankers
Trust has voluntarily agreed to waive a portion of its investment advisory fee
with respect to each Portfolio. Without such waiver, each Portfolio's investment
advisory fee would be equal to the following: U.S. Bond Index Portfolio --0.15%;
Equity 500 Equal Weighted Index Portfolio -- 0.25%; Small Cap Index Portfolio --
0.15%; E(R) Equity Index Portfolio --0.25%; and Equity 500 Index Portfolio --
0.10%. The expense table and the example reflect a voluntary undertaking by
Bankers Trust or Signature Broker-Dealer Services, Inc. ("SBDS"), as the
distributor (the "Distributor") of the Shares of each Fund, to waive or
reimburse expenses such that the total operating expenses of each Fund and the
corresponding Portfolio, with the exception of the Equity 500 Index Fund and
Equity 500 Index Portfolio, (as a percentage of the Fund's average daily net
assets) would be equal to the following: U.S. Bond Index Portfolio -- 0.25%;
Equity 500 Equal Weighted Index Portfolio -- 0.30%; Small Cap Index Portfolio --
0.25%; and FE(R) Equity Index Portfolio -- 0.40%. In the absence of this
undertaking, assuming total assets of $100 million in each Fund, it is estimated
that "Total Operating Expenses" would be as follows: U.S. Bond Index Fund --
0.55%; Equity 500 Equal Weighted Index Fund -- 0.60%; Small Cap Index Fund --
0.55%; and E(R) Equity Index Fund -- 0.65%. With respect to the Equity 500 Index
Fund and the Equity 500 Index Portfolio, in the absence of this undertaking, for
the fiscal year ended December 31, 1994, the total operating expenses would have
been equal to approximately 0.23% of the Fund's average net assets annually. 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%.

Currently, the Funds (with the exception of the Equity 500 Index Fund) have
issued two classes of Shares. The Funds offer by separate prospectus another
class of Shares. Because the expenses vary between the classes, performance will
vary with respect to each class. Additional information concerning the Funds'
other class of Shares is available from Bankers Trust, as administrator at (800)
730-1313.

For more information about each Fund's and each Portfolio's expenses see
"Management of the Trusts and the Portfolios" and "Valuation Details."

FUND FINANCIAL HIGHLIGHTS

<PAGE>

The following table shows the selected data for a share outstanding, total
investment return, ratios to average net assets and other supplemental data of
the Equity 500 Index Fund for the periods indicated. The Fund's Annual Report
has been audited by Coopers & Lybrand L.L.P., the Fund's independent
accountants, whose report thereon appears in the Fund's Annual Report. The
Fund's Annual Report and Semi-Annual Report are incorporated by reference in the
Fund's SAI.

<TABLE>
<S> <C> <C> <C> <C>
For the
Period
For the six 12/31/92
months ended For the year ended (Commencement
6/30/95 December 31, of
(unaudited) 1994 1993 Operations)

Selected Per Share Data
Net Asset Value,
Beginning of Period $10.44 $10.68 $10.00 $10.00
----------------------------- -------

Income from Investment
Operations
Net Investment Income 0.15 0.28 0.25 __
Net Realized and
Unrealized Gain (Loss) on
Securities and Futures
Transactions 1.95 (0.13) 0.73 __
----------------------------- ---

Total from Investment
Operations 2.10 0.15 0.98 __
---------------------------- ---
Less Dividends and Distributions
Dividends from Net Investment
Income (0.07) (0.39) (0.30) __
Distributions from Net Realized
Gain from Securities and
Futures Transactions -- (0.11) (0.05) __
------------------------------ ---
Total Dividends and
Distributions (0.07) (0.39) (0.30) __
------------------------------ ---
Net Asset Value,
End of Period $12.47 $10.44 $10.68 $10.00
------------------------------ -------

Total Investment Return 20.21% 1.40% 9.84% __

Ratios and Supplemental
Data
Ratio of Net Investment
Income to Average Net
Assets 2.70%* 2.84% 2.67% __
Ratio of Expenses to
Average Net Assets,
Including Expenses of
the @Equity 500 Index

<PAGE>

Portfolio 0.10%* 0.10% 0.10% __
Decrease Reflected in
Above Expense Ratio
Due to Absorption of
Expenses by Bankers Trust 0.12%* 0.13% 0.25% __

Net Assets, End of
Period (000's omitted) $511,025 $371,216 $170,508 $9,335
<FN>
*Annualized
</FN>
</TABLE>

THE FUNDS IN DETAIL

INVESTMENT OBJECTIVES AND POLICIES

The Trusts seek to achieve the investment objective of each Fund by investing
all of its Assets in the corresponding Portfolio, which has the same investment
objective as the Fund. Since the investment characteristics of each Fund will
correspond directly to those of the corresponding Portfolio, the following is a
discussion of the various investments of and techniques employed by each
Portfolio. Additional information about the investment policies of each
Portfolio appears in "Risk Factors and Certain Securities and Investment
Practices" in this Prospectus and in the Funds' SAI. There can be no assurance
that the investment objective of either a Fund or the corresponding Portfolio
will be achieved.

The U.S. Bond Index Portfolio seeks to replicate as closely as possible (before
deduction of Expenses) the investment performance of the Aggregate Bond Index, a
broad market weighted index which encompasses four major classes of investment
grade fixed-income securities in the United States: U.S. Treasury and agency
securities, corporate bonds, international (dollar-denominated) bonds, and
mortgage-backed securities, with maturities greater than one year.

As of September 30, 1995, the major classes of fixed-income securities
represented the following proportions of the Index's total market value:

Aggregate
Bond Index
U.S. Treasury and
agency securities 54%
Corporate bonds 14%
International (dollar-

denominated) bonds 3%
Mortgage-backed securities 28%
Asset Backed Securities 1%
Dollar-weighted average
maturity (Years) 8.6 yrs

<PAGE>

The U.S. Bond Index Portfolio will be unable to hold all of the individual
issues which comprise the Index because of the large number of securities
involved. Instead, the Portfolio will hold a representative sample of the
securities in the Index, selecting one or two issues to represent entire
"classes" or types of securities in the Index. The Portfolio will be constructed
so as to match as closely as possible the composition of the Index by investing
in fixed-income securities approximating their relative proportion of the
Index's total market value.

At the broadest level, the U.S. Bond Index Portfolio will seek to hold
securities and other investments which reflect the weighting of the major asset
classes in the Index, these classes include U.S. Treasury and agency securities,
corporate bonds, and mortgage-backed securities. For example, if U.S. Treasury
and agency securities represent approximately 60% of the Index's interest rate
risk, then approximately 60% of the Portfolio's interest rate risk will come
from such securities and other investments. Similarly, if corporate bonds
represent 20% of the interest rate risk of the Index, then they will represent
approximately 20% of the interest rate risk of the Portfolio. Such a sampling
technique is expected to be an effective means of substantially replicating the
income and capital returns provided by the Index before deduction of Fund and
Portfolio expenses.

The Portfolio may, from time to time, substitute one type of investment grade
bond for another. For instance, a Portfolio may hold more short-term corporate
bonds (and, in turn, hold fewer short U.S. Treasury bonds) than represented in
the Index so as to increase income. This corporate substitution strategy will
entail the assumption of additional credit risk; however, substantial
diversification within the corporate sector should moderate issue-specific
credit risk. Overall, credit risk is expected to be very low for the U.S. Bond
Index Portfolio.

Fixed-income securities will be primarily of investment grade quality - i.e.,
those rated at least Baa by Moody's Investors Service, Inc. ("Moody's") or
BBB-by Standard & Poor's Corporation ("S&P"). Securities rated Baa or BBB
possess some speculative characteristics.

The Portfolio may invest in U.S. Treasury bills, notes and bonds and other "full
faith and credit" obligations of the U.S. Government and in U.S. Government
agency securities, which are debt obligations issued or guaranteed by agencies
or instrumentalities of the U.S. Government ("U.S. Government Securities"). Such
"agency" securities may not be backed by the "full faith and credit" of the U.S.
Government. Such U.S. Government agencies may include the Federal Farm Credit
Banks, the Resolution Trust Corporation and the Government National Mortgage
Association. Even though they all carry top (AAA) credit ratings, "agency"
obligations are not explicitly guaranteed by the U.S. Government and so are
perceived as somewhat riskier than comparable Treasury bonds.

As a mutual fund investing primarily in fixed-income securities, the Portfolio
is subject to interest rate, income, call and credit risks. Since the Portfolio
also invests in mortgage-backed securities, it is also subject to prepayment
risk. See "Risk Factors and Certain Securities and Investment Practices."

<PAGE>

The Equity 500 Equal Weighted Index Portfolio seeks to replicate as closely as
possible the total return of the S&P 500 Equal Weighted Index. The S&P 500 Equal
Weighted Index is comprised of all stocks that make up the Standard & Poor's 500
Composite Stock Price Index with each security having the same weight. The S&P
500 Equal Weighted Index is re-balanced to these equal weights at the end of
each calendar month. The S&P 500 Equal Weighted Index is calculated by Wilshire
Associates. Investing in a fund designed to replicate this benchmark provides
investors with diversified equity exposure with a small cap tilt and value
investment attributes.

The Equity 500 Equal Weighted Index Portfolio allocates its assets equally among
the equity securities which compose the S&P 500 Equal Weighted Index. The
Portfolio may omit or remove any S&P 500 Equal Weighted Index stock from the
Portfolio if, following objective criteria, Bankers Trust judges the stock to be
insufficiently liquid or believes the merit of the investment has been
substantially impaired by extraordinary events or financial conditions. Bankers
Trust will not purchase the stock of Bankers Trust New York Corporation, which
is included in the Index, and instead will overweight its holdings of companies
engaged in similar businesses.

The Equity 500 Equal Weighted Index Fund and the Equity 500 Equal Weighted Index
Portfolio are not sponsored, endorsed, sold or promoted by Wilshire Associates.
Wilshire makes no representation or warranty, express or implied, to the
shareholders of the Fund or investors in the Portfolio or any member of the
public regarding the advisability of investing in securities generally or in the
Fund or the Portfolio particularly or the ability of the index to track general
stock market performance.

The Small Cap Index Portfolio seeks to replicate as closely as possible (before
deduction of expenses of the Fund and corresponding Portfolio) the total return
of the Russell 2000.

The Russell 2000 Index is composed of approximately 2,000 small-capitalization
common stocks. A company's stock market capitalization is the total market value
of its floating outstanding shares. As of September 30, 1995, the average stock
market capitalization of the Russell 2000 was $280 million and the weighted
average stock market capitalization of the Russell 2000 was $480 million.

The Small Cap Portfolio is neither sponsored by nor affiliated with the Frank
Russell Company. Frank Russell's only relationship to the Portfolio is the
licensing of the use of the Russell 2000 Small Stock Index. Frank Russell
Company is the owner of the trademarks and copyrights relating to the Russell
indices.

<PAGE>

earnings, debt-to-asset ratios, and dividend yields) closely approximate those
of the Russell 2000. For instance, if 10% of the capitalization of the Russell
2000 consists of utility companies with relatively small capitalizations, then
the Small Cap Portfolio is constructed so that approximately 10% of the
Portfolio's assets are invested in the stocks of utility companies with
relatively small capitalizations. The stocks held by the Portfolio are weighted
to make the Portfolio's aggregate investment characteristics similar to those of
the Russell 2000 Index as a whole.

The EAFE(R) Equity Index Portfolio seeks to replicate as closely as possible
(before deduction of expenses of the Fund and corresponding Portfolio) the total
return of the EAFE Index. The Portfolio attempts to achieve this objective by
investing in a statistically selected sample of the equity securities included
in the EAFE Index.

The EAFE Index is a capitalization-weighted index containing approximately 1,100
equity securities of companies located outside the United States. The countries
currently included in the EAFE Index are Australia, Austria, Belgium, Denmark,
Finland, France, Germany, Hong Kong, Ireland, Italy, Japan, Malaysia, The
Netherlands, New Zealand, Norway, Singapore, Spain, Sweden, Switzerland and
United Kingdom.

Inclusion of a security in the EAFE Index in no way implies an opinion by Morgan
Stanley as to its attractiveness as an investment. Neither the Fund nor the
Portfolio is neither sponsored by nor affiliated with Morgan Stanley.

The EAFE(R) Equity Index Portfolio is constructed to have aggregate investment
characteristics similar to those of the EAFE Index. The Portfolio invests in a
statistically selected sample of the securities included in the EAFE Index,
although not all companies within a country will be represented in the Portfolio
at the same time. Stocks are selected for inclusion in the Portfolio based on
country of origin, market capitalization, yield, volatility and industry sector.
Banker Trust will manage the Portfolio using advanced statistical techniques to
determine which stocks are to be purchased or sold to replicate the EAFE Index.
From time to time, adjustments may be made in the Portfolio because of changes
in the composition of the EAFE Index, but such changes should be infrequent.

This Fund is not sponsored, endorsed, sold or promoted by Morgan Stanley. Morgan
Stanley makes no representation or warranty, express or implied, to the owners
of this Fund or any member of the public regarding the advisability of investing
in securities generally or in this Fund particularly or the ability of the EAFE
Index to track general stock market performance. Morgan Stanley is the licensor
of certain trademarks, service marks and trade names of Morgan Stanley and of
the EAFE Index which is determined, composed and calculated by Morgan Stanley
without regard to the issuer of this Fund or this Fund. Morgan Stanley has no
obligation to take the needs of the issuer of this Fund or the owners of this
Fund into consideration in determining, composing or calculating the EAFE Index.
Inclusion of a security in the EAFE Index in no way implies an opinion by Morgan
Stanley as to its attractiveness as an investment. Morgan Stanley is not
responsible for and has not participated in the determination of the timing of,
prices at, or

<PAGE>

quantities of this Fund to be issued or in the determination or calculation of
the equation by which this Fund is redeemable for cash. Morgan Stanley has no
obligation or liability to owners of this Fund in connection with the
administration, marketing or trading of this Fund. This Fund is neither
sponsored by nor affiliated with Morgan Stanley.

ALTHOUGH MORGAN STANLEY SHALL OBTAIN INFORMATION FOR INCLUSION IN OR FOR USE IN
THE CALCULATION OF THE INDEXES FROM SOURCES WHICH MORGAN STANLEY CONSIDERS
RELIABLE, MORGAN STANLEY DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS
OF THE INDEXES OR ANY DATA INCLUDED THEREIN. MORGAN STANLEY MAKES NO WARRANTY,
EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY LICENSEE, LICENSEE'S
CUSTOMERS AND COUNTERPARTIES, OWNERS OF THE PRODUCTS, OR ANY OTHER PERSON OR
ENTITY FROM THE USE OF THE INDEXES OR ANY DATA INCLUDED THEREIN IN CONNECTION
WITH THE RIGHTS LICENSED HEREUNDER OR FOR ANY OTHER USE. MORGAN STANLEY MAKES NO
EXPRESS OR IMPLIED WARRANTIES, AND HEREBY EXPRESSLY DISCLAIMS ALL WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO THE INDEXES
OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT
SHALL MORGAN STANLEY HAVE ANY LIABILITY FOR ANY DIRECT, INDIRECT, SPECIAL,
PUNITIVE, CONSEQUENTIAL OR ANY OTHER DAMAGES (INCLUDING LOST PROFITS) EVEN IF
NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.

The Equity 500 Index Portfolio seeks to replicate as closely as possible (before
deduction of expenses of the Fund and the corresponding Portfolio) the total
return of the S&P 500.

The S&P 500 is an index of 500 common stocks, most of which trade on the New
York Stock Exchange Inc. (the "NYSE"). Bankers Trust believes that the S&P 500
is representative of the performance of publicly traded common stocks in the
U.S.
in general.

In seeking to replicate the performance of the S&P 500, before deduction of Fund
and Portfolio expenses, Bankers Trust will attempt over time to allocate the
Equity 500 Index Portfolio's investment among common stocks in approximately the
same proportions as they are represented in as the S&P 500, beginning with the
heaviest weighted stocks that make up a larger portion of the Index's value.

Bankers Trust generally will seek to match the composition of the S&P 500 but
usually will not invest the Equity 500 Index Portfolio's stock portfolio to
mirror the Index exactly. Because of the difficulty and expense of executing
relatively small stock transactions, the Portfolio may not always be invested in
the less heavily weighted S&P 500 stocks, and may at times have its portfolio
weighted differently from the S&P 500, particularly if the Portfolio has a low
level of assets. In addition, the Portfolio may omit or remove any S&P 500 stock
from the Portfolio if, following objective criteria, Bankers Trust judges the
stock to be insufficiently liquid or believes the merit of the investment has
been substantially impaired by extraordinary events or financial conditions.
Bankers Trust will not purchase the stock of Bankers Trust New York Corporation,
which is included in the Index, and instead will overweight its holdings of
companies engaged in similar businesses.

<PAGE>

About the S&P 500. The S&P 500 is composed of 500 common stocks, which are
chosen by S&P on a statistical basis to be included in the Index. The inclusion
of a stock in the S&P 500 in no way implies that S&P believes the stock to be an
attractive investment. The 500 securities, most of which trade on the NYSE,
represented, as of September 30, 1995, approximately 81% of the market value of
all U.S. common stocks. Each stock in the S&P 500 is weighted by its market
value. Bankers Trust believes that the performance of the S&P 500 is
representative of the performance of publicly traded common stocks in general.
The composition of the S&P 500 is determined by S&P and is based on such factors
as the market capitalization and trading activity of each stock and its adequacy
as a representation of stocks in a particular industry group, and may be changed
from time to time.

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

S&P does not guarantee the accuracy and/or the completeness of the S&P 500 or
any data included therein.

S&P makes no warranty, express or implied, as to the results to be obtained by
the Fund or the Portfolio, owners of the Fund or the Portfolio, or any other
person or entity from the use of the S&P 500 or any data included therein. S&P
makes no express or implied warranties and hereby expressly disclaims all such
warranties of merchantability or fitness for a particular purpose or use with
respect to the S&P 500 or any data included therein.

For more information about the performance of the S&P 500, see "Appendix."

GENERAL

Over time, the correlation between the performance of each Fund, before the
deduction of Expenses, and the respective Index is expected to be 0.95 or higher
before deduction of Expenses of the Fund and expenses of the Portfolio. A
correlation of 1.00 would indicate perfect correlation, which would be achieved
when the net asset value of the Fund, including the value of its dividend and
any capital gain distributions, increases or decreases in exact proportion to
changes in the Index. Each Fund's ability to track its respective index may be
affected by, among other things, transaction costs, administration and other
expenses incurred by the Funds or the corresponding Portfolio, changes in either
the composition of the Index or the assets of a Portfolio, and the timing and
amount of Portfolio investor contributions and withdrawals, if any. In the
unlikely event that a high correlation is not achieved, the Trusts' Boards of
Trustees will consider alternatives. Because each Portfolio seeks to track the
respective index, Bankers Trust will not attempt to judge the merits of any
particular stock as an investment.

<PAGE>

Under normal circumstances, each Portfolio will invest at least 80% of its
assets in the securities of its respective Index.

As diversified funds, no more than 5% of the assets of each Portfolio may be
invested in the securities of one issuer (other than U.S. Government
Securities), except that up to 25% of each Portfolio's assets may be invested
without regard to this limitation. Each 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 Portfolios which may not be changed
without investor approval. No more than 15% of each 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 days).
Additional investment policies of each Portfolio are contained in the SAI.

Each Portfolio may maintain up to 25% of its assets in short-term debt
securities and money market instruments to meet redemption requests or to
facilitate investment in the securities of the respective Index. Securities
index futures contracts and related options, warrants, convertible securities
and swap agreements may be used for several reasons: to simulate full investment
in the underlying Index while retaining a cash balance for fund management
purposes, to facilitate trading, or to reduce transaction costs or to seek
higher investment returns when a futures contract, option, warrant, convertible
security or swap agreement is priced more attractively than the underlying
equity security or Index. These instruments may be considered derivatives. See
"Risk Factors and Certain Securities and Investment Practices -- Derivatives."

The use of derivatives for non-hedging purposes may be considered speculative.
While each of these securities can be used as leveraged investments, a Portfolio
may not use them to leverage its net assets. No Portfolio will invest in such
instruments as part of a temporary defensive strategy (such as altering the
aggregate maturity of the Portfolio) to protect the Portfolio against potential
market declines.

Each Portfolio may lend its investment securities and purchase securities on a
when-issued and a delayed delivery basis. The U.S. Bond Index Portfolio may
invest in mortgage-related and other asset-backed securities. The EAFE(R) Equity
Index Portfolio may engage in foreign currency forward and futures transactions
for the purpose of enhancing portfolio returns or hedging against foreign
exchange risk arising from the Portfolio's investment or anticipated investment
in securities denominated in foreign currencies. See "Risk Factors and Certain
Securities and Investment Practices" for more information about the investment
practices of the Portfolios.

RISK FACTORS AND CERTAIN SECURITIES AND INVESTMENT PRACTICES

The following pages contain more detailed information about types of instruments
in which a Portfolio may invest and strategies Bankers Trust may employ in
pursuit of a Portfolio's investment objective. A summary of risks and
restrictions associated with these instrument types and investment practices is
included as well.

<PAGE>

Bankers Trust may not buy all of these instruments or use all of these
techniques to the full extent permitted unless it believes that doing so will
help a Portfolio achieve its goal. Holdings and recent investment strategies are
described in the financial reports of a Fund and the corresponding Portfolio,
which are sent to Fund shareholders twice a year. For a free SAI or financial
report, call a Service Agent.

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

Market Risk - Equity 500 Index Fund, Equity 500 Equal Weighted Index Fund, Small
Cap Index Fund and EAFE(R) Equity Index Fund As mutual funds investing primarily
in common stocks, these Portfolios are subject to market risk -- i.e., the
possibility that common stock prices will decline over short or even extended
periods. The U.S. and foreign stock markets tend to be cyclical, with periods
when stock prices generally rise and periods when prices generally decline.

Risks of Investing in Medium- and Small-Capitalization Stocks - Small Cap Index
Fund Historically, medium- and small-capitalization stocks have been more
volatile in price that the larger-capitalization stocks included in the S&P 500.
Among the reasons for the greater price volatility of these securities are the
less certain growth prospects of smaller firms, the lower degree of liquidity in
the markets for such stocks, and the greater sensitivity of medium- and
small-size companies to changing economic conditions. In addition to exhibiting
greater volatility, medium- and small-size company stocks may fluctuate
independently of larger company stocks. Medium- and small-size company stocks
may decline in price as large company stocks rise, or rise in prices as large
company stocks decline.

<PAGE>

areas such as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments position; it may
also be more difficult to obtain and enforce a judgment against a foreign
issuer. In general, less information is publicly available with respect to
foreign issuers than is available with respect to U.S. companies. Most foreign
companies are also not subject to the uniform accounting and financial reporting
requirements applicable to issuers in the United States. Any foreign investments
made by the Portfolio must be made in compliance with U.S. and foreign currency
restrictions and tax laws restricting the amounts and types of foreign
investments.

Because foreign securities generally are denominated and pay dividends or
interest in foreign currencies, the value of the net assets of the Portfolio as
measured in U.S. dollars will be affected favorably or unfavorably by changes in
exchange rates. In order to protect against uncertainty in the level of future
foreign currency exchange rates, the Portfolio is also authorized to enter into
certain foreign currency exchange transactions. Furthermore, the Portfolio's
foreign investments may be less liquid and their prices may be more volatile
than comparable investments in securities of U.S. companies. The settlement
periods for foreign securities, which are often longer than those for securities
of U.S. issuers, may affect portfolio liquidity. Finally, there may be less
government supervision and regulation of securities exchanges, brokers and
issuers in foreign countries than in the United States.

Special Information Concerning Master-Feeder Fund Structure Unlike other
open-end management investment companies (mutual funds) which directly acquire
and manage their own portfolio securities, each Fund seeks to achieve its
investment objective by investing all of its Assets in the corresponding
Portfolio, a separate registered investment company with the same investment
objectives as the Fund. Therefore, an investor's interest in the Portfolio's
securities is indirect, like investments in other investment companies and
pooled investment vehicles. In addition to selling a beneficial interest to the
corresponding Fund, each Portfolio may sell beneficial interests to other mutual
funds or institutional investors. Such investors will invest in a Portfolio on
the same terms and conditions and will pay a proportionate share of the
Portfolio's expenses. However, the other investors investing in a Portfolio are
not required to sell their shares at the same public offering price as the Fund
due to variations in sales commissions and other operating expenses. Therefore,
investors in a Fund should be aware that these differences may result in
differences in returns experienced by investors in the different funds that
invest in the Portfolio. Such differences in returns are also present in other
mutual fund structures. Information concerning other holders of interests in the
Portfolio is available from Bankers Trust, as the Administrator, at (800)
730-1313.

The master-feeder structure has been developed relatively recently, so
shareholders should carefully consider this investment approach.

Smaller funds investing in a Portfolio may be materially affected by the actions
of larger funds investing in the Portfolio. For example, if a large fund

<PAGE>

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

A Fund may withdraw its investment from the Portfolio at any time, if the Board
of Trustees of a 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 herein with respect to the corresponding Portfolio.

Each Fund's investment objective is not a fundamental policy and may be changed
upon notice to but without the approval of the Fund's shareholders. If there is
a change in a Fund's investment objective, the Fund's shareholders should
consider whether the Fund remains an appropriate investment in light of their
then-current needs. The investment objective of each Portfolio is also not a
fundamental policy. Shareholders of the Funds will receive 30 days prior written
notice with respect to any change in the investment objective of a Fund or the
corresponding Portfolio. See "Risk Factors and Certain Securities and Investment
Practices" in the SAI for a description of the fundamental policies of each
Portfolio that cannot be changed without approval by "the vote of a majority of
the outstanding voting securities" (as defined in the Investment Company Act of
1940, as amended (the "1940 Act") of the Portfolio.

For descriptions of the investment objective, policies and restrictions of each
Portfolio, see "The Funds in Detail" herein and "Risk Factors and Certain
Securities and Investment Practices" in this Prospectus and in the SAI. For
descriptions of the management of the Trusts and the Portfolios, see "Management
of the Trusts and the Portfolios" herein and in the SAI. For descriptions of the
expenses of the Portfolio, see "The Funds--Expense Summary,"

<PAGE>

herein and "Management of the Trusts and the Portfolios" herein and in the
SAI.

Securities and Investment Practices
Short-Term Investments. Each Portfolio may invest in certain short-term fixed
income securities. Such securities may be used to invest uncommitted cash
balances, to maintain liquidity to meet shareholder redemptions or to serve as
collateral for the obligations underlying a Portfolio's investment in securities
index futures or related options or warrants. These securities include:
obligations issued or guaranteed by the U.S. Government or any of its agencies
or instrumentalities or by any of the states, repurchase agreements, time
deposits, certificates of deposit, bankers' acceptances and commercial paper.

U.S. Government Securities are obligations of, or guaranteed by, the U.S.
Government, its agencies or instrumentalities. Some U.S. Government securities,
such as Treasury bills, notes and bonds, are supported by the full faith and
credit of the United States; others, such as those of the Federal Home Loan
Banks, are supported by the right of the issuer to borrow from the Treasury;
others, such as those of the Federal National Mortgage Association, are
supported by the discretionary authority of the U.S. Government to purchase the
agency's obligations; and still others, such as those of the Student Loan
Marketing Association, are supported only by the credit of the instrumentality.

Securities Lending. Each Portfolio may lend its investment securities to
qualified institutional investors for either short-term or long-term purposes of
realizing additional income. Loans of securities by a Portfolio will be
collateralized by cash, letters of credit, or securities issued or guaranteed by
the U.S. Government or its agencies. The collateral will equal at least 100% of
the current market value of the loaned securities, and such loans may not exceed
30% of the value of a Portfolio's net assets. The risks in lending portfolio
securities, as with other extensions of credit, consist of possible loss of
rights in the collateral should the borrower fail financially. In determining
whether to lend securities, Bankers Trust will consider all relevant facts and
circumstances, including the creditworthiness of the borrower.

When Issued and Delayed Delivery Securities. Each Portfolio may purchase
securities on a when-issued or delayed delivery basis. Delivery of and payment
for these securities may take place as long as a month or more after the date of
the purchase commitment. The value of these securities is subject to market
fluctuation during this period and no income accrues to the Portfolio until
settlement takes place. The Portfolio maintains with the Custodian a segregated
account containing high grade liquid securities in an amount at least equal to
these commitments.

Mortgage-Related Securities. As part of its effort to duplicate the investment
performance of its Index, the U.S. Bond Index Portfolio may invest in
mortgage-backed securities. Mortgage-backed securities represent an interest in
an underlying pool of mortgages. Unlike ordinary fixed-income securities, which
generally pay a fixed rate of interest and return principal upon maturity,
mortgage-backed securities repay both interest income and principal as part of
their periodic payments. Because the mortgages underlying mortgage-backed

<PAGE>

certificates can be prepaid at any time by homeowners or corporate borrowers,
mortgage-backed securities give rise to certain unique "pre-payment" risks. See
"Risk Factors and Certain Securities and Investment Practices."

The U.S. Bond Index Portfolio may purchase mortgage-backed securities issued by
the Government National Mortgage Association (GNMA), the Federal Home Loan
Mortgage Corporation (FHLMC), the Federal National Mortgage Association (FNMA),
and the Housing Authority (FHA). GNMA securities are guaranteed by the U.S.
Government as to the timely payment of principal and interest; securities from
other Government-sponsored entities are generally not secured by an explicit
pledge of the U.S. Government. The U.S. Bond Index Portfolio may also invest in
conventional mortgage securities, which are packaged by private corporation and
are not guaranteed by the U.S. Government. Mortgage securities that are
guaranteed by the U.S. Government are guaranteed only as to the timely payment
of principal and interest. The market value of such securities is not guaranteed
and may fluctuate.

Derivatives
Each Portfolio may invest in various instruments that are commonly known as
derivatives. Generally, a derivative is a financial arrangement, the value of
which is based on, or "derived" from, a traditional security, asset, or market
index. Some "derivatives" such as mortgage-related and other asset-backed
securities are in many respects like any other investment, although they may be
more volatile or less liquid than more traditional debt securities. There are,
in fact, many different types of derivatives and many different ways to use
them. There are a range of risks associated with those uses. Futures and options
are commonly used for traditional hedging purposes to attempt to protect a fund
from exposure to changing interest rates, securities prices, or currency
exchange rates and as a low cost method of gaining exposure to a particular
securities market without investing directly in those securities. 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 indexes that by themselves would not be
purchased for the Portfolio.

Securities Index Futures and Related Options. Each Portfolio may enter into
securities index futures contracts and related options provided that not more
than 5% of its assets are required as a margin deposit for futures contracts or
options [and provided that not more than 20% of a Portfolio's assets are
invested in futures and options at any time.] When a Portfolio has cash from new
investments in the Portfolio or holds a portion of its assets in money market
instruments, it may enter into index futures or options to attempt to increase
its exposure to the market. Strategies the Portfolio could use to accomplish
this include purchasing futures contracts, writing put options, and purchasing
call options. When the Portfolio wishes to sell securities, because of
shareholder redemptions or otherwise, it may use index futures or options to
hedge against market risk until the sale can be completed. These strategies
could include selling futures contracts, writing call options, and purchasing
put options.

Swap Agreements. Each Portfolio may enter into swap agreements only to the
extent that obligations under such agreements represent not more than 10% of the

<PAGE>

Portfolio's total assets. Swap agreements are contracts between parties in which
one party agrees to make payments to the other party based on the change in
market value of a specified index or asset. In return, the other party agrees to
make payments to the first party based on the return of a different specified
index or asset.

Although swap agreements entail the risk that a party will default on its
payment obligations thereunder, a Portfolio will minimize this risk by entering
into agreements that mark to market no less frequently than quarterly. Swap
agreements also bear the risk that a Portfolio will not be able to meet its
obligation to the counterparty. This risk will be mitigated by investing a
Portfolio in the specific asset for which it is obligated to pay a return.

Warrants. Each Portfolio's investment in warrants will not exceed more than 5%
of its assets (2% with respect to warrants not listed on the New York or
American Stock Exchanges). Warrants are instruments which entitle the holder to
buy underlying equity securities at a specific price for a specific period of
time.

A warrant tends to be more volatile than its underlying securities and ceases to
have value if it is not exercised prior to its expiration date. In addition,
changes in the value of a warrant do not necessarily correspond to changes in
the value of its underlying securities.

Convertible Securities. Each Portfolio may invest in convertible securities
which are a bond or preferred stock which may be converted at a stated price
within a specific period of time into a specified number of shares of common
stock of the same or different issuer. Convertible securities are senior to
common stock in a corporation's capital structure, but usually are subordinated
to non-convertible debt securities. While providing a fixed income stream
- --generally higher in yield than in the income derived from a common stock but
lower than that afforded by a non-convertible debt security -- a convertible
security also affords an investor the opportunity, through its conversion
feature, to participate in the capital appreciation of common stock into which
it is convertible.

In general, the market value of a convertible security is the higher of its
investment value (its value as a fixed income security) or its conversion value
(the value of the underlying shares of common stock if the security is
converted). As a fixed income security, the market value of a convertible
security generally increases when interest rates decline and generally decreases
when interest rates rise; however, the price of a convertible security generally
increases as the market value of the underlying stock increases, and generally
decreases as the market value of the underlying stock declines. Investments in
convertible securities generally entail less risk than investments in the common
stock of the same issuer.

<PAGE>

contract may result in an immediate and substantial loss or gain. However, the
Portfolios will not use futures contracts, options, warrants, convertible
securities and swap agreements for speculative purposes or to leverage their net
assets. Accordingly, the primary risks associated with the use of futures
contracts, options, warrants, convertible securities and swap agreements by the
Portfolios are: (i) imperfect correlation between the change in market value of
the securities held by a Portfolio and the prices of futures contracts, options,
warrants, convertible securities and swap agreements; and (ii) possible lack of
a liquid secondary market for a futures contract and the resulting inability to
close a futures position prior to its maturity date. The risk of imperfect
correlation will be minimized by investing only in those contracts whose
behavior is expected to resemble that of a Portfolio's underlying securities.
The risk that a Portfolio will be unable to close out a futures position will be
minimized by entering into stock transactions on an exchange with an active and
liquid secondary market. However options, warrants, convertible securities and
swap agreements purchased or sold over-the-counter may be less liquid than
exchange-traded securities. Illiquid securities, in general, may not represent
more than 15% of the net assets of a Portfolio.

Foreign Currency Forward, Futures and Related Options Transactions. The EAFE(R)
Equity Index Portfolio may enter into foreign currency forward and foreign
currency futures contracts in order to maintain the same currency exposure as
the EAFE Index. The Portfolio may not enter into such contracts as a way of
protecting against anticipated adverse changes in exchange rates between foreign
currencies and the U.S. dollar. A foreign currency forward contract is an
obligation to purchase or sell a specific currency at a future date, which may
be any fixed number of days from the date of the contract agreed upon by the
parties, at a price set at the time of the contract. Such contracts do not
eliminate fluctuations in the underlying prices of securities held by the
Portfolios. Although such contracts tend to minimize the risk of loss due to a
decline in the value of a currency that has been sold forward, and the risk of
loss due to an increase in the value of a currency that has been purchased
forward, at the same time they tend to limit any potential gain that might be
realized should the value of such currency increase.

Asset Coverage. To assure that a Portfolio's use of futures and related options,
as well as when-issued and delayed-delivery securities, interest rate swaps and
foreign currency forward futures and related options transactions are not used
to achieve excessive investment leverage, a Portfolio will cover such
transactions, as required under applicable interpretations of the SEC, either by
owning the underlying securities, entering into an off-setting transaction, or
by establishing a segregated account with the Portfolio's custodian containing
high grade liquid debt securities in an amount at all times equal to or
exceeding the Portfolio's commitment with respect to these instruments or
contracts.

<PAGE>

Portfolio Turnover

The frequency of Portfolio transactions-the Portfolio's portfolio turnover rate-
will vary from year to year depending on market conditions and the Portfolio's
cash flows. Each Portfolio's annual portfolio turnover rate is not expected to
exceed 100%. The Equity 500 Index Portfolio's portfolio turnover rate for the
years ended December 31, 1994 and 1993 was 21% and 31%, respectively.

PERFORMANCE

Each Portfolio's recent strategies and holdings, and the corresponding Fund's
performance, is detailed twice a year in the Funds' financial reports (not
available during the first year for each Fund other than the Equity 500 Index
Fund), which are sent to all Fund shareholders.

For current Fund performance or a free copy of the Funds' financial report,
please contact a Service Agent.

Mutual fund performance is commonly measured as total return and/or yield. Each
Fund's performance is affected by the expenses of that Fund.

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

Total Returns
<TABLE>
<S> <C> <C> <C>
Average Annual
Total Return
Total return for Period From
for the period from commencement
Total return commencement of of operations
for 1 year ended operations through through

9/30/95 9/30/95 9/30/95

Equity 500 Index

Fund(a) 29.83% 44.45% 14.32%

<FN>
(a) Fund commenced operations on December 31, 1992.
</FN>
</TABLE>

<PAGE>

income actually paid to shareholders. This difference may be significant for a
Fund investing in a Portfolio whose investments are denominated in foreign
currencies.

Yields

The 30-day SEC yield for the period ended September 30, 1995, for the Equity 500
Index Fund was 2.30% .

Performance information may include comparisons of a Fund's investment results
to various unmanaged indices or results of other mutual funds or investment or
savings vehicles. From time to time, Fund rankings may be quoted from various
sources, such as Lipper Analytical Services, Inc., Value Line and Morningstar,
Inc.

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

Total returns and yields are based on past results and are not an indication of
future performance.

MANAGEMENT OF THE TRUSTS AND THE PORTFOLIOS

Board of Trustees

The Trusts and each Portfolio is governed by a Board of Trustees which is
responsible for protecting the interests of investors. A majority of the
Trustees who are not "interested persons" (as defined in the 1940 Act) of each
Trust or the Portfolio, as the case may be, have adopted written procedures
reasonably appropriate to deal with potential conflicts of interest arising from
the fact that the same individuals are Trustees of the Trusts and the
Portfolios, up to and including creating separate boards of trustees. See
"Management of the Trusts and the Portfolios" in the SAI for more information
with respect to the Trustees and officers of the Trusts and each Portfolio.

Investment Adviser

The Trusts have not retained the services of an investment adviser since the
Trusts seek to achieve the investment objective of each Fund by investing all
the Assets of the Fund in the corresponding Portfolio. Each Portfolio has
retained the services of Bankers Trust as investment adviser.

Bankers Trust Company and Its Affiliates

<PAGE>

Bankers Trust Company, a New York banking corporation with principal offices at
280 Park Avenue, New York, New York 10017, is a wholly owned subsidiary of
Bankers Trust New York Corporation. Bankers Trust conducts a variety of general
banking and trust activities and is a major wholesale supplier of financial
services to the international and domestic institutional market.

As of September 30, 1995, Bankers Trust New York Corporation was the seventh
largest bank holding company in the United States with total assets of
approximately $104 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 120 offices in more than 40
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 $200 billion in assets under management globally. Of that
total, approximately $83 billion are in U.S. equity index assets alone. When
bond and international funds are included, Bankers Trust manages approximately
$96 billion in total index assets. This makes Bankers Trust one of the nation's
leading managers of index funds.

Bankers Trust has more than 50 years of experience managing retirement assets
for the nations'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 each portfolio.

Bankers Trust, subject to the supervision and direction of the Board of Trustees
of each Portfolio, manages each Portfolio in accordance with the Portfolio's
investment objective and stated investment policies, makes investment decisions
for the Portfolio, places orders to purchase and sell securities and other
financial instruments on behalf of the Portfolio and employs professional
investment managers and securities analysts who provide research services to the
Portfolio. Bankers Trust may utilize the expertise of any of its world wide
subsidiaries and affiliates to assist it in its role as investment adviser. All
orders for investment transactions on behalf of a Portfolio are placed by
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 and customers of Bankers Trust.

The Investment Advisory Agreements provide for each Portfolio to pay Bankers
Trust a fee from each Portfolio, accrued daily and paid monthly, equal on an

<PAGE>

annual basis to the following percentages of the average daily net assets of the
Portfolio for its then-current fiscal year: U.S. Bond Index Portfolio, 0.15%;
Equity 500 Equal Weighted Index Portfolio, 0.25%; Small Cap Index Portfolio,
0.15%; EAFE(R) Equity Index Portfolio, 0.25%; and Equity 500 Index Portfolio,
0.10%.

Bankers Trust has been advised by its counsel that, in counsel's opinion,
Bankers Trust currently may perform the services for the Trusts and the
Portfolios 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.

Bankers Trust investment personnel may invest in securities for their own
account pursuant to a code of ethics that establishes procedures for personal
investing and restricts certain transactions.

Portfolio Managers
Frank Salerno, Managing Director of Bankers Trust, is responsible for the
management of the Equity 500 Equal Weighted Index Portfolio, the Small Cap
Portfolio and the Equity 500 Index Portfolio. Mr. Salerno oversees
administration, management and trading of international and domestic equity
index strategies. He has been employed by Bankers Trust since 1981 and has
managed the Portfolios' assets since each Portfolio commenced operations.

Richard J. Vella, Managing Director of Bankers Trust, is responsible for the
day-to-day management of the E(R) Equity Index Portfolio. Mr. Vella has been
employed by Bankers Trust since 1985 and has ten years of trading and investment
experience.

<PAGE>

Administrator

Under its Administration and Services Agreement with each Trust, Bankers Trust
calculates the net asset value of each Fund and generally assists the Board of
Trustees of the Trust in all aspects of the administration and operation of the
Funds. The Administration and Services Agreement provides for the respective
Trust to pay Bankers Trust a fee, accrued daily and paid monthly equal on an
annual basis to the following percentages of the average daily net assets of the
Fund, attributable to the Class, for its then-current fiscal year: U.S. Bond
Index Fund, 0.20%; Equity 500 Equal Weighted Index Fund, 0.15%; Small Cap Index
Fund, 0.20%; EAFE(R) Equity Index Fund, 0.15%; and Equity 500 Index Fund, 0.05%.

Under an Administration and Services Agreement with each Portfolio, Bankers
Trust calculates the value of the assets of the Portfolio and generally assists
the respective Board of Trustees in all aspects of the administration and
operation of the Portfolios. The Administration and Services Agreement provides
for each Portfolio to pay Bankers Trust a fee, accrued daily and paid monthly,
equal on an annual basis to the following percentages of the Portfolio's average
daily net assets for its then-current fiscal year: U.S. Bond Index Portfolio,
0.05%; Equity 500 Equal Weighted Index Portfolio, 0.05%; Small Cap Index
Portfolio, 0.05%; EAFE(R) Equity Index Portfolio, 0.10%; and Equity 500 Index
Portfolio, 0.05%. Under each Administration and Services Agreement, Bankers
Trust may delegate one

<PAGE>

or more of its responsibilities to others, including SBDS, at Bankers Trust's
expense.

Distributor
Under its Distribution Agreement with each Trust, SBDS, as Distributor, serves
as the Trusts' principal underwriter on a best efforts basis. In addition, SBDS
provides the Trusts with office facilities. SBDS is a wholly owned subsidiary of
Signature Financial Group, Inc. ("SFG"). SFG and its affiliates currently
provide administration and distribution services for other registered investment
companies. The principal business address of SFG and SBDS is 6 St. James Avenue,
Boston, Massachusetts 02116.

Custodian and Transfer Agent
Bankers Trust acts as custodian of the assets of the Trusts and each Portfolio
and serves as the transfer agent (the "Transfer Agent") for the Trusts and each
Portfolio under the Administration and Services Agreement with the Trusts and
each Portfolio.

ACCOUNT INFORMATION

TYPES OF ACCOUNTS

The account guidelines that follow may not apply to certain Funds or to certain
retirement accounts. Some of the services and features of this Prospectus may
not be available to you. Certain features of the Funds, such as minimum initial
or subsequent investment amounts, may be modified in these programs, and
administrative charges may be imposed for the services rendered.

The different ways to set up (register) your account with Bankers Trust are
listed below.

The account guidelines that follow may not apply to certain Funds or to certain
retirement accounts. If your employer offers a Fund through a retirement
program, contact your employer for more information. Otherwise, call your
Service Agent directly.

Ways to Set Up Your Account

Individual or Joint Tenant
For your general investment needs
Individual accounts are owned by one person. Joint accounts can have two or more
owners (tenants). Joint accounts may be joint tenants in common or joint tenants
with rights of survivorship.

<PAGE>

deductible. Retirement accounts require special applications and typically have
lower minimums.

o Individual Retirement Accounts (IRAs) allow anyone of legal age under 70 1/2
with earned income to invest up to $2,000 per tax year. Individuals can also
invest in a spouse's IRA if the spouse has earned income of less than $250.

o Rollover IRAs retain special tax advantages for certain distributions from
employer sponsored retirement plans.

o Simplified Employee Pension Plans (SEP-IRAs) provide small business owners or
those with self-employed income (and their eligible employees) with many of the
same advantages as a Keogh, but with fewer administrative requirements.

o 401(k) Plans allow employees of corporations of all sizes to contribute a
percentage of their wages on a tax deferred basis. These accounts need to be
established by the trustee of the plan.

Money Purchase/Profit Sharing Plans (Keogh Plans) are tax deferred pension
accounts designated for employees of unincorporated businesses or for persons
who are self-employed.

Gifts or Transfers to a Minor (UGMA, UTMA) To invest for a child's education or
other future needs

These custodial accounts provide a way to give money to a child and obtain tax
benefits. An individual can give up to $10,000 a year per child without paying
federal gift tax. Depending on state laws, you can set up a custodial account
under the Uniform Gifts to Minors Act (UGMA) or the Uniform Transfers to Minors
Act (UTMA). Contact your Service Agent.

Trust
For money being invested by a trust

The trust must be established before an account can be opened.

Business or Organization

For investment needs of corporations, associations, partnerships, or other
groups Contact your Service Agent.

HOW TO BUY SHARES

Shares are purchased at the Fund's net asset value ("NAV") next calculated after
your investment is received and accepted. The NAV is normally calculated at 4:00
p.m. Eastern time.

Investors Guide to Service
Investment in the Company and Special Processing. As institutional funds, Shares
of the Funds are offered exclusively to retirement programs and arrangements
("Programs") through their plan sponsors, to Individual Retirement Accounts and
to certain institutional investors. Sponsors of a Program or their agents are
referred to as "Program Sponsor(s)" or "Program Administrator(s)" and individual
employees participating in a Program are referred to as "Participant(s)" and

<PAGE>

individual investors who separate from a program are referred to as "Continuing
Participant(s). Endowments, foundations, insurance companies and other
institutional investors are referred to as "Other Institutional Investors". The
term "shareholders" refers to each or all of these categories as well as to
Individual Retirement Accounts, as appropriate.

Investments by Participants are made through their Program Sponsor's
recordkeeper, who is responsible for transmitting all orders for the purchase,
redemption or exchange of Shares of the Funds. The availability of each Fund,
and the procedures for investing, depend upon the provisions of the Program and
whether the Program Sponsor has contracted with the Trusts or their transfer
agent for special processing services, including subaccounting. Continuing
Participants, other institutional investors and Individual Retirement Account
investors must arrange for services through BT Institutional Service Center, the
Manager, by contacting them at (800) 368-4031, P.O. Box 419210, Kansas City, MO
64141-6210.

If you are placing your order through a Service Agent, it is the responsibility
of your Service Agent to transmit your order to buy Shares to the Transfer Agent
before 4:00 p.m. Eastern time.

The Transfer Agent must receive payment within three business days after an
order for Shares is placed; otherwise your purchase order may be canceled and
you could be held liable for resulting fees and/or losses.

Share certificates are not available for Shares of the Funds.

If you are new to the BT Family of Funds, complete and sign an account
application and mail it along with your check. If there is no account
application accompanying this Prospectus, call your Service Agent or Bankers
Trust.

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.

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

Minimum Investment (excluding retirement plans)

To Open an Account $5 million

To Add to an Account No minimum

<PAGE>

Minimum Balance $1 million

For further information on opening an account, please consult your Service Agent
or refer to the account application.

<TABLE>
<S> <C> <C>
To Open an Account To Add to an Account

Phone your Contact your Service Contact your Service Agent or call
Service Agent. If you are an 1-(800) 730-1313. You may exchange
Agent Existing shareholder from another Bankers Trust account
you may exchange from with the same registration,
another Bankers Trust including name, address and taxpayer
account with the same ID number.
registration,
including name,
address, and taxpayer
ID number.

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

Mail Complete and sign the Make your check payable to the
account application. complete name of the Fund of your
Make your check choice. Indicate your Fund account
payable to the number on your check and mail to the
complete name of the address printed on your account
Fund of your choice. statement. Exchange by mail: call
Mail to the your Service
appropriate address Agent or Bankers Trust for
indicated on the instructions.

application.
- --------------------------------------------------------------------------------------------------------------------------

In Person Take your account Take your check to your
application and check Service Agent.
to your Service Agent.

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

<PAGE>

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

Wire Not available. Call your
Service Agent or Bankers Trust or
wire to:

Routing No.: 021001033
Attn: Bankers Trust/
IFTC Deposit

DDA: #00-226-296
FBO: (Account name)
(Account number)
Credit: Fund Number
(U.S. Bond Index Fund - 511
Equity 500 Equal Weighted Index Fund
- 512
Small Cap Index Fund - 513
EAFE(R) Equity Index Fund -
514
Equity 500 Index Fund - 481)
Specify the complete name of
the fund of your choice, and
include your account and your name.

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

Automatically Not available. Use the Systematic Investment
Program. Sign up for this service
when opening your account, or call
your Service
Agent to begin the program. The
initial minimum investment in
this program is $1,000.

- --------------------------------------------------------------------------------------------------------------------------
</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. NAV is normally
calculated at 4:00 p.m. Eastern time.

To sell Shares in a retirement account, your request must be made in writing,
except for exchanges to other eligible funds in the BT Family of Funds which can
be requested by phone or in writing. For information on retirement distributions
contact your Service Agent or call 1-800- 677-7596.

If you are selling some but not all of your non-retirement account Shares, leave
at least $1,000,000 worth of Shares in the account to keep it open.

<PAGE>

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

Certain requests must include a signature guarantee. It is designed to protect
you and Bankers Trust from fraud. Your request must be made in writing and
include a signature guarantee if any of the following situations apply:

o The check is being made payable to someone other than the account owner, o The
redemption proceeds are being transferred to a Bankers Trust account with a
different registration, or o You wish to have redemption proceeds wired to a
non-predesignated bank account.

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

Selling Shares in Writing

Write a "letter of instruction" with:

o Your name,
o The Fund's name and Fund's number,
o Your Fund account number,
o The dollar amount or number of Shares to be redeemed and
o Any other applicable requirements listed in the following table.

Deliver your letter to your Service Agent , or mail it to the following address:

Bankers Trust Company
P.O. Box 419210
Kansas City, MO 64141-6210

overnight mailings:
Bankers Trust Company
210 West 10th Street, 8th Floor
Kansas City, MO 64105-1716

Unless otherwise instructed, the Transfer Agent will send a check to the record
address.

Additional Information about Selling Shares

<TABLE>
<S> <C> <C>
Account Type Special Requirements

<PAGE>

Phone All account types Maximum check request: $100,000.
your except retirement
Service Agent

All account types You may exchange to other funds in
the BT Family of Funds if both
accounts are registered with the
same name(s), address, and taxpayer
ID number.

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

Mail or in Individual, Joint The letter of instruction (with
Person Tenant, Sale signature guaranteed, if required)
Proprietorship, UGMA, must be signed by all persons
UTMA required to sign for transactions,

exactly as their names appear on
the account and sent to your
Service Agent or the Transfer
Agent.

Retirement account The account owner should complete a
retirement distribution form.
Contact your Service
Agent or call
1-800-677-7596.

Trust The trustee must sign the letter
indicating capacity 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.

Business or At least one person authorized by
Organization corporate resolution to act on the
account must sign the letter.

Executor, For instructions contact your
Administrator, Service Agent
Conservator/Guardian or call 1-800-730-1313.

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

<PAGE>

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

Wire All account types You must sign up for the wire feature
except retirement before using it. To verify that it

is in place, contact your
Service Agent or call 1-
800- 730-1313.
Minimum wire: $500.

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.

- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
Automatically Not available. Use the Systematic Investment
Program. Sign up for this service
when opening your account, or call
your Service Agent to begin the
program. The initial minimum
investment in this program is $1,000.
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>

INVESTOR SERVICES

The BT Family of Funds provides a variety of services to help you manage your
account.

Information Services

Statements and reports that your Service Agent or the Transfer Agent will send
to you include the following:

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

o Account statements (quarterly)
o Financial reports (every six months)

To reduce expenses, only one copy of most financial reports will be mailed, even
if you have more than one account in the Fund. Call your Service Agent if you
need additional copies of financial reports.

Transaction Services

Exchange privilege. You may sell your Shares and buy Shares of other funds in
the BT Family of Funds by telephone or in writing.

Note that exchanges out of a Fund may be limited to four per calendar year and
that they may have tax consequences for you. For detail on policies and
restrictions governing exchanges including circumstances under which a
shareholder's exchange privilege may be suspended or revoked, see page ___.

Systematic Investment, Withdrawal and Exchange Program

<PAGE>

One easy way to pursue your financial goals is to invest money regularly. The BT
Family of Funds offers convenient services that let you transfer money into your
fund account, out of your fund account or between fund accounts automatically.
While regular investment plans do not guarantee a profit and will not protect
you against loss in a declining market, they can be an excellent way to invest
for retirement, a home, educational expenses, and other long-term financial
goals. Certain restrictions apply for retirement accounts. Call your Service
Agent for more information.

SHAREHOLDER AND ACCOUNT POLICIES

DIVIDENDS, CAPITAL GAINS, AND TAXES

Each Fund distributes substantially all of its net income and capital gains to
shareholders each year. Each Fund distributes capital gains annually. Normally,
income dividends for the Equity 500 Index Fund and Equity 500 Equal Weighted
Index Fund are distributed quarterly; income dividends for the Small Cap Index
Fund and EAFE(R) Equity Index Fund are distributed annually; and income
dividends for the U.S. Bond Index Fund are distributed monthly.

Distribution Options
When you open an account, specify on your account application how you want to
receive distributions. The Trust offers four options:

1. Reinvestment Option. Your dividend and capital gain distributions will be
automatically reinvested in additional Shares of the Fund. If you do not
indicate a choice on your application you will be assigned this option.

2. Income-Earned Option. Your capital gain distributions will be automatically
reinvested in additional Shares of the Fund, but you will be sent a check for
each dividend distribution.

3. Cash Option. You will be sent a check for your dividend and capital gain
distributions.

4. Automatic Dividends Program. Your dividend and capital gain distributions be
automatically invested in Shares of another fund in the BT Family of Funds as
long as the minimums for that account are met.

If you select distribution option 2 or 3 and the U.S. Postal Service cannot
deliver your checks, or if your checks remain uncashed for six months, those
checks will be reinvested in your account at the current NAV and your election
may be converted to the Reinvestment Option. You may change distribution option
at anytime by notifying the Transfer Agent in writing.

For retirement accounts, all distributions are automatically reinvested. When
you are over 59 1/2 years old, you can receive distributions in cash. If
distributions from a retirement account for any taxable year following the year
in which the participant reaches age 70 1/2 are less than the "minimum required
distribution" for that taxable year, an excise tax equal to 50% of the
deficiency may be imposed by the Internal Revenue Service (the "IRS"). The
administrator,

<PAGE>

trustee or custodian of such a retirement account will be responsible for
reporting distributions from such accounts to the IRS.

When each of the Funds deducts a distribution from its NAV, the reinvestment
price is the applicable Fund's NAV at the close of business that day.
Distribution checks will be mailed within seven days, or longer for a December
ex-dividend date.

Taxes
As with any investment, you should consider how an investment in the Funds could
affect you. Below are some of the Funds' tax implications. If your account is
not a tax-deferred retirement account beware of these tax implications.

Taxes on Distributions. Distributions from the Funds are subject to federal
income tax and may also be subject to state or local taxes. Annual Statements as
to the federal tax status of distributions, and distributions that are
attributable to state and local income and personal taxes, if applicable, will
be mailed to shareholders shortly after the end of the year. If living outside
the United States, your distributions from the Funds could also be taxed by the
country in which you reside.

For federal tax purposes, income and short-term capital gain distributions from
each of the Funds are taxed as dividends; long-term capital gain distributions
are taxed as long-term capital gains.

Mutual fund dividends from U.S. government securities are generally free from
state and local income taxes. However, particular states may limit this benefit,
and some types of securities, such as repurchase agreements and some agency-
backed securities, may not qualify for the benefit. In addition, some states may
impose intangible property taxes. You should consult your own tax adviser for
details and up-to-date information on the tax laws in your state.

Distributions are taxable when they are paid, whether you take them in cash or
reinvest them. However, distributions declared in December and paid in January
are taxable as if they were paid on December 31.

Every January, the Transfer Agent will send the IRS a statement showing the
taxable distributions paid to you in the previous year.

Taxes on Transactions. Your redemptions, including exchanges, are subject to
capital gains tax. A capital gain or loss is the difference between the cost of
your Shares and the price you receive when you sell them.

Whenever you sell Shares of a Fund, the Transfer Agent will send you or your
Service Agent a confirmation statement showing how many Shares you sold and at
what price. You also receive a consolidated transaction statement at least
quarterly. However, it is up to you or your tax preparer to determine whether
this sale resulted in a capital gain and, if so, the amount of tax to be paid.
Be sure to keep your regular account statements; the information they contain
will be essential in calculating the amount of your capital gains.

"Buying a dividend." If you buy Shares just before a Fund deducts a capital gain
distribution or dividend distribution, as applicable, from its NAV, you will pay

<PAGE>

the full price for the Shares and then receive a portion of the price back in
the form of a taxable distribution.

Currency considerations. If a Fund's dividends exceed its taxable income in any
year, which is sometimes the result of currency-related losses, all or a portion
of the Fund's dividends may be treated as a return of capital to shareholders
for tax purposes. To minimize the risk of a return of capital, each of the Funds
may adjust its dividends to take currency fluctuations into account, which may
cause the dividends to vary. Any return of capital will reduce the cost basis of
your Shares, which will result in a higher reported capital gain or a lower
reported capital loss when you sell your Shares. The statement you receive in
January will specify whether any distributions included a return of capital.

Undistributed net gains from currency transactions, if any, will generally be
distributed as a separate dividend in December.

There are tax requirements that all Funds must follow in order to avoid federal
taxation. In its effort to adhere to these requirements, a Fund may have to
limit its investment activity in some types of instruments.

VALUATION DETAILS

With the exception of the EAFE(R) Equity Index Fund, the Funds are open for
business each day the NYSE is open. Each Fund's NAV is calculated as of the
close of regular trading on the NYSE, currently 4:00 p.m. Eastern time. The
EAFE(R) Equity Index Fund will not process orders on any day when either the
NYSE or the Tokyo Stock Exchange is closed. Orders received on such days will be
priced on the next day the Fund computes its NAV. As such, investors may
experience a delay in purchasing or redeeming Shares of the EAFE(R) Equity Index
Fund.

A Fund's NAV is the value of a single Share. The NAV of each 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, allocable to the
Institutional Class Shares by the total number of its Shares outstanding. Each
Portfolio's securities and other assets are valued primarily on the basis of
market quotations or, if quotations are not readily available, by Bankers Trust
pursuant to procedures adopted by the Portfolio's Board of Trustees. These
procedures require Bankers Trust to value such a security at the same value as
an equivalent security which is readily marketable and, in making such
comparisons, to consider all relevant factors under applicable guidelines of the
SEC.

When investors sign their account application, they will be asked to certify
that their social security or taxpayer identification number is correct and that
they are not subject to 31% backup withholding for failing to report income to
the IRS. If investors violate IRS regulations, the IRS can require a Fund to
withhold 31% of their taxable distributions and redemptions.

Investors may initiate many transactions by telephone: A Service Agent or the
Transfer Agent may only be liable for losses resulting from unauthorized
transactions if they do not follow reasonable

<PAGE>

procedures designed to verify the identity of the caller. A Service Agent or the
Transfer Agent will request personalized security codes or other information,
and may also record calls. Investors should verify the accuracy of the
confirmation statements immediately after receipt. If investors do not want the
ability to redeem and exchange by telephone, they should call their Service
Agent or the Transfer Agent for instructions. Additional documentation may be
required from corporations, associations and certain fiduciaries.

Each Fund reserves the right to suspend the offering of Shares for a period of
time. Each Fund also reserves the right to reject any specific purchase order,
including certain purchases by exchange. Purchase orders may be refused if, in
Bankers Trust's opinion, they would disrupt management of a Fund.

When investors place an order to buy Shares, their Shares will be purchased at
the next NAV or offering price, as applicable, calculated after the order is
received and accepted by the Transfer Agent. Note the following:

o All checks should be made payable to the specific Fund.

o All purchases must be made in U.S. dollars and checks must be
drawn on U.S. banks.

o The Funds do not accept third party checks, except those payable to an
existing shareowner who is a natural person (not a corporation or
partnership), credit cards or cash.

o When making a purchase with more than one check, each check must have a
value of at least $50.

o Each Fund reserves the right to limit the number of checks processed at
one time.

o If a check does not clear, the purchase will be cancelled and the
investor could be liable for any losses or fees a Fund or the Transfer
Agent has incurred.

o When purchases are made by check or periodic automatic investment,
redemptions will not be allowed until the investment being redeemed has
been in the account for 15 business days.

o Direct Purchases: In the case of the U.S. Bond Index Fund, investors
begin to earn dividends as of the first business day following the day

the Fund receives payment.

o Automated Order Purchases: In the case of the U.S. Bond Index Fund,
investors begin to earn dividends as of the business day an order is

received and accepted.

Automated Orders Purchase. Shares of the Funds can be purchased or sold through
Service Agents utilizing an automated order placement and settlement system that
guarantees payment for orders on a specified date.

<PAGE>

To avoid the collection period associated with check purchases, investors should
consider buying Shares by bank wire, U.S. Postal money order, U.S. Treasury

check, or Federal Reserve check.

When investors place an order to sell Shares, Shares will be sold at the next
NAV calculated after the order is received and accepted. Note the following:

o Normally, redemption proceeds will be mailed on the next business day,
but if making immediate payment could adversely affect a Fund it may
take up to seven days to pay you.

o Shares of the Funds will earn dividends through the date of redemption;
however, in the case of the U.S. Bond Index Fund, Shares redeemed on a
Friday or prior to a holiday will continue to earn dividends until the
next business day.

o Each Fund may hold payment on redemptions until it is reasonably
satisfied that investments made by check have been collected which can
take up to seven business days.

o Redemptions may be suspended or payment dates postponed when the NYSE
is closed (other than weekends or holidays), when trading on the NYSE
is restricted, or as permitted by the SEC.

The Transfer Agent may charge a fee for special services, such as providing
historical account documents, that are beyond the normal scope of its services.

<PAGE>

EXCHANGE LIMITATIONS

As a shareholder, investors have the privilege of exchanging Shares of a Fund
for Shares of other funds in the BT Family of Funds at NAV. However, investors
should note the following:

o The Fund an investor exchanges into must be registered for sale in
their state.

o Investors may only exchange between accounts that are registered in the
same name, address, and taxpayer identification number.

o Before exchanging into a Fund, investors should read its Prospectus.

o Exchanges between the Funds described in this Prospectus and Funds
described in other BT Family of Funds' Prospectuses are restricted
during the 90 days following purchase. Exchanges among Funds described
in this Prospectus are permitted any time after purchase.

o If an investor exchanges into the EAFE(R) Equity Index Fund on a day
when the NYSE or the Tokyo Stock Exchange is closed, the exchange out
of the other BT Fund will be processed on that day, but the EAFE(R)
Equity Index Fund Shares will not be purchase until the day the EAFE(R)
Equity Index Fund reopens. If an investor exchanges out of the EAFE(R)
Equity Index Fund on a day when the NYSE is open and the Tokyo Stock
Exchange is closed, the exchange will be delayed until the EAFE(R)
Equity Index Fund reopens.

o Exchanges may have tax consequences for you.

o Because excessive trading can hurt Fund performance and shareholders,
each Fund reserves the right to temporarily or permanently terminate
the exchange privilege of any investor who makes more than four
exchanges out of the Fund per calendar year. Accounts under common
ownership or control, including accounts with the same taxpayer
identification number, will be counted together for purposes of the
four exchange limit.

o Each Fund reserves the right to refuse exchange purchases by any person
or group if, in Bankers Trust's judgment, the Fund would be unable to
invest the money effectively in accordance with its investment
objective and policies, or would otherwise potentially be adversely
affected.

o Exchanges may be restricted or refused if a Fund receives or
anticipates simultaneous orders affecting significant portions of the
Fund's assets. In particular, a pattern of exchanges that coincide with
a "market timing" strategy may be disruptive to a Fund.

o Although the Funds will attempt to give prior notice whenever they are
reasonably able to do so, they may impose these restrictions at any
time. The Funds reserve the right to terminate or modify the exchange
privilege in the future on 60 days' notice to shareholders.

<PAGE>

ADDITIONAL INFORMATION ABOUT THE TRUST AND PORTFOLIOS

Each Fund is a mutual fund: an investment that pools shareholders' money and
invests it toward a specified goal. Each Fund (with the exception of the Equity
500 Index Fund) is a separate diversified series of BT Advisor Funds, a
Massachusetts business trust. The Equity 500 Index Fund is a separate
diversified series of BT Institutional Funds. Each Fund (with the exception of
the Equity 500 Index Fund) offers two classes of Shares of beneficial interest,
Institutional Class Shares and Advisor Class Shares. Each of the U.S. Bond Index
Portfolio, Equity 500 Equal Weighted Index Portfolio, Small Cap Index Portfolio,
and EAFE(R) Equity Index Portfolio is a separate diversified series of BT
Investment Portfolios, a New York master trust fund. The Equity 500 Index
Portfolio is a New York trust.

Each Portfolio (other than the Equity 500 Index Portfolio) is a separate
subtrust (or "Series") of BT Investment Portfolios. Each Trust and BT Investment
Portfolios reserves the right to add additional series in the future. The Trust
also reserves the right to issue additional classes of Shares of each Fund.

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

When matters are submitted for shareholder vote, shareholders of each Fund will
have one vote for each full share held and proportionate, fractional votes for
fractional shares held. A separate vote of one of the Funds or classes is
required on any matter affecting only that Fund or class on which shareholders
are entitled to vote. Shareholders of a Fund or class are not entitled to vote
on Trust matters that do not affect that Fund or class, respectively, and do not
require a separate vote of the Fund or class. All series of each Trust and all
classes will vote together on certain matters, such as electing trustees or
approving independent public auditors. 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 that
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 that Trust's outstanding shares. Each Trust will also
assist shareholders in communicating with one another as provided for in the
1940 Act.

Each series of a Trust will vote separately on any matter involving the
corresponding Portfolio. Shareholders of all of the series of a Trust will,
however, vote together to elect Trustees of that Trust and for certain other
matters. Under certain circumstances, the shareholders of one or more series
could control the outcome of these votes. The series of BT Investment Portfolios
will vote together or separately on matters in the same manner, and in the same
circumstances, as do the series of the Trusts. As with the Trusts, the investors
in one or more series of BT Investment Portfolios could control the outcome of
these votes.

<PAGE>

The Trusts are each 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.

The Declaration of Trust of each of BT Investment Portfolios and the Equity 500
Index Portfolio provides that each Fund and other entities investing in a
Portfolio (e.g., other investment companies, insurance company separate accounts
and common and commingled trust funds) will each be liable for all obligations
of that Portfolio. However, the risk of a Fund incurring financial loss on
account of such liability is limited to circumstances in which both inadequate
insurance existed and a Portfolio itself was unable to meet its obligations.
Accordingly, the Trustees of the Trusts believe that neither the Funds nor their
shareholders will be adversely affected by reason of the Funds' investing in the
Portfolios. No series of BT Investment Portfolios has any preference over any
other series.

BT0472F
<PAGE>

BT0456M
BT ADVISOR FUNDS

Prospectus - Advisor Class Shares

January , 1996

U.S. Bond Index Fund
Equity 500 Equal Weighted Index Fund

Small Cap Index Fund
EAFE(R) Equity Index Fund

BT Investment Equity 500 Index Fund

BT Advisor Funds (the "Trust") is an open-end, management investment company
(mutual fund) which currently consists of ten funds. With the exception of the
BT Investment Equity 500 Index Fund (the "Equity 500 Index Fund"), each of the
diversified funds listed above (each, a "Fund") is a separate series of the
Trust and each offers two classes of shares. The shares offered by this
prospectus are the Advisor Class Shares (the "Shares"). The Equity 500 Index
Fund is a series of BT Pyramid Mutual Funds, an open-end management investment
company (together with the Trust, the "Trusts"). Each Fund seeks to replicate as
closely as possible the performance of a selected market index before the
deduction of the expenses allocable to the Shares of the Fund and the
corresponding Portfolio (the "Expenses"). There is no assurance, however, that
each Fund will achieve its stated objective.

Bankers Trust Company ("Bankers Trust") is the investment adviser (the
"Adviser") of each Portfolio.

Please read this Prospectus before investing, and keep it on file for future
reference. It contains important information, including how each Fund invests
and the services available to shareholders.

<PAGE>

Contents

THE FUNDS -- WHO MAY WANT TO INVEST
-- INVESTMENT PRINCIPLES AND RISKS Each Fund's
overall approach to investing.
-- EXPENSE SUMMARY Each Fund's annual operating
expenses.
-- FUND FINANCIAL HIGHLIGHTS Selected
data for a share outstanding, total
investment return, ratios to average
net assets and other supplemental
data for the Fund.
THE FUNDS IN DETAIL -- INVESTMENT OBJECTIVES AND POLICIES
-- RISK FACTORS AND CERTAIN SECURITIES AND
INVESTMENT PRACTICES
-- SPECIAL INFORMATION CONCERNING MASTER-FEEDER FUND
STRUCTURE
-- SECURITIES AND INVESTMENT PRACTICES
-- PERFORMANCE How each Fund has done over time.
-- MANAGEMENT OF THE TRUSTS AND THE PORTFOLIOS

ACCOUNT INFORMATION -- TYPES OF ACCOUNTS Different ways to setup
your account, including tax-sheltered
retirement plans.

-- ADDITIONAL INFORMATION ABOUT THE Trusts

AND THE PORTFOLIOS

<PAGE>

THE FUNDS

The Trusts seek to achieve the investment objective of each Fund by investing
all the Assets of the Fund in the corresponding Portfolio.

<PAGE>

The EAFE index is the exclusive property of Morgan Stanley. Morgan Stanley
Capital International is a service mark of Morgan Stanley and has been licensed
for use by Bankers Trust Company.

WHO MAY WANT TO INVEST

Shares of each Fund are offered through this Prospectus to investors who engage
an Investment Professional.

The Equity 500 Equal Weighted, Small Cap Index, EAFE(R) Equity Index and Equity
500 Index Funds may be appropriate for investors who are willing to ride out
domestic and/or foreign stock market fluctuations in pursuit of potentially
higher long-term returns. Each corresponding Portfolio invests for growth and
does not pursue income. Over time, stocks, although more volatile, have shown
greater growth potential than other types of securities. In the shorter term,
however, stock prices can fluctuate dramatically in response to market factors.

<PAGE>

investing. The performance of international funds depends upon currency values,
the political and regulatory environment, and overall economic factors in the
countries in which a Portfolio invests.

The Trust is intended to be a long-term investment vehicle and is not designated
to provide investors with a means of speculating on short-term market movements.
Investors who engage in excessive account activity generate additional costs
which are borne by all the Trusts' shareholders. In order to minimize such
costs, each Trust has adopted the following policies. Each Trust reserves the
right to reject any purchase request (including exchange purchases from other BT
Advisor Funds portfolios) that is reasonably deemed to be disruptive to
efficient portfolio management, either because of the timing of the investment
or previous excessive trading by the investor. Additionally, each Trust has
adopted exchange privilege limitations as described in the section "Exchange
Limitations." Finally, each Trust reserves the right to suspend the offering of
its shares.

Each Fund is not in itself a balanced investment plan. Investors should consider
their investment objective and tolerance for risk when making an investment
decision. When an investor sells their Fund Shares, they may be worth more or
less than what they paid for them.

INVESTMENT PRINCIPLES AND RISKS

Because many foreign investments are denominated in foreign currencies, changes
in the value of these currencies can significantly affect the EAFE(R) Equity
Index Fund's share price. General economic factors in the various world markets
can also impact the value of an investors investment. When investors sell Fund
Shares, they may be worth more or less than what they paid for them. See "Risk
Factors and Certain Securities and Investment Practices" for more information.

EXPENSE SUMMARY

<PAGE>

The following table provides: (i) a summary of expenses relating to purchases
and sales of the Shares of each Fund and the annual operating expenses of the
Fund and expenses of the corresponding Portfolio, in the aggregate, as a
percentage of average daily net assets of each Fund; and (ii) an example
illustrating the dollar cost of such expenses on a $1,000 investment in each
Fund. The Trustees of each Trust believe that the Expenses of each Fund and
expenses of the corresponding Portfolio, in the aggregate, will be less than or
approximately equal to the expenses which the Fund would incur if the Trusts
retained the services of an investment adviser and the Assets of each Fund were
invested directly in the type of securities being held by the corresponding
Portfolio.

Shareholder Transaction Expenses

Maximum Sales Charge on Purchases
(as a percentage of offering price) None*

Maximum Sales Charge on Reinvested
Distributions None

Redemption Fee None*

Exchange Fee None

Shareholder transaction expenses are charges paid when investors buy, sell,
exchange, or hold Shares of a Fund. See "Account Information," on page __, for
an explanation of how and when these charges apply.

* A transaction fee of 0.50% is deducted from redemptions and exchanges out of
the Small Cap Index Fund and the EAFE(R) Equity Index Fund. These transaction
fees are paid to the respective Funds and are deducted automatically from the
amount redeemed.

The purpose of the 0.50% transaction fee is to allocate transaction costs
associated with redemptions and exchanges to investors making those redemptions
and exchanges, thus insulating existing shareholders from those transaction
costs. These costs include: (1) brokerage costs; (2) the effect of the "bid-ask"
spread in small and medium sized company stock and international markets; and
(3) taxes in some countries. Since the investors, not the Fund, bears these
costs, the Fund is expected to be able track its benchmark index more closely.

Annual Operating Expenses

U.S. Bond Index Fund
Investment advisory fee
(after reimbursement or waiver) 0.10%
Other expenses
(after reimbursements or waivers) 0.25%

<PAGE>

Total operating expenses
(after reimbursements or waivers) 0.35%

<PAGE>

Equity 500 Equal Weighted Index Fund
Investment advisory fee
(after reimbursement or waiver) 0.15%
Other expenses
(after reimbursements or waivers) 0.50%
Total operating expenses
(after reimbursements or waivers) 0.65%

Small Cap Index Fund
Investment advisory fee
(after reimbursement or waiver) 0.10%
Other expenses
(after reimbursements or waivers) 0.35%
Total operating expenses
(after reimbursements or waivers) 0.45%

EAFE(R) Equity Index Fund

Investment advisory fee
(after reimbursement or waiver) 0.20%
Other expenses
(after reimbursements or waivers) 0.45%
Total operating expenses
(after reimbursements or waivers) 0.65%

Equity 500 Index Fund
Investment advisory fee
(after reimbursement or waiver) 0.07%
12b-1 fees 0.00
Other expenses
(after reimbursements or waivers) 0.18%
----
Total operating expenses
(after reimbursements or waivers) 0.25%

Expense Table Example: An investor would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return and (2) redemption at the end of each
time period:

Examples
U.S. Bond Index Fund 1 year 3 years

$4 $11

Equity 500 Equal Weighted Index Fund 1 year 3 years

$7 $21

Small Cap Index Fund 1 year 3 years

$5 $14

<PAGE>

EAFE(R)Equity Index Fund 1 year 3 years

$7 $21

Equity 500 Index Fund 1 year 3 years 5 year 10 years
$3 $8 $14 $32

The expense table and the example above show the costs and expenses that an
investor will bear directly or indirectly as a shareholder of a Fund. Bankers
Trust has voluntarily agreed to waive a portion of its investment advisory fee
with respect to each Portfolio. Without such waiver, each Portfolio's investment
advisory fee would be equal to the following: U.S. Bond Index Portfolio --0.15%;
Equity 500 Equal Weighted Index Portfolio -- 0.25%; Small Cap Index Portfolio --
0.15%; E(R) Equity Index Portfolio -- 0.25%; and Equity 500 Index Portfolio --
0.10%. The expense table and the example reflect a voluntary undertaking by
Bankers Trust or Signature Broker-Dealer Services, Inc. ("SBDS"), as the
distributor (the "Distributor") of the Shares of each Fund, to waive or
reimburse expenses such that the total operating expenses of each Fund and the
corresponding Portfolio, with the exception of the Equity 500 Index Fund and
Equity 500 Index Portfolio, (as a percentage of the Fund's average daily net
assets) would be equal to the following: U.S. Bond Index Fund -- 0.35%; Equity
500 Equal Weighted Index Fund -- 0.65%; Small Cap Index Fund -- 0.45%; and
EAFE(R) Equity Index Fund -- 0.65%. In the absence of this undertaking, assuming
total assets of $100 million in each Fund, it is estimated that "Total Operating
Expenses" would be as follows: U.S. Bond Index Portfolio -- 0.55%; Equity 500
Equal Weighted Index Portfolio -- 0.75%; Small Cap Index Portfolio -- 0.60%; and
EAFE(R) Equity Index Portfolio -- 0.80%. With respect to the Equity 500 Index
Fund and the Equity 500 Index Portfolio, in the absence of this undertaking, for
the fiscal year ended December 31, 1994, the total operating expenses would have
been equal to approximately 0.54% of the Fund's average net assets annually. 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%.

For more information about each Fund's and each Portfolio's expenses see
"Management of the Trusts and the Portfolios" and "Valuation Details."

FUND FINANCIAL HIGHLIGHTS

<PAGE>

been audited by Coopers & Lybrand L.L.P., the Fund's independent accountants,
whose report thereon appears in the Fund's Annual Report. The Fund's Annual
Report and Semi-Annual Report are incorporated by reference in the Fund's SAI.
<TABLE>
<S> <C> <C> <C> <C>

For the
Period
For the six 12/31/92
months ended For the year ended (Commencement
6/30/95 December 31, of
(unaudited) 1994 1993 Operations)

Selected Per Share Data
Net Asset Value,
Beginning of Period $10.36 $10.57 $10.00 $10.00
----------------------------- -------

Income from Investment
Operations
Net Investment Income 0.14 0.22 0.24 __
Net Realized and
Unrealized Gain (Loss) on
Securities and Futures
Transactions 1.94 (0.10) 0.71 __
----------------------------- ---

Total from Investment
Operations 2.08 0.12 0.95 __
---------------------------- ---
Less Dividends and Distributions
Dividends from Net Investment
Income (0.07) (0.22) (0.24) __
Distributions from Net Realized
Gain from Securities and
Futures Transactions -- (0.11) (0.14) __
------------------------------ ---
Total Dividends and
Distributions (0.07) (0.33) (0.38) __
------------------------------ ---
Net Asset Value,
End of Period $12.37 $10.36 $10.57 $10.00
------------------------------ -------

Total Investment Return 20.11% 1.15% 9.53% __

Ratios and Supplemental
Data
Ratio of Net Investment
Income to Average Net
Assets 2.55%* 2.68% 2.53% __
Ratio of Expenses to
Average Net Assets,
Including Expenses of
the Equity 500 Index
Portfolio 0.25%* 0.25% 0.25% __
Decrease Reflected in
Above Expense Ratio
Due to Absorption of

<PAGE>

Expenses by Bankers Trust 0.25%* 0.29% 1.82% __

Net Assets, End of
Period (000's omitted) $231,338 $181,898 $1,853 $ 100
<FN>
*Annualized
</FN>
</TABLE>

THE FUNDS IN DETAIL

INVESTMENT OBJECTIVES AND POLICIES

As of September 30, 1995, the major classes of fixed-income securities
represented the following proportions of the Index's total market value:

Aggregate
Bond Index
U.S. Treasury and
agency securities 54%
Corporate bonds 14%
International (dollar-

denominated) bonds 3%
Mortgage-backed securities 28%
Asset Backed Securities 1%
Dollar-weighted average
maturity (Years) 8.6 yrs

<PAGE>

securities approximating their relative proportion of the Index's total market
value.

At the broadest level, the U.S. Bond Index Portfolio will seek to hold
securities and other investments which reflect the weighting of the major asset
classes in the Index, these classes include U.S. Treasury and agency securities,
corporate bonds, and mortgage-backed securities. For example, if U.S. Treasury
and agency securities represent approximately 54% of the Index's interest rate
risk, then approximately 54% of the Portfolio's interest rate risk will come
from such securities and other investments. Similarly, if corporate bonds
represent 14% of the interest rate risk of the Index, then they will represent
approximately 14% of the interest rate risk of the Portfolio. Such a sampling
technique is expected to be an effective means of substantially replicating the
income and capital returns provided by the Index before deduction of Fund and
Portfolio expenses.

<PAGE>

calendar month. Investing in a fund designed to replicate this benchmark
provides investors with diversified equity exposure with a small cap tilt and
value investment attributes.

The Small Cap Index Portfolio seeks to replicate as closely as possible (before
deduction of expenses of the Fund and corresponding Portfolio) the total return
of the Russell 2000.

The Small Cap Portfolio invests in a statistically selected sample of the
approximately 2,000 stocks included in the Russell 2000 Index. The stocks of the
Russell 2000 to be included in the Small Cap Index Portfolio will be selected
utilizing a statistical sampling technique known as "optimization." This process
selects stocks for the Portfolio so that various industry weightings, market
capitalizations and fundamental characteristics (e.g. price-to-book, price-to-
earnings, debt-to-asset ratios, and dividend yields) closely approximate those
of the Russell 2000. For instance, if 10% of the capitalization of the Russell
2000 consists of utility companies with relatively small capitalizations, then
the Small Cap Portfolio is constructed so that approximately 10% of the
Portfolio's assets are invested in the stocks of utility companies with
relatively small capitalizations. The stocks held by the Portfolio are weighted

<PAGE>

to make the Portfolio's aggregate investment characteristics similar to those of
the Russell 2000 Index as a whole.

This Fund is not sponsored, endorsed, sold or promoted by Morgan Stanley. Morgan
Stanley makes no representation or warranty, express or implied, to the owners
of this Fund or any member of the public regarding the advisability of investing
in securities generally or in this Fund particularly or the ability of the EAFE
Index to track general stock market performance. Morgan Stanley is the licensor
of certain trademarks, service marks and trade names of Morgan Stanley and of
the EAFE Index which is determined, composed and calculated by Morgan Stanley
without regard to the issuer of this Fund or this Fund itself. Morgan Stanley
has no obligation to take the needs of the issuer of this Fund or the owners of
this Fund into consideration in determining, composing or calculating the EAFE
Index. Inclusion of a security in the EAFE Index in no way implies an opinion by
Morgan Stanley as to its attractiveness as an investment. Morgan Stanley is not
responsible for and has not participated in the determination of the timing of,
prices at, or quantities of this Fund to be issued or in the determination or
calculation of the equation by which this Fund is redeemable for cash. Morgan
Stanley has no obligation or liability to owners of this Fund in connection with
the administration, marketing or trading of this Fund. This Fund is neither
sponsored by nor affiliated with Morgan Stanley.

<PAGE>

The Equity 500 Index Portfolio seeks to replicate as closely as possible (before
deduction of expenses of the Fund and the corresponding Portfolio) the total
return of the S&P 500.

<PAGE>

representative of the performance of publicly traded common stocks in general.
The composition of the S&P 500 is determined by S&P and is based on such factors
as the market capitalization and trading activity of each stock and its adequacy
as a representation of stocks in a particular industry group, and may be changed
from time to time.

S&P does not guarantee the accuracy and/or the completeness of the S&P 500 or
any data included therein.

For more information about the performance of the S&P 500, see "Appendix B" in
the SAI.

GENERAL

Under normal circumstances, each Portfolio will invest at least 80% of its
assets in the securities of its respective Index.

<PAGE>

in the securities of issuers in any one industry. These are fundamental
investment policies of the Portfolios which may not be changed without investor
approval. No more than 15% of each 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 days). Additional investment
policies of each Portfolio are contained in the SAI.

RISK FACTORS AND CERTAIN SECURITIES AND INVESTMENT PRACTICES

<PAGE>

Risks of Investing in Foreign Securities - EAFE(R) Equity Index Portfolio
Investors should realize that investing in securities of foreign issuers
involves considerations not typically associated with investing in securities of
companies organized and operated in the United States. Investors should realize
that the value of a Portfolio's foreign investments may be adversely affected by
changes in political or social conditions, diplomatic relations, confiscatory
taxation, expropriation, nationalization, limitation on the removal of funds or
assets, or imposition of (or change in) exchange control or tax regulations in
foreign countries. In addition, changes in government administrations or
economic or monetary policies in the United States or abroad could result in
appreciation or depreciation of portfolio securities and could favorably or
unfavorably affect the Portfolio's operations. Furthermore, the economies of
individual foreign nations may differ from the U.S. economy, whether favorably
or unfavorably, in areas such as growth of gross national product, rate of
inflation, capital reinvestment, resource self-sufficiency and balance of
payments position; it may also be more difficult to obtain and enforce a
judgment against a foreign issuer. In general, less information is publicly
available with respect to foreign issuers than is available with respect to U.S.
companies. Most foreign companies are also not subject to the uniform accounting
and financial reporting requirements applicable to issuers in the United States.
Any foreign investments

<PAGE>

made by the Portfolio must be made in compliance with U.S. and foreign currency
restrictions and tax laws restricting the amounts and types of foreign
investments.

The master-feeder structure has been developed relatively recently, so
shareholders should carefully consider this investment approach.

Smaller funds investing in a Portfolio may be materially affected by the actions
of larger funds investing in the Portfolio. For example, if a large fund
withdraws from a Portfolio, the remaining funds may experience higher pro rata
operating expenses, thereby producing lower returns (however, this possibility
exists as well for traditionally structured funds which have large institutional
investors). Additionally, a Portfolio may become less diverse, resulting in
increased portfolio risk. Also, funds with a greater pro rata ownership in a
Portfolio could have effective voting control of the operations of the
Portfolio. Except as permitted by the SEC, whenever a Trust is requested to vote
on matters pertaining to a Portfolio, each Trust will hold a meeting of

<PAGE>

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 a Trust's votes at the Portfolio meeting. The percentage of a 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.

<PAGE>

index futures or related options or warrants. These securities include:
obligations issued or guaranteed by the U.S. Government or any of its agencies
or instrumentalities or by any of the states, repurchase agreements, time
deposits, certificates of deposit, bankers' acceptances and commercial paper.

<PAGE>

U.S. Government as to the timely payment of principal and interest; securities
from other Government-sponsored entities are generally not secured by an
explicit pledge of the U.S. Government. The U.S. Bond Index Portfolio may also
invest in conventional mortgage securities, which are packaged by private
corporation and are not guaranteed by the U.S. Government. Mortgage securities
that are guaranteed by the U.S. Government are guaranteed only as to the timely
payment of principal and interest. The market value of such securities is not
guaranteed and may fluctuate.

Securities Index Futures and Related Options. Each Portfolio may enter into
securities index futures contracts and related options provided that not more
than 5% of its assets are required as a margin deposit for futures contracts or
options and provided that not more than 20% of a Portfolio's assets are invested
in futures and options at any time. When a Portfolio has cash from new
investments in the Portfolio or holds a portion of its assets in money market
instruments, it may enter into index futures or options to attempt to increase
its exposure to the market. Strategies the Portfolio could use to accomplish
this include purchasing futures contracts, writing put options, and purchasing
call options. When the Portfolio wishes to sell securities, because of
shareholder redemptions or otherwise, it may use index futures or options to
hedge against market risk until the sale can be completed. These strategies
could include selling futures contracts, writing call options, and purchasing
put options.

Swap Agreements. Each Portfolio may enter into swap agreements only to the
extent that obligations under such agreements represent not more than 10% of the
Portfolio's total assets. Swap agreements are contracts between parties in which
one party agrees to make payments to the other party based on the change in
market value of a specified index or asset. In return, the other party agrees to
make payments to the first party based on the return of a different specified
index or asset.

<PAGE>

Further risks associated with the use of futures contracts, options, warrants,
convertible securities and swap agreements. The risk of loss associated with
futures contracts in some strategies can be substantial due to both the low
margin deposits required and the extremely high degree of leverage involved in
futures pricing. As a result, a relatively small price movement in a futures
contract may result in an immediate and substantial loss or gain. However, the
Portfolios will not use futures contracts, options, warrants, convertible
securities and swap agreements for speculative purposes or to leverage their net
assets. Accordingly, the primary risks associated with the use of futures
contracts, options, warrants, convertible securities and swap agreements by the
Portfolios are: (i) imperfect correlation between the change in market value of

<PAGE>

the securities held by a Portfolio and the prices of futures contracts, options,
warrants, convertible securities and swap agreements; and (ii) possible lack of
a liquid secondary market for a futures contract and the resulting inability to
close a futures position prior to its maturity date. The risk of imperfect
correlation will be minimized by investing only in those contracts whose
behavior is expected to resemble that of a Portfolio's underlying securities.
The risk that a Portfolio will be unable to close out a futures position will be
minimized by entering into stock transactions on an exchange with an active and
liquid secondary market. However options, warrants, convertible securities and
swap agreements purchased or sold over-the-counter may be less liquid than
exchange-traded securities. Illiquid securities, in general, may not represent
more than 15% of the net assets of a Portfolio.

Portfolio Turnover
The frequency of Portfolio transactions-the Portfolio's portfolio turnover rate-
will vary from year to year depending on market conditions and the Portfolio's
cash flows. Each Portfolio's annual portfolio turnover rate is not expected to

<PAGE>

exceed 100%. The Equity 500 Index Portfolio's portfolio turnover rate for the
years ended December 31, 1994 and 1993 was 21% and 31%, respectively.

PERFORMANCE

For current Fund performance or a free copy of the Funds' financial report,
please contact an Investment Professional.

Mutual fund performance is commonly measured as total return and/or yield. Each
Fund's performance is affected by the expenses of that Fund.

Total Returns
Average Annual
Total Return
Total return for Period From
for the period from commencement
Total return commencement of of operations
for 1 year ended operations through through

9/30/95 9/30/95 9/30/95

Equity 500 Index

Fund(a) 29.37% 43.51% 14.05%

(a) Fund commenced operations on December 31, 1992.

Yield refers to the income generated by an investment in a Fund over a given
period of time, expressed as an annual percentage rate. Yields are calculated
according to a standard that is required for all stock and bond funds. Because
this differs from other accounting methods, the quoted yield may not equal the
income actually paid to shareholders. This difference may be significant for a
Fund investing in a Portfolio whose investments are denominated in foreign
currencies.

<PAGE>

Yields

The 30-day SEC yield for the period ended September 30, 1995 for the
Equity 500 Index Fund was 2.30%.

Total returns and yields are based on past results and are not an indication of
future performance.

MANAGEMENT OF THE TRUSTS AND THE PORTFOLIOS

Board of Trustees

The Trusts and each Portfolio is governed by a Board of Trustees which is
responsible for protecting the interests of investors. A majority of the
Trustees who are not "interested persons" (as defined in the 1940 Act) of the
Trusts or the Portfolio, as the case may be, have adopted written procedures
reasonably appropriate to deal with potential conflicts of interest arising from
the fact that the same individuals are Trustees of the Trusts and the
Portfolios, up to and including creating separate boards of trustees. See
"Management of the Trusts and the Portfolios" in the SAI for more information
with respect to the Trustees and officers of the Trusts and each Portfolio.

Investment Adviser

Bankers Trust Company and Its Affiliates
Bankers Trust Company, a New York banking corporation with principal offices at
280 Park Avenue, New York, New York 10017, is a wholly owned subsidiary of
Bankers Trust New York Corporation. Bankers Trust conducts a variety of general
banking and trust activities and is a major wholesale supplier of financial
services to the international and domestic institutional market.

<PAGE>

As of September 30, 1995, Bankers Trust New York Corporation was the ninth
largest bank holding company in the United States with total assets of
approximately $104 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 120 offices in more than 40
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 $200 billion in assets under management globally. Of that
total, approximately $83 billion are in U.S. equity index assets alone. When
bond and international funds are included, Bankers Trust manages approximately
$96 billion in total index assets. This makes Bankers Trust one of the nation's
leading managers of index 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 each Portfolio.

The Investment Advisory Agreements provide for each Portfolio to pay Bankers
Trust receives a fee from each Portfolio, accrued daily and paid monthly, equal
on an annual basis to the following percentages of the average daily net assets
of the Portfolio for its then-current fiscal year: U.S. Bond Index Portfolio,
0.15%; Equity 500 Equal Weighted Index Portfolio, 0.25%; Small Cap Index
Portfolio, 0.15%; EAFE(R) Equity Index Portfolio, 0.25%; and Equity 500 Index
Portfolio, 0.10%.

<PAGE>

Louis R. D'Arienzo, Vice President of Bankers Trust, is responsible for the day-
to-day management of the U.S. Bond Index Portfolio. Mr. D'Arienzo has been
employed by Bankers Trust since 1981 and has twelve years of trading and
investment experience in fixed income securities.

<PAGE>

Administrator

Under its Administration and Services Agreement with each Trust, Bankers Trust
calculates the net asset value of each Fund and generally assists the Board of
Trustees of the Trust in all aspects of the administration and operation of the
Funds. The Administration and Services Agreement provides for the respective
Trust to pay Bankers Trust a fee, accrued daily and paid monthly equal on an
annual basis to the following percentages of the average daily net assets of the
Fund, attributable to the Class, for its then-current fiscal year: U.S. Bond
Index Fund, 0.20%; Equity 500 Equal Weighted Index Fund, 0.30%; Small Cap Index
Fund, 0.25%; EAFE(R) Equity Index Fund, 0.30%; and Equity 500 Index Fund, 0.30%.

Distributor

Under its Distribution Agreement with each Trust, SBDS, as Distributor, serves
as the Trusts' principal underwriter on a best efforts basis. In addition, SBDS
provides the Trusts with office facilities. SBDS is a wholly owned subsidiary of
Signature Financial Group, Inc. ("SFG"). SFG and its affiliates currently
provide administration and distribution services for other registered investment

<PAGE>

companies. The principal business address of SFG and SBDS is 6 St. James Avenue,
Boston, Massachusetts 02116.

ACCOUNT INFORMATION

TYPES OF ACCOUNTS
Read your Investment Professional's program materials in conjunction with this
Prospectus for details of services that may differ from those described in the
Prospectus and for additional fees that may apply. Some of the services and
features of this Prospectus may not be available to you. Certain features of the
Funds, such as minimum initial or subsequent investment amounts, may be modified
in these programs, and administrative charges may be imposed for the services
rendered.

The different ways to set up (register) your account with BT Advisor Funds are
listed below.

Ways to Set Up Your Account

Retirement
To shelter your retirement savings from taxes
Retirement plans allow individuals to shelter investment income and capital
gains from current taxes. In addition, contributions to these accounts may be
tax deductible. Retirement accounts require special applications and typically
have lower minimums.

o Rollover IRAs retain special tax advantages for certain distributions from
employer sponsored retirement plans.

<PAGE>

o 401(k) Plans allow employees of corporations of all sizes to contribute a
percentage of their wages on a tax deferred basis. These accounts need to be
established by the trustee of the plan.

Money Purchase/Profit Sharing Plans (Keogh Plans) are tax deferred pension
accounts designated for employees of unincorporated businesses or for persons
who are self-employed.

Gifts or Transfers to a Minor (UGMA, UTMA) To invest for a child's education or
other future needs
These custodial accounts provide a way to give money to a child and obtain tax
benefits. An individual can give up to $10,000 a year per child without paying
federal gift tax. Depending on state laws, you can set up a custodial account
under the Uniform Gifts to Minors Act (UGMA) or the Uniform Transfers to Minors
Act (UTMA). Contact your Investment Professional.

Trust
For money being invested by a trust
The trust must be established before on account can be opened.

Business or Organization
For investment needs of corporations, associations, partnerships, or other
groups Contact your Investment Professional.

HOW TO BUY SHARES

Shares are purchased at the Fund's net asset value ("NAV") next calculated after
your investment is received and accepted. The NAV is normally calculated at 4:00
p.m. Eastern time.

If you are placing your order through an Investment Professional, it is the
responsibility of your Investment Professional to transmit your order to buy
Shares to the Transfer Agent before 4:00 p.m. Eastern time.

Share certificates are not available for Shares of the Funds.

If you are new to BT Advisor Funds, complete and sign an account application and
mail it along with your check. If there is no account application accompanying
this Prospectus, call your Investment Professional.

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

<PAGE>

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 Investment Professional.

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

Minimum Investments
To Open an Account $2,500
For retirement accounts $ 500
Through automatic investment plans $1,000

To Add to an Account $ 250
For retirement accounts $ 100
Through automatic investment plan $ 100

Minimum Balance $1,000
For retirement accounts None

For further information on opening an account, please consult your Investment
Professional or refer to the account application.

<TABLE>
<S> <C> <C>
To Open an Account To Add to an Account

Phone your Contact your Contact your Investment Professional
Investment Investment or call 1-(800) 730-
Professional Professional. If you 1313. You may exchange from another
are an existing BT Advisor
shareholder, you may Funds account (or a fund in the BT
exchange from another Family of Funds) with the same
BT account with the registration, including name,
same ergistration, address, and taxpayer ID number.
including name,
address, and taxpayer
ID number.

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

Mail Complete and sign the Make your check payable to the
account application. complete name of the Fund of your
Make your check choice. Indicate your Fund account
payable to the number on your check and mail to the
complete name of the address printed on your account
Fund of your choice. statement. Exchange by mail: call
Mail to the your Investment Professional for
appropriate address instructions.
indicated on the
application.
- --------------------------------------------------------------------------------------------------------------------------

<PAGE>

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

In Person Take your account Take your check to your Investment
application and check Professional.
to your Investment
Professional.
- --------------------------------------------------------------------------------------------------------------------------

Wire Not available. Call your Investment Professional or
wire to:

Routing No.: 021001033
Attn: Bankers Trust/
DDA No. 00-226-296
FBO: (Account name)
(Account number)
IFTC Deposit
Credit: Fund Number
U.S. Bond Index Fund - 507
Equity 500 Equal Weighted Index Fund
- 508
Small Cap Index Fund - 509
EAFE(R) Equity Index Fund - 510
Equity 500 Index Fund - 462

Specify the complete name of the fund
of your choice, include your
account number and your name.
- --------------------------------------------------------------------------------------------------------------------------

Automatically Not available. Use the Systematic Investment
Program. Sign up for this service
when opening your account, or call
your Investment Professional to begin
the program. The initial minimum
investment in this program is $1,000.

- --------------------------------------------------------------------------------------------------------------------------
</TABLE>

HOW TO SELL SHARES

To sell Shares in a retirement account, your request must be made in writing,
except for exchanges to other eligible funds in the BT Family of Funds, which
can be requested by phone or in writing. For information on retirement
distributions contact your Investment Professional or call 1-800- 677-7596.

If you are selling some but not all of your non-retirement account Shares, leave
at least $1,000 worth of Shares in the account to keep it open.

<PAGE>

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

o You wish to redeem more than $100,000 worth of Shares, o Your account
registration has changed within the last 30 days, o The check is being mailed to
a different address than the one on your account
(record address),
o The check is being made payable to someone other than the account owner, o The
redemption proceeds are being transferred to a BT account with a different
registration, or
o You wish to have redemption proceeds wired to a non-predesignated bank
account.

Selling Shares in Writing

Write a "letter of instruction" with:

Deliver your letter to your Investment Professional, or mail it to the following
address:

Bankers Trust Company
P.O. Box 419210
Kansas City, MO 64141-6210

overnight mailings:
Bankers Trust Company
210 West 10th Street, 8th Floor
Kansas City, MO 64105-1716

Unless otherwise instructed, the Transfer Agent will send a check to the record
address.

Additional Information About Selling Shares

<TABLE>
<S> <C> <C>
Account Type Special Requirements

Phone your All account types except Maximum check request:
Investment retirement $100,000

Professional

<PAGE>

All account types You may exchange to other BT
Advisor Funds (or
other funds in the BT
Family of
Funds) if both accounts are
registered with the same name(s),
address, and taxpayer ID number.

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

Mail or in Individual, Joint Tenant, The letter of instruction (with
Person Sale Proprietorship, UGMA, signature guaranteed, if required)
UTMA must be signed by all persons
required to sign for
transactions, exactly as
their names appear on
the account and sent to
your Investment Professional
or the Transfer Agent.

Retirement account The account owner should
complete a retirement distribution
form. Contact your Investment
Professional or call
1-800-730-7596.

Trust 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 with the last 60 days.

Business or Organization At least one person authorized
by corporate resolution to act on
the account must sign the letter.

Executor, Administrator, For
Conservator/Guardian instructions contact your
Investment Professional or call 1-
800-730-1313.

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

Wire All account types except You must sign up for the wire
retirement feature before using it. To

verify that it is in place,
contact your Investment
Professional or call 1-800-730-1313.
Minimum wire: $500.00.

Your wire redemption request must
be received by the Transfer
Agent before 4:00 p.m.
Eastern time for money tobe wired on
the next business day.
- --------------------------------------------------------------------------------------------------------------------------

</TABLE>

<PAGE>

INVESTOR SERVICES

BT Advisor Funds provide a variety of services to help you manage your account.

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

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

o Account statements (quarterly)
o Financial reports (every six months)

To reduce expenses, only one copy of most financial reports will be mailed, even
if you have more than one account in the Fund. Call your Investment Professional
if you need additional copies of financial reports.

Transaction Services

Exchange privilege. You may sell your Shares and buy Shares of other BT Funds by
telephone or in writing.

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

Minimum

$100
Frequency

Monthly, quarterly,
semi-annually, or
annually
Setting up or changing

To establish call your Investment Professional or call 1-800-730-1313 after your
account is open. The accounts from which the withdrawals be processed must have
a minimum balance of $10,000.

One easy way to pursue your financial goals is to invest money regularly. BT
Funds offer convenient services that let you transfer money into your fund
account, out of your fund account, or between fund accounts automatically. While
regular investment plans do not guarantee a profit and will not protect you
against loss in a declining market, they can be an excellent way to invest for
retirement, a home, educational expenses, and other long-term financial goals.
Certain restrictions apply for retirement accounts. Call your Investment
Professional for more information.

Regular Investment Plans

<PAGE>

Systematic Investment Program

To move money from your bank account to a BT Advisor Funds Fund

Minimum Minimum Frequency Setting up or changing
Initial Subsequent

$1,000 $100 Monthly, bimonthly, For a new account,
quarterly or semi- complete the
annually appropriate section on
the application.

For
existing
accounts,
call your
Investment
Professional
for an
application.
To change
the
amount or
frequency
of your
investment,
contact
your
Investment
Professional
directly
or call
1-800-
730-1313.
Call at
least 10
business
days
prior to
your next
scheduled
investment
date.

Systematic Exchange Program

To move money from one fund in the BT Family of Funds to another.

Minimum Frequency Setting up or changing

$100 Monthly, quarterly, To establish, call your
semi-annually or Investment Professional after
annually both accounts are open.

To change the amount or
frequency of your
investment, contact your
Investment Professional
directly or call 1-800-
-1313. Call at least two
business days prior to your
next scheduled exchange
date.

The account from which the
exchanges are to be
processed must have a
minimum balance of $10,000.
The account into which the
exchange is being processed
must have a minimum of
$1,000.

SHAREHOLDER AND ACCOUNT POLICIES

DIVIDENDS, CAPITAL GAINS, AND TAXES

<PAGE>

Index Fund are distributed quarterly; income dividends for the Small Cap Index
Fund and EAFE(R) Equity Index Fund are distributed annually; and income
dividends for the U.S. Bond Index Fund are distributed monthly.

Distribution Options

When you open an account, specify on your account application how you want to
receive distributions. The Trusts offer four options:

2. Income-Earned Option. Your capital gain distributions will be automatically
reinvested in additional Shares of the Fund, but you will be sent a check for
each dividend distribution.

3. Cash Option. You will be sent a check for your dividend and capital gain
distributions.

4. Automatic Dividends Program. Your dividend and capital gain distributions be
automatically invested in another fund in the BT Family of Funds as long as the
minimums for that account are met.

<PAGE>

attributable to state and local income and personal taxes, if applicable, will
be mailed to shareholders shortly after the end of the year. If living outside
the United States, your distributions from the Funds could also be taxed by the
country in which you reside.

For federal tax purposes, income and short-term capital gain distributions from
each of the Funds are taxed as dividends; long-term capital gain distributions
are taxed as long-term capital gains.

Every January, the Transfer Agent will send the IRS a statement showing the
taxable distributions paid to you in the previous year.

Whenever you sell Shares of a Fund, the Transfer Agent will send you or your
Investment Professional a confirmation statement showing how many Shares you
sold and at what price. You also receive a consolidated transaction statement at
least quarterly. However, it is up to you or your tax preparer to determine
whether this sale resulted in a capital gain and, if so, the amount of tax to be
paid. Be sure to keep your regular account statements; the information they
contain will be essential in calculating the amount of your capital gains.

"Buying a dividend." If you buy Shares just before a Fund deducts a capital gain
distribution or dividend distribution, as applicable, from its NAV, you will pay
the full price for the Shares and then receive a portion of the price back in
the form of a taxable distribution.

Undistributed net gains from currency transactions, if any, will generally be
distributed as a separate dividend in December.

<PAGE>

VALUATION DETAILS

A Fund's NAV is the value of a single Share. The NAV of each 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, allocable to the Advisor
Class Shares by the total number of its Shares outstanding. Each Portfolio's
securities and other assets are valued primarily on the basis of market
quotations or, if quotations are not readily available, by Bankers Trust
pursuant to procedures adopted by the Portfolio's Board of Trustees. These
procedures require Bankers Trust to value such a security at the same value as
an equivalent security which is readily marketable and, in making such
comparisons, to consider all relevant factors under applicable guidelines of the
SEC.

Investors may initiate many transactions by telephone: An Investment
Professional or the Transfer Agent may only be liable for losses resulting from
unauthorized transactions if they do not follow reasonable procedures designed
to verify the identity of the caller. An Investment Professional or the Transfer
Agent will request personalized security codes or other information, and may
also record calls. Investors should verify the accuracy of the confirmation
statements immediately after receipt. If investors do not want the ability to
redeem and exchange by telephone, they should call their Investment Professional
or the Transfer Agent for instructions. Additional documentation may be required
from corporations, associations and certain fiduciaries.

<PAGE>

o All checks should be made payable to the specific Fund.

o All purchases must be made in U.S. dollars and checks must be
drawn on U.S. banks.

o The Funds do not accept third party checks, except those payable to an
existing shareowner who is a natural person (not a corporation or
partnership), credit cards or cash.

o When making a purchase with more than one check, each check must have a
value of at least $50.

o Each Fund reserves the right to limit the number of checks processed at
one time.

o If a check does not clear, the purchase will be cancelled and the
investor could be liable for any losses or fees a Fund or the Transfer
Agent has incurred.

o When purchase are made by check or periodic automatic investment,
redemptions will not be allowed until the investment being redeemed has
been in the account for 15 business days.

o Direct Purchases: In the case of the U.S. Bond Index Fund, investors
begin to earn dividends as of the first business day following the day

the Fund receives payment.

o Automated Order Purchases: In the case of the U.S. Bond Index Fund,
investors begin to earn dividends as of the business day an order is

received and accepted.

Automated Orders Purchase. Shares of the Funds can be purchased or sold through
Investment Professionals utilizing an automated order placement and settlement
system that guarantees payment for orders on a specified date.

To avoid the collection period associated with check purchases, investors should
consider buying Shares by bank wire, U.S. Postal money order, U.S. Treasury

check, or Federal Reserve check.

When investors place an order to sell Shares, Shares will be sold at the next
NAV calculated after the order is received and accepted. Note the following:

o Normally, redemption proceeds will be mailed on the next business day,
but if making immediate payment could adversely affect a Fund it may
take up to seven days to pay you.

<PAGE>

o Each Fund may hold payment on redemptions until it is reasonably
satisfied that investments made by check have been collected which can
take up to seven business days.

o Redemptions may be suspended or payment dates postponed when the NYSE
is closed (other than weekends or holidays), when trading on the NYSE
is restricted, or as permitted by the SEC.

The Transfer Agent reserves the right to deduct an annual maintenance fee of
$12.00 from accounts with a value of less than $2,500 (including any amount paid
as a sales charge). The fee, which is payable to the Transfer Agent, is designed
to offset in part the relatively higher costs of servicing smaller accounts.

If a non-retirement account balance falls below $1,000, the investor will be
given 30 days' notice to reestablish the minimum balance. If the investor does
not increase their balance, the Transfer Agent reserves the right to close the
account and send the proceeds to the investor. The investor's Shares will be
redeemed at the NAV on the day the account is closed.

The Transfer Agent may charge a fee for special services, such as providing
historical account documents, that are beyond the normal scope of its services.

EXCHANGE LIMITATIONS

As a shareholder, investors have the privilege of exchanging Shares of a Fund
for Shares of other funds in the BT Family of Funds at NAV. However, investors
should note the following:

o The Fund an investor exchanges into must be registered for sale in
their state.

o Investors may only exchange between accounts that are registered in the
same name, address, and taxpayer identification number.

o Before exchanging into a Fund, investors should read its Prospectus.

o Exchanges between the Funds described in this Prospectus and Funds
described in other BT Funds' Prospectuses are restricted during the 90
days following purchase. Exchanges among Funds described in this
Prospectus are permitted any time after purchase.

o Exchanges may have tax consequences for you.

<PAGE>

ADDITIONAL INFORMATION ABOUT THE TRUSTS AND PORTFOLIOS

Each Fund is a mutual fund: an investment that pools shareholders' money and
invests it toward a specified goal. Each Fund (with the exception of the Equity
500 Index Fund) is a separate diversified series of BT Advisor Funds, a
Massachusetts business trust. The Equity 500 Index Fund is separate diversified
series of BT Pyramid Mutual Funds. Each Fund (with the exception of the Equity
500 Index Fund) offers two classes of Shares of beneficial interest, Advisor
Class Shares and Institutional Class Shares. Each of the U.S. Bond Index
Portfolio, Equity 500 Equal Weighted Index Portfolio, Small Cap Index Portfolio,
and EAFE(R) Equity Index Portfolio is a separate diversified series of BT
Investment Portfolios, a New York master trust fund. The Equity 500 Index
Portfolio is a New York trust.

<PAGE>

require a separate vote of the Fund or class. All series of each Trust and all
classes will vote together on certain matters, such as electing trustees or
approving independent public auditors. 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 that
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 that Trust's outstanding shares. Each Trust will also
assist shareholders in communicating with one another as provided for in the
1940 Act.

BT0456M

<PAGE>

BT0473E

STATEMENT OF
ADDITIONAL INFORMATION

JANUARY , 1996

BT ADVISOR FUNDS -- INSTITUTIONAL CLASS SHARES

U.S. BOND INDEX FUND
EQUITY 500 EQUAL WEIGHTED INDEX FUND
SMALL CAP INDEX FUND
EAFE(R) EQUITY INDEX FUND
INSTITUTIONAL EQUITY 500 INDEX FUND

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

TABLE OF CONTENTS

Risk Factors and Certain Securities and Investment Practices
Performance Information . . . . . . . . . . . . . . . . . .
Valuation of Securities; Redemptions and Purchases in Kind .
Management of the Trusts and the Portfolios . . . . . . . .
Organization of the Trusts . . . . . . . . . . . . . . . . .
Taxation . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial Statements . . . . . . . . . . . . . . . . . . . .

Appendix A . . . . . . . . . . . . . . . . . . . . . . . .
Appendix B . . . . . . . . . . . . . . . . . . . . . . . . .

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

<PAGE>

Since the investment characteristics of the Funds will correspond directly to
those of the respective Portfolio in which the Fund invests all of its Assets,
the following is a discussion of the various investments of and techniques
employed by the Portfolios.

Shares of the Funds are sold by Signature Broker-Dealer Services,
Inc. ("Signature"), the Trusts' Distributor, to clients and
customers (including affiliates and correspondents) of Bankers
Trust Company ("Bankers Trust"), the Portfolios' Adviser, and to
clients and customers of other organizations.

The Trusts' Prospectus for the Funds is dated January , 1996. The Prospectus
provides the basic information investors should know before investing and may be
obtained without charge by calling the Trust at the telephone number listed
below or by contacting your Investment Professional. This Statement of
Additional Information, which is not a Prospectus, is intended to provide
additional information regarding the activities and operations of the Trusts and
should be read in conjunction with the Funds' Prospectus. This Statement of
Additional Information is not an offer of any Fund for which an investor has not
received a Prospectus. Capitalized terms not otherwise defined in this Statement
of Additional Information have the meanings accorded to them in the Fund's
Prospectus.

BANKERS TRUST COMPANY
INVESTMENT ADVISER OF EACH PORTFOLIO AND ADMINISTRATOR
SIGNATURE BROKER-DEALER SERVICES, INC.
DISTRIBUTOR

6 ST. JAMES AVENUE BOSTON, MASSACHUSETTS 02116 (800) 422-6577

<PAGE>

RISK FACTORS AND CERTAIN SECURITIES AND INVESTMENT PRACTICES

INVESTMENT OBJECTIVES

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

INVESTMENT PRACTICES

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

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

ILLIQUID SECURITIES. Historically, illiquid securities have

<PAGE>

included securities subject to contractual or legal restrictions on resale
because they have not been registered under the Securities Act of 1933, as
amended (the "1933 Act"), securities which are otherwise not readily marketable
and repurchase agreements having a maturity of longer than seven days.
Securities which have not been registered under the 1933 Act are referred to as
private placements or restricted securities and are purchased directly from the
issuer or in the secondary market. Mutual funds do not typically hold a
significant amount of these restricted or other illiquid securities because of
the potential for delays on resale and uncertainty in valuation. Limitations on
resale may have an adverse effect on the marketability of portfolio securities
and a mutual fund might be unable to dispose of restricted or other illiquid
securities promptly or at reasonable prices and might thereby experience
difficulty satisfying redemptions within seven days. A mutual fund might also
have to register such restricted securities in order to dispose of them
resulting in additional expense and delay. Adverse market conditions could
impede such a public offering of securities.

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

The Securities and Exchange Commission (the "SEC") has adopted Rule 144A, which
allows a broader institutional trading market for securities otherwise subject
to restriction on their resale to the general public. Rule 144A establishes a
"safe harbor" from the registration requirements of the 1933 Act of resales of
certain securities to qualified institutional buyers. The 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 each
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: (i) the frequency of trades and quotes for
the security; (ii) the number of dealers and other potential purchasers wishing
to purchase or sell the security; (iii) dealer

<PAGE>

undertakings to make a market in the security and (iv) the nature of the
security and of the marketplace trades (e.g., the time needed to dispose of the
security, the method of soliciting offers and the mechanics of the transfer).

LENDING OF PORTFOLIO SECURITIES. Each Portfolio has the authority to lend
portfolio securities to brokers, dealers and other financial organizations. The
Portfolio will not lend securities to Bankers Trust, Signature or their
affiliates. By lending its securities, a Portfolio can increase its income by
continuing to receive interest on the loaned securities as well as by either
investing the cash collateral in short-term securities or obtaining yield in the
form of interest paid by the borrower when U.S. Government obligations are used
as collateral.
There may be risks of delay in receiving additional collateral or risks of
delay in recovery of the securities or even loss of rights in the collateral
should the borrower of the securities fail financially. A Portfolio will adhere
to the following conditions whenever its securities are loaned: (i) the
Portfolio must receive at least 100 percent cash collateral or equivalent
securities from the borrower; (ii) the borrower must increase this collateral
whenever the market value of the securities including accrued interest rises
above the level of the collateral; (iii) the Portfolio must be able to terminate
the loan at any time; (iv) the Portfolio must receive reasonable interest on the
loan, as well as any dividends, interest or other distributions on the loaned
securities, and any increase in market value; (v) the Portfolio may pay only
reasonable custodian fees in connection with the loan; and (vi) voting rights on
the loaned securities may pass to the borrower; provided, however, that if a
material event adversely affecting the investment occurs, the Board of Trustees
of the Portfolio must terminate the loan and regain the right to vote the
securities.

SHORT-TERM INSTRUMENTS. When a Portfolio experiences large cash inflows through
the sale of securities and desirable equity securities, that are consistent with
the Portfolio's investment objective, which are unavailable in sufficient
quantities or at attractive prices, the Portfolio may hold short-term
investments for a limited time pending availability of such equity securities.
Short-term instruments consist of foreign and domestic: (i) short-term
obligations of sovereign governments, their agencies, instrumentalities,
authorities or political subdivisions; (ii) other short-term debt securities
rated AA or higher by S&P or Aa or higher by Moody's or, if unrated, of
comparable quality in the opinion of Bankers Trust; (iii) commercial paper; (iv)
bank obligations, including negotiable certificates of deposit, time deposits
and banker's acceptances; and (v) repurchase agreements. At the time the
Portfolio invests in commercial paper, bank obligations or repurchase
agreements, the issuer of the issuer's parent must have outstanding debt rated
AA or higher by S&P or Aa or higher by Moody's or outstanding commercial paper
or bank obligations rated A-1 by S&P or Prime-1 by Moody's; or, if no such
ratings are available, the

<PAGE>

instrument must be of comparable quality in the opinion of Bankers Trust. These
instruments may be denominated in U.S dollars or in foreign currencies.

WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. Each Portfolio may purchase
securities on a when-issued or delayed delivery basis. For example, delivery of
and payment for these securities can take place a month or more after the date
of the purchase commitment. The purchase price and the interest rate payable, if
any, on the securities are fixed on the purchase commitment date or at the time
the settlement date is fixed. The value of such securities is subject to market
fluctuation and no interest accrues to a Portfolio until settlement takes place.
At the time a Portfolio makes the commitment to purchase securities on a
when-issued or delayed delivery basis, it will record the transaction, reflect
the value each day of such securities in determining its net asset value and, if
applicable, calculate the maturity for the purposes of average maturity from
that date. At the time of settlement a when-issued security may be valued at
less than the purchase price. To facilitate such acquisitions, each Portfolio
will maintain with the Custodian a segregated account with liquid assets,
consisting of cash, U.S. Government securities or other appropriate securities,
in an amount at least equal to such commitments. On delivery dates for such
transactions, each Portfolio will meet its obligations from maturities or sales
of the securities held in the segregated account and/or from cash flow. If a
Portfolio chooses to dispose of the right to acquire a when-issued security
prior to its acquisition, it could, as with the disposition of any other
portfolio obligation, incur a gain or loss due to market fluctuation. It is the
current policy of each Portfolio not to enter into when-issued commitments
exceeding in the aggregate 15% of the market value of the Portfolio's total
assets, less liabilities other than the obligations created by when-issued
commitments.

ADDITIONAL U.S. GOVERNMENT OBLIGATIONS. Each Portfolio may invest in obligations
issued or guaranteed by U.S. Government agencies or instrumentalities. These
obligations may or may not be backed by the "full faith and credit" of the
United States. In the case of securities not backed by the full faith and credit
of the United States, each Portfolio must look principally to the federal agency
issuing or guaranteeing the obligation for ultimate repayment, and may not be
able to assert a claim against the United States itself in the event the agency
or instrumentality does not meet its commitments. Securities in which each
Portfolio may invest that are not backed by the full faith and credit of the
United States include, but are not limited to, obligations of the Tennessee
Valley Authority, the Federal Home Loan Mortgage Corporation and the U.S. Postal
Service, each of which has the right to borrow from the U.S. Treasury to meet
its obligations, and obligations of the Federal Farm Credit System and the
Federal Home Loan Banks, both of whose obligations may be satisfied only by the
individual credits of

<PAGE>

each issuing agency. Securities which are backed by the full
faith and credit of the United States include obligations of the
Government National Mortgage Association, the Farmers Home
Administration, and the Export-Import Bank.

EQUITY INVESTMENTS. With the exception of the U.S. Bond Index Portfolio, each
Portfolio may invest in equity securities listed on any domestic or foreign
securities exchange or traded in the over-the-counter market as well as certain
restricted or unlisted securities. They may or may not pay dividends or carry
voting rights. Common stock occupies the most junior position in a company's
capital structure.

SWAP AGREEMENTS. Swap agreements are contracts entered into by two parties,
primarily institutional investors, for periods ranging from a few weeks to more
than one year. In a standard swap transaction, two parties agree to exchange the
returns (or differentials in rates of return) earned or realized on particular
predetermined investments or instruments. The gross returns to be exchanged or
swapped between the parties are calculated with respect to a notional amount,
I.E., the return on or increase in value of a particular dollar amount invested
at a particular interest rate, in a particular foreign currency, or in a basket
of securities representing a particular index. The notional amount of the swap
agreement is only a fictive basis on which to calculate the obligations which
the parties to a swap agreement have agreed to exchange. A Portfolio's
obligations (or rights) under a swap agreement will generally be equal only to
the net amount to be paid or received under the agreement based on the relative
values of the positions held by each party to the agreement (the "net amount").
A Portfolio's obligations under a swap agreement will be accrued daily (offset
against any amounts owing to the Portfolio) and any accrued but unpaid net
amounts owed to a swap counterparty will be covered by the maintenance of a
segregated account consisting of cash, U.S. Government securities, or high grade
debt obligations, to avoid any potential leveraging of the Portfolio's
portfolio.

The use of swap agreements will be successful in furthering its investment
objective will depend on the Adviser's ability to correctly predict whether
certain types of investments are likely to produce greater returns than other
investments. Swap agreements may be considered to be illiquid because they are
two party contracts and because they may have terms of greater than seven days.
Moreover, a Portfolio bears the risk of loss of the amount expected to be
received under a swap agreement in the event of the default or bankruptcy of a
swap agreement counterparty. A Portfolio will enter into swap agreements only
with counterparties that would be eligible for consideration as repurchase
agreement counterparties under the Portfolio's repurchase agreement guidelines.
Certain restrictions imposed on the Portfolios by the Internal Revenue Code may
limit the Portfolios' ability to use swap agreements. The swaps market is a
relatively new market and is largely unregulated. It is

<PAGE>

possible that developments in the swaps market, including potential government
regulation, could adversely affect a Portfolio's ability to terminate existing
swap agreements or to realize amounts to be received under such agreements.

Certain swap agreements are exempt from most provisions of the Commodity
Exchange Act (the "CEA") and, therefore, are not regulated as futures or
commodity option transactions under the CEA, pursuant to regulations approved by
the Commodity Futures Trading Commission (the "CFTC") effective February 22,
1993. To qualify for this exemption, a swap agreement must be entered into by
eligible participants, which includes the following, provided the participant's
total assets exceed established levels: a bank or trust company, savings
association or credit union, insurance company, investment company subject to
regulation under the Investment Company Act of 1940, as amended (the "1940
Act"), commodity pool, corporation, partnership, proprietorship, organization,
trust or other entity, employee benefit plan, governmental entity,
broker-dealer, futures commission merchant, natural person, or regulated foreign
person. To be eligible, natural persons and most other entities must have total
assets exceeding $10 million; commodity pools and employee benefit plans must
have asset exceeding $5 million. In addition, an eligible swap transaction must
meet three conditions. First, the swap agreement may not be part of a fungible
class of agreements that are standardized as to their material economic terms.
Second, the creditworthiness of parties with actual or potential obligations
under the swap agreement must be a material consideration in entering into or
determining the terms of the swap agreement, including pricing, cost or credit
enhancement terms. Third, swap agreements may not be entered into and traded on
or through a multilateral transaction execution facility.

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

REVERSE REPURCHASE AGREEMENTS. The Portfolios may borrow funds for temporary or
emergency purposes, such as meeting larger than anticipated redemption requests,
and not for leverage, by among other things, agreeing to sell portfolio
securities to financial institutions such as banks and broker-dealers and to
repurchase them at a mutually agreed date and price (a "reverse repurchase
agreement"). At the time a Portfolio enters into a reverse repurchase agreement
it will place in a segregated custodial account cash, U.S. Government
Obligations or high-grade debt obligations having a value equal to the
repurchase price,

<PAGE>

including accrued interest. Reverse repurchase agreements involve the risk that
the market value of the securities sold by a Portfolio may decline below the
repurchase price of those securities. Reverse repurchase agreements are
considered to be borrowings by a Portfolio.

WARRANTS. Warrants entitle the holder to buy common stock from the issuer at a
specific price (the strike price) for a specific period of time. The strike
price of warrants sometimes is much lower than the current market price of the
underlying securities, yet warrants are subject to similar price fluctuations.
As a result, warrants may be more volatile investments than the underlying
securities.

Warrants do not entitle the holder to dividends or voting rights with respect to
the underlying securities and do not represent any rights in the assets of the
issuing company. Also, the value of the warrant does not necessarily change with
the value of the underlying securities and a warrant ceases to have value if it
is not exercised prior to the expiration date.

CONVERTIBLE SECURITIES. Convertible securities may be a debt security or
preferred stock which may be converted into common stock or carries the right to
purchase common stock. Convertible securities entitle the holder to exchange the
securities for a specified number of shares of common stock, usually of the same
company, at specified prices within a certain period of time.

The terms of any convertible security determine its ranking in a company's
capital structure. In the case of subordinated convertible debentures, the
holders' claims on assets and earnings are subordinated to the claims of other
creditors, and are senior to the claims of preferred and common shareholders. In
the case of convertible preferred stock, the holders' claims on assets and
earnings are subordinated to the claims of all creditors and are senior to the
claims of common shareholders.

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

<PAGE>

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

FANNIE MAE CERTIFICATES. Fannie Mae is a federally
chartered and privately owned corporation organized and existing
under the Federal National Mortgage Association Charter Act of
1938. The obligations of FNMA are not backed by the full faith
and credit of the U.S. Government.

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

FREDDIE MAC CERTIFICATES. Freddie Mac is a corporate instrumentality of
the United States created pursuant to the Emergency Home Finance Act of 1970, as
amended (the "FHLMC Act").
The obligations of Freddie Mac are obligations solely of Freddie Mac and are
not backed by the full faith and credit of the U.S. Government.

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

<PAGE>

interests in whole loans and undivided interests in whole loans and
participations comprising another Freddie Mac Certificate group.

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

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

LIBOR, the London interbank offered rate, is the interest rate that the
most creditworthy international banks dealing in

<PAGE>

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

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

MORTGAGE-BACKED SECURITIES AND ASSET-BACKED SECURITIES--TYPES OF CREDIT
SUPPORT. The mortgage-backed securities in which the U.S. Bond Index Portfolio
may invest are limited to those relating to residential mortgages.
Mortgage-backed securities and asset-backed securities are often backed by a
pool of assets representing the obligations of a number of different parties. To
lessen the effect of failure by obligors on underlying assets to make payments,
such securities may contain elements of credit support. Such credit support
falls into two categories: (i) liquidity protection and (ii) protection against
losses resulting from ultimate default by an obligor on the underlying assets.
Liquidity protection refers to the provision of advances, generally by the
entity administering the pool of assets, to ensure that the pass-through of
payments due on the underlying pool occurs in a timely fashion. Protection
against losses resulting from ultimate default enhances the likelihood of
ultimate payment of the obligations on at least a portion of the assets in the
pool. Such protection may be provided through guarantees, insurance policies or
letters of credit obtained by the issuer or sponsor from third parties, through
various means of structuring the

<PAGE>

transaction or through a combination of such approaches. The U.S. Bond Index
Portfolio will not pay any additional fees for such credit support, although the
existence of credit support may increase the price of a security.

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

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

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

<PAGE>

decision-making; (ii) popular unrest associated with demands for improved
political, economic and social conditions; (iii) internal insurgencies; (iv)
hostile relations with neighboring countries; and (v) ethnic, religious and
racial disaffection.

The economies of most of the Asian countries are heavily dependent upon
international trade and are accordingly affected by protective trade barriers
and the economic conditions of their trading partners, principally, the United
States, Japan, China and the European Community. The enactment by the United
States or other principal trading partners of protectionist trade legislation,
reduction of foreign investment in the local economies and general declines in
the international securities markets could have a significant adverse effect
upon the securities markets of the Asian countries.

Hong Kong's impending return to Chinese dominion in 1997 has not initially had a
positive effect on its economic growth which was vigorous in the 1980s. However,
authorities in Beijing have agreed to maintain a capitalist system for 50 years
that, along with Hong Kong's economic growth, continued to further strong stock
market returns. In preparation for 1997, Hong Kong has to develop trade with
China, where it is the largest foreign investor, while also maintaining its
longstanding export relationship with the United States. Spending on
infrastructure improvements is a significant priority of the colonial government
while the private sector continues to diversify abroad based on its position as
an established international trade center in the Far East.

The Hong Kong stock market is undergoing a period of growth and change which may
result in trading volatility and difficulties in the settlement and recording of
transactions, and in interpreting and applying the relevant law and regulations.

The Malaysian economy continued to perform well, growing at an average annual
rate of 9% from 1987 through 1991. This placed Malaysia as one of the fastest
growing economies in the Asian-Pacific region. Malaysia has become the world's
third-largest producer of semiconductor devices (after the US and Japan) and the
world's largest exporter of semiconductor devices.
More remarkable is the country's ability to achieve rapid economic growth with
relative price stability (2% inflation over the past five years) as the
government followed prudent fiscal/monetary policies. Malaysia's high export
dependence level leaves it vulnerable to a recession in the Organization for
Economic Cooperation and Development countries or a fall in world commodity
prices.

Singapore has an open entrepreneurial economy with strong service and
manufacturing sectors and excellent international trading links derived from its
entrepot history. During the 1970's and early 1980's, the economy expanded
rapidly, achieving an average annual growth rate of 9%. Per capita GDP is among
the highest in

<PAGE>

Asia. Singapore holds a position as a major oil refining and
services center.

Investing in Japanese securities may involve the risks associated with investing
in foreign securities generally. In addition, because it invests in Japan, the
EAFE(R) Equity Index Portfolio will be subject to the general economic and
political conditions in Japan.

Share prices of companies listed on Japanese stock exchanges and on the Japanese
OTC market reached historical peaks (which were later referred to as the
"bubble") as well as historically high trading volumes in 1989 and 1990. Since
then, stock prices in both markets decreased significantly, with listed stock
prices reaching their lowest levels in the third quarter of 1992 and OTC stock
prices reaching their lowest levels in the fourth quarter of 1992. During the
period from January 1, 1989 through December 31, 1994, the highest Nikkei stock
average and Nikkei OTC average were 38,915.87 and 4,149.20, respectively, and
the lowest for each were 14,309.41 and 1,099.32, respectively. There can be no
assurance that additional market corrections will not occur.

The common stocks of many Japanese companies continue to trade at high price
earnings ratios in comparison with those in the United States, even after the
recent market decline. Differences in accounting methods make it difficult to
compare the earnings of Japanese companies with those of companies in other
countries, especially the United States.

Since the EAFE(R) Equity Index Portfolio invests in securities denominated in
yen, changes in exchange rates between the U.S. dollar and the yen affect the
U.S. dollar value of the EAFE(R) Equity Index Portfolio's assets. Such rate of
exchange is determined by forces of supply and demand on the foreign exchange
markets. These forces are in turn affected by the international balance of
payments and other economic, political and financial conditions, government
intervention, speculation and other factors.

Japanese securities held by the EAFE(R) Equity Index Portfolio are not
registered with the SEC nor are the issuers thereof subject to its reporting
requirements. There may be less publicly available information about issuers of
Japanese securities than about U.S. companies and such issuers may not be
subject to accounting, auditing and financial reporting standards and
requirements comparable to those to which U.S. companies are subject.

<PAGE>

Japan's success in exporting its products has generated a sizeable trade
surplus. Such trade surplus has caused tensions at times between Japan and some
of its trading partners. In particular, Japan's trade relations with the United
States have recently been the subject of discussion and negotiation between the
two nations. The United States has imposed certain measures designed to address
trade issues in specific industries. These measures and similar measures in the
future may adversely affect the performance of the EAFE(R) Equity Index
Portfolio.

Japan's economy has typically exhibited low inflation and low interest rates.
There can be no assurance that low inflation and low interest rates will
continue, and it is likely that a reversal of such factors would adversely
affect the Japanese economy. Moreover, the Japanese economy may differ,
favorably or unfavorably, from the U.S. economy in such respects as growth of
gross national product, rate of inflation, capital reinvestment, resources,
self-sufficiency and balance of payments position.

Japan has a parliamentary form of government. In 1993 a coalition government was
formed which, for the first time since 1955, did not include the Liberal
Democratic Party. Since mid-1993, there have been several changes in leadership
in Japan. What, if any, effect the current political situation will have on
prospective regulatory reforms of the economy in Japan cannot be predicted.
Recent and future developments in Japan and neighboring Asian countries may lead
to changes in policy that might adversely affect the EAFE(R) Equity Index
Portfolio.

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, a
Portfolio may not achieve the anticipated benefits of futures contracts or
options on futures contracts or may realize losses and thus will be in a worse
position than if such strategies had not been used. In addition, the correlation
between movements in the price of futures contracts or options on futures
contracts and movements in the price of the securities and currencies hedged or
used for cover will not be perfect and could produce unanticipated losses.

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

<PAGE>

its judgement will be correct. Successful use of options on securities or stock
indices are subject to similar risk considerations. In addition, by writing
covered call options, the Portfolio gives up the opportunity, while the option
is in effect, to profit from any price increase in the underlying securities
above the options exercise price.

FUTURES CONTRACTS. Each Portfolio may enter into contracts for the purchase or
sale for future delivery of fixed-income securities, 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 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. Each Portfolio may
enter into futures contracts which are based on debt securities that are backed
by the full faith and credit of the U.S. Government, such as long-term U.S.
Treasury Bonds, Treasury Notes, GNMA modified pass-through mortgage-backed
securities and three-month U.S. Treasury Bills. A Portfolio may also enter into
futures contracts which are based on bonds issued by 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

<PAGE>

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, a Portfolio could take
advantage of the anticipated rise in the value of debt securities without
actually buying them until the market had stabilized. At that time, the futures
contracts could be liquidated and the Portfolio could then buy debt securities
on the cash market. To the extent a 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

<PAGE>

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

OPTIONS ON FUTURES CONTRACTS. Each Portfolio may purchase and write options on
futures contracts for hedging purposes. The purchase of a call option on a
futures contract is similar in some respects to the purchase of a call option on
an individual security. 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 a 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.

The writing of a call option on a futures contract constitutes a partial hedge
against declining prices of the underlying security or foreign currency which is
deliverable upon exercise of the futures contract. If the futures price at
expiration of the option is below the exercise price, a Portfolio will retain
the full amount of the option premium which provides a partial hedge against any
decline that may have occurred in the Portfolio's portfolio holdings. The
writing of a put option on a futures contract constitutes a partial hedge
against increasing prices of the underlying security or foreign currency which
is deliverable

<PAGE>

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

The Board of Trustees of each Portfolio has adopted the requirement that futures
contracts and options on futures contracts be used as a hedge and may also use
stock index futures on continual basis to equitize cash so that the fund may
maintain 100% equity exposure. In addition to this requirement, the Board of
Trustees of each Portfolio has also adopted a 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 EAFE(R) Equity Index Portfolio may purchase
and write options on foreign currencies for hedging purposes in a manner similar
to that in which futures contracts on foreign currencies, or forward contracts,
will be utilized. For example, a decline in the dollar value of a foreign
currency in which portfolio securities are denominated will reduce the dollar
value of such securities, even if their value in the foreign currency remains
constant. In order to protect against such diminutions in the value of portfolio
securities, the Portfolio may purchase put options on the foreign currency. If
the value of the currency does decline, the Portfolio will have the right to
sell such currency for a fixed

<PAGE>

amount in dollars and will thereby offset, in whole or in part, the adverse
effect on its portfolio which otherwise would have resulted.

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

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

The EAFE(R) Equity Index Portfolio intends to 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

<PAGE>

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 EAFE(R) Equity Index Portfolio also 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
marked to market daily.

ADDITIONAL RISKS OF OPTIONS ON FUTURES CONTRACTS, FORWARD CONTRACTS AND OPTIONS
ON FOREIGN CURRENCIES. Unlike transactions entered into by a Portfolio in
futures contracts, options on foreign currencies and forward contracts are not
traded on contract markets regulated by the CFTC or (with the exception of
certain foreign currency options) by the SEC. To the contrary, such instruments
are traded through financial institutions acting as 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
Forward currency option positions entered into on a national securities exchange
are cleared and guaranteed by the

<PAGE>

Options Clearing Corporation (the "OCC"), thereby reducing the risk of
counterparty default. Further, a liquid secondary market in options traded on a
national securities exchange may be more readily available than in the
over-the-counter market, potentially permitting a Portfolio to liquidate open
positions at a profit prior to exercise or expiration, or to limit losses in the
event of adverse market movements.

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. A Portfolio's ability
to terminate over-the-counter options will be more limited than with
exchange-traded options. It is also possible that broker-dealers participating
in over-the-counter options transactions will not fulfill their obligations.
Until such time as the staff of the SEC changes its position, each Portfolio
will treat purchased over-the-counter options and assets used to cover written
over-the-counter options as illiquid securities. 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

<PAGE>

settlement terms and procedures and margin requirements than in the United
States; and (v) lesser trading volume.

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

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

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

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

<PAGE>

or it may be forced to hold underlying securities until an option
is exercised or expires.

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

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

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

<PAGE>

options would tend to be offset by countervailing changes in the value of
underlying portfolio securities.

Each 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.

A 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 Portfolios' Trustees.

OPTIONS ON SECURITIES INDICES. In addition to options on securities, each
Portfolio may also purchase and write (sell) call and put options on securities
indices. Such options give the holder the right to receive a cash settlement
during the term of the option based upon the difference between the exercise
price and the value of the index. Such options will be used for the purposes
described above under "Options on Securities."

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

Options on securities indices entail risks in addition to the
risks of options on securities. The absence of a liquid

<PAGE>

secondary market to close out options positions on securities indices is more
likely to occur, although the Portfolio generally will only purchase or write
such an option if the Adviser believes the option can be closed out.

Use of options on securities indices also entails the risk that trading in such
options may be interrupted if trading in certain securities included in the
index is interrupted. The Portfolio will not purchase such options unless the
Adviser believes the market is sufficiently developed such that the risk of
trading in such options is no greater than the risk of trading in options on
securities.

Price movements in a Portfolio's portfolio may not correlate precisely with
movements in the level of an index and, therefore, the use of options on indices
cannot serve as a complete hedge. Because options on securities indices require
settlement in cash, the Adviser may be forced to liquidate portfolio securities
to meet settlement obligations.

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

A forward foreign currency exchange contract is an obligation by a 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. Each Portfolio maintains with its custodian a
segregated account of high grade liquid assets in an amount at least equal to
its obligations under each forward 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.

<PAGE>

exchange rates that would adversely affect a portfolio position or an
anticipated investment position. Since consideration of the prospect for
currency parities will be incorporated into Bankers Trust's long-term investment
decisions, a Portfolio will not routinely enter into 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 a Portfolio's foreign currency denominated portfolio
securities and the use of such techniques will subject a Portfolio to certain
risks.

The matching of the increase in value of a forward contract and the decline in
the U.S. dollar equivalent value of the foreign currency denominated asset that
is the subject of the hedge generally will not be precise. In addition, a
Portfolio may not always be able to enter into 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 a
Portfolio's use of cross-hedges, there can be no assurance that historical
correlations between the movement of certain foreign currencies relative to the
U.S. dollar will continue. Thus, at any time poor correlation may exist between
movements in the exchange rates of the foreign currencies underlying a
Portfolio's cross-hedges and the movements in the exchange rates of the foreign
currencies in which the Portfolio's assets that are the subject of such
cross-hedges are denominated.

RATING SERVICES

<PAGE>

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 a Portfolio, an
obligation may cease to be rated or its rating may be reduced below the minimum
required for purchase by the Portfolio. Neither event would require a Fund to
eliminate the obligation from its portfolio, but Bankers Trust will consider
such an event in its determination of whether a Fund should continue to hold the
obligation. A description of the ratings used herein and in the Funds'
Prospectus is set forth in the Appendix A herein.

INVESTMENT RESTRICTIONS

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

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

<PAGE>

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 "State and Federal Restrictions" below (as an operating
policy, the Portfolios may not engage in dollar roll transactions);

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

(3) make loans to other persons except: (a) through the lending of the
Portfolio's (Fund's) portfolio securities and provided that any such loans not
exceed 30% of the Portfolio's (Fund's) total assets (taken at market value); (b)
through the use of repurchase agreements or the purchase of short-term
obligations; or (c) by purchasing a portion of an issue of debt securities of
types distributed publicly or privately (under current regulations, the
Portfolio's (Fund's) fundamental policy with respect to 20% risk weighing for
financial institutions prevent the Portfolio (Fund) from engaging in securities
lending);

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

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

(6) issue any senior security (as that term is defined in
the 1940 Act) if such issuance is specifically prohibited by the

<PAGE>

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.

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

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

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

(iii) purchase any security or evidence of interest therein on margin,
except that such short-term credit as may be necessary for the clearance of
purchases and sales of securities may be obtained and except that deposits of
initial deposit and variation margin may be made in connection with the
purchase, ownership, holding or sale of futures;

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

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

(vi) purchase securities issued by any investment company except by
purchase in the open market where no commission or profit to a sponsor or dealer
results from such purchase other

<PAGE>

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); provided further that, except in the case of a 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;

(viii) invest more than 15% of the Portfolio's (Fund's) total assets (taken
at the greater of cost or market value) in (a) securities (including Rule 144A
securities) that are restricted as to resale under the 1933 Act, and (b)
securities that are issued by issuers which (including predecessors) have been
in operation less than three years (other than U.S. Government securities),
provided, however, that no more than 5% of the Portfolio's (Fund's) total assets
are invested in securities issued by issuers which (including predecessors) have
been in operation less than three years;

(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) 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;

<PAGE>

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;

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

(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.

<PAGE>

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.

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

PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS

The Adviser is responsible for decisions to buy and sell securities, futures
contracts and options on such securities and futures for each Portfolio, the
selection of brokers, dealers and futures commission merchants to effect
transactions and the negotiation of brokerage commissions, if any.
Broker-dealers may receive brokerage commissions on portfolio transactions,
including options, futures and options on futures transactions and the purchase
and sale of underlying securities upon the exercise of options. Orders may be
directed to any broker-dealer or futures commission merchant, including to the
extent and in the manner permitted by applicable law, Bankers Trust or its
subsidiaries or affiliates. Purchases and sales of certain portfolio securities
on behalf of a Portfolio are frequently placed by the Adviser with the issuer or
a primary or secondary market-maker for these securities on a net basis, without
any brokerage commission being paid by the Portfolio. Trading does, however,
involve transaction costs. Transactions with dealers serving as market-makers
reflect the spread between the bid and asked prices. Transaction costs may also
include fees paid to third parties for information as to potential purchasers or
sellers of securities. Purchases of underwritten issues may be made which will
include an underwriting fee paid to the underwriter.

The Adviser seeks to evaluate the overall reasonableness of the brokerage
commissions paid (to the extent applicable) in placing orders for the purchase
and sale of securities for a Portfolio taking into account such factors as
price, commission (negotiable in the case of national securities exchange
transactions), if any, size of order, difficulty of execution and skill required
of the executing broker-dealer through familiarity with commissions charged on
comparable transactions, as well as by comparing commissions paid by the
Portfolio to reported commissions paid by others. The Adviser reviews on a
routine basis commission rates, execution and settlement services performed,
making internal and external comparisons.

The Adviser is authorized, consistent with Section 28(e) of the

<PAGE>

Securities Exchange Act of 1934, as amended, when placing portfolio transactions
for a Portfolio with a broker to pay a brokerage commission (to the extent
applicable) in excess of that which another broker might have charged for
effecting the same transaction on account of the receipt of research, market or
statistical information. The term "research, market or statistical information"
includes advice as to the value of securities; the advisability of investing in,
purchasing or selling securities; the availability of securities or purchasers
or sellers of securities; and furnishing analyses and reports concerning
issuers, industries, securities, economic factors and trends, portfolio strategy
and the performance of accounts.

Consistent with the policy stated above, the 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 each Portfolio's assets, as well as the assets of other clients.

Except for implementing the policies stated above, there is no intention to
place portfolio transactions with particular brokers or dealers or groups
thereof. In effecting transactions in over-the-counter securities, orders are
placed with the principal market-makers for the security being traded unless,
after exercising care, it appears that more favorable results are available
otherwise.

Although certain research, market and statistical information from brokers and
dealers can be useful to a Portfolio and to the Adviser, it is the opinion of
the management of the Portfolios that such information is only supplementary to
the Adviser's own research effort, since the information must still be analyzed,
weighed and reviewed by the Adviser's staff. Such information may be useful to
the Adviser in providing services to clients other than the Portfolios, and not
all such information is used by the Adviser in connection with the Portfolios.
Conversely, such information provided to the Adviser by brokers and dealers
through whom other clients of the Adviser effect securities transactions may be
useful to the Adviser in providing services to the Portfolios.

<PAGE>

respective investment objectives. It may develop that a particular security is
bought or sold for only one client even though it might be held by, or bought or
sold for, other clients.
Likewise, a particular security may be bought for one or more clients when one
or more clients are selling that same security. Some simultaneous transactions
are inevitable when several clients receive investment advice from the same
investment adviser, particularly when the same security is suitable for the
investment objectives of more than one client. When two or more clients are
simultaneously engaged in the purchase or sale of the same security, the
securities are allocated among clients in a manner believed to be equitable to
each. It is recognized that in some cases this system could have a detrimental
effect on the price or volume of the security as far as a Portfolio is
concerned. However, it is believed that the ability of a Portfolio to
participate in volume transactions will produce better executions for the
Portfolio.

For the years ended December 31, 1994 and 1993, Equity 500 Index Portfolio paid
brokerage commissions in the amount of $97,069 and $63,408, respectively.

PERFORMANCE INFORMATION

STANDARD PERFORMANCE INFORMATION

From time to time, quotations of a Fund's performance may be included in
advertisements, sales literature or shareholder reports. These performance
figures are calculated in the following manner:

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

Income calculated for the purposes of calculating a Fund's yield
differs from income as determined for other accounting purposes.
Because of the different accounting methods used,

<PAGE>

and because of the compounding assumed in yield calculations, the yield
quoted for a Fund may differ from the rate of distributions of the Fund
paid over the same period or the rate of income reported in the Fund's
financial statements.

TOTAL RETURN: A Fund's average annual total return is calculated for
certain periods by determining the average annual compounded rates of
return over those periods that would cause an investment of $1,000
(made at the maximum public offering price with all distributions
reinvested) to reach the value of that investment at the end of the
periods. A Fund may also calculate total return figures which represent
aggregate performance over a period or year-by-year performance.

PERFORMANCE RESULTS: Any total return quotation provided for a Fund
should not be considered as representative of the performance of the
Fund in the future since the net asset value and public offering price
of shares of the Fund will vary based not only on the type, quality and
maturities of the securities held in the corresponding Portfolio, but
also on changes in the current value of such securities and on changes
in the expenses of the Fund and the corresponding Portfolio. These
factors and possible differences in the methods used to calculate total
return should be considered when comparing the total return of a Fund
to total returns published for other investment companies or other
investment vehicles. Total return reflects the performance of both
principal and income.

COMPARISON OF FUND PERFORMANCE

Comparison of the quoted nonstandardized performance of various investments is
valid only if performance is calculated in the same manner. Since there are
different methods of calculating performance, investors should consider the
effect of the methods used to calculate performance when comparing performance
of a Fund with performance quoted with respect to other investment companies or
types of investments.

In connection with communicating its performance to current or prospective
shareholders, a Fund also may compare these figures to the performance of other
mutual funds tracked by mutual fund rating services or to unmanaged indices
which may assume reinvestment of dividends but generally do not reflect
deductions for administrative and management costs.

Evaluations of a Fund's performance made by independent sources may also be used
in advertisements concerning the Fund. Sources for a Fund's performance
information could include the following:

ASIAN WALL STREET JOURNAL, a weekly Asian newspaper that often reviews U.S.
mutual funds investing internationally.

<PAGE>

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

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

CHANGING TIMES, THE KIPLINGER MAGAZINE, a monthly investment advisory
publication that periodically features the performance of a variety of
securities.

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

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

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

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

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

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

INVESTOR'S DAILY, a daily newspaper that features financial, economic and
business news.

LIPPER ANALYTICAL SERVICES, INC.'S MUTUAL FUND PERFORMANCE
ANALYSIS, a weekly publication of industry-wide mutual fund
averages by type of fund.

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

MORNINGSTAR INC., a publisher of financial information and mutual fund research.

NEW YORK TIMES, a nationally distributed newspaper which regularly covers
financial news.

PERSONAL INVESTING NEWS, a monthly news publication that often reports on
investment opportunities and market conditions.

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

<PAGE>

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.

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

<PAGE>

unrestricted securities of the same class at the time of
purchase, special reports prepared by analysts, information as
to any transactions or offers with respect to the security,
existence of merger proposals or tender offers affecting the
security, price and extent of public trading in similar
securities of the issuer or comparable companies, and other
relevant matters.

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

The Trust, on behalf of each Fund, and each Portfolio reserve the right, if
conditions exist which make cash payments undesirable, to honor any request for
redemption or repurchase order by making payment in whole or in part in readily
marketable securities chosen by the Trust, or the Portfolio, as the case may be,
and valued as they are for purposes of computing the Fund's or the Portfolio's
net asset value, as the case may be (a redemption in kind). If payment is made
to a Fund shareholder in securities, an investor, including the Fund, the
shareholder may incur transaction expenses in converting these securities into
cash. The Trust, on behalf of each Fund, and each Portfolio have elected,
however, to be governed by Rule 18f-1 under the 1940 Act as a result of which
each Fund and each Portfolio are obligated to redeem shares or beneficial
interests, as the case may be, with respect to any one investor during any
90-day period, solely in cash up to the lesser of $250,000 or 1% of the net
asset value of the Fund or the Portfolio, as the case may be, at the beginning
of the period.

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

<PAGE>

the aggregate beneficial interests in the Portfolio will then be recomputed as
the percentage equal to the fraction (i) the numerator of which is the value of
such investor's investment in the Portfolio as of the close of business on such
day plus or minus, as the case may be, the amount of net additions to or
withdrawals from the investor's investment in the Portfolio effected as of the
close of business on such day, and (ii) the denominator of which is the
aggregate net asset value of the Portfolio as of the close of business on such
day plus or minus, as the case may be, the amount of net additions to or
withdrawals from the aggregate investments in the Portfolio by all investors in
the Portfolio. The percentage so determined will then be applied to determine
the value of the investor's interest in the Portfolio as the close of business
on the following business day.

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

MANAGEMENT OF THE TRUST AND THE PORTFOLIOS

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

The Trustees and officers of the Trusts and Portfolios and their principal
occupations during the past five years are set forth below. Their titles may
have varied during that period. Asterisks indicate those Trustees who are
"interested persons" (as defined in the 1940 Act) of the Trust. Unless otherwise

<PAGE>

indicated, the address of each Trustee and officer is 6 St. James
Avenue, Boston, Massachusetts.

TRUSTEES OF THE BT ADVISOR FUNDS

HARRY VAN BENSCHOTEN -- Trustee; retired (since 1987); Corporate Vice President,
Newmont Mining Corporation (prior to 1987); Director, Canada Life Insurance
Company of New York and Competitive Technologies, Inc., a public company listed
on the American Stock Exchange. His address is 6581 Ridgewood Drive, Naples,
Florida 33963.

PHILIP W. COOLIDGE* -- President and Trustee; Chairman, Chief
Executive Officer and President, Signature Financial Group, Inc.
("SFG") (since December, 1988) and Signature (since April, 1989).

MARTIN J. GRUBER -- Trustee; Chairman of the Finance Department
and Nomura Professor of Finance, Leonard N. Stern School of
Business, New York University (since 1964).

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

TRUSTEES OF BT INSTITUTIONAL FUNDS

RICHARD J. HERRING -- Trustee; Professor, Finance Department, The
Wharton School, University of Pennsylvania. His address is The
Wharton School, University of Pennsylvania Finance Department,
3303 Steinberg Hall/Dietrich Hall, Philadelphia, Pennsylvania
19104.

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

CHARLES P. BIGGAR -- Trustee; Retired; Director of Chase/NBW Bank Advisory
Board; Director, Batemen, Eichler, Hill Richards Inc.; 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.

PHILIP W. COOLIDGE* -- President and Trustee; Chairman, Chief Executive Officer
and President, SFG (since December, 1988) and Signature (since April, 1989).

TRUSTEES OF THE PORTFOLIOS

PHILIP SAUNDERS, JR. -- Trustee; Principal, Philip Saunders
Associates (Consulting); former Director of Financial Industry

<PAGE>

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.

S. LELAND DILL -- Trustee; Retired; Director, Coutts & Co.
Group, Coutts & Co. (U.S.A.) International; 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 W. COOLIDGE* -- President and Trustee; Chairman, Chief Executive Officer
and President, SFG (since December, 1988) and Signature (since April, 1989).

<PAGE>

OFFICERS OF THE TRUSTS AND PORTFOLIOS

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

JOHN R. ELDER - Treasurer; Vice President, SFG (since April, 1995); Treasurer,
Phoenix Family of Mutual Funds (prior to April, 1995); Audit Manager, Price
Waterhouse (prior to 1983).

DAVID G. DANIELSON -- Assistant Treasurer; Assistant Manager, SFG
(since May, 1991); Graduate Student, Northeastern University
(from April, 1990 to March, 1991); Tax Accountant & Systems
Analyst, Putnam Companies (prior to March, 1990).
JAMES S. LELKO, JR. -- Assistant Treasurer; Assistant Manager,
SFG (since January 1993); Senior Tax Compliance Accountant,
Putnam Investments (prior to December 1992).

BARBARA M. O'DETTE -- Assistant Treasurer; Assistant Treasurer,
SFG (since December, 1988) and Signature (since April, 1989);
Administrative Controller, Massachusetts Financial Services
Company (prior to December, 1988).

DANIEL E. SHEA -- Assistant Treasurer; Assistant Manager, SFG
(since November 1993); Supervisor and Senior Technical Advisor,
Putnam Investments (prior to November 1993).

<PAGE>

THOMAS M. LENZ -- Secretary; Vice President and Associate General
Counsel, SFG (since November, 1989); Assistant Secretary,
Signature (since February, 1991); Attorney, Ropes & Gray (prior
to November, 1989).

LINDA T. GIBSON -- Assistant Secretary; Legal Counsel and Assistant Secretary,
SFG (since May, 1992); Assistant Secretary, Signature (since October, 1992);
student, Boston University School of Law (September, 1989 to May, 1992); Product
Manager, SFG (January, 1989 to September, 1989).

MOLLY S. MUGLER -- Assistant Secretary; Legal Counsel and
Assistant Secretary, SFG (since December, 1988); Assistant
Secretary, Signature (since April, 1989).

ANDRES E. SALDANA -- Assistant Secretary; Legal Counsel, SFG (since November,
1992); Assistant Secretary, Signature (since September, 1993); Attorney, Ropes &
Gray (September, 1990 to November, 1992); law student, Yale Law School
(September, 1987 to May, 1990).

Messrs. Coolidge, Danielson, Elder, Lelko, Lenz, Saldana and Shea
and Mss. Gibson, Mugler and O'Dette also hold similar positions
for other investment companies for which Signature or an
affiliate serves as the principal underwriter.

No person who is an officer or director of Bankers Trust is an officer or
Trustee of the Trusts or the Portfolios. No director, officer or employee of
Signature or any of its affiliates will receive any compensation from the Trusts
or the Portfolios for serving as an officer or Trustee of the Trusts or the
Portfolios.

Each Portfolio and International Equity, Capital Appreciation, Cash Management,
Treasury Money, Tax Free Money, NY Tax Free Money, Utility, Short/Intermediate
U.S. Government Securities, Intermediate Tax Free, Asset Management and BT
Investment Portfolios (together with the Trusts, the "Fund Complex")
collectively pay each Trustee who is not a director, officer or employee of the
Adviser, the Distributor, the Administrator or any of their affiliates an annual
fee of $10,000, respectively, per annum plus $1,250, respectively, per meeting
attended and reimburses them for travel and out-of-pocket expenses.

For the year ended December 31, 1994, the BT Institutional Equity 500 Index Fund
accrued Trustees fees equal to $5,058. For the year ended December 31, 1994, the
Equity 500 Index Portfolio accrued Trustees fees of $2,059.

Bankers Trust reimbursed the BT Institutional Equity 500 Index Fund and Equity
500 Index Portfolio for a portion of its their Trustees fees for the period
above. See "Investment Adviser" and "Administrator" below.

As of January 5, 1996, the Trustees and officers of the Trusts and the
Portfolios owned in the aggregate less than 1% of

<PAGE>

the shares of any Fund or Trust (all series taken together).

INVESTMENT ADVISER

Under the terms of each 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 each Portfolio's Declaration of
Trust, the 1940 Act and the Investment Advisers Act of 1940, as the same may
from time to time be amended; (ii) manage each Portfolio in accordance with the
Portfolio's investment objectives, restrictions and policies; (iii) make
investment decisions for each Portfolio; and (iv) place purchase and sale orders
for securities and other financial instruments on behalf of each Portfolio.

Bankers Trust bears all expenses in connection with the performance of services
under each Advisory Agreement. The Trust and each Portfolio bears certain other
expenses incurred in its operation, including: taxes, interest, brokerage fees
and commissions, if any; fees of Trustees of the Trust or the Portfolio who are
not officers, directors or employees of Bankers Trust, Signature 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 years ended December 31, 1994 and 1993, Bankers Trust accrued $428,346
and $74,893, respectively, in compensation for investment advisory services
provided to the Equity 500 Index Portfolio. During the same periods, Bankers
Trust reimbursed $249,230 and $72,112, respectively, to the Portfolio to cover
expenses.

<PAGE>

inquire or take into consideration whether an issuer of securities proposed for
purchase or sale by a Portfolio is a customer of Bankers Trust, its parent or
its subsidiaries or affiliates and, in dealing with its customers, Bankers
Trust, its parent, subsidiaries and affiliates will not inquire or take into
consideration whether securities of such customers are held by any fund managed
by Bankers Trust or any such affiliate.

The Institutional Class Shares' 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 the administration and services agreements, Bankers Trust is obligated on
a continuous basis to provide such administrative services as the Board of
Trustees of the Trusts and the Portfolios reasonably deem necessary for the
proper administration of the Trusts or the Portfolios. Bankers Trust will:
generally assist in all aspects of each class of shares of each Funds' and
Portfolios' operations; supply and maintain office facilities (which may be in
Bankers Trust's own offices), statistical and research data, data processing
services, clerical, accounting, bookkeeping and recordkeeping services
(including without limitation the maintenance of such books and records as are
required under the 1940 Act and the rules thereunder, except as maintained by
other agents), internal auditing, executive and administrative services, and
stationery and office supplies; prepare reports to shareholders or investors;
prepare and file tax returns; supply financial information and supporting data
for reports to and filings with the SEC and various state Blue Sky authorities;
supply supporting documentation for meetings of the Board of Trustees; provide
monitoring reports and assistance regarding compliance with Declarations of
Trust, by-laws, investment objectives and policies and with Federal and state
securities laws; arrange for appropriate insurance coverage; calculate net asset
values, net income and realized capital gains or losses; and negotiate
arrangements with, and supervise and coordinate the activities of, agents and
others to supply services.

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

For the years ended December 31, 1994 and 1993, Bankers Trust

<PAGE>

accrued $139,997 and $36,735, respectively in compensation for administrative
and other services provided to BT Institutional Equity 500 Index Fund. During
the same periods, Bankers Trust reimbursed $194,084 and $112,866, respectively,
to BT Institutional Equity 500 Index Fund to cover expenses.

For the years ended December 31, 1994 and 1993, Bankers Trust received $214,173
and $37,446, respectively, in compensation for administrative and other services
provided to the Equity 500 Index Portfolio.

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

CUSTODIAN AND TRANSFER AGENT

Bankers Trust, 280 Park Avenue, New York, New York 10017, serves as Custodian
for the Trusts and for the Portfolios pursuant to the administration and
services agreements. As Custodian, it holds the Funds' and each Portfolio's
assets. Bankers Trust also serves as transfer agent of the Trusts and of each
Portfolio pursuant to the respective administration and services agreement.
Under its transfer agency agreement with the Trusts, Bankers Trust maintains
the shareholder account records for each Class of shares of each Fund, handles
certain communications between shareholders and the Trusts and causes to be
distributed any dividends and distributions payable by the Trusts. Bankers Trust
may be reimbursed by the Funds or the Portfolios for its out-of-pocket expenses.
Bankers Trust will comply with the self-custodian provisions of Rule 17f-2 under
the 1940 Act.

USE OF NAME

The Trusts and Bankers Trust have agreed that each Trust may use "BT" as part of
its name for so long as Bankers Trust serves as investment adviser to the
Portfolios. The Trusts have acknowledged that the term "BT" is used by and is a
property right of certain subsidiaries of Bankers Trust and that those
subsidiaries and/or Bankers Trust may at any time permit others to use that
term.

Each Trust may be required, on 60 days' notice from Bankers Trust at any time,
to abandon use of the acronym "BT" as part of its

<PAGE>

name. If this were to occur, the Trustees would select an appropriate new name
for each Trust, but there would be no other material effect on the Trusts, their
shareholders or activities.

BANKING REGULATORY MATTERS

Bankers Trust has been advised by its counsel that in its opinion Bankers Trust
may perform the services for the Portfolios contemplated by the Advisory
Agreements and other activities for the Funds and the Portfolios described in
the Prospectuses and this Statement of Additional Information without violation
of the Glass-Steagall Act or other applicable banking laws or regulations.
However, counsel has pointed out that future changes in either Federal or state
statutes and regulations concerning the permissible activities of banks or trust
companies, as well as future judicial or administrative decisions or
interpretations of present and future statutes and regulations, might prevent
Bankers Trust from continuing to perform those services for the Trusts and the
Portfolios. State laws on this issue may differ from the interpretations of
relevant Federal law and banks and financial institutions may be required to
register as dealers pursuant to state securities law.
If the circumstances described above should change, the Boards of Trustees
would review the relationships with Bankers Trust and consider taking all
actions necessary in the circumstances.

COUNSEL AND INDEPENDENT ACCOUNTANTS

Willkie Farr & Gallagher, One Citicorp Center, 153 East 53rd Street, New York,
New York 10022-4669, serves as Counsel to the Trusts and each Portfolio. Coopers
& Lybrand L.L.P., 1100 Main Street, Suite 900, Kansas City, Missouri 64105, acts
as Independent Accountants of the Trusts and each Portfolio.

ORGANIZATION OF THE TRUSTS

Shares of each 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.

<PAGE>

incurring financial loss on account of shareholder liability is limited to
circumstances in which each Trust itself would be unable to meet its
obligations, a possibility that a Trust believes is remote. Upon payment of any
liability incurred by a Trust, the shareholder paying the liability will be
entitled to reimbursement from the general assets of the respective Trust. The
Trustees intend to conduct the operations of each Trust in a manner so as to
avoid, as far as possible, ultimate liability of the shareholders for
liabilities of that Trust.

TAXATION

TAXATION OF THE FUNDS

The Trusts intend to qualify annually and to elect each Fund to be treated as a
regulated investment company under the Code.

To qualify as a regulated investment company, each Fund must, among other
things: (a) derive in each taxable year at least 90% of its gross income from
dividends, interest, payments with respect to securities loans and gains from
the sale or other disposition of stock, securities or foreign currencies or
other income derived with respect to its business of investing in such stock,
securities or currencies; (b) derive less than 30% of its gross income from the
sale or other disposition of certain assets (namely, in the case of the Fund,
(i) stock or securities; (ii) options, futures, and forward contracts (other
than those on foreign currencies); and (iii) foreign currencies (including
options, futures, and forward contracts on such currencies) not directly related
to the Fund's principal business of investing in stock or securities (or options
and futures with respect to stocks or securities)) held less than three months
(the 30% Limitation"); (c) diversify its holdings so that, at the end of each
quarter of the taxable year, (i) at least 50% of the market value of the Fund's
assets is represented by cash and cash items (including receivables), U.S.
Government securities, the securities of other regulated investment companies
and other securities, with such other securities of any one issuer limited for
the purposes of this calculation to an amount not greater than 5% of the value
of the Fund's total assets and not greater than 10% of the outstanding voting
securities of such issuer and (ii) not more than 25% of the value of its total
assets is invested in the securities of any one issuer (other than U.S.
Government securities or the securities of other regulated investment
companies); and (d) distribute at least 90% of its investment company taxable
income (which includes, among other items, dividends, interest and net
short-term capital gains in excess of net long-term capital losses) and its net
tax-exempt interest income, if any, each taxable year.

<PAGE>

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. Amounts not distributed on a timely basis in accordance
with a calendar year distribution requirement are subject to a nondeductible 4%
excise tax. To prevent imposition of the excise tax, the Fund must distribute
during each calendar year an amount equal to the sum of: (i) at least 98% of its
ordinary income (not taking into account any capital gains or losses) for the
calendar year; (ii) at least 98% of its capital gains in excess of its capital
losses (adjusted for certain ordinary losses, as prescribed by the Code) for the
one-year period ending on October 31 of the calendar year; and (iii) any
ordinary income and capital gains for previous years that was not distributed
during those years. A distribution will be treated as paid on December 31 of the
current calendar year if it is declared by the Fund in October, November or
December with a record date in such a month and paid by the Fund during January
of the following calendar year. Such distributions will be taxable to
shareholders in the calendar year in which the distributions are declared,
rather than the calendar year in which the distributions are received. To
prevent application of the excise tax, the Fund intends to make its
distributions in accordance with the calendar year distribution requirement.

Each Fund shareholder will also receive, if appropriate, various written notices
after the close of the Fund's prior taxable year as to the Federal income status
of his dividends and distributions which were received from the Fund during the
Fund's prior taxable year. Shareholders should consult their tax advisers as to
any state and local taxes that may apply to these dividends and distributions.
The dollar amount of dividends excluded from Federal income taxation and the
dollar amount subject to such income taxation, if any, will vary for each
shareholder depending upon the size and duration of each shareholder's
investment in the Fund. To the extent that the Fund earns taxable net investment
income, the Fund intends to designate as taxable dividends the same percentage
of each dividend as its taxable net investment income bears to its total net
investment income earned. Therefore, the percentage of each dividend designated
as taxable, if any, may vary.

FOREIGN SECURITIES. Tax conventions between certain countries and the United
States may reduce or eliminate such taxes. It is impossible to determine the
effective rate of foreign tax in advance since the amount of the EAFE(R) Equity
Index Portfolio's assets to be invested in various countries will vary.

<PAGE>

entities, such as the corresponding Fund, which have invested in the Portfolio.
Pursuant to such election, the amount of foreign taxes paid will be included in
the income of the corresponding Fund's shareholders, and such Fund shareholders
(except tax-exempt shareholders) may, subject to certain limitations, claim
either a credit or deduction for the taxes. Each such Fund shareholder will be
notified after the close of the Portfolio's taxable year whether the foreign
taxes paid will "pass through" for that year and, if so, such notification will
designate (a) the shareholder's portion of the foreign taxes paid to each such
country and (b) the portion which represents income derived from sources within
each such country.

The amount of foreign taxes for which a shareholder may claim a credit in any
year will generally be subject to a separate limitation for "passive income,"
which includes, among other items of income, dividends, interest and certain
foreign currency gains. Because capital gains realized by the Portfolio on the
sale of foreign securities will be treated as U.S.source income, the available
credit of foreign taxes paid with respect to such gains may be restricted by
this limitation.

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.

TAXATION OF THE PORTFOLIOS

The Portfolios are not subject to Federal income taxation. Instead, the Fund and
other investors investing in a Portfolio must take into account, in computing
their Federal income tax liability, their share of the Portfolio's income,
gains, losses, deductions, credits and tax preference items, without regard to
whether they have received any cash distributions from the Portfolio.

<PAGE>

unrealized receivables held by the Portfolio; and (iii) loss may be recognized
if the distribution is made in liquidation of the Fund's entire interest in the
Portfolio and consists solely of cash and/or unrealized receivables. A Fund's
basis in its interest in the corresponding Portfolio generally will equal the
amount of cash and the basis of any property which the Fund invests in the
Portfolio, increased by the Fund's share of income from the Portfolio, and
decreased by the amount of any cash distributions and the basis of any property
distributed from the Portfolio.

SALE OF SHARES

Any gain or loss realized by a shareholder upon the sale or other disposition of
shares of a Class of the Fund, or upon receipt of a distribution in complete
liquidation of a Fund, generally will be a capital gain or loss which will be
long-term or short-term, generally depending upon the shareholder's holding
period for the shares. Any loss realized on a sale or exchange will be
disallowed to the extent the shares disposed of are replaced (including shares
acquired pursuant to a dividend reinvestment plan) within a period of 61 days
beginning 30 days before and ending 30 days after disposition of the shares. In
such a case, the basis of the shares acquired will be adjusted to reflect the
disallowed loss. Any loss realized by a shareholder on a disposition of a Class'
shares held by the shareholder for six months or less will be treated as a
long-term capital loss to the extent of any distributions of net capital gains
received by the shareholder with respect to such shares.

FOREIGN WITHHOLDING TAXES

Income received by a Portfolio from sources within foreign countries may be
subject to withholding and other taxes imposed by such countries.

BACKUP WITHHOLDING

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

FOREIGN SHAREHOLDERS

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

<PAGE>

respect to the particular tax consequences to them of an
investment in a Fund.

OTHER TAXATION

Each Trust is organized as a Massachusetts business trust and, under current
law, neither the Trusts nor any Fund is liable for any income or franchise tax
in the Commonwealth of Massachusetts, provided that the Fund continues to
qualify as a regulated investment company under Subchapter M of the Code. The
investment by each Fund in the corresponding Portfolio does not cause the Fund
to be liable for any income or franchise tax in the State of New York.

BT Investment Portfolios and Equity 500 Index Portfolio are each a New York
master trust fund. Each Portfolio is not subject to any income or franchise tax
in the State of New York or the Commonwealth of Massachusetts.

Fund shareholders may be subject to state and local taxes on their Fund
distributions. Shareholders are advised to consult their own tax advisers with
respect to the particular tax consequences to them of an investment in a Fund.

FINANCIAL STATEMENTS

The Statement of Assets and Liabilities and report of Independent Accountants
for each Fund and Portfolio, except the BT Institutional Equity 500 Index Fund
and Equity 500 Index
Portfolio, are attached hereto.

The following financial statements for the BT Institutional Equity 500 Index
Fund and Equity 500 Index Portfolio are incorporated herein by reference from
its current reports to shareholders filed with the SEC pursuant to Section 30(b)
of the 1940 Act and Rule 30b2-1 thereunder. A copy of each such report will be
provided, without charge, to each person receiving this Statement of Additional
Information.

BT INSTITUTIONAL EQUITY 500 INDEX FUND

Statement of Assets and Liabilities, December 31, 1994
Statement of Operations for the Year Ended December 31, 1994
Statement of Changes in Net Assets for the Years Ended
December 31, 1994 and 1993
Financial Highlights: Selected Ratios and Supplemental
Data for
Each of the Periods Indicated
Notes to Financial Statements
Report of Independent Accountants

Statement of Assets and Liabilities,
June 30, 1995 (Unaudited)
Statement of Operations, for the Six Months Ended

<PAGE>

June 30, 1995 (Unaudited)
Statement of Changes in Net Assets for the Six Months Ended
June 30, 1995 (Unaudited) and for the Year Ended
December 31, 1994

Financial Highlights: Selected Ratios and Supplemental
Data for

Each of the Periods Indicated
(Unaudited)
Notes to Financial Statements
(Unaudited)

EQUITY 500 INDEX PORTFOLIO

Statement of Assets and Liabilities,
December 31, 1994
Statement of Operations for the Year Ended
December 31, 1994
Statement of Changes in Net Assets for the Years Ended
December 31, 1994 and 1993

Financial Highlights: Selected Ratios and Supplemental
Data for

Each of the Periods Indicated
Schedule of Portfolio Investments,
December 31, 1994
Notes to Financial Statements

Report of Independent Accountants

Statement of Assets and Liabilities, June 30, 1995
(Unaudited)
Statement of Operations, for the Six Months Ended
June 30, 1995 (Unaudited)
Statement of Changes in Net Assets for the Six Months
Ended
June 30, 1995 (Unaudited) and for the Year Ended
December 31, 1994
Financial Highlights: Selected Ratios and Supplemental
Data for

Each of the Periods Indicated (Unaudited)
Schedule of Portfolio Investments, June 30, 1995
(Unaudited)

Notes to Financial Statements (Unaudited)

<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Trustees and Shareholders of
BT Global Investors -

We have audited the accompanying statement of assets and liabilities of the
Institutional U.S. Bond Index Fund (one of the Funds comprising BT Global
Investors) as of January 2, 1996. This financial statement is the responsibility
of the Fund's management. Our responsibility is to express an opinion on this
financial statement based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the statement of assets and liabilities referred to above
presents fairly, in all material respects, the financial position of the
Institutional U.S. Bond Index Fund of BT Global Investors as of January 2, 1996,
in conformity with generally accepted accounting principles.

/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P

Kansas City, Missouri
January 2, 1996

<PAGE>

BT0473E

BT ADVISOR FUNDS --
INSTITUTIONAL U.S. BOND INDEX FUND
STATEMENT OF ASSETS AND LIABILITIES

JANUARY 2, 1996

ASSETS:

Cash . . . . . . . . . . . . . . . . . . . . . . . . .$ 10
Deferred organization expenses . . . . . . . . . . . . 9,000
Total assets . . . . . . . . . . . . . . . . . 9,010

LIABILITIES:

Accrued organization expenses . . . . . . . . . . . . 9,000
Net assets . . . . . . . . . . . . . . . . . .$ 10

NET ASSET VALUE PER SHARE OF BENEFICIAL

INTEREST ($10.00 / 1 SHARES OUTSTANDING) . . . . . . . . .$ 10.00

NOTES:

(1) BT Advisor Funds, a Massachusetts business trust (the "Trust"), was
organized on July 24, 1995 and has been inactive since that date with
respect to Institutional U.S. Bond Index Fund (the "Fund") except for
matters relating to the organization of the Trust, the Fund's
establishment and designation as a series of the Trust, and the
registration under the Securities Act of 1933 of the Fund's shares of
beneficial interest ("Shares") and the sale of one Share ("Initial
Shares") of the Fund to Signature Financial Group, Inc. ("SFG"). The
Trust will invest all of the Fund's investable assets in U.S. Bond
Index Portfolio (the "Portfolio"), a series of BT Investment
Portfolios, an investment company registered under the Investment
Company Act of 1940, as amended. The Fund is one of ten series of the
Trust.

(2) Organization expenses of the Fund are being deferred and will be
amortized on a straight-line basis over a period not to exceed five
years from the commencement of investment operations of the Fund. The
amount paid by the Trust on any redemption by SFG or any other
then-current holder of the Initial Shares of the Fund will be reduced
by a portion of any unamortized organization expenses of the Fund and
the Portfolio, determined by the proportion of the number of the
Initial Shares of the Fund redeemed to the number of the Initial Shares
of the Fund then outstanding after taking into account any prior
redemptions of the Initial Shares of the Fund. The amount of such
reduction in excess of the unamortized organization expenses of the
Fund shall be contributed by the Fund to the Portfolio.

(3) The Trust has entered into an Administration and Services Agreement
with Bankers Trust Company under which Bankers Trust Company provides
administration, custody and transfer agency services to the Trust.

<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Trustees and Shareholders of
BT Global Investors -

We have audited the accompanying statement of assets and liabilities of the
Institutional Equity 500 Equal Weighted Index Fund (one of the Funds comprising
BT Global Investors) as of January 2, 1996. This financial statement is the
responsibility of the Fund's management. Our responsibility is to express an
opinion on this financial statement based on our audit.

In our opinion, the statement of assets and liabilities referred to above
presents fairly, in all material respects, the financial position of the
Institutional Equity 500 Equal Weighted Index Fund of BT Global Investors as of
January 2, 1996, in conformity with generally accepted accounting principles.

/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P

Kansas City, Missouri
January 2, 1996

<PAGE>

BT0473E

BT ADVISOR FUNDS --
INSTITUTIONAL EQUITY 500 EQUAL WEIGHTED INDEX FUND
STATEMENT OF ASSETS AND LIABILITIES

JANUARY 2, 1996

ASSETS:

Cash . . . . . . . . . . . . . . . . . . . . . . . . .$ 10
Deferred organization expenses . . . . . . . . . . . . 9,000
Total assets . . . . . . . . . . . . . . . . . 9,010

LIABILITIES:
Accrued organization expenses . . . . . . . . . . . . 9,000
Net assets . . . . . . . . . . . . . . . . . .$ 10

NET ASSET VALUE PER SHARE OF BENEFICIAL

INTEREST ($10.00 / 1 SHARES OUTSTANDING) . . . . . . . . .$ 10.00

NOTES:

(1) BT Advisor Funds, a Massachusetts business trust (the "Trust"), was
organized on July 24, 1995 and has been inactive since that date with
respect to Institutional Equity 500 Equal Weighted Index Fund (the
"Fund") except for matters relating to the organization of the Trust,
the Fund's establishment and designation as a series of the Trust, and
the registration under the Securities Act of 1933 of the Fund's shares
of beneficial interest ("Shares") and the sale of one Share ("Initial
Shares") of the Fund to Signature Financial Group, Inc. ("SFG"). The
Trust will invest all of the Fund's investable assets in Equity 500
Equal Weighted Portfolio (the "Portfolio"), a series of BT Investment
Portfolios, an investment company registered under the Investment
Company Act of 1940, as amended. The Fund is one of ten series of the
Trust.

(3) The Trust has entered into an Administration and Services
Agreement with Bankers Trust Company under which Bankers
Trust Company provides administration, custody and transfer agency
services to the Trust.

<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Trustees and Shareholders of
BT Global Investors -

We have audited the accompanying statement of assets and liabilities of the
Institutional Small Cap Index Fund (one of the Funds comprising BT Global
Investors) as of January 2, 1996. This financial statement is the responsibility
of the Fund's management. Our responsibility is to express an opinion on this
financial statement based on our audit.

In our opinion, the statement of assets and liabilities referred to above
presents fairly, in all material respects, the financial position of the
Institutional Small Cap Index Fund of BT Global Investors as of January 2, 1996,
in conformity with generally accepted accounting principles.

/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P

Kansas City, Missouri
January 2, 1996

<PAGE>

BT0473E

BT ADVISOR FUNDS --
INSTITUTIONAL SMALL CAP INDEX FUND
STATEMENT OF ASSETS AND LIABILITIES

JANUARY 2, 1996

ASSETS:

Cash . . . . . . . . . . . . . . . . . . . . . . . . .$ 10
Deferred organization expenses . . . . . . . . . . . . 9,000
Total assets . . . . . . . . . . . . . . . . . 9,010

LIABILITIES:

Accrued organization expenses . . . . . . . . . . . . 9,000
Net assets . . . . . . . . . . . . . . . . . .$ 10

NET ASSET VALUE PER SHARE OF BENEFICIAL

INTEREST ($10.00 / 1 SHARES OUTSTANDING) . . . . . . . . .$ 10.00

NOTES:

(1) BT Advisor Funds, a Massachusetts business trust (the "Trust"), was
organized on July 24, 1995 and has been inactive since that date with
respect to Institutional Small Cap Index Fund (the "Fund") except for
matters relating to the organization of the Trust, the Fund's
establishment and designation as a series of the Trust, and the
registration under the Securities Act of 1933 of the Fund's shares of
beneficial interest ("Shares") and the sale of one Share ("Initial
Shares") of the Fund to Signature Financial Group, Inc. ("SFG"). The
Trust will invest all of the Fund's investable assets in Small Cap
Index Portfolio (the "Portfolio"), a series of BT Investment
Portfolios, an investment company registered under the Investment
Company Act of 1940, as amended. The Fund is one of ten series of the
Trust.

(3) The Trust has entered into an Administration and Services
Agreement with Bankers Trust Company under which Bankers
Trust Company provides administration, custody and transfer agency
services to the Trust.

<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Trustees and Shareholders of
BT Global Investors -

We have audited the accompanying statement of assets and liabilities of the
Institutional EAFE Equity Index Fund (one of the Funds comprising BT Global
Investors) as of January 2, 1996. This financial statement is the responsibility
of the Fund's management. Our responsibility is to express an opinion on this
financial statement based on our audit.

In our opinion, the statement of assets and liabilities referred to above
presents fairly, in all material respects, the financial position of the
Institutional EAFE Equity Index Fund of BT Global Investors as of January 2,
1996, in conformity with generally accepted accounting principles.

/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P

Kansas City, Missouri
January 2, 1996

<PAGE>

BT0473E

BT ADVISOR FUNDS --
INSTITUTIONAL EAFE(R) EQUITY INDEX FUND

STATEMENT OF ASSETS AND LIABILITIES

JANUARY 2, 1996

ASSETS:

Cash . . . . . . . . . . . . . . . . . . . . . . . . .$ 10
Deferred organization expenses . . . . . . . . . . . . 9,000
Total assets . . . . . . . . . . . . . . . . . 9,010

LIABILITIES:

Accrued organization expenses . . . . . . . . . . . . 9,000
Net assets . . . . . . . . . . . . . . . . . .$ 10

NET ASSET VALUE PER SHARE OF BENEFICIAL

INTEREST ($10.00 / 1 SHARES OUTSTANDING) . . . . . . . . .$ 10.00

NOTES:

(1) BT Advisor Funds, a Massachusetts business trust (the "Trust"), was
organized on July 24, 1995 and has been inactive since that date with
respect to Institutional EAFE(R) Equity Index Fund (the "Fund") except
for matters relating to the organization of the Trust, the Fund's
establishment and designation as a series of the Trust, and the
registration under the Securities Act of 1933 of the Fund's shares of
beneficial interest ("Shares") and the sale of one Share ("Initial
Shares") of the Fund to Signature Financial Group, Inc. ("SFG"). The
Trust will invest all of the Fund's investable assets in EAFE(R) Equity
Index Portfolio (the "Portfolio"), a series of BT Investment
Portfolios, an investment company registered under the Investment
Company Act of 1940, as amended. The Fund is one of ten series of the
Trust.

<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Trustees and Shareholders of
BT Investment Portfolios -

We have audited the accompanying statement of assets and liabilities of the U.S.
Bond Index Portfolio (one of the Portfolios comprising BT Investment Portfolios)
as of January 2, 1996. This financial statement is the responsibility of the
Portfolio's management. Our responsibility is to express an opinion on this
financial statement based on our audit.

In our opinion, the statement of assets and liabilities referred to above
presents fairly, in all material respects, the financial position of the U.S.
Bond Index Portfolio of BT Investment Portfolios as of January 2, 1996, in
conformity with generally accepted accounting principles.

/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P

Kansas City, Missouri
January 2, 1996

<PAGE>

BT0473E

BT INVESTMENT PORTFOLIOS --
U.S. BOND INDEX PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES

JANUARY 2, 1996

ASSETS:

Cash . . . . . . . . . . . . . . . . . . . . . . . . .$ 10
Deferred organization expenses . . . . . . . . . . . . 9,000
Total assets . . . . . . . . . . . . . . . . . 9,010

LIABILITIES:

Accrued organization expenses . . . . . . . . . . . . 9,000
Net assets . . . . . . . . . . . . . . . . . .$ 10

NOTES:

(1) BT Investment Portfolios, a New York master trust, (the "Portfolio
Trust") was organized on March 27, 1993 and has been inactive since
that date with respect to U.S. Bond Index Portfolio (the "Portfolio")
except for matters relating to the Portfolio's establishment and
designation as a subtrust or series of the Portfolio Trust, and the
sale of a beneficial interest therein at the purchase price of $10.00
to BT Advisor Funds --Institutional U.S. Bond Index Fund (the "Fund")
(the "Initial Interests"). The Portfolio is one of fifteen series of
the Portfolio Trust.

(2) Organization expenses of the Portfolio are being deferred and will be
amortized on a straight-line basis over a period not to exceed five
years from the commencement of investment operations of the Portfolio.
Any amount received by the Portfolio from the Fund as a result of a
redemption by Signature Financial Group, Inc. will be applied so as to
reduce the amount of unamortized organization expenses. The amount paid
by the Portfolio Trust on any withdrawal by the Fund of an Initial
Interest in the Portfolio will be reduced by a portion of any
unamortized organization expenses of the Portfolio, determined by the
proportion of the amount of the Initial Interest withdrawn to the
aggregate amount of the Initial Interests in the Portfolio
then-outstanding after taking into account any prior withdrawals of any
of the Initial Interests in the Portfolio.

(3) At 4:00 p.m., New York time, on each business day of the Portfolio, the
value of an investor's beneficial interest in the Portfolio is equal to
the product of (i) the aggregate net asset value of the Portfolio
multiplied by (ii) the percentage representing that investor's share of
the aggregate beneficial interests in the Portfolio effective for that
day.

(4) The Portfolio Trust has entered into an Investment Advisory
Agreement with Bankers Trust Company and an Administration
and Services Agreement with Bankers Trust Company under
which Bankers Trust Company provides administration, custody and
transfer agency services to the Portfolio Trust.

<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Trustees and Shareholders of
BT Investment Portfolios -

We have audited the accompanying statement of assets and liabilities of the
Equity 500 Equal Weighted Index Portfolio (one of the Portfolios comprising BT
Investment Portfolios) as of January 2, 1996. This financial statement is the
responsibility of the Portfolio's management. Our responsibility is to express
an opinion on this financial statement based on our audit.

In our opinion, the statement of assets and liabilities referred to above
presents fairly, in all material respects, the financial position of the Equity
500 Equal Weighted Index Portfolio of BT Investment Portfolios as of January 2,
1996, in conformity with generally accepted accounting principles.

/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P

Kansas City, Missouri
January 2, 1996

<PAGE>

BT0473E

BT INVESTMENT PORTFOLIOS --
EQUITY 500 EQUAL WEIGHTED INDEX PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES

JANUARY 2, 1996

ASSETS:

Cash . . . . . . . . . . . . . . . . . . . . . . . . .$ 10
Deferred organization expenses . . . . . . . . . . . . 9,000
Total assets . . . . . . . . . . . . . . . . . 9,010

LIABILITIES:

Accrued organization expenses . . . . . . . . . . . . 9,000
Net assets . . . . . . . . . . . . . . . . . .$ 10

NOTES:

(1) BT Investment Portfolios, a New York master trust, (the "Portfolio
Trust") was organized on March 27, 1993 and has been inactive since
that date with respect to Equity 500 Equal Weighted Index Portfolio
(the "Portfolio") except for matters relating to the Portfolio's
establishment and designation as a subtrust or series of the Portfolio
Trust, and the sale of a beneficial interest therein at the purchase
price of $10.00 to BT Advisor Funds -- Institutional Equity 500 Equal
Weighted Index Fund (the "Fund") (the "Initial Interests"). The
Portfolio is one of fifteen series of the Portfolio Trust.

<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Trustees and Shareholders of
BT Investment Portfolios -

We have audited the accompanying statement of assets and liabilities of the
Small Cap Index Portfolio (one of the Portfolios comprising BT Investment
Portfolios) as of January 2, 1996. This financial statement is the
responsibility of the Portfolio's management. Our responsibility is to express
an opinion on this financial statement based on our audit.

In our opinion, the statement of assets and liabilities referred to above
presents fairly, in all material respects, the financial position of the Small
Cap Index Portfolio of BT Investment Portfolios as of January 2, 1996, in
conformity with generally accepted accounting principles.

/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P

Kansas City, Missouri
January 2, 1996

<PAGE>

BT0473E

BT INVESTMENT PORTFOLIOS --
SMALL CAP INDEX PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES

JANUARY 2, 1996

ASSETS:

Cash . . . . . . . . . . . . . . . . . . . . . . . . .$ 10
Deferred organization expenses . . . . . . . . . . . . 9,000
Total assets . . . . . . . . . . . . . . . . . 9,010

LIABILITIES:

Accrued organization expenses . . . . . . . . . . . . 9,000
Net assets . . . . . . . . . . . . . . . . . .$ 10

NOTES:

(1) BT Investment Portfolios, a New York master trust, (the "Portfolio
Trust") was organized on March 27, 1993 and has been inactive since
that date with respect to Small Cap Index Portfolio (the "Portfolio")
except for matters relating to the Portfolio's establishment and
designation as a subtrust or series of the Portfolio Trust, and the
sale of a beneficial interest therein at the purchase price of $10.00
to BT Advisor Funds --Institutional Small Cap Index Fund (the "Fund")
(the "Initial Interests"). The Portfolio is one of fifteen series of
the Portfolio Trust.

<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Trustees and Shareholders of
BT Investment Portfolios-

We have audited the accompanying statement of assets and liabilities of the EAFE
Equity Index Portfolio (one of the Portfolios comprising BT Investment
Portfolios) as of January 2, 1996. This financial statement is the
responsibility of the Portfolio's management. Our responsibility is to express
an opinion on this financial statement based on our audit.

In our opinion, the statement of assets and liabilities referred to above
presents fairly, in all material respects, the financial position of the EAFE
Equity Index Portfolio of BT Investment Portfolios as of January 2, 1996, in
conformity with generally accepted accounting principles.

/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P

Kansas City, Missouri
January 2, 1996

<PAGE>

BT0473E
BT INVESTMENT PORTFOLIOS --
EAFE(R) EQUITY INDEX PORTFOLIO

STATEMENT OF ASSETS AND LIABILITIES

JANUARY 2, 1996

ASSETS:

Cash . . . . . . . . . . . . . . . . . . . . . . . . .$ 10
Deferred organization expenses . . . . . . . . . . . . 9,000
Total assets . . . . . . . . . . . . . . . . .

LIABILITIES:

Accrued organization expenses . . . . . . . . . . . . 9,000
Net assets . . . . . . . . . . . . . . . . . .$ 10

NOTES:

(1) BT Investment Portfolios, a New York master trust, (the "Portfolio
Trust") was organized on March 27, 1993 and has been inactive since
that date with respect to EAFE(R) Equity Index Portfolio (the
"Portfolio") except for matters relating to the Portfolio's
establishment and designation as a subtrust or series of the Portfolio
Trust, and the sale of a beneficial interest therein at the purchase
price of $10.00 to BT Advisor Funds --Institutional EAFE(R) Equity
Index Fund (the "Fund") (the "Initial Interests"). The Portfolio is one
of fifteen series of the Portfolio Trust.

<PAGE>

APPENDIX A

DESCRIPTION OF MOODY'S CORPORATE BOND RATINGS:

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

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

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

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

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

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

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

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

A-1

<PAGE>

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

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

DESCRIPTION OF S&P'S CORPORATE BOND RATINGS:

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

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

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

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

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

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

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

A-2

<PAGE>

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

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

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

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

A-3

<PAGE>

APPENDIX B

The tables on the following pages shows the performance of the S&P 500, the
Russell 2000, the Aggregate Bond Index and the EAFE Index for the periods
indicated. Stock prices fluctuated widely during the period but were higher at
the end than at the beginning. The results shown should not be considered as a
representation of the income or capital gain or loss which may be generated by
the respective Index in the future. Nor should this be considered as a
representation of the past or future performance of the Fund.

STANDARD & POOR'S 500 COMPOSITE STOCK PRICE INDEX*

TOTAL
YEAR RETURN
1995 37.49%
1994 1.32%
1993 9.99%
1992 7.67%
1991 30.55%
1990 -3.17%
1989 31.49%
1988 16.81%
1987 5.23%
1986 18.47%
1985 32.16%
1984 6.27%
1983 22.51%
1982 21.41%
1981 -4.91%
1980 32.42%
1979 18.44%
1978 6.56%
1977 -7.18%
1976 23.84%
1975 37.20%
1974 -26.47%
1973 -14.66%
1972 18.98%

B-1

<PAGE>

1971 14.31%
1970 4.01%
1969 -8.51%
1968 11.06%
1967 23.98%
1966 -10.06%
1965 12.45%
1964 16.48%
1963 22.80%
1962 -8.73%
1961 26.89%
1960 0.47%
1959 11.96%
1958 43.36%
1957 -10.78%
1956 6.56%
1955 31.56%
1954 52.62%
1953 -0.99%
1952 18.73%
1951 24.02%
1950 31.71%
1949 18.79%
1948 5.50%
1947 5.71%
1946 -8.07%
1945 36.44%
1944 19.75%
1943 25.90%
1942 20.34%
1941 -11.59%
1940 -9.78%
1939 -0.41%
1938 31.12%
1937 -35.03%
1936 33.92%

B-2

<PAGE>

1935 47.67%
1934 -1.44%
1933 53.99%
1932 -8.19%
1931 -43.34%
1930 -24.90%
1929 -8.42%
1928 43.61%
1927 37.49%
1926 11.62%
*Source: Ibbotson Associates

B-3

<PAGE>

LEHMAN BROTHERS AGGREGATE BOND INDEX*

TOTAL
YEAR RETURN
1994 -2.92%
1993 9.75%
1992 7.40%
1991 16.00%
1990 8.96%
1989 14.53%
1988 7.89%
1987 2.76%
1986 15.26%
1985 22.10%
1984 15.15%
1983 8.36%
1982 32.62%
1981 6.25%
1980 2.71%
1979 1.93%
1978 1.39%
1977 3.04%
1976 15.60%
*Source: Lipper Analytical Services, Inc.
RUSSELL 2000 SMALL STOCK INDEX*

TOTAL

B-4

<PAGE>

YEAR RETURN
1995 28.44%
1994 -1.82%
1993 18.91%
1992 18.42%
1991 46.05%
1990 -19.51%
1989 16.24%
1988 24.89%
1987 -8.77%
1986 5.68%
1985 31.05%
1984 -7.19%
1983 29.13%

1982 24.95%

1981 2.03%

1980 35.58%

1979 42.80%

*Source: Frank Russell Company

B-5

<PAGE>

MORGAN STANLEY CAPITAL INTERNATIONAL EAFE INDEX*

TOTAL
YEAR RETURN
1995 11.21%
1994 10.10%
1993 32.56%
1992 -12.17%
1991 12.13%
1990 -23.45%
1989 10.54%
1988 28.57%
1987 24.63%
1986 69.44%
1985 56.16%
1984 7.38%
1983 23.69%

B-6

<PAGE>

1982 -1.86%
1981 -2.28%
1980 22.58%
1979 4.75%
1978 32.62%
1977 18.06%
1976 2.54%
1975 35.39%
1974 -23.16%
1973 -14.92%
1972 36.35%
1971 29.59%
1970 -11.66%

*Source: Morgan Stanley Capital International (MSCI) EAFE Index

B-7

<PAGE>

STANDARD & POOR'S 500 EQUAL WEIGHTED WILSHIRE INDEX

TOTAL
YEAR RETURN
1972 11.70%
1973 -21.86%
1974 -24.33%
1975 55.30%
1976 36.51%
1977 -1.61%
1978 10.70%
1979 28.87%
1980 30.72%
1981 4.89%
1982 29.41%
1983 31.05%
1984 3.25%
1985 31.14%
1986 17.54%
1987 5.37%
1988 20.72%
1989 25.88%

B-8

<PAGE>

1990 -11.91%
1991 35.78%
1992 14.88%
1993 14.85%
1994 1.11%
1995 32.30%
*Source: Wilshire Associates

B-9

<PAGE>

BT0473E

DISTRIBUTOR

Signature Broker-Dealer Services, Inc. BT ADVISOR FUNDS -
6 St. James Avenue INSTITUTIONAL CLASS SHARES
Boston, MA 02116 U.S. BOND INDEX FUND
(617) 423-0800 EQUITY 500 EQUAL WEIGHTED INDEX
FUND
SMALL CAP INDEX FUND
EAFE(R) EQUITY INDEX FUND
INVESTMENT ADVISER OF EACH PORTFOLIO INSTITUTIONAL EQUITY
500 INDEX FUND

Bankers Trust Company
280 Park Avenue
New York, NY 10017

TRANSFER AGENT

Bankers Trust Company
280 Park Avenue
New York, NY 10017

CUSTODIAN

Bankers Trust Company STATEMENT OF

280 Park Avenue ADDITIONAL INFORMATION
New York, NY 10017 JANUARY , 1996

INDEPENDENT ACCOUNTANTS

Coopers & Lybrand L.L.P.
1100 Main Street, Suite 900
Kansas City, MO 64105

LEGAL COUNSEL

Willkie Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, NY 10022-46690

<PAGE>

BT0466G

STATEMENT OF
ADDITIONAL INFORMATION

JANUARY , 1996

BT ADVISOR FUNDS -- ADVISORS CLASS SHARES

U.S. BOND INDEX FUND
EQUITY 500 EQUAL WEIGHTED INDEX FUND
SMALL CAP INDEX FUND
EAFE(R) EQUITY INDEX FUND
BT INVESTMENT EQUITY 500 INDEX FUND

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

TABLE OF CONTENTS

Risk Factors and Certain Securities and Investment Practices. . .
Performance Information . . . . . . . . . . . . . . . . . . . . .
Valuation of Securities; Redemptions and Purchases in Kind . . . .
Management of the Trusts and the Portfolios . . . . . . . . . . .
Organization of the Trusts . . . . . . . . . . . . . . . . . . . .
Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial Statements . . . . . . . . . . . . . . . . . . . . . . .

Appendix A. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Appendix B. . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

<PAGE>

The Trusts' Prospectus for the Funds is dated , 1995. The Prospectus provides
the basic information investors should know before investing and may be obtained
without charge by calling the Trust at the telephone number listed below or by
contacting your Investment Professional. This Statement of Additional
Information, which is not a Prospectus, is intended to provide additional
information regarding the activities and operations of the Trusts and should be
read in conjunction with the Funds' Prospectus. This Statement of Additional
Information is not an offer of any Fund for which an investor has not received a
Prospectus. Capitalized terms not otherwise defined in this Statement of
Additional Information have the meanings accorded to them in the Fund's
Prospectus.

BANKERS TRUST COMPANY
INVESTMENT ADVISER OF EACH PORTFOLIO AND ADMINISTRATOR
SIGNATURE BROKER-DEALER SERVICES, INC.
DISTRIBUTOR

6 St. James Avenue
Boston, Massachusetts 02116
(800) 422-6577

<PAGE>

RISK FACTORS AND CERTAIN SECURITIES AND INVESTMENT PRACTICES

INVESTMENT OBJECTIVES

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

INVESTMENT PRACTICES

For a description of commercial paper ratings, see Appendix A to this Statement
of Additional Information.

ILLIQUID SECURITIES. Historically, illiquid securities have

<PAGE>

instrument must be of comparable quality in the opinion of Bankers Trust. These
instruments may be denominated in U.S dollars or in foreign currencies.

<PAGE>

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

<PAGE>

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

FANNIE MAE CERTIFICATES. Fannie Mae is a federally chartered and privately owned
corporation organized and existing under the Federal National Mortgage
Association Charter Act of 1938. The obligations of FNMA are not backed by the
full faith and credit of the U.S. Government.

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

FREDDIE MAC CERTIFICATES. Freddie Mac is a corporate instrumentality of the
United States created pursuant to the Emergency Home Finance Act of 1970, as
amended (the "FHLMC Act").
The obligations of Freddie Mac are obligations solely of Freddie Mac and are
not backed by the full faith and credit of the U.S. Government.

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

<PAGE>

group.

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

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

LIBOR, the London interbank offered rate, is the interest rate that the most
creditworthy international banks dealing in U.S. dollar-denominated deposits and
loans charge each other for large dollar-denominated loans. LIBOR is also
usually the base

<PAGE>

rate for large dollar-denominated loans in the international market. LIBOR is
generally quoted for loans having rate adjustments at one, three, six or twelve
month intervals.

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

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

<PAGE>

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

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

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

FOREIGN SECURITIES: SPECIAL CONSIDERATIONS CONCERNING HONG KONG, MALAYSIA,
SINGAPORE AND JAPAN. Many Asian countries may be subject to a greater degree of
social, political and economic instability than is the case in the United States
and European countries. Such instability may result from (i) authoritarian
governments or military involvement in political and economic decision-making;
(ii) popular unrest associated with demands for improved political, economic and
social conditions; (iii) internal insurgencies; (iv) hostile relations with
neighboring countries; and (v) ethnic, religious and racial disaffection.

<PAGE>

Investing in Japanese securities may involve the risks associated

<PAGE>

with investing in foreign securities generally. In addition, because it invests
in Japan, the EAFE(R) Equity Index Portfolio will be subject to the general
economic and political conditions in Japan.

Since the EAFE(R) Equity Index Portfolio invests in securitieS denominated in
yen, changes in exchange rates between the U.S. dollar and the yen affect the
U.S. dollar value of the EAFE(R) Equity Index Portfolio's assets. Such rate of
exchange is determined by forces of supply and demand on the foreign exchange
markets. These forces are in turn affected by the international balance of
payments and other economic, political and financial conditions, government
intervention, speculation and other factors.

Although the Japanese economy has grown substantially over the past four
decades, recently the rate of growth had slowed substantially. During 1991, 1992
and 1993, the Japanese economy grew at rates of 4.3%, 1.1% and 0.1%,
respectively, as measured by real gross domestic product.

<PAGE>

recently been the subject of discussion and negotiation between the two nations.
The United States has imposed certain measures designed to address trade issues
in specific industries. These measures and similar measures in the future may
adversely affect the performance of the EAFE(R) Equity Index Portfolio.

FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS

<PAGE>

the Portfolio gives up the opportunity, while the option is in effect, to profit
from any price increase in the underlying securities above the options exercise
price.

<PAGE>

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.

<PAGE>

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.

<PAGE>

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.

Options on foreign currencies traded on national securities exchanges are within
the jurisdiction of the SEC, as are other securities traded on such exchanges.
As a result, many of the protections provided to traders on organized exchanges
will be available with respect to such transactions. In particular, all foreign
currency option positions entered into on a national securities exchange are
cleared and guaranteed by the Options Clearing Corporation (the "OCC"), thereby
reducing the risk of counterparty default. Further, a liquid secondary market in
options traded on a national securities exchange may be more

<PAGE>

readily available than in the over-the-counter market, potentially permitting a
Portfolio to liquidate open positions at a profit prior to exercise or
expiration, or to limit losses in the event of adverse market movements.

<PAGE>

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

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

<PAGE>

believes the option can be closed out.

Each 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

<PAGE>

Bankers Trust's long-term investment decisions, a 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.

RATING SERVICES

The ratings of rating services represent their opinions as to the
quality of the securities that they undertake to rate. It should

<PAGE>

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 a Portfolio, an obligation may cease to be rated or its rating
may be reduced below the minimum required for purchase by the Portfolio. Neither
event would require a Fund to eliminate the obligation from its portfolio, but
Bankers Trust will consider such an event in its determination of whether a Fund
should continue to hold the obligation. A description of the ratings used herein
and in the Funds' Prospectus is set forth in Appendix A herein.

INVESTMENT RESTRICTIONS

(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

<PAGE>

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 "State and Federal Restrictions"
below (as an operating policy, the Portfolios may not engage in dollar roll
transactions);

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

(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

<PAGE>

margin, are not considered to be the issuance of a senior
security for purposes of this restriction.

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

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

(iii) purchase any security or evidence of interest therein on
margin, except that such short-term credit as may be necessary for
the clearance of purchases and sales of securities may be obtained
and except that deposits of initial deposit and variation margin may
be made in connection with the purchase, ownership, holding or sale
of futures;

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

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

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

(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;

(viii) invest more than 15% of the Portfolio's (Fund's) total assets
(taken at the greater of cost or market value) in (a) securities
(including Rule 144A securities) that are restricted as to resale
under the 1933 Act, and (b) securities that are issued by issuers
which (including predecessors) have been in operation less than three
years (other than U.S. Government securities), provided, however,
that no more than 5% of the Portfolio's (Fund's) total assets are
invested in securities issued by issuers which (including
predecessors) have been in operation less than three years;

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

(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.

<PAGE>

PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS

<PAGE>

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 is authorized, consistent with Section 28(e) of the Securities
Exchange Act of 1934, as amended, when placing portfolio transactions for a
Portfolio with a broker to pay a brokerage commission (to the extent applicable)
in excess of that which another broker might have charged for effecting the same
transaction on account of the receipt of research, market or statistical
information. The term "research, market or statistical information" includes
advice as to the value of securities; the advisability of investing in,
purchasing or selling securities; the availability of securities or purchasers
or sellers of securities; and furnishing analyses and reports concerning
issuers, industries, securities, economic factors and trends, portfolio strategy
and the performance of accounts.

<PAGE>

exercising care, it appears that more favorable results are
available otherwise.

In certain instances there may be securities which are suitable for a Portfolio
as well as for one or more of the Adviser's other clients. Investment decisions
for a Portfolio and for the Adviser's other clients are made with a view to
achieving their respective investment objectives. It may develop that a
particular security is bought or sold for only one client even though it might
be held by, or bought or sold for, other clients.
Likewise, a particular security may be bought for one or more clients when one
or more clients are selling that same security. Some simultaneous transactions
are inevitable when several clients receive investment advice from the same
investment adviser, particularly when the same security is suitable for the
investment objectives of more than one client. When two or more clients are
simultaneously engaged in the purchase or sale of the same security, the
securities are allocated among clients in a manner believed to be equitable to
each. It is recognized that in some cases this system could have a detrimental
effect on the price or volume of the security as far as a Portfolio is
concerned. However, it is believed that the ability of a Portfolio to
participate in volume transactions will produce better executions for the
Portfolio.

For the years ended December 31, 1994 and 1993, Equity 500 Index Portfolio paid
brokerage commissions in the amount of $97,069 and $63,408, respectively.

PERFORMANCE INFORMATION

STANDARD PERFORMANCE INFORMATION

From time to time, quotations of a Fund's performance may be included in
advertisements, sales literature or shareholder reports. These performance
figures are calculated in the following manner:

YIELD: Yields for a Fund used in advertising are computed
by dividing the Fund's interest and dividend income for a

<PAGE>

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

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