BT ADVISOR FUNDS, 485BPOS, 1999-04-30

BT ADVISOR FUNDS
485BPOS, 1999-04-30

Previous: TEL SAVE COM INC, 10-K/A, 1999-04-30

Next: SMITH MICRO SOFTWARE INC, DEF 14A, 1999-04-30

<PAGE>

1933 Act File No. 33-62103
1940 Act File No. 811-7347

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
-

Post-Effective Amendment No. 9 ................. X
- -

and

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
-

Amendment No. 12 ................................ X
-- -

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

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

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

Daniel O. Hirsch, Esq. Copies to: Burton M. Leibert, Esq.
One South Street Willkie Farr & Gallagher
Baltimore, Maryland 21202 787 Seventh Ave
(Name and Address of Agent New York, New York 10019
for Service)

Approximate Date of Proposed Public Offering: April 30, 1999

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

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

If appropriate, check the following box:
<PAGE>

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

BT Investment Portfolios has also executed this Registration Statement.
<PAGE>

PROSPECTUS: APRIL 30, 1999
Institutional Equity 500 Index Fund
Small Cap Index Fund -- Institutional Class Shares
EAFE(R) Equity Index Fund -- Institutional Class Shares
U.S. Bond Index Fund -- Institutional Class Shares

With the goal of
matching the
performance of a
related Index
BT Mutual Funds
INVESTMENT ADVISER: BANKERS TRUST COMPANY

[Like shares of all mutual funds, these securities have
not been approved or disapproved by the Securities and
Exchange Commission nor has the Securities and Exchange
Commission passed upon the accuracy or adequacy of this
prospectus. Any representation to the contrary is a
criminal offense.]

[* The EAFE(R) Index is the exclusive property of Morgan
Stanley. Morgan Stanley Capital International is a service
of Morgan Stanley and has been licensed for use by Bankers
Trust Company.]
<PAGE>

Table of Contents

<TABLE>
<C> <S>
3 Institutional Equity 500 Index Fund

11 Small Cap Index Fund -- Institutional Class Shares

18 EAFE Equity Index Fund -- Institutional Class Shares

26 U.S. Bond Index Fund -- Institutional Class Shares

34 Information Concerning All Funds

34 Management of the Funds

35 Calculating a Fund's Share Price

35 Dividends and Distributions

36 Tax Considerations

36 Buying and Selling Fund Shares
</TABLE>

2
--
<PAGE>

Institutional Equity 500 Index Fund
Overview

- --
--

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

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

Institutional Equity 500 Index Fund

Overview of the Institutional Equity 500 Index Fund

<TABLE>
<C> <S>
3 Goal

3 Core Strategy

3 Investment Policies and Strategies

4 Principal Risks of Investing in the Fund

4 Who Should Consider Investing in the Fund

5 Total Returns, After Fees and Expenses

6 Annual Fund Operating Expenses
A Detailed Look at the Institutional Equity 500 Index Fund
7 Objective

7 Index Investing Versus Active Management
7 Strategy

7 Principal Investments

7 Investment Process
8 Risks

8 Information Regarding the Index

9 Portfolio Manager

10 Financial Highlights
</TABLE>

INVESTMENT POLICIES AND STRATEGIES

The Fund is a feeder fund that invests all of its assets in a master portfolio
with the same investment objective as the Fund. The Fund, through the master
portfolio, seeks to replicate, before expenses, the risk and return
characteristics of the S&P 500 Index. The Fund will invest primarily in common
stocks of companies that compose the S&P 500, in approximately the same
weightings as the S&P 500. The Fund may also use stock index futures and
options.

- -------------------------------------------------------------------------------
The S&P 500 Index is a well-known stock market index that includes common
stocks of 500 companies from several industrial sectors representing a
significant portion of the market value of all stocks publicly traded in the
United States, most of which are traded on the New York Stock Exchange. Stocks
in the S&P 500 Index are weighted according to their market capitalization
(the number of shares outstanding multiplied by the stock's current price).

3
--
<PAGE>

Overview of the Institutional Equity 500 Index Fund

PRINCIPAL RISKS OF INVESTING IN THE FUND
An investment in the Fund could lose money, or the Fund's performance could
trail that of other investments. For example:
. Stocks could decline generally or could underperform other investments.

. Returns on large U.S. companies' stock, in which the Fund invests, could trail
the returns of stocks of medium or small companies. Each type of stock tends
to go through cycles of overperformance and underperformance in comparison to
the overall stock market.

. The Fund may not be able to mirror the S&P 500 Index closely enough to track
its performance for a number of reasons, including the Fund's cost to buy and
sell securities, the flow of money into and out of the Fund, and the
underperformance of stocks selected by the Investment Adviser.

. The Fund could suffer losses if its futures and options positions are not well
correlated with the securities for which they are acting as a substitute or if
the Fund cannot close out its positions. WHO SHOULD CONSIDER INVESTING IN
THE FUND The Institutional Equity 500 Index Fund requires a minimum investment
of $5 million. You should consider investing in the Fund if you are seeking
the following:
. capital appreciation over the long term;
. exposure to the U.S. equity market as represented by larger companies; and
. investment returns that track the performance of the S&P 500 Index.

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

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

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

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

4
--
<PAGE>

Overview of the Institutional Equity 500 Index Fund

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

[BAR CHART APPEARS HERE]

- ----- ----- ------ ------ ------ ------
9.84% 1.40% 37.59% 22.75% 33.23% 28.72%
- ----- ----- ------ ------ ------ ------
1993 1994 1995 1996 1997 1998
- ----- ----- ------ ------ ------ ------

Since inception, the Fund's highest return in any calendar quarter was 21.41%
(fourth quarter 1998) and its lowest quarterly return was -9.85% (third
quarter 1998). Past performance offers no indication of how the Fund will
perform in the future.
TOTAL RETURNS, AFTER FEES AND EXPENSES
The bar chart and table on this page can help you evaluate the potential risk
and rewards of investing in the Fund by showing changes in the Fund's
performance year to year. The bar chart shows the Fund's actual return for
each full calendar year since the Fund began selling shares on December 31,
1992 (its inception date). The table compares the Fund's average annual return
with the S&P 500 Index over the last calendar year, the last five calendar
years and since the Fund's inception. The S&P 500 Index is a model, not an
actual portfolio. An index is a group of securities whose overall performance
is used as a standard to measure investment performance. It does not factor in
the costs of buying, selling and holding stocks -- costs which are reflected
in the Fund's results.
Average Annual Returns

(as of December 31, 1998)

<TABLE>
<CAPTION>
Since inception
1 year 5 years (December 31, 1992)
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Institutional Equity 500 Index Fund 28.72% 24.05% 21.56%
- -----------------------------------------------------------------------
S&P 500 Index 28.58% 24.06% 21.61%
- -----------------------------------------------------------------------
</TABLE>

5
--
<PAGE>

Overview of the Institutional Equity 500 Index Fund

ANNUAL FUND OPERATING EXPENSES
(expenses paid from Fund assets)

The Annual Fees and Expenses table to the right describes the fees and expenses
that you may pay if you buy and hold shares of the Institutional Equity 500
Index Fund.

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

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

/1/Information on the annual operating expenses reflects the expenses of both
the Fund and Equity 500 Index Portfolio, the master portfolio in which the
Equity 500 Index Fund invests its assets. (A further discussion of the
relationship between the Fund and the Portfolio appears in the
"Organizational Structure" section of this prospectus.)
/2/Bankers Trust has agreed, for the 16-month period from the end of the Fund's
fiscal year end of December 31, 1998, to waive its fees and reimburse
expenses so that total expenses will not exceed 0.10%.
/3/Based on expenses, after fee waivers and reimbursements for the first 16
months only.
Annual Fees and Expenses

<TABLE>
<CAPTION>
Percentage of Average
Daily Net Assets/1/
- ----------------------------------------------------------------
<S> <C>
Management Fees 0.075%
- ----------------------------------------------------------------
Distribution and Service (12b-1) Fees none
- ----------------------------------------------------------------
Other Fund Operating Expenses 0.095%
- ----------------------------------------------------------------
Total Fund Operating Expenses 0.17%
- ----------------------------------------------------------------
Less: Fee Waiver or Expense Reimbursement (0.07)%/2/
- ----------------------------------------------------------------
Net Expenses 0.10%
- ----------------------------------------------------------------
</TABLE>
- -- ---

Expense Example/3/

<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
------------------------------------------------------------
<S> <C> <C> <C>
$10 $47 $90 $217
</TABLE>
- -- ---

6
--
<PAGE>

Institutional Equity 500 Index Fund
A detailed look

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

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

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

. index funds generally realize low capital gains.

STRATEGY

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

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

The Fund may hold up to 20% of its assets in short-term debt securities, money
market instruments and stock index futures and options. Futures and options
are considered derivatives because they "derive" their value from a
traditional security (like a stock or bond), asset or index. The Fund intends
to buy futures in anticipation of buying stocks.

INVESTMENT PROCESS
The Fund normally does not hold every one of the 500 stocks in the S&P 500
Index. In an effort to run an efficient and effective strategy, the Fund uses
the process of "optimization," a statistical sampling technique. First, the
Fund buys the stocks that make up the larger portions of the Index's value in
roughly the same proportion as the Index. Second, smaller stocks are analyzed
and selected. In selecting smaller stocks, the Investment Adviser tries to
match the industry and risk characteristics of all of the smaller companies in
the S&P 500 Index without buying all of those stocks. This approach attempts
to maximize the Fund's liquidity and returns while minimizing its costs.

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

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

7
--
<PAGE>

A Detailed Look at the Institutional Equity 500 Index Fund

RISKS

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

Primary Risks

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

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

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

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

Secondary Risks

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

We are working both internally and with our business partners and service
providers to address this problem. If we -- or our business partners, service
providers, government agencies or other market participants -- do not succeed,
it could materially affect shareholder services or it could affect the value
of the Fund's shares.

INFORMATION REGARDING THE INDEX

The Fund and the Portfolio are not sponsored, endorsed, sold or promoted by
S&P. S&P makes no representation or warranty, express or implied, to the
owners of the Fund or the Portfolio or any member of the public regarding the
advisability of investing in securities generally or in the Fund and the
Portfolio particularly or the ability of the S&P 500 Index to track general
stock market performance. S&P's only relationship to the Fund and Portfolio is
the licensing of certain trademarks and trade names of S&P and of the S&P 500
Index, which is determined, composed and calculated without regard to the Fund
or Portfolio. S&P does not guarantee the accuracy and/or completeness of the
S&P 500 Index 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, to owners of the Fund or the Portfolio, or to any
other person or entity from

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

8
--
<PAGE>

A Detailed Look at the Institutional Equity 500 Index Fund

the use of the S&P 500 Index or any data included therein. S&P makes no express
or implied warranties, and expressly

disclaims all such warranties of merchantability or fitness for a particular
purpose or use with respect to the S&P 500 Index or any data included therein.

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

9
--
<PAGE>

A Detailed Look at the Institutional Equity 500 Index Fund

The table below provides a picture of the Fund's financial performance for the
past five years. The information selected reflects financial results for a
single Fund share. The total returns in the table represent the rate of return
that an investor would have earned on an investment in the Fund, assuming
reinvestment of all dividends and distributions. This information has been
audited by PricewaterhouseCoopers LLP, whose report, along with the Fund's
financial statements, is included in the Fund's annual report. The annual
report is available free of charge by calling the BT Service Center at 1-800-
368-4031.

Financial Highlights

<TABLE>
<CAPTION>
For the year ended December 31,
- ---------------------------------------------------------------------------------
1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per Share Operating
Performance:/1/
Net Asset Value,
Beginning of Year $ 125.63 $ 100.08 $ 83.82 $ 62.64 $ 64.08
- ---------------------------------------------------------------------------------
Income from Investment
Operations
Net Investment Income 2.05 2.04 1.98 1.80 1.68
- ---------------------------------------------------------------------------------
Net Realized and
Unrealized Gain (Loss)
on
Investment Transactions 33.70 30.88 16.92 21.54 (0.78)
- ---------------------------------------------------------------------------------
Total from Investment
Operations 35.75 32.92 18.90 23.34 0.90
- ---------------------------------------------------------------------------------
Distributions to
Shareholders
Net Investment Income (2.05) (2.01) (1.98) (1.80) (1.68)
- ---------------------------------------------------------------------------------
Net Realized Gain from
Investments and Futures
Transactions (2.61) (5.36) (0.66) (0.36) (0.66)
- ---------------------------------------------------------------------------------
Total Distributions (4.66) (7.37) (2.64) (2.16) (2.34)
- ---------------------------------------------------------------------------------
Net Asset Value, End of
Year $ 156.72 $ 125.63 $ 100.08 $ 83.82 $ 62.64
- ---------------------------------------------------------------------------------
Total Investment Return 28.72% 33.23% 22.75% 37.59% 1.40%
- ---------------------------------------------------------------------------------
Supplemental Data and
Ratios:
Net Assets, End of Year
(000s omitted) $2,288,970 $1,521,647 $1,218,455 $800,551 $371,216
- ---------------------------------------------------------------------------------
Ratios to Average Net
Assets:
Net Investment Income 1.48% 1.74% 2.20% 2.52% 2.84%
- ---------------------------------------------------------------------------------
Expenses, Including
Expenses of the Equity
500 Index Portfolio 0.10% 0.10% 0.10% 0.10% 0.10%
Decrease Reflected in
Above Expense Ratio Due
to Absorption of
Expenses by Bankers
Trust 0.07% 0.11% 0.11% 0.13% 0.13%
- ---------------------------------------------------------------------------------
Portfolio Turnover
Rate/2/ 4% 19% 15% 6% 21%
- ---------------------------------------------------------------------------------
</TABLE>

/1/Per share amounts for the years ended December 31, 1994 through December
31, 1997 have been restated to reflect a 1:6 reverse stock split effective
September 4, 1997.
/2/The portfolio turnover rate is the rate for the master portfolio in which
the Fund invests.

10
--
<PAGE>

Small Cap Index Fund--Institutional Class Overview

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

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

- -- --

Small Cap Index Fund

Overview of the Small Cap Index Fund

<TABLE>
<C> <S>
11 Goal

11 Core Strategy

11 Investment Policies and Strategies

12 Principal Risks of Investing in the Fund

12 Who Should Consider Investing in the Fund

13 Total Returns, After Fees and Expenses

14 Annual Fund Operating Expenses
A Detailed Look at the Small Cap Index Fund
15 Objective

15 Index Investing Versus Active Management

15 Strategy

15 Principal Investments

15 Investment Process

16 Risks

16 Portfolio Manager

17 Financial Highlights
</TABLE>

INVESTMENT POLICIES AND STRATEGIES

The Fund is a feeder fund that invests all of its assets in a master portfolio
with the same investment objective. The Fund, through the master portfolio,
seeks to match, before expenses, the risk and return characteristics of the
Russell 2000 Small Stock Index. The Fund will invest primarily in common
stocks of companies that compose the Russell 2000 Index, in approximately the
same weightings as the Russell 2000 Index. The Fund may also use stock index
futures and options.

- -------------------------------------------------------------------------------
The Russell 2000 Small Stock Index is a widely accepted benchmark of small-
company stock performance. It is a subset of the Russell 3000 Index. The
Russell 2000 tracks the 2000 smallest companies in the Russell 3000. As of
December 31, 1998, the weighted average market capitalization of the companies
in the Russell 2000 was $.88 billion. That compares to $72 billion for the
companies in the Russell 3000.

11
--
<PAGE>

Overview of the Small Cap Index Fund

. Returns on small U.S. companies' stock, in which the Fund invests, could trail
the returns from stocks of medium or large companies. Each type of stock tends
to go through cycles of overperformance and underperformance in comparison to
the overall stock market.

. The Fund may not be able to mirror the Russell 2000 Index closely enough to
track its performance for a number of reasons, including: the Fund's costs to
buy and sell securities, the flow of money into and out of the Fund, and the
underperformance of stocks selected by the Investment Adviser.
. The Fund could suffer losses if its futures and options positions are not well
correlated with the securities for which they are acting as a substitute or if
the Fund cannot close out its positions. WHO SHOULD CONSIDER INVESTING IN THE
FUND The Small Cap Index Fund--Institutional Class requires a minimum
investment of $5 million. You should consider investing in the Fund if you are
seeking the following:
. capital appreciation over the long term;
. exposure to the U.S. equity market as represented by smaller companies; and
. investment returns that track the performance of the Russell 2000 Index.

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

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

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

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

12
--
<PAGE>

Overview of the Small Cap Index Fund

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

[BAR CHART APPEARS HERE]

------ ------
23.00% -2.60%
------ ------
1997 1998
------ ------

Since inception, the Fund's highest return in any calendar quarter was 16.31%
(fourth quarter 1998) and its lowest quarterly return was -19.66% (third
quarter 1998). Past performance offers no indication of how the Fund will
perform in the future.
TOTAL RETURNS, AFTER FEES AND EXPENSES
The bar chart and table on this page can help you evaluate the potential risk
and rewards of investing in the Fund by showing changes in the Fund's
performance year to year. The bar chart shows the Fund's actual return for the
two full calendar years since the Fund began selling shares on August 8, 1996
(its inception date). The table compares the Fund's average annual return with
the Russell 2000 Small Stock Index over the last calendar year and since the
Fund's inception. The Russell 2000 Index is a model, not an actual portfolio.
An index is a group of securities whose overall performance is used as a
standard to measure investment performance. It does not factor in the costs of
buying, selling and holding stock -- costs that are reflected in the Fund's
results.
Average Annual Returns
(as of December 31, 1998)

<TABLE>
<CAPTION>
Since Inception
1 year (August 8, 1996)/1/
- ------------------------------------------------------------------------
<S> <C> <C>
Small Cap Index Fund -- Institutional Class (2.60)% 11.58%
- ------------------------------------------------------------------------
Russell 2000 Index (2.55)% 11.85%
- ------------------------------------------------------------------------
</TABLE>

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

13
--
<PAGE>

Overview of the Small Cap Index Fund

ANNUAL FUND OPERATING EXPENSES
(expenses paid from Fund assets)

The Annual Fees and Expenses table to the right describes the fees and expenses
that you may pay if you buy and hold shares of the Small Cap Index Fund --
Institutional Class.

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

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

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

<TABLE>
<CAPTION>
Percentage of Average
Daily Net Assets/1/
- -----------------------------------------------------------------
<S> <C>
Management Fees 0.15%
- -----------------------------------------------------------------
Distribution and Service (12b-1) Fees none
- -----------------------------------------------------------------
Other Fund Operating Expenses 0.42%
- -----------------------------------------------------------------
Total Fund Operating Expenses 0.57%
- -----------------------------------------------------------------
Less: Fee Waiver or Expense Reimbursements (0.32)%/2/
- -----------------------------------------------------------------
Net Expenses 0.25%
- -----------------------------------------------------------------
</TABLE>
- -- --

Expense Example/3/

<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
------------------------------------------------------------
<S> <C> <C> <C>
$26 $144 $286 $702
</TABLE>
- -- --

14
--
<PAGE>

Small Cap Index Fund--Institutional Class A detailed look

OBJECTIVE

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

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

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

STRATEGY
To attempt to match the risk and return characteristics of the Russell 2000
Index as closely as possible, the Fund invests in a statistically selected
sample of the securities found in the

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

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

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

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

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

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

15
--
<PAGE>

A Detailed Look at the Small Cap Index Fund

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

Primary Risks

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

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

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

Secondary Risks

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

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

16
--
<PAGE>

A Detailed Look at the Small Cap Index Fund

The table below provides a picture of the Fund's financial performance since
inception. The information selected reflects financial results for a single
Fund share. The total returns in the table represent the rates of return that
an investor would have earned on an investment in the Fund, assuming
reinvestment of all dividends and distributions. This information has been
audited by PricewaterhouseCoopers LLP, whose report, along with the Fund's
financial statements, is included in the Fund's annual report. The annual
report is available free of charge by calling the BT Service Center at 1-800-
368-4031.
Financial Highlights

<TABLE>
<CAPTION>
Institutional Class Shares
---------------------------------------
For the For the
year ended year ended For the period
Dec. 31, Dec. 31, July 10, 1996/1/
1998 1997 to Dec. 31, 1996
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share Operating Performance:
Net Asset Value, Beginning of Period $ 11.13 $ 10.90 $ 10.00
- -----------------------------------------------------------------------------
Income from Investment Operations
Net Investment Income 0.06 0.23 0.04
- -----------------------------------------------------------------------------
Net Realized and Unrealized Gain
(Loss)
on Investment and Futures
Transactions (0.41) 2.21 0.90
- -----------------------------------------------------------------------------
Total from Investment Operations (0.35) 2.44 0.94
- -----------------------------------------------------------------------------
Distributions to Shareholders
Net Investment Income (0.08) (0.21) (0.04)
- -----------------------------------------------------------------------------
Net Realized Gain from Investment
Transactions (1.02) (2.00) (0.00)/2/
- -----------------------------------------------------------------------------
Total Distributions (1.10) (2.21) (0.04)
- -----------------------------------------------------------------------------
Net Asset Value, End of Period $ 9.68 $ 11.13 $ 10.90
- -----------------------------------------------------------------------------
Total Investment Return (2.60)% 23.00% 9.47%
- -----------------------------------------------------------------------------
Supplemental Data and Ratios:
Net Assets, End of Period (000s
omitted) $115,475 $38,312 $61,558
- -----------------------------------------------------------------------------
Ratios to Average Net Assets:
Net Investment Income 1.32% 1.35% 1.71%/3/
- -----------------------------------------------------------------------------
Expenses, Including Expenses of the
Small Cap Index Portfolio 0.25% 0.25% 0.25%/3/
Decrease Reflected in Above Expense
Ratio
Due to Absorption of Expenses by
Bankers Trust 0.32% 0.32% 0.62%/3/
- -----------------------------------------------------------------------------
Portfolio Turnover Rate/4/ 86% 88% 16%/5/
- -----------------------------------------------------------------------------
</TABLE>

/1/The Fund's inception date.

/3/Less than $0.01.
/4/Annualized.
/5/The portfolio turnover rate is the rate for the master portfolio in which
the Fund invests its assets.
/6/For the period July 1, 1996 to December 31, 1996.

17
--
<PAGE>

EAFE Equity Index Fund--Institutional Class Overview

- -- --
Goal: The Fund seeks to match, as closely as possible, before
expenses, the performance of the Morgan Stanley Capital
International (MSCI) EAFE Index ("EAFE Index") which emphasizes
stocks of companies in major markets in Europe, Australia and the
Far East.

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

EAFE Equity Index Fund

Overview of the EAFE Equity Index Fund

<TABLE>
<C> <S>
18 Goal

18 Core Strategy

18 Investment Policies and Strategies

19 Principal Risks of Investing in the Fund

19 Who Should Consider Investing in the Fund

20 Total Returns, After Fees and Expenses

21 Annual Fund Operating Expenses
A Detailed Look at the EAFE Equity Index Fund
22 Objective

22 Index Investing Versus Active Management
22 Strategy

22 Principal Investments

22 Investment Process

22 Risks

24 Information Regarding the Index
24 Portfolio Managers

25 Financial Highlights
</TABLE>

INVESTMENT POLICIES AND STRATEGIES
The Fund is a feeder fund that invests all of its assets in a master portfolio
with the same investment objective as the Fund. The Fund, through the master
portfolio, seeks to match, before expenses, the risk and return
characteristics of the EAFE Index. The Fund will invest primarily in common
stocks of companies that compose the EAFE Index, in approximately the same
weightings as the EAFE Index. The Fund may also use stock index futures and
options.

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

18
--
<PAGE>

Overview of the EAFE Equity Index Fund

PRINCIPAL RISKS OF INVESTING IN THE FUND
An investment in the Fund could lose money, or the Fund's performance could
trail that of other investments. For example:
. The stock market could perform poorly in one or more of the countries in
which the Fund has invested.
. Stocks could decline generally or could underperform other investments.
. Adverse political, economic or social developments could undermine the value
of the Fund's investments or prevent the Fund from realizing their full value.
. Accounting and financial reporting standards differ from those in the U.S. and
could convey incomplete information when compared to information typically
provided by U.S. companies.
. The currency of a country in which the Fund invests may fluctuate in value
relative to the U.S. dollar, which could affect the value of the investment
itself to U.S. investors.

. The Fund may not be able to mirror the EAFE Index closely enough to track its
performance for a number of reasons, including the Fund's cost to buy and sell
securities, the flow of money into and out of the Fund, and the
underperformance of stocks selected by the Investment Adviser.
. The Fund could suffer losses if its futures and options positions are not
well correlated with the securities for which they are acting as a substitute
or if the Fund cannot close out its positions.

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

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

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

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

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

19
--
<PAGE>

Overview of the EAFE Equity Index Fund

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

[BAR CHART APPEARS HERE]

----- ------
2.11% 19.81%
----- ------
1997 1998
----- ------

Since inception, the Fund's highest return in any calendar quarter was 20.05%
(fourth quarter 1998) and its lowest quarterly return was --14.06% (third
quarter 1998). Past performance offers no indication of how the Fund will
perform in the future.
TOTAL RETURNS, AFTER FEES AND EXPENSES
The bar chart and table on this page can help you evaluate the potential risk
and rewards of investing in the Fund by showing changes in the Fund's
performance year to year. The bar chart shows the Fund's actual return for
each full calendar year since the Fund began selling shares to the public on
January 24, 1996 (its inception date). The table compares the Fund's average
annual return with the EAFE Index over the last year and since the Fund's
inception. An index is a group of securities whose overall performance is used
as a standard to measure investment performance. It does not factor in the
costs of buying, selling and holding stock--costs that are reflected in the
Fund's results.

Average Annual Returns
(as of December 31, 1998)

<TABLE>
<CAPTION>
Since Inception
1 year (January 24, 1996)/1/
- ---------------------------------------------------------------------------
<S> <C> <C>
EAFE Equity Index Fund -- Institutional Class 19.81% 9.69%
- ---------------------------------------------------------------------------
EAFE Index 20.00% 9.70%
- ---------------------------------------------------------------------------
</TABLE>

/1/The performance of the EAFE(R) Index is calculated from January 31, 1996.

20
--
<PAGE>

Overview of the EAFE Equity Index Fund

ANNUAL FUND OPERATING EXPENSES
(expenses paid from Fund assets)

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

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

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

/1/Information on the annual operating expenses reflects the expenses of both
the Fund and the EAFE Equity Index Portfolio, the master portfolio in which
the EAFE Equity Index Fund invests its assets. (A further discussion of the
relationship between the Fund and the Portfolio appears in the "Organizational
Structure" section of this prospectus.)
/2/Bankers Trust has agreed, for the 16-month period from the Fund's fiscal
year end of December 31, 1998, to waive its fees and reimburse expenses so
that total expenses will not exceed 0.40%.
/3/Based on expenses, after fee waivers and reimbursements for the first 16
months only.
Annual Fees and Expenses

<TABLE>
<CAPTION>
Percentage of Average
Daily Net Assets/1/
- -----------------------------------------------------------------
<S> <C>
Management Fees 0.25%
- -----------------------------------------------------------------
Distribution and Service (12b-1) Fees None
- -----------------------------------------------------------------
Other Fund Operating Expenses 0.58%
- -----------------------------------------------------------------
Total Fund Operating Expenses 0.83%
- -----------------------------------------------------------------
Less: Fee Waiver or Expense Reimbursements (0.43)%/2/
- -----------------------------------------------------------------
Net Expenses 0.40%
- -----------------------------------------------------------------
</TABLE>
- -- --

Expense Example/3/

<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
------------------------------------------------------------
<S> <C> <C> <C>
$41 $214 $419 $1,012
</TABLE>
- -- --

21
--
<PAGE>

EAFE Equity Index Fund--Institutional Class A detailed look

OBJECTIVE

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

INDEX INVESTING VERSUS ACTIVE MANAGEMENT

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

. index funds generally realize low capital gains.

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

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

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

INVESTMENT PROCESS
The Fund normally does not hold every one of the roughly 1,100 stocks in the
EAFE Index. In an effort to run an efficient and effective strategy, the Fund
uses the process of "optimization," a statistical sampling technique. First,
the Fund buys the stocks that make up the larger portions of the Index's value
in roughly the same proportion as the Index. Second, smaller stocks are
analyzed and selected. In choosing smaller stocks, the Investment Adviser
tries to match the industry and risk characteristics of all of the small
companies in the EAFE Index without buying all of those stocks. This approach
attempts to maximize the Fund's liquidity and returns while minimizing its
costs.

RISKS

Below we set forth some of the prominent risks associated with investing in
general, with index investing and with investing in stocks outside the United
States.

Primary Risks

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

Tracking Error Risk. There are several reasons that the Fund's performance may
not track the Index exactly:
.Unlike the Index, the Fund incurs administrative expenses and transaction
costs in trading stocks.

.The composition of the Index and the stocks held by the Fund may occasionally
diverge.
- -------------------------------------------------------------------------------

A Detailed Look at the EAFE Equity Index Fund

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

Political Risk. Some foreign governments have limited the outflow of profits
to investors abroad, extended diplomatic disputes to include trade and
financial relations, and imposed high taxes on corporate profits.

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

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

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

Portfolio Turnover. The portfolio turnover rate measures the frequency that
the Fund sells and replaces the value of its securities within a given period.
Historically, this Fund has had a low portfolio turnover rate.
redemptions or other needs while maintaining exposure to the stock market.
Risks associated with derivatives include:

. that the derivative is not well correlated with the security for which it is
acting as a substitute;
. that derivatives used for risk management may not have the intended effects
and may result in losses or missed opportunities; and
. that the Fund cannot sell the derivative because of an illiquid secondary
market.

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

Secondary Risks

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

Although it is impossible to predict the impact of the conversion to the euro
on the Fund, the risks may include:
. changes in the relative strength and value of the U.S. dollar or other major
currencies;
. adverse effects on the business or financial condition of European issuers
that the Fund holds in its portfolio;

. the possibility that the systems used to purchase and sell euro-denominated
securities may not work;
. uncertainty about how existing financial contracts will be treated after euro
implementation; and
. unpredictable effects on trade and commerce generally.

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

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

23
--
<PAGE>

A Detailed Look at the EAFE Equity Index Fund

Year 2000 Risk. As with most businesses, the Fund faces the risk that the
computer systems of its Investment Adviser and other companies on which it
relies for service or issuers in which it invests will not accommodate the
changeover necessary from dates in the year 1999 to dates in the year 2000.
These risks could adversely affect:
. the companies in which the Fund invests, which could impact the value of the
Fund's investments;
. our ability to service your Fund account, including our ability to meet your
requests to buy and sell Fund shares; and
. our ability to trade securities held by the Fund or to accurately price
securities held by the Fund. We are working both internally and with our
business partners and service providers to address this problem. If we--or our
business partners, service providers, government agencies or other market
participants--do not succeed, it could materially affect shareholder services
or the value of the Fund's shares.

INFORMATION REGARDING THE INDEX

This Fund and master portfolio are not sponsored, endorsed, sold or promoted
by Morgan Stanley. Morgan Stanley makes no representation or warranty, express
or implied, to the owners of this Fund or any member of the public regarding
the advisability of investing in securities generally or the ability of the
EAFE 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 and
master portfolio, or to this Fund and master portfolio themselves. Morgan
Stanley has no obligation to take the needs of the issuer of this Fund and
master portfolio or the owners of this Fund and master portfolio into
consideration in determining, composing or calculating the EAFE 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, prices or quantities of this Fund and master portfolio to be issued,
or in the determination or calculation of the equation by which this Fund is
redeemable for cash. Morgan Stanley has no obligation or liability to owners
of this Fund and master portfolio in connection with the administration,
marketing or trading of this Fund and master portfolio. This Fund and master
portfolio are neither sponsored by nor affiliated with Morgan Stanley.

Although Morgan Stanley shall obtain information for inclusion in or for use
in the calculation of the indexes from sources that Morgan Stanley considers
reliable, Morgan Stanley does not guarantee the accuracy and/or the
completeness of the indices or any data included therein.

Morgan Stanley makes no warranty, express or implied, as to results to be
obtained by licensee, licensee's customers and counterparties, owners of the
products, or any other person or entity from the use of the indexes or any
data included therein in connection with the rights licensed hereunder or for
any other use. Morgan Stanley makes no express or implied warranties, and
hereby expressly disclaims all warranties of merchantability or fitness for a
particular purpose with respect to the indexes or any data included therein.

Without limiting any of the foregoing, in no event shall Morgan Stanley have
any liability for any direct, indirect, special, punitive, consequential or
any other damages (including lost profits) even if notified of the possibility
of such damages.

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

Richard J. Vella, Managing Director of Bankers Trust and Co-Manager of the
master portfolio.
. Joined Bankers Trust in 1985 and the master portfolio at its inception in
1996.
. 14 years of trading and investment experience.
. Bachelor of Science degree in Mechanical Engineering from Rutgers University,
MBA from University of Washington.

Steven Wetter, Principal of Bankers Trust and Co-Manager of the master
portfolio.
. Joined Bankers Trust in 1992 and the master portfolio at its inception in
1996.
. 11 years of trading and investment experience.
. Bachelor's degree from the University of California at Berkeley, MBA from the
New York University Stern School.

24
--
<PAGE>

A Detailed Look at the EAFE Equity Index Fund

<TABLE>
<CAPTION>
Institutional Class Shares
---------------------------------------------
For the For the For the period
year ended year ended January 24, 1996/2/
December 31, December 31, to December 31,
1998/1/ 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share Operating Performance:
Net Asset Value, Beginning of
Period $ 9.98 $ 10.62 $ 10.00
- -------------------------------------------------------------------------------
Income from Investment
Operations
Net Investment Income 0.16 0.23 0.12
- -------------------------------------------------------------------------------
Net Realized and Unrealized Gain
(Loss) from
Investment, Futures, Foreign
Currencies
and Forward Foreign Currency
Transactions 1.81 (0.02) 0.60
- -------------------------------------------------------------------------------
Total from Investment Operations 1.97 0.21 0.72
- -------------------------------------------------------------------------------
Distributions to Shareholders
Net Investment Income (0.16) (0.24) (0.08)
- -------------------------------------------------------------------------------
In Excess of Net Investment
Income (0.09) -- --
- -------------------------------------------------------------------------------
Net Realized Gain from
Investment Transactions (0.01) (0.61) (0.02)
- -------------------------------------------------------------------------------
In Excess of Net Realized Gains (0.10) -- --
- -------------------------------------------------------------------------------
Total Distributions (0.36) (0.85) (0.10)
- -------------------------------------------------------------------------------
Net Asset Value, End of Period $ 11.59 $ 9.98 $ 10.62
- -------------------------------------------------------------------------------
Total Investment Return 19.81% 2.11% 7.22%
- -------------------------------------------------------------------------------
Supplemental Data and Ratios:
Net Assets, End of Period (000s
omitted) $42,462 $35,509 $39,667
- -------------------------------------------------------------------------------
Ratios to Average Net Assets:
Net Investment Income 1.50% 1.70% 1.64%/3/
- -------------------------------------------------------------------------------
Expenses, Including Expenses of
the EAFE Equity Index Portfolio 0.40% 0.40% 0.40%/3/
Decrease Reflected in Above
Expense Ratio
Due to Absorption of Expenses
by Bankers Trust 0.43% 0.33% 0.48%/3/
- -------------------------------------------------------------------------------
Portfolio Turnover Rate/4/ 12% 44% 4%
- -------------------------------------------------------------------------------
</TABLE>

/1/Advisor Class shareholders were converted to Institutional Class on July
10, 1998.
/2/Commencement of operations.
/3/Annualized.
/4/The portfolio turnover rate is the rate for the master portfolio in which
the Fund invests its assets.

25
--
<PAGE>

U.S. Bond Index Fund--Institutional Class Overview

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

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

- -- --

U.S. Bond Index Fund

Overview of the U.S. Bond Index Fund

<TABLE>
<C> <S>
26 Goal

26 Core Strategy

26 Investment Policies and Strategies

27 Principal Risks of Investing in the Fund

27 Who Should Consider Investing in the Fund

28 Total Returns, After Fees and Expenses

29 Annual Fund Operating Expenses
A Detailed Look at the U.S. Bond Index Fund
30 Objective
30 Index Investing Versus Active Management

30 Strategy

30 Principal Investments

30 Investment Process

31 Risks

32 Portfolio Manager

33 Financial Highlights
</TABLE>
INVESTMENT POLICIES AND STRATEGIES

The Fund is a feeder fund that invests all of its assets in a master portfolio
with the same investment objective as the Fund. The Fund, through the master
portfolio, seeks to match, before expenses, the risk and return
characteristics of the Lehman Brothers Aggregate Bond Index. The Fund will
invest primarily in debt securities of companies that compose the Lehman Bond
Index, in approximately the same weightings as the Lehman Bond Index. The Fund
may use securities index futures and options.

- -------------------------------------------------------------------------------
The Lehman Brothers Aggregate Bond Index is one of the most widely accepted
benchmarks of bond market total return. It includes more than 6,000 taxable
securities, divided into four classes: U.S. Treasury and agency securities,
corporate bonds, bonds issued outside the United States but payable in U.S.
dollars, and mortgage-backed securities. All of the bonds on the Index have
maturities of one year or more at the time of their issue.

26
--
<PAGE>

Overview of the U.S. Bond Index Fund

PRINCIPAL RISKS OF INVESTING IN THE FUND
An investment in the Fund could lose money, or the Fund's performance could
trail that of other investments. For example:

. The bond market could decline in value as a result of a rise in interest
rates.
. The creditworthiness of a bond issuer could decline, which could cause the
value of the bond to decline.

. The Fund may not be able to mirror the Lehman Bond Index closely enough to
track its performance for a number of reasons, including the Fund's cost to
buy and sell securities, the flow of money into and out of the Fund and the
underperformance of securities selected by the Investment Adviser.
. The Fund could suffer losses if its futures and options positions are not
well correlated with the securities for which they are acting as a substitute
or if the Fund cannot close out its positions.

WHO SHOULD CONSIDER INVESTING IN THE FUND
The U.S. Bond Index Fund -- Institutional Class requires a minimum investment
of $5 million. You should consider investing in the Fund if you want to invest
in the fixed income market generally without regard to particular types of
issuers, sectors, or debt securities. Such investments in the past have
offered current income. There is, of course, no guarantee that the Fund will
realize its goal.

You should not consider investing in the U.S. Bond Index Fund if you are:

. pursuing a short-term financial goal;

. seeking capital appreciation; or

. seeking to outperform the Lehman Bond Index.

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

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

27
--
<PAGE>

Overview of the U.S. Bond Index Fund

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

[BAR CHART APPEARS HERE]

------
8.78%
------
1998
------

Since inception, the Fund's highest return in any calendar quarter was 4.38%
(third quarter 1998) and its lowest quarterly return was 0.27% (fourth quarter
1998). Past performance offers no indication of how the Fund will perform in
the future.
TOTAL RETURNS, AFTER FEES AND EXPENSES
The bar chart and table on this page can help you evaluate the potential risk
and rewards of investing in the Fund by showing changes in the Fund's
performance year to year. The bar chart shows the Fund's actual return for the
one full calendar year since the Fund began selling shares to the public on
June 30, 1997 (its inception date). The table compares the Fund's average
annual return with the Lehman Bond Index over the last year and since the
Fund's inception. The Index is a model, not an actual portfolio. An index is a
group of securities whose overall performance is used as a standard to measure
investment performance. It does not factor in the costs of buying, selling and
holding bonds -- costs that are reflected in the Fund's results.
Average Annual Returns
(as of December 31, 1998)

<TABLE>
<CAPTION>
Since Inception
1 year (June 30, 1997)
- -------------------------------------------------------------------
<S> <C> <C>
U.S. Bond Index Fund -- Institutional Class 8.78% 10.30%
- -------------------------------------------------------------------
Lehman Brothers Aggregate Bond Index 8.69% 10.15%
- -------------------------------------------------------------------
</TABLE>

28
--
<PAGE>

Overview of the U.S. Bond Index Fund

ANNUAL FUND OPERATING EXPENSES
(expenses paid from Fund assets)

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

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

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

/1/Information on the annual operating expenses reflects the expenses of both
the Fund and the U.S. Bond Index Portfolio, the master portfolio in which the
U.S. Bond Index Fund invests its assets. (A further discussion of the
relationship between the Fund and the Portfolio appears in the "Organizational
Structure" section of this prospectus.)
/2/Bankers Trust has agreed, for the 16-month period from the Fund's fiscal
year end of December 31, 1998, to waive its fees and reimburse expenses so that
total expenses will not exceed 0.15%.
/3/Based on expenses, after fee waivers and reimbursements for the first 16
months only.
Annual Fees and Expenses

<TABLE>
<CAPTION>
Percentage of Average
Daily Net Assets/1/
- -----------------------------------------------------------------
<S> <C>
Management Fees 0.15%
- -----------------------------------------------------------------
Distribution and Service (12b-1) Fees none
- -----------------------------------------------------------------
Other Fund Operating Expenses 0.75%
- -----------------------------------------------------------------
Total Fund Operating Expenses 0.90%
- -----------------------------------------------------------------
Less: Fee Waiver or Expense Reimbursements (0.75)%/2/
- -----------------------------------------------------------------
Net Expenses 0.15%
- -----------------------------------------------------------------
</TABLE>
- -- --

Expense Example/3/

<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
------------------------------------------------------------
<S> <C> <C> <C>
$15 $193 $417 $1,060
</TABLE>
- -- --

29
--
<PAGE>

U.S. Bond Index Fund--Institutional Class A detailed look

OBJECTIVE

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

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

. index funds generally realize low capital gains.

STRATEGY
To attempt to match the investment performance of the Lehman Bond Index over
time, the Fund invests in a statistically selected sample of the securities in
the Lehman Bond Index.

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

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

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

The Fund may hold up to 25% of its assets in short-term debt securities, money
market instruments, stock index futures and options. Futures and options are
considered derivatives because they "derive" their value from a traditional
security (like a stock or bond), asset or index. Hedging is a strategy
designed to offset investment risks. Hedging activities include, among other
things, the use of options and futures. The Fund intends to buy futures in
anticipation of buying stocks.

INVESTMENT PROCESS
The Fund normally does not hold every one of the 6,000 securities in the
Lehman Bond Index. Instead it invests in a representative sample of the
securities that make up the Index, which tracks four major classes of
investment grade fixed-income securities. The chart below shows the proportion
as of December 31, 1998 that each class has recently constituted of the market
value of the Index. The Fund also attempts to match the Index's duration, an
intermediate term.

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

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

30
--
<PAGE>

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

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

RISKS

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

Primary Risks

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

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

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

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

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

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

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

Secondary Risks

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

31
--
<PAGE>

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

We are working both internally and with our business partners and service
providers to address this problem. If we--or our business partners, service
providers, government agencies or other market participants--do not succeed, it
could materially affect shareholder services or the value of the Fund's shares.

Portfolio Manager. Louis R. D'Arienzo, Principal of Bankers Trust, is
responsible for the day-to-day management of the master portfolio.
. Joined Bankers Trust in 1981 and the master portfolio at its commencement in
1997.
. 16 years of investment experience.
. Bachelor's degree in Finance from New York University.

32
--
<PAGE>

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

<TABLE>
<CAPTION>
Institutional Class Shares
---------------------------
For the
For the period ended
year ended June 30, 1997/2/
Dec. 31, through Dec. 31,
1998/1/ 1997
- -----------------------------------------------------------------------------
<S> <C> <C>
Per Share Operating Performance:
Net Asset Value, Beginning of Period $ 10.29 $10.00
- -----------------------------------------------------------------------------
Income from Investment Operations
Net Investment Income 0.59 0.33
- -----------------------------------------------------------------------------
Net Realized and Unrealized Gain on Investment
Transactions 0.29 0.32
- -----------------------------------------------------------------------------
Total from Investment Operations 0.88 0.65
- -----------------------------------------------------------------------------
Distributions to Shareholders
Net Investment Income (0.61) (0.32)
- -----------------------------------------------------------------------------
Net Realized Gain from Investment Transactions (0.09) (0.04)
- -----------------------------------------------------------------------------
Total Distributions (0.70) (0.36)
- -----------------------------------------------------------------------------
Net Asset Value, End of Period $ 10.47 $10.29
- -----------------------------------------------------------------------------
Total Investment Return 8.78% 6.52%
- -----------------------------------------------------------------------------
Supplemental Data and Ratios:
Net Assets, End of Period (000s omitted) $39,790 $8,119
- -----------------------------------------------------------------------------
Ratios to Average Net Assets:
Net Investment Income 5.70% 6.32%/3/
- -----------------------------------------------------------------------------
Expenses, Including Expenses of the U.S. Bond
Index Portfolio 0.15% 0.15%/3/
Decrease Reflected in Above Expense Ratio Due to
Absorption
of Expenses by Bankers Trust 0.75% 0.71%/3/
- -----------------------------------------------------------------------------
Portfolio Turnover Rate/4/ 82% 79%/5/
- -----------------------------------------------------------------------------
</TABLE>

/1/ Advisor Class shares were converted to Institutional Class on July 10,
1998.

/2/ Commencement of Operations.

/3/ Annualized.

/4/ The portfolio turnover rate is the rate for the master portfolio in which
the Fund invests its assets.

/5/ For the period June 10, 1997 through December 31, 1997.

33
--
<PAGE>

Information

concerning all Funds

MANAGEMENT OF THE FUNDS
Board of Trustees. Each Fund's shareholders, voting in proportion to the
number of shares each owns, elect a Board of Trustees, and the Trustees
supervise all of the Fund's activities on their behalf.

Investment Adviser. Under the supervision of the Board of Trustees, Bankers
Trust Company, with headquarters at 130 Liberty Street, New York, NY 10006,
acts as each Fund's Investment Adviser. As Investment Adviser, Bankers Trust
makes the Fund's investment decisions and assumes responsibility for the
securities the Fund owns. It buys and sells securities for the Fund and
conducts the research that leads to the purchase and sale decisions.

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

<TABLE>
<CAPTION>
Percentage of
Average Daily
Fund Net Assets
- --------------------------------------------------
<S> <C>
Institutional Equity 500 Index Fund 0.085%/1/
- --------------------------------------------------
Small Cap Index Fund 0.15%
- --------------------------------------------------
EAFE Equity Index Fund 0.25%
- --------------------------------------------------
U.S. Bond Index Fund 0.15%
- --------------------------------------------------
</TABLE>

As of December 31, 1998, Bankers Trust was the eighth largest bank holding
company in the United States, with total assets of approximately $156 billion.
Bankers Trust is a worldwide merchant bank dedicated to servicing the needs of
corporations, governments, financial institutions and private clients through
a global network of over 96 offices in more than 43 countries.

Bankers Trust's officers bring wide experience to managing both the Funds and
their portfolios. The firm's own record dates back to its founding as a trust
company in 1903. It has invested retirement assets on behalf of the nation's
largest corporations and institutions for more than 50 years. Today, the
assets under its global management exceed $338 billion. The scope of the
firm's capability is broad--it is a leader in
- -------------------------------------------------------------------------------
/1/ This represents the actual fee paid to Bankers Trust over the last fiscal
year. The fee was reduced to 0.075% on May 6, 1998.
both the active and passive quantitative investment disciplines and maintains
a major presence in stock and bond markets worldwide.

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

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

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

34
--
<PAGE>

Information Concerning All Funds

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

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

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

<TABLE>
<CAPTION>
Fund Master Portfolio
- ------------------------------------------------------
<S> <C>
Institutional Equity 500 Equity 500 Index Portfolio
Index Fund
- ------------------------------------------------------
Small Cap Index Fund Small Cap Index Portfolio
- ------------------------------------------------------
EAFE Equity Index Fund EAFE Equity Index Portfolio
- ------------------------------------------------------
U.S. Bond Index Fund U.S. Bond Index Portfolio
- ------------------------------------------------------
</TABLE>

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

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

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

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

We value the securities in a Fund at their stated market value if price
quotations are available. When price quotations for a particular security are
not readily available, we determine their value by the method that most
accurately reflects their current worth in the judgment of the Board of
Trustees. You can find a Fund's daily share price in the mutual fund listings
of most major newspapers.

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

<TABLE>
<CAPTION>
Income Dividends
Fund Are Paid
- --------------------------------------------------
<S> <C>
Institutional Equity 500 Index Quarterly
Fund
- --------------------------------------------------
Small Cap Index Fund Annually
- --------------------------------------------------
EAFE Equity Index Fund Annually
- --------------------------------------------------
U.S. Bond Index Fund Monthly
- --------------------------------------------------
</TABLE>

Distribution Options. The account applications for the Funds have a section
where you can elect to receive your dividend and capital gain distributions in
one of four ways:
. You can direct us to reinvest all of your distributions in additional shares
of the Fund.
. You can direct us to reinvest your capital gain distributions in additional
shares of the Fund, and send you a check for your dividend distributions.
. You can direct us to send you a check for all of your distributions.

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

The Exchange is open every week, Monday through Friday, except when the
following holidays are celebrated: New Year's Day, Martin Luther King, Jr. Day
(the third Monday in January), Presidents' Day (the third Monday in February),
Good Friday, Memorial Day (the last Monday in May), July 4th, Labor Day (the
first Monday in September), Thanksgiving Day (the fourth Thursday in November)
and Christmas Day.

35
--
<PAGE>

Information Concerning All Funds

.You can direct us to reinvest all of your distributions in shares of another
BT mutual fund. You can only choose this option if you meet the account
balance requirements for the selected fund.

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

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

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

<TABLE>
<CAPTION>
Transaction Tax Status
- -------------------------------------------------------
<S> <C>
Income dividends Ordinary income
Short-term capital gains distributions Ordinary income
Long-term capital gains distributions Capital gains
</TABLE>

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

<TABLE>
<CAPTION>
Transaction Tax Status
- -----------------------------------------------------------------
<S> <C>
Your sale of shares owned more than one year Capital gains or
losses
Your sale of shares owned for one year or less Gains treated as
ordinary income;
losses subject to
special rules
</TABLE>

The tax considerations for tax deferred accounts or non-taxable entities are
different.

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

BUYING AND SELLING FUND SHARES
Contacting the BT Mutual Funds

BT SERVICE CENTER
By Phone 1-800-368-4031

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

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

BT RETIREMENT SERVICES CENTER
By Phone 1-800-677-7596

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

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

Our representatives are available to assist you personally Monday through
Friday, 9:00 a.m. to 6:00 p.m. Eastern time each day the New York Stock
Exchange is open for business. You can reach the BT Service Center's automated
assistance line 24 hours a day, 7 days a week.

Minimum Account Investments
<TABLE>
<S> <C>
To open an account $5 million
To add to an account $100,000
Minimum account balance $1 million
</TABLE>

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

How to Open Your Fund Account

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

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

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

36
--
<PAGE>

Information Concerning All Funds

Two Ways to Buy and Sell Shares in Your Account

MAIL:

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

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

WIRE:

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

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

See your account statement for the account name and number.

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

Important Information About Buying and Selling Shares
. After receiving your order, we buy or sell your shares at the next price
calculated on a day the New York Stock Exchange is open for business.
. We accept payment for shares only in U.S. dollars by check, bank or Federal
Funds wire transfer, or by electronic bank transfer. We do not accept starter
or third-party checks.
. We remit proceeds from the sale of shares in U.S. dollars (unless the
redemption is so large that it is made "in-kind").
. You may place orders to buy and sell over the phone by calling your financial
advisor or the BT Service Center at 1-800-368-4031. If you pay for shares by
check and the check fails to clear, or if you order shares by phone and fail
to pay for them by 4:00 p.m. Eastern time the next business day, we have the
right to cancel your order, hold you liable or charge you or your account for
any losses or fees the Fund or its agents have incurred. Unless you request a
wire, we will send you a check.
. You may buy and sell shares of a Fund through authorized brokers and financial
advisors as well as from BT Mutual Funds directly. The same terms and
conditions apply. Specifically, once you place your order with a broker or
financial advisor, it is considered received by the BT Service Center. It is
then your broker or financial advisor's responsibility to transmit the order
to the BT Service Center by the next business day. You should contact your
broker or financial advisor if you have a dispute as to when your order was
placed with the Fund.
. We do not issue share certificates.
. We process all sales orders free of charge.
. Unless otherwise instructed, we normally mail a check for the proceeds from
the sale of your shares to your account address the next business day but
always within seven days.
. We reserve the right to close your account on 30 days' notice if it fails to
meet minimum balance requirements for any reason other than a change in market
value. We also reserve the right to reject any purchase order.
. If you sell shares by mail or wire, you may be required to obtain a signature
guarantee. Please contact your financial advisor or the BT Service Center for
more information.
. Selling shares of trust accounts and business or organization accounts may
require additional documentation. Please

37
--
<PAGE>

Information Concerning All Funds

contact your financial advisor or the BT Service Center for more information.
. During periods of heavy market activity, you may have trouble reaching the BT
Service Center by telephone. If this occurs, you should make your request by
mail.

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

Please note the following conditions:
. The accounts between which the exchange is taking place must have the same
name, address and taxpayer ID number.
. You may make the exchange by phone, letter or wire, if your account has the
exchange by phone feature.
. If you are maintaining a taxable account, you may have to pay taxes on the
exchange.
. You will receive a written confirmation of each transaction from the BT
Service Center or your investment professional.

Please note the following conditions on exchanges into and out of EAFE Equity
Index Fund and Institutional Equity 500 Index Fund:

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

38
--
<PAGE>

(THIS PAGE INTENTIONALLY LEFT BLANK)

<PAGE>

[LOGO OF BANKERS TRUST APPEARS HERE]

- -- --

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

You can find more detailed information about each Fund in the current
Statement of Additional Information, dated April 30, 1999, which we have
filed electronically with the Securities and Exchange Commission (SEC) and
which is incorporated by reference into this Prospectus. To receive your
free copy of the Statement of Additional Information, the annual or semi-
annual report, or if you have questions about investing in a Fund, write
to us at:

BT Service Center

P.O. Box 419210

Kansas City, MO 64141-6210
or call our toll-free number:

1-800-368-4031

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

Institutional Equity 500 Index Fund CUSIP#055924500
Small Cap Index Fund -- Institutional Class Shares 05576L882
EAFE Equity Index Fund -- Institutional Class Shares 05576L874
U.S. Bond Index Fund -- Institutional Class Shares 05576L700
BT Advisor Funds
BT Institutional Funds COMBINXPRO--(4/99)

Distributed by:
ICC Distributors, Inc. 811-7347
Two Portland Square 811-6071
Portland, ME 04101
<PAGE>

STATEMENT OF ADDITIONAL INFORMATION

APRIL 30, 1999

BT INSTITUTIONAL FUNDS

. BT INSTITUTIONAL EQUITY 500 INDEX FUND

BT ADVISOR FUNDS -- INSTITUTIONAL CLASS SHARES

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

BT Advisor Funds (the "Trust") comprise series funds. The funds listed above
(each, a "Fund" and together the "Funds") are, with the exception of BT
Institutional Equity 500 Index Fund, each a series of the Trust. BT
Institutional Equity 500 Index Fund is a series of BT Institutional Funds (the
"Institutional Trust") (together with the Trust, the "Trusts").

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

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

The Prospectuses for each Fund, dated April 30, 1999, provide the basic
information investors should know before investing. This Statement of Additional
Information ("SAI"), which is not a Prospectus, is intended to provide
additional information regarding the activities and operations of the Trusts and
should be read in conjunction with the Prospectuses. You may request a copy of a
Prospectus or a paper copy of this SAI, if you have received it electronically,
free of charge by calling the Trusts at the telephone number listed below or by
contacting any Bankers Trust service agent ("Service Agent"). Capitalized terms
not otherwise defined in this Statement of Additional Information have the
meanings accorded to them in each Fund's Prospectus. The financial statements
for each Fund and the corresponding Portfolio for the fiscal year ended December
31, 1998, are incorporated herein by reference to the Annual Report to
shareholders for each Fund and each Portfolio dated December 31, 1998. A copy of
each Fund's and the corresponding Portfolio's Annual Report may be obtained
without charge by calling each Fund at the telephone number listed below.

BANKERS TRUST COMPANY
INVESTMENT ADVISER OF EACH PORTFOLIO AND ADMINISTRATOR

ICC DISTRIBUTORS, INC.
DISTRIBUTOR

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

<PAGE>

TABLE OF CONTENTS

Page
----

STATEMENT OF ADDITIONAL INFORMATION.......................................1
INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS..........................1
Investment Objectives..................................................1

Investment Policies....................................................1
Futures Contracts and Options on Futures Contracts.....................7
Additional Risk Factors................................................7
Investment Restrictions................................................7
Portfolio Transactions and Brokerage Commissions.......................7

PERFORMANCE INFORMATION...................................................7
Standard Performance Information.......................................7
Comparison of Fund Performance.........................................7
Economic and Market Information........................................7

VALUATION OF SECURITIES; REDEMPTIONS AND PURCHASES IN KIND................7
Valuation of Securities................................................7
Purchase of Shares.....................................................7
Redemption of Shares...................................................7
Redemptions and Purchases in Kind......................................7
Trading in Foreign Securities..........................................7

MANAGEMENT OF THE TRUSTS AND THE PORTFOLIOS...............................7
Trustees of the BT Advisor Funds.......................................7
Trustees of BT Institutional Funds.....................................7
Trustees of the Portfolios.............................................7
Officers of the Trusts and Portfolios..................................7
Trustee Compensation Table.............................................7
Investment Adviser.....................................................7
Administrator..........................................................7
Service Agent..........................................................7
Custodian and Transfer Agent...........................................7
Expenses...............................................................7
Use of Name............................................................7
Counsel and Independent Accountants....................................7

ORGANIZATION OF THE TRUSTS................................................7
TAXATION..................................................................7

Distributions..........................................................7
Taxation of the Portfolios.............................................7
Backup Withholding.....................................................7
Foreign Shareholders...................................................7
Other Taxation.........................................................7
Foreign Withholding Taxes..............................................7

FINANCIAL STATEMENTS......................................................7
APPENDIX..................................................................7
<PAGE>

INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
INVESTMENT OBJECTIVES

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

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

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

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

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

INVESTMENT POLICIES

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

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

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

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

1
<PAGE>

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

MEDIUM- AND SMALL-CAPITALIZATION STOCKS. The Small Cap Index Portfolio may
invest in medium- and small-capitalization stocks. Historically, medium- and
small-capitalization stocks have been more volatile in price than the
larger-capitalization stocks included in the "S&P 500 Index". Among the reasons
for the greater price volatility of these securities are the less certain growth
prospects of smaller firms, the lower degree of liquidity in the markets for
such stocks, and the greater sensitively of medium- and small-size companies to
changing economic conditions. In addition to exhibiting greater volatility,
medium- and small-size company stocks may fluctuate independently of larger
company stocks. Medium- and small-size company stocks may decline in price as
larger company stocks rise, or rise in price as large company stocks decline.

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

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

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

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

2
<PAGE>

National Mortgage Association, the Farmers Home Administration, and the
Export-Import Bank.

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

CERTIFICATES OF DEPOSIT AND BANKERS' ACCEPTANCES. Certificates of deposit are
receipts issued by a depository institution in exchange for the deposit of
funds. The issuer agrees to pay the amount deposited plus interest to the bearer
of the receipt on the date specified on the certificate. The certificate usually
can be traded in the secondary market prior to maturity. Bankers' acceptances
typically arise from short-term credit arrangements designed to enable
businesses to obtain funds to finance commercial transactions. Generally, an
acceptance is a time draft drawn on a bank by an exporter or an importer to
obtain a stated amount of funds to pay for specific merchandise. The draft is
then "accepted" by a bank that, in effect, unconditionally guarantees to pay the
face value of the instrument on its maturity date. The acceptance may then be
held by the accepting bank as an earning asset or it may be sold in the
secondary market at the going rate of discount for a specific maturity. Although
maturities for acceptances can be as long as 270 days, most acceptances have
maturities of six months or less.

COMMERCIAL PAPER. Commercial paper consists of short-term (usually from 1 to 270
days) unsecured promissory notes issued by corporations in order to finance
their current operations. A variable amount master demand note (which is a type
of commercial paper) represents a direct borrowing arrangement involving
periodically fluctuating rates of interest under a letter agreement between a
commercial paper issuer and an institutional lender pursuant to which the lender
may determine to invest varying amounts.

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

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

3
<PAGE>

of improving the risk/reward profile of the Portfolio and when consistent with
the Portfolio's investment objective and policies. The use of derivatives for
non-hedging purposes may be considered speculative.

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

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

The Securities and Exchange Commission (the "SEC") has adopted Rule 144A, which
allows a broader institutional trading market for securities otherwise subject
to restriction on their resale to the general public. Rule 144A establishes a
"safe harbor" from the registration requirements of the 1933 Act of resales of
certain securities to qualified institutional buyers. The Adviser anticipates
that the market for certain restricted securities such as institutional
commercial paper will expand further as a result of this regulation and the
development of automated systems for the trading, clearance and settlement of
unregistered securities of domestic and foreign issuers, such as the PORTAL
System sponsored by the National Association of Securities Dealers, Inc.

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

In reaching liquidity decisions, the Adviser will consider, among other things,
the following factors: (i) the frequency of trades and quotes for the security;
(ii) the number of dealers and other potential purchasers wishing to purchase or
sell the security; (iii) dealer undertakings to make a market in the security
and (iv) the nature of the security and of the marketplace trades (e.g., the
time needed to dispose of the security, the method of soliciting offers and the
mechanics of the transfer).

WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. Each Portfolio may purchase
securities on a when-issued or delayed delivery basis. Delivery of and payment
for these securities can take place a month or more after the date of the
purchase commitment. The purchase price and the interest rate payable, if 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

4
<PAGE>

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 segregates cash or liquid securities, in an amount
at least equal to such commitments. On delivery dates for such transactions,
each Portfolio will meet its obligations from maturities or sales of the
segregated securities and/or from cash flow. If a Portfolio chooses to dispose
of the right to acquire a when-issued security prior to its acquisition, it
could, as with the disposition of any other portfolio obligation, incur a gain
or loss due to market fluctuation. It is the current policy of each Portfolio
not to enter into when-issued commitments exceeding in the aggregate 15% of the
market value of the Portfolio's total assets, less liabilities other than the
obligations created by when-issued commitments.

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

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

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 segregates cash, U.S. Government Obligations or high-grade debt obligations
having a value equal to the repurchase price, including accrued interest.
Reverse repurchase agreements involve the risk that the market value of the
securities sold by a Portfolio may decline below the repurchase price of those
securities. Reverse repurchase agreements are considered to be borrowings by a
Portfolio.

WARRANTS. Each Portfolio (except the Equity 500 Index Portfolio) may invest in
warrants with respect to 5% of its assets (2% with respect to warrants not
listed on the New York Stock Exchange or American Stock Exchange). Warrants
entitle the holder to buy common stock from the issuer at a specific price

5
<PAGE>

(the strike price) for a specific period of time. The strike price of warrants
sometimes is much lower than the current market price of the underlying
securities, yet warrants are subject to similar price fluctuations. As a result,
warrants may be more volatile investments than the underlying securities.

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

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

Whether the use of swap agreements will be successful in furthering its
investment objective will depend on the Adviser's ability to correctly predict
whether certain types of investments are likely to produce greater returns than
other investments. Swap agreements may be considered to be illiquid because they
are two party contracts and because they may have terms of greater than seven
days. Moreover, a Portfolio bears the risk of loss of the amount expected to be
received under a swap agreement in the event of the default or bankruptcy of a
swap agreement counterparty. A Portfolio will minimize this risk by entering
into agreements that mark to market no less frequently than quarterly. In
addition, a Portfolio will enter into swap agreements only with counterparties
that would be eligible for consideration as repurchase agreement counterparties
under the Portfolio's repurchase agreement guidelines. Certain restrictions
imposed on the Portfolios by the Internal Revenue Code of 1986, as amended (the
"Code") may limit the Portfolios' ability to use swap agreements. The swaps
market is a relatively new market and is largely unregulated. It is possible
that developments in the swaps market, including potential government
regulation, could adversely affect a Portfolio's ability to terminate existing
swap agreements or to realize amounts to be received under such agreements. Swap
agreements also bear the risk that a Portfolio will not be able to meet its
obligation to the counterparty. This risk will be mitigated by investing the
Portfolio in the specific asset for which it is obligated to pay a return.

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

6
<PAGE>

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.

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

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

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

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

7
<PAGE>

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

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

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

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

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

ASSET-BACKED SECURITIES. The asset-backed securities in which the U.S. Bond
Index Portfolio may invest are limited to those which are readily marketable,
dollar-denominated and rated BBB or higher by S&P or Baa or higher by Moody's.
Asset-backed securities present certain risks that are not presented by

8
<PAGE>

mortgage-backed securities. Primarily, these securities do not have the benefit
of the same type of security interest in the related collateral. Credit card
receivables are generally unsecured and the debtors are entitled to the
protection of a number of state and federal consumer credit laws, many of which
give such debtors the right to avoid payment of certain amounts owed on the
credit cards, thereby reducing the balance due. Most issuers of automobile
receivables permit the servicer to retain possession of the underlying
obligations. If the servicer were to sell these obligations to another party,
there is a risk that the purchaser would acquire an interest superior to that of
the holders of the related automobile receivables. In addition, because of the
large number of vehicles involved in a typical issuance and technical
requirements under state laws, the trustee for the holders of the automobile
receivables may not have a proper security interest in all of the obligations
backing such receivables. Therefore, there is the possibility that recoveries on
repossessed collateral may not, in some cases, be available to support payments
on these securities.

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

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

Examples of credit support arising out of the structure of the transaction
include "senior-subordinated securities" (multiple class securities with one or
more classes subordinate to other classes as to the 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

9
<PAGE>

underlying mortgage assets experience slower than anticipated prepayments
of principal, the yield on a PO class will be affected more severely than would
be the case with a traditional mortgage-backed security.

OPTIONS ON SECURITIES. Each 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 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

10
<PAGE>

stipulated expiration date or if the Portfolio enters into a closing purchase
transaction, the Portfolio will realize a gain (or loss if the cost of a closing
purchase transaction exceeds the premium received when the option was sold), and
the deferred credit related to such option will be eliminated. If a call option
is exercised, the Portfolio will realize a gain or loss from the sale of the
underlying security and the proceeds of the sale will be increased by the
premium originally received. The writing of covered call options may be deemed
to involve the pledge of the securities against which the option is being
written. Securities against which call options are written will be segregated on
the books of the custodian for the Portfolio.

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

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

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

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

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

11
<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 believes the
option can be closed out.

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

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

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

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

Each Portfolio may enter into currency hedging transactions in an attempt to
protect against changes in currency exchange rates between the trade and
settlement dates of specific securities transactions or changes in currency
exchange rates that would adversely affect a portfolio position or an
anticipated investment position. Since consideration of the prospect for
currency parities will be incorporated into Bankers Trust's long-term investment
decisions, a Portfolio will not routinely enter into currency hedging
transactions with respect to security transactions; however, the Adviser
believes that it is important to have the flexibility to enter into currency
hedging transactions when it determines that the transactions would be in the
Portfolio's best interest. Although these transactions tend to minimize the risk
of loss due to a decline in the value of the hedged currency, at the same time
they tend to limit any potential gain that might be realized should the value of
the hedged currency increase. The precise matching of the forward contract
amounts and the value of the securities involved will not generally be possible
because the future value of such securities in foreign currencies will change as
a consequence of market movements in the value of such securities between the
date the forward contract is entered into and the date it matures. The
projection of currency market movements is extremely difficult, and the
successful execution of a hedging strategy is highly uncertain.

12
<PAGE>

While these contracts are not presently regulated by the CFTC, the CFTC may in
the future assert authority to regulate forward contracts. In such event the
Portfolio's ability to utilize forward contracts may be restricted. Forward
contracts may reduce the potential gain from a positive change in the
relationship between the U.S. dollar and foreign currencies. Unanticipated
changes in currency prices may result in poorer overall performance for the
Portfolio than if it had not entered into such contracts. The use of currency
forward contracts may not eliminate fluctuations in the underlying U.S. dollar
equivalent value of the prices of or rates of return on a Portfolio's foreign
currency denominated portfolio securities and the use of such techniques will
subject a Portfolio to certain risks.

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

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

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

13
<PAGE>

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

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

FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS

GENERAL. The successful use of futures contracts and options thereon draws upon
the Adviser's skill and experience with respect to such instruments and usually
depends on the Adviser's ability to forecast interest rate and currency exchange
rate movements correctly. Should interest or exchange rates move in an
unexpected manner, a Portfolio may not achieve the anticipated benefits of
futures contracts or options on futures contracts or may realize losses and thus
will be in a worse position than if such strategies had not been used. In
addition, the correlation between movements in the price of futures 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 its judgment will be correct. Successful use of
options on securities or stock indices are subject to similar risk
considerations. In addition, by writing covered call options, the Portfolio
gives up the opportunity, while the option is in effect, to profit from any
price increase in the underlying securities above the options exercise price.

FUTURES CONTRACTS. Futures contracts are contracts to purchase or sell a fixed
amount of an underlying instrument, commodity or index at a fixed time and place
in the future. U.S. futures contracts have been designed by exchanges which have
been designated "contracts markets" by the CFTC, and must be executed through a
futures commission merchant, or brokerage firm, which is a member of the
relevant contract market. Futures contracts trade on a number of exchanges and
clear through their clearing corporations. Each Portfolio may enter into
contracts for the purchase or sale for future delivery of fixed-income
securities, foreign currencies, or financial indices including any index of U.S.
Government securities, foreign government securities or corporate debt
securities. Each Portfolio may enter into

14
<PAGE>

futures contracts which are based on debt securities that are backed by the full
faith and credit of the U.S. government, such as long-term U.S. Treasury Bonds,
Treasury Notes, Ginnie Mae modified pass-through mortgage-backed securities and
three-month U.S. Treasury Bills. A Portfolio may also enter into futures
contracts which are based on bonds issued by governments other than the U.S.
government. Futures contracts on foreign currencies may be used to hedge against
securities that are denominated in foreign currencies.

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

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

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

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

15
<PAGE>

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

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

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

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

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

16
<PAGE>

above, the purchase of an option also entails the risk that changes in the value
of the underlying futures contract will not be fully reflected in the value of
the option purchased.

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

The Board of Trustees of each Portfolio has adopted the requirement that futures
contracts and options on futures contracts be used as a hedge and may also use
stock index futures on continual basis to equitize cash so that the Portfolio
may maintain 100% equity exposure. In compliance with current CFTC regulations,
a Portfolio will not enter into any futures contracts or options on futures
contracts if immediately thereafter the amount of margin deposits on all the
futures contracts of the Portfolio and premiums paid on outstanding options on
futures contracts owned by the Portfolio (other than those entered into for bona
fide hedging purposes) would exceed 5% of the Portfolio's net asset value, after
taking into account unrealized profits and unrealized losses on any such
contracts.

ADDITIONAL RISK FACTORS

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

FOREIGN SECURITIES: SPECIAL CONSIDERATIONS CONCERNING THE PACIFIC BASIN. Many
Asian countries may be subject to a greater degree of social, political and
economic instability than is the case in the United States and European
countries. Such instability may result from (i) authoritarian governments or
military involvement in political and economic decision-making; (ii) popular
unrest associated with demands for improved political, economic and social
conditions; (iii) internal insurgencies; (iv) hostile relations with neighboring
countries; and (v) ethnic, religious and racial disaffection.

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

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

Many stock markets are undergoing a period of growth and change which may result
in trading volatility and difficulties in the settlement and recording of
transactions, and in interpreting and applying the relevant law and regulations.

17
<PAGE>

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

OPTIONS ON FUTURES CONTRACTS, FORWARD CONTRACTS AND OPTIONS ON FOREIGN
CURRENCIES. Unlike transactions entered into by a Portfolio in futures
contracts, options on foreign currencies and forward contracts are not traded on
contract markets regulated by the CFTC or (with the exception of certain foreign
currency options) by the SEC. To the contrary, such instruments are traded
through financial institutions acting as principals, although foreign currency
options are also traded on certain national securities exchanges such as the
Philadelphia Stock Exchange and the Chicago Board Options Exchange, subject to
SEC regulation. In an over-the-counter trading environment, many of the
protections afforded to exchange participants will not be available. For
example, there are no daily price fluctuation limits, and adverse market
movements could therefore continue to an unlimited extent over a period of time.
Although the purchaser of an option cannot lose more than the amount of the
premium plus related transaction costs, this entire amount could be lost.
Moreover, the option writer and a trader of forward contracts could lose amounts
substantially in excess of their initial investments.

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

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

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

18
<PAGE>

purpose. As a result, the OCC may, if it determines that foreign governmental
restrictions or taxes would prevent the orderly settlement of foreign currency
option exercises, or would result in undue burdens on the OCC or its clearing
member, impose special procedures on exercise and settlement, such as technical
changes in the mechanics of delivery of currency, the fixing of dollar
settlement prices or prohibitions on exercise.

In addition, futures contracts, options on futures contracts, forward contracts
and options on foreign currencies may be traded on foreign exchanges. Such
transactions are subject to the risk of governmental actions affecting trading
in or the prices of foreign currencies or securities. The value of such
positions also could be adversely affected by: (i) other complex foreign
political and economic factors; (ii) lesser availability than in the United
States of data on which to make trading decisions; (iii) delays in the
Portfolio's ability to act upon economic events occurring in foreign markets
during nonbusiness hours in the United States; (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
United States; and (v) lesser trading volume.

SPECIAL INFORMATION CONCERNING MASTER-FEEDER FUND STRUCTURE. Unlike other
open-end management investment companies (mutual funds) which directly acquire
and manage their own portfolio securities, each Fund seeks to achieve its
investment objective by investing all of its assets in the corresponding
Portfolio, a separate registered investment company with the same investment
objective as the corresponding Fund. Therefore, an investor's interest in the
corresponding Portfolio's securities is indirect. In addition to selling a
beneficial interest to the corresponding Fund, each Portfolio may sell
beneficial interests to other mutual funds, investment vehicles or institutional
investors. Such investors will invest in a Portfolio on the same terms and
conditions and will pay a proportionate share of a Portfolio's expenses.
However, the other investors investing in a Portfolio are not required to sell
their shares at the same public offering price as the Fund due to variations in
sales commissions and other operating expenses. Therefore, investors in a Fund
should be aware that these differences may result in differences in returns
experienced by investors in the different funds that invest in each Portfolio.
Such differences in returns are also present in other mutual fund structures.
Information concerning other holders of interests in each Portfolio is available
from Bankers Trust at 1-800-730-1313.

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

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

A Fund may withdraw its investment from a Portfolio at any time, if the Board of
Trustees of the Trust determines that it is in the best interests of the
shareholders of the Fund to do so. Upon any such withdrawal, the Board of
Trustees of the Trust would consider what action might be taken, including the

19
<PAGE>

investment of all the assets of the Fund in another pooled investment entity
having the same investment objective as the Fund or the retaining of an
investment adviser to manage the Fund's assets in accordance with the investment
policies described herein with respect to the corresponding Portfolio.

Each Fund's investment objective is not a fundamental policy and may be changed
upon notice to, but without the approval of, the Fund's shareholders. If there
is a change in a Fund's investment objective, the Fund's shareholders should
consider whether the Fund remains an appropriate investment in light of their
then-current needs. The investment objective of each Portfolio is also not a
fundamental policy. Shareholders of the Funds will receive 30 days prior written
notice with respect to any change in the investment objective of a Fund or the
corresponding Portfolio.

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

INVESTMENT RESTRICTIONS

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

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

(1) borrow money or mortgage or hypothecate assets of the Portfolio (Fund),
except that in an amount not to exceed 1/3 of the current value of the
Portfolio's (Fund's) assets, it may borrow money as a temporary measure
for extraordinary or emergency purposes and enter into reverse
repurchase agreements or dollar roll transactions, and except that it
may pledge, mortgage or hypothecate not more than 1/3 of such assets to
secure such borrowings (it is intended that money would be borrowed
only from banks and only either to accommodate requests for the
withdrawal of beneficial interests (redemption of shares) while
effecting an orderly liquidation of portfolio securities or to maintain
liquidity in the event of an unanticipated failure to complete a
portfolio security transaction or other similar situations) or reverse
repurchase agreements, provided that collateral arrangements with
respect to options and futures, including deposits of initial deposit
and variation margin, are not considered a pledge of assets for
purposes of this

20
<PAGE>

restriction and except that assets may be pledged to secure letters of
credit solely for the purpose of participating in a captive insurance
company sponsored by the Investment Company Institute; for additional
related restrictions, see clause (i) under the caption "Additional
Restrictions" below (as an operating policy, the Portfolios may not
engage in dollar roll transactions);

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

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

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

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

(6) issue any senior security (as that term is defined in the 1940 Act) if
such issuance is specifically prohibited by the 1940 Act or the rules
and regulations promulgated thereunder, provided that collateral
arrangements with respect to options and futures, including deposits of
initial deposit and variation margin, are not considered to be the
issuance of a senior security for purposes of this restriction.

(7) with respect to 75% of the Fund's (Portfolio's) total assets, invest
more than 5% of its total assets in the securities of any one issuer
(excluding cash and cash-equivalents, U.S. government securities and
the securities of other investment companies) or own more than 10% of
the voting securities of any issuer.

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

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

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

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

21
<PAGE>

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

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

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

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

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

22
<PAGE>

Portfolio (Fund) has purchased a closing put, which is a put of the same
series as the one previously written); and

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

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

PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS

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

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

The Adviser is authorized, consistent with Section 28(e) of the Securities
Exchange Act of 1934, as amended, when placing portfolio transactions for a
Portfolio with a broker to pay a brokerage commission (to the extent applicable)
in excess of that which another broker might have charged for effecting the same
transaction on account of the receipt of research, market or statistical
information. The term "research, market or statistical information" includes
advice as to the value of securities; the advisability of investing in,
purchasing or selling securities; the availability of securities or purchasers
or sellers of securities; and furnishing analyses and reports concerning
issuers, industries, securities, economic factors and trends, portfolio strategy
and the performance of accounts.

Consistent with the policy stated above, the Conduct Rules of the National
Association of Securities Dealers and such other policies as the Trustees of the
Portfolio may determine, the Adviser may consider

23
<PAGE>

sales of shares of the Fund as a factor in the selection of broker-dealers to
execute portfolio transactions. Bankers Trust will make such allocations if
commissions are comparable to those charged by nonaffiliated, qualified
broker-dealers for similar services.

Higher commissions may be paid to firms that provide research services to the
extent permitted by law. Bankers Trust may use this research information in
managing each Portfolio's assets, as well as the assets of other clients.

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

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

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

For the fiscal years ended December 31, 1998, 1997 and 1996, Equity 500 Index
Portfolio paid brokerage commissions in the amount of $534,801, $341,058 and
$289,791, respectively.

For the year ended December 31, 1998, the Portfolio paid $333 in brokerage
commissions to Bankers Trust, an affiliate of the Fund and Portfolio. This
represents 0.06% of the Fund's aggregate brokerage commissions and 0% of the
Fund's aggregate dollar amount of transactions involving the payment of
commissions during the fiscal year.

For the fiscal years ended December 31, 1998 and 1997, and for the period from
July 10, 1996 (commencement of operations) to December 31, 1996, the Small Cap
Index Portfolio, paid brokerage commissions in the amount of $170,681, $64,041
and $55,569, respectively.

For the fiscal years ended December 31, 1998 and 1997, and for the period from
January 24, 1996 (commencement of operations) to December 31, 1996, the EAFE
Equity Index Portfolio, paid brokerage commissions in the amount of $18,446,
$33,474 and $66,791, respectively.

24
<PAGE>

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

PERFORMANCE INFORMATION

STANDARD PERFORMANCE INFORMATION

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

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

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

TOTAL RETURN: Total return is the change in value of an investment in a Fund
over a given period, assuming reinvestment of any dividends and capital gains. A
cumulative total return reflects actual performance over a stated period of
time. An average annual total return is a hypothetical rate of return that, if
achieved annually, would have produced the same cumulative total return if
performance had been constant over the entire period. Average annual total
return calculations smooth out variations in performance; they are not the same
as actual year-by-year results. Average annual total returns covering periods of
less than one year assume that performance will remain constant for the rest of
the year. A Fund's average annual total return is calculated for certain periods
by determining the average annual compounded rates of return over those periods
that would cause an investment of $1,000 (made at the maximum public offering
price with all distributions reinvested) to reach the value of that investment
at the end of the periods. A Fund may also calculate total return figures which
represent aggregate performance over a period or year-by-year performance.

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

25
<PAGE>

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

COMPARISON OF FUND PERFORMANCE

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

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

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

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

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

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

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

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

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

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

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

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

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

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

26
<PAGE>

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

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

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

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

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

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

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

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

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

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

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

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

ECONOMIC AND MARKET INFORMATION

Advertising and sales literature of a Fund may include discussions of economic,
financial and political developments and their effect on the securities market.
Such discussions may take the form of commentary on these developments by Fund
portfolio managers and their views and analysis on how such developments could
affect the Funds. In addition, advertising and sales literature may quote
statistics and give general information about the mutual fund industry,
including the growth of the industry, from sources such as the Investment
Company Institute ("ICI"). For example, according to the ICI, thirty-seven
percent of American households are pursuing their financial goals through mutual
funds. These investors, as well as businesses and institutions, have entrusted
over $4.4 trillion to the more than 6,700 funds available.

VALUATION OF SECURITIES; REDEMPTIONS AND PURCHASES IN KIND

VALUATION OF SECURITIES

Each Fund is open for business each day the New York Stock Exchange, Inc.
("NYSE") is open (a "Valuation Day"). Each Fund's net asset value ("NAV") per
share is calculated at the close of regular trading on the NYSE (the "Valuation
Time"), which is currently 4:00 p.m., Eastern time or in the event that the NYSE
closes early, at the time of such early closing. The NAV per share is computed
by dividing the value of each Fund's assets (i.e., the value of its investment
in the corresponding Portfolio and other assets), less all liabilities
attributable to the shares, by the total number of shares outstanding. The
EAFE(R) Equity Index Fund will not process orders oN any day when the NYSE is
closed. Orders received on such days will be

27
<PAGE>

priced on the next day the Fund computes its NAV. As such, investors may
experience a delay in purchasing or redeeming shares of the Fund.

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

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

PURCHASE OF SHARES

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

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

Shares must be purchased in accordance with procedures established by the
Transfer Agent and each Service Agent. It is the responsibility of each Service
Agent to transmit to the Transfer Agent purchase and redemption orders and to
transmit to the Custodian purchase payments by the following business day (trade
date + 1) after an order for shares is placed. A shareholder must settle with
the Service Agent for his or her entitlement to an effective purchase or
redemption order as of a particular time. Because

28
<PAGE>

Bankers Trust is the Custodian and Transfer Agent of the Trust, funds may be
transferred directly from or to a customer's account held with Bankers Trust to
settle transactions with the Fund without incurring the additional costs or
delays associated with the wiring of federal funds.

If orders are placed through an Investment Professional, it is the
responsibility of the Investment Professional to transmit the order to buy
shares to the Transfer Agent before 4:00 p.m. Eastern time. The Transfer Agent
must receive payment within one business day after an order for Shares is
placed; otherwise, the purchase order may be canceled and the investor could be
held liable for resulting fees and/or losses.

The Institutional Trust and Bankers Trust have authorized one or more brokers to
accept on the Institutional Trust's behalf purchase and redemption orders. Such
brokers are authorized to designate other intermediaries to accept purchase and
redemption orders on the Institutional Trust's behalf. The Transfer Agent will
be deemed to have received a purchase or redemption order when an authorized
broker or, if applicable, a broker's authorized designee, accepts the order.
Customer orders will be priced at a Fund's NAV next computed after they are
accepted by an authorized broker or the broker's authorized designee.

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

29
<PAGE>

REDEMPTION OF SHARES

You can arrange to take money out of your fund account at any time by selling
(redeeming) some or all of your shares. Your shares shall be sold at the next
NAV calculated after an order is received by the Transfer Agent. Redemption
requests should be transmitted by customers in accordance with

30
<PAGE>

procedures established by the Transfer Agent and the shareholder's Service
Agent. Redemption requests for shares received by the Service Agent and
transmitted to the Transfer Agent prior to the Valuation Time on each Valuation
Day will be effective at that day's Valuation Time and the redemption proceeds
normally will be delivered to the shareholder's account the next day, but in any
event within seven calendar days following receipt of the request.

Service Agents may allow redemptions or exchanges by telephone and may disclaim
liability for following instructions communicated by telephone that the Service
Agent reasonably believes to be genuine. The Service Agent must provide the
investor with an opportunity to choose whether or not to utilize the telephone
redemption or exchange privilege. The Transfer Agent and the Service Agent must
employ reasonable procedures to confirm that instructions communicated by
telephone are genuine. If the Service Agent does not do so, it may be liable for
any losses due to unauthorized or fraudulent instructions. Such procedures may
include, among others, requiring some form of personal identification prior to
acting upon instructions received by telephone, providing written confirmation
of such transactions and/or tape recording of telephone instructions.

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

TO SELL SHARES IN A RETIREMENT ACCOUNT, your request must be made in writing,
except for exchanges to other eligible funds in the BT Family of Funds, which
can be requested by phone or in writing. For information on retirement
distributions, contact your Service Agent or call the BT Service Center at
1-800-368-4031.

CERTAIN REQUESTS MUST INCLUDE A SIGNATURE GUARANTEE to protect you and Bankers
Trust from fraud. Redemption requests in writing must include a signature
guarantee if any of the following situations apply:

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

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

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

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

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

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

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

31
<PAGE>

EXCHANGE PRIVILEGE

Shareholders may exchange their shares for shares of certain other funds in the
BT Family of Funds registered in their state up to four times a year (based on
the date of your first exchange). To make an exchange, follow the procedures
indicated in "Purchase of Shares" and "Redemption of Shares" herein and in the
each Fund's prospectus. Before making an exchange, please note the following:

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

32
<PAGE>

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

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

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

The Trust may suspend the right of redemption or postpone the date of payment
for shares of the Fund during any period when: (a) trading on the NYSE is
restricted by applicable rules and regulations of the SEC; (b) the NYSE is
closed for other than customary weekend and holiday closings; (c) the SEC has by
order permitted such suspension; or (d) an emergency exists as determined by the
SEC.

TAX-SAVING RETIREMENT PLANS

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

33
<PAGE>

REDEMPTIONS AND PURCHASES IN KIND

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

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

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

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

34
<PAGE>

registration costs. Each Fund reserves the right to accept or reject at its own
option any and all securities offered in payment for its shares.

TRADING IN FOREIGN SECURITIES

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

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

MANAGEMENT OF THE TRUSTS AND THE PORTFOLIOS

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

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

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

The Trustees and officers of the Trusts and Portfolios their birthdates, their
principal occupations during the past five years, and addresses are set forth
below. Their titles may have varied during that period.

TRUSTEES OF THE BT ADVISOR FUNDS

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

MARTIN J. GRUBER (birthdate: July 15, 1937) -- Trustee; Nomura Professor of
Finance, Leonard N. Stern School of Business, New York University (since 1964);
Trustee, TIAA (pension fund); Cowen Mutual Funds; Japan Equity Fund; and Taiwan
Equity Fund. His address is 229 S. Irving Street, Ridgewood, New Jersey 07450.

RICHARD J. HERRING (birthdate: February 18, 1946) -- Trustee; Jacob Safra
Professor of International Banking, Professor of Finance, Finance Department and
Vice Dean, 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.

35
<PAGE>

BRUCE E. LANGTON (birthdate: May 10, 1931) -- Trustee; Retired; Trustee,
Allmerica Financial Mutual Funds (1992-present). His address is 99 Jordan Lane,
Stamford, Connecticut 06903.

TRUSTEES OF BT INSTITUTIONAL FUNDS

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

RICHARD J. HERRING -- Trustee.

BRUCE E. LANGTON -- Trustee.

TRUSTEES OF THE PORTFOLIOS

CHARLES P. BIGGAR -- Trustee.

S. LELAND DILL (birthdate: March 28, 1930) -- Trustee; Retired; Director, Coutts
(U.S.A.) International (an Edge Act company); Zweig Series Trust; Vinters
International Company Inc.; Coutts Trust Holdings Ltd; Coutts Group; General
Partner of Pemco (an investment company registered under the 1940 Act); formerly
Partner of KPMG Peat Marwick. His address is 5070 North Ocean Drive, Singer
Island, Florida 33404.

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

OFFICERS OF THE TRUSTS AND PORTFOLIOS

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

JOHN Y. KEFFER (birthdate: July 14, 1942) -- President and Chief Executive
Officer; President, Forum Financial Group, LLC.; President, ICC Distributors,
Inc. Mr. Keffer also holds executive positions with affiliates of Forum
Financial Group, LLC. His address is ICC Distributors, Inc., Two Portland
Square, Portland, Maine 04101.

JOSEPH A. FINELLI (birthdate: January 24, 1957) -- Treasurer; Vice President, BT
Alex. Brown Incorporated and Vice President, Investment Company Capital Corp.
(registered investment adviser), September 1995 to present; formerly Vice
President and Treasurer, The Delaware Group of Funds (registered investment
companies) and Vice President, Delaware Management Company Inc. (investments),
1980 to August 1995. His address is One South Street, Baltimore, Maryland 21202.

DANIEL O. HIRSCH (birthdate: March 27, 1954) -- Secretary; Principal, BT Alex.
Brown since July 1998; Assistant General Counsel in the Office of the General
Counsel at the United States Securities and Exchange Commission from 1993 to
1998. His address is One South Street, Baltimore, Maryland 21202.

Messrs. Keffer, Finelli and Hirsch also hold similar positions for other
investment companies for which ICC Distributors, or an affiliate serves as the
principal underwriter.

No person who is an officer or director of Bankers Trust is an officer or
Trustee of the Trusts or the Portfolios. No director, officer or employee of ICC
Distributors or any of its affiliates will receive any

36
<PAGE>

compensation from the Trusts or the Portfolios for serving as an officer or
Trustee of the Trusts or the Portfolios.

As of March 31, 1999, the Trustees and officers of the Trusts and the Portfolios
owned in the aggregate less than 1% of the shares of any Fund or Trust (all
series taken together).

TRUSTEE COMPENSATION TABLE

<TABLE>
<CAPTION>
AGGREGATE AGGREGATE AGGREGATE TOTAL COMPENSATION
NAME OF PERSON, COMPENSATION FROM COMPENSATION FROM BT COMPENSATION FROM FUND COMPLEX
POSITION BT ADVISOR FUNDS* INSTITUTIONAL FUNDS** FROM PORTFOLIOS+ PAID TO TRUSTEES++
- ------------ ------------------ --------------------- ---------------- ------------------
<S> <C> <C> <C> <C>
Harry Van Benschoten,
Trustee, BT Advisor Funds $21,729 N/A N/A $35,000

Martin J. Gruber,
Trustee, BT Advisor Funds $21,729 N/A N/A $35,000

Richard J. Herring
Trustee, BT Advisor Funds
and BT Institutional Funds $14,000 $17,500 N/A $35,000

Bruce E. Langton
Trustee, BT Advisor Funds
and BT Institutional Funds $10,661 $23,625 N/A $35,000

Charles P. Biggar,
Trustee, Portfolios
and BT Institutional Funds N/A $10,732 $24,267 $35,000

S. Leland Dill,
Trustee, Portfolios N/A N/A $20,528 $35,000

Philip Saunders, Jr.,
Trustee, Portfolios N/A N/A $20,674 $35,000
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>

37
<PAGE>

* The information provided is for the BT Advisor Funds, which comprises 3
funds, for the year ended December 31, 1998.

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

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

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

As of March 31, 1999, the following shareholders of record owned 5% or more of
the outstanding shares of the Institutional Equity 500 Index Fund: Northern
Telecom Omnibus Account, c/o Bankers Trust Company, Jersey City, NJ (15.269%);
Bankers Trust Co. TTEE, The William Penn Foundation, Philadelphia, PA (13.771%);
Bankers Trust Co. Cust., 401(k) Premark Retirement Savings Plan, Jersey City, NJ
(6.298%); Carilion Health System Non Pension, Roanoke, VA (5.174%).

As of March 31, 1999, the following shareholders of record owned 5% or more of
the outstanding Institutional Class Shares of the EAFE Equity Index Fund:
Bankers Trust as Trustee, Pacificorp Master Retirement Trust dtd 10/1/94, Los
Angeles, CA (49.41%); Swiss Bank Corporation, New York, NY (21.067%); Main
Street Co., Custodian FBO A P I Trust Growth Fund, Martinsville, VA
(11.432%).

As of March 31, 1999, the following shareholders of record owned 5% or more of
the outstanding Institutional Class Shares of the Small Cap Index Fund: United
Services Automobile Assoc., c/o FSC Portfolio Accounting, San Antonio, TX
(65.858%); Merck & Co. Union VEBA, Jersey City, NJ (19.549%); Merck & Co., Inc.
Employee Benefit, Merck & Co., Inc. Group Lifetrust, Whitehouse Station, NJ
(8.49%).

As of March 31, 1999, the following shareholders of record owned 5% or more of
the outstanding Institutional Class Shares of the U.S. Bond Index Fund: Bankers
Trust Co. Cust, 401(k) Framatome Technologies, Nashville, TN (17.969%); Baptist
Health Systems Inc., Birmingham, AL (14.083%); National Automatic Sprinkler
Metal Trades Pension Fund, Landover, MD (13.189%).

INVESTMENT ADVISER

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

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

38
<PAGE>

$156 billion. The scope of Bankers Trust's investment management capability is
unique due to its leadership positions in both active and passive quantitative
management and its presence in major equity and fixed income markets around the
world. Bankers Trust is one of the nation's largest and most experienced
investment managers with over $338 billion in assets under management
globally.

Under the terms of each Portfolio's investment advisory agreement with Bankers
Trust (the "Advisory Agreements"), Bankers Trust manages the Portfolio subject
to the supervision and direction of the Board of Trustees of the Portfolio.
Bankers Trust will: (i) act in strict conformity with each Portfolio's
Declaration of Trust, the 1940 Act and the Investment Advisers Act of 1940, as
the same may from time to time be amended; (ii) manage each Portfolio in
accordance with the Portfolio's investment objectives, restrictions and
policies; (iii) make investment decisions for each Portfolio; and (iv) place
purchase and sale orders for securities and other financial instruments on
behalf of each Portfolio.

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

Bankers Trust bears all expenses in connection with the performance of services
under each Advisory Agreement. The Trust and each Portfolio bears certain other
expenses incurred in its operation, including: taxes, interest, brokerage fees
and commissions, if any; fees of Trustees of the Trust or the Portfolio who are
not officers, directors or employees of Bankers Trust, ICC Distributors or any
of their affiliates; SEC fees and state Blue Sky qualification fees; charges of
custodians and transfer and dividend disbursing agents; certain insurance
premiums; outside auditing and legal expenses; costs of maintenance of corporate
existence; costs attributable to investor services, including, without
limitation, telephone and personnel expenses; costs of preparing and printing
prospectuses and statements of additional information for regulatory purposes
and for distribution to existing shareholders; costs of shareholders' reports
and meetings of shareholders, officers and Trustees of the Trust or the
Portfolio; and any extraordinary expenses.

The Investment Advisory Agreements provide for each Portfolio to pay Bankers
Trust a fee, accrued daily and paid monthly, equal on an annual basis to 0.15%
of the average daily net assets of the U.S. Bond

39
<PAGE>

Index Portfolio and the Small Cap Index Portfolio, 0.075% of the average daily
net assets of the Equity 500 Index Portfolio and 0.25% of the average daily net
assets of the EAFE(R) Equity Index Portfolio. For the period January 1, 1998 to
May 6, 1998 the advisory fee for the Equity 500 Index Portfolio was 0.10% of the
average daily net assets of the Portfolio.

For the fiscal years ended December 31, 1998, 1997 and 1996, Bankers Trust
earned $3,186,503, $2,430,147 and $1,505,963, respectively, as compensation for
investment advisory services provided to the Equity 500 Index Portfolio. During
the same periods, Bankers Trust reimbursed $799,296, $1,739,490 and $870,024,
respectively, to the Portfolio to cover expenses.

For the fiscal years ended December 31, 1998 and 1997, and for the period from
July 1, 1996 (commencement of operations) to December 31, 1997, Bankers Trust
earned $151,232, $123,632 and $34,759, respectively, for investment advisory
services provided to the Small Cap Index Portfolio. During the same periods,
Bankers Trust reimbursed $152,329, $107,835 and $26,968, respectively, to the
Portfolio to cover expenses.

For the fiscal years ended December 31, 1998 and 1997, and for the period from
January 24, 1996 (commencement of operations) to December 31, 1997, Bankers
Trust earned $6,594, $113,810 and $68,584, respectively, for investment advisory
services provided to the EAFE Equity Index Portfolio. During the same periods,
Bankers Trust reimbursed $22,682, $28,070 and $30,591, respectively, to the
Portfolio to cover expenses.

For the fiscal year ended December 31, 1998 and for the period from June 30,
1997 (commencement of operations) to December 31, 1997, Bankers Trust earned
$67,925 and $33,131, respectively, for investment advisory services provided to
the U.S. Bond Index Portfolio. During the same periods, Bankers Trust reimbursed
$81,749 and $39,527 to the Portfolio to cover expenses.

Bankers Trust may have deposit, loan and other commercial banking relationships
with the issuers of obligations which may be purchased on behalf of the
Portfolios, including outstanding loans to such issuers which could be repaid in
whole or in part with the proceeds of securities so purchased. Such affiliates
deal, trade and invest for their own accounts in such obligations and are among
the leading dealers of various types of such obligations. Bankers Trust has
informed the Portfolios that, in making its investment decisions, it does not
obtain or use material inside information in its possession or in the possession
of any of its affiliates. In making investment recommendations for the
Portfolios, Bankers Trust will not inquire or take into consideration whether an
issuer of securities proposed for purchase or sale by a Portfolio is a customer
of Bankers Trust, its parent or its subsidiaries or affiliates and, in dealing
with its customers, Bankers Trust, its parent, subsidiaries and affiliates will
not inquire or take into consideration whether securities of such customers are
held by any fund managed by Bankers Trust or any such affiliate.

The prospectus contains disclosure as to the amount of Bankers Trust's
investment advisory and administration and services fees, including waivers
thereof. Bankers Trust may not recoup any of its waived investment advisory or
administration and services fees.

ADMINISTRATOR

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

40
<PAGE>

0.05% of the average daily net assets of the BT Institutional Equity 500 Index
Fund and 0.15% of the average daily net assets of the EAFE(R) Equity Index
Fund.

Under Administration and Services Agreements with each Portfolio, the Adviser
calculates the value of the assets of the Portfolio and generally assists the
Board of Trustees of the Portfolio in all aspects of the administration and
operation of the Portfolio. The Administration and Services Agreements provide
for each Portfolio to pay the Adviser a fee, computed daily and paid monthly,
equal on an annual basis to 0.05% of the average daily net assets of the U.S.
Bond Index Portfolio and the Small Cap Index Portfolio, and 0.10% of the average
daily net assets of the EAFE(R) Equity Index Portfolio. The Administration and
Services Agreement for thE Equity 500 Index Portfolio provides for the Portfolio
to pay the Adviser a fee, accrued daily and paid monthly, computed as a
percentage of the average daily net assets of the Portfolio which on an annual
basis is equal to the lesser of (1) 0.005%, or (2) the amount that brings the
total annual operating expenses as a percentage of the Portfolio's average daily
net assets up to 0.08%. For the period January 1, 1998 to May 6, 1998, the
Administration and Services fee was 0.05% on an annual basis. Under the
Administration and Services Agreements, the Adviser may delegate one or more of
its responsibilities to others at the Adviser's expense.

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

For the fiscal years ended December 31, 1998 and 1997, and for the period from
July 10, 1996 (commencement of operations) to December 31, 1997, Bankers Trust
earned $142,203, $113,569 and $26,726, respectively as compensation for
administrative and other services provided to Small Cap Index Fund-Institutional
Class Shares. During the same periods, Bankers Trust reimbursed $123,352,
$106,928 and $69,671, respectively to Small Cap Index Fund-Institutional Class
Shares to cover expenses.

For the fiscal years ended December 31, 1998 and 1997, and for the period from
January 24, 1996 (commencement of operations to December 31, 1997, Bankers Trust
earned $55,785, $65,464 and $41,404, respectively, as compensation for
administrative and other services provided to EAFE(R) Equity Index
Fund-Institutional Class Shares. During the same periods, Bankers Trust
reimbursed

41
<PAGE>

$138,798, $118,022 and $104,356, respectively, to EAFE(R) Equity IndeX Fund-
Institutional Class Shares to cover expenses.

For the fiscal years ended December 31, 1998, 1997 and 1996, Bankers Trust
earned $925,959, $724,120 and $541,924, respectively, for administrative and
other services provided to the BT Institutional Equity 500 Index Fund. During
the same periods, Bankers Trust reimbursed $738,034, $525,736 and $658,635,
respectively to BT Institutional Equity 500 Index Fund to cover expenses.

For the fiscal year ended December 31, 1998, and for the period from June 30,
1997 (commencement of operations) to December 31, 1997, Bankers Trust earned
$37,679 and $19,528, respectively, for administrative and other services
provided to the U.S. Bond Index Fund-Institutional Class Shares. During the same
periods, Bankers Trust reimbursed $106,630 and $52,269, respectively, to U.S.
Bond Index Fund-Institutional Class Shares to cover expenses.

For the fiscal years ended December 31, 1998 and 1997, and for the period from
July 10, 1996 (commencement of operations) to December 31, 1997, Bankers Trust
earned $50,411, $41,211 and $11,586, respectively, as compensation for
administrative and other services provided to the Small Cap Index
Portfolio.

For the fiscal years ended December 31, 1998 and 1997, and for the period from
January 24, 1996 to December 31, 1997, Bankers Trust earned $2,637, $45,524 and
$27,433, respectively, as compensation for administrative and other services
provided by the EAFE Equity Index Portfolio.

For the fiscal years ended December 31, 1998, 1997 and 1996, Bankers Trust
earned $676,625, $1,215,073 and $752,981, respectively, as compensation for
administrative and other services provided to the Equity 500 Index
Portfolio.

For the fiscal year ended December 31, 1998 and for the period from June 30,
1997 (commencement of operations) to December 31, 1997, Bankers Trust earned
$22,642 and $11,044, respectively, as compensation for administrative and other
services provided to the U.S. Bond Index Portfolio.

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

DISTRIBUTOR

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

SERVICE AGENT

All shareholders must be represented by a Service Agent. The Adviser acts as a
Service Agent pursuant to its Administration and Services Agreements with the
Trusts and receives no additional compensation from the Funds for such
shareholder services. The service fees of any other Service Agents, including
broker-dealers, will be paid by the Adviser from its fees. The services provided
by a Service Agent may include establishing and maintaining shareholder
accounts, processing purchase and redemption transactions, arranging for bank
wires, performing shareholder sub-accounting, answering client inquiries
regarding the Trusts, assisting clients in changing dividend options, account
designations and

42
<PAGE>

addresses, providing periodic statements showing the client's account balance,
transmitting proxy statements, periodic reports, updated prospectuses and other
communications to shareholders and, with respect to meetings of shareholders,
collecting, tabulating and forwarding to the Trusts executed proxies and
obtaining such other information and performing such other services as the
Administrator or the Service Agent's clients may reasonably request and agree
upon with the Service Agent. Service Agents may separately charge their clients
additional fees only to cover provision of additional or more comprehensive
services not already provided under the Administration and Services Agreements
with the Adviser, or of the type or scope not generally offered by a mutual
fund, such as cash management services or enhanced retirement or trust
reporting. In addition, investors may be charged a transaction fee if they
effect transactions in Fund shares through a broker or agent. Each Service Agent
has agreed to transmit to shareholders, who are its customers, appropriate
disclosures of any fees that it may charge them directly.

CUSTODIAN AND TRANSFER AGENT

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

EXPENSES

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

USE OF NAME

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

Each Trust may be required, on 60 days' notice from Bankers Trust at any time,
to abandon use of the acronym "BT" as part of its name. If this were to occur,
the Trustees would select an appropriate new name for each Trust, but there
would be no other material effect on the Trusts, their shareholders or
activities.

BANKING REGULATORY MATTERS

Bankers Trust has been advised by its counsel that in its opinion Bankers Trust
may perform the services for the Portfolios contemplated by the Advisory
Agreements and other activities for the Funds and the Portfolios described in
the Prospectuses and this SAI without violation of the Glass-Steagall Act or
other applicable banking laws or regulations. However, counsel has pointed out
that future changes in either Federal or state statutes and regulations
concerning the permissible activities of banks or trust companies, as well as
future judicial or administrative decisions or

43
<PAGE>

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, 787 Seventh Avenue, New York, New York 10019-6099,
serves as Counsel to the Trusts and each Portfolio. PricewaterhouseCoopers LLP,
250 W. Pratt Street, Baltimore, Maryland 21201 acts as Independent Accountants
of the Trusts and each Portfolio.

ORGANIZATION OF THE TRUSTS

The Trust was organized on July 24, 1995 and the Institutional Trust was
organized on March 26, 1990 under the laws of the Commonwealth of Massachusetts.
Each Fund is a mutual fund: an investment that pools shareholders' money and
invests it toward a specified goal. Each Fund is a separate series of the Trust
except for the BT Institutional Equity 500 Index Fund which is a separate series
of the Institutional Trust. The Trusts offer shares of beneficial interest of
separate series, par value $0.001 per share. The shares of the other series of
the Trusts are offered through separate prospectuses and statements of
additional information. No series of shares has any preference over any other
series. The Trusts also reserve the right to issue more than one class of shares
of each Fund.

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

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

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

44
<PAGE>

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

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

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

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

As of March 31, 1999, no shareholders of record owned 25% or more of the voting
securities of the Institutional Equity 500 Index Fund, and, therefore, are not
deemed to control the Fund and be able to affect the outcome of certain matters
presented for a vote of its shareholders.

As of March 31, 1999, no shareholders of record owned 25% or more of the voting
securities of the U.S. Bond Index Fund, and, therefore, are not deemed to
control the Fund and be able to affect the outcome of certain matters presented
for a vote of its shareholders.

As of March 31, 1999, the following shareholders of record owned 25% or more of
the voting securities of the Small Cap Index Fund, and, therefore, may, for
certain purposes, be deemed to control the Fund and be able to affect the
outcome of certain matters presented for a vote of its shareholders: United
Services Automobile Assoc., c/o FSC Portfolio Accounting, San Antonio, TX
(65.858%).

As of March 31, 1999, the following shareholders of record owned 25% or more of
the voting securities of the EAFE(R) Equity Index Fund, and, therefore, may, for
certain purposes, be deemed to control the Fund and be able tO affect the
outcome of certain matters presented for a vote of its shareholders: Bankers
Trust as Trustee, Pacificorp Master Retirement Trust dtd 10/1/94, Los Angeles,
CA (49.41%).

45
<PAGE>

TAXATION

TAXATION OF THE FUNDS

Each Fund intends to continue to qualify annually as a regulated investment
company under the Code. As a regulated investment company, each Fund will not be
subject to U.S. Federal income tax on its investment company taxable income and
net capital gains (the excess of net long-term capital gains over net short-term
capital losses), if any, that it distributes to shareholders. Each Fund intends
to distribute to its shareholders, at least annually, substantially all of its
investment company taxable income and net capital gains, and therefore does not
anticipate incurring a Federal income tax liability. The Funds also do not
anticipate paying any excise taxes. The Funds' dividends and distributions will
not qualify for the dividends-received deduction for corporations.

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

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

DISTRIBUTIONS

Each Fund distributes substantially all of its net income and capital gains to
shareholders each year. Each Fund (except the U.S. Bond Index Fund) distributes
income dividends annually. U.S. Bond Index Fund declares income dividends daily
and distributes such dividends monthly. In addition, each Fund will distribute
net capital gains, if any, at least annually and potentially semi-annually, if
required, to remain in compliance with the applicable tax regulations. Unless a
shareholder instructs the Trusts to pay such dividends and distributions in
cash, they will be automatically reinvested in additional shares of the Fund
that paid the dividend or distribution.

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

46
<PAGE>

may impose intangible property taxes. Shareholders should consult their own tax
adviser concerning the application of federal, state and local taxes to the
distributions they receive from the Fund.

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

TAXATION OF THE PORTFOLIOS

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

BACKUP WITHHOLDING

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

FOREIGN SHAREHOLDERS

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

OTHER TAXATION

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

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

FOREIGN WITHHOLDING TAXES

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

FINANCIAL STATEMENTS

The financial statements for the Funds and the Portfolios for the period ended
December 31,1998, are incorporated herein by reference to the Funds' Annual
Reports dated December 31, 1998. A copy of a Fund's Annual Report may be
obtained without charge by contacting the Fund.

47
<PAGE>

APPENDIX

DESCRIPTION OF MOODY'S CORPORATE BOND RATINGS:

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

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

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

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

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

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

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

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

48
<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.

49
<PAGE>

DESCRIPTION OF S&P'S CORPORATE BOND RATINGS:

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

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

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

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

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

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

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

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

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

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

50
<PAGE>

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.

51
<PAGE>

INVESTMENT ADVISER OF EACH PORTFOLIO AND ADMINISTRATOR

BANKERS TRUST COMPANY

DISTRIBUTOR

ICC DISTRIBUTORS, INC.

CUSTODIAN AND TRANSFER AGENT

BANKERS TRUST COMPANY

INDEPENDENT ACCOUNTANTS

PRICEWATERHOUSECOOPERS LLP

COUNSEL

WILLKIE FARR & GALLAGHER

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

No person has been authorized to give any information or to make any
representations other than those contained in the Trust's Prospectuses, its
Statements of Additional Information or the Trust's official sales literature in
connection with the offering of the Trust's shares and, if given or made, such
other information or representations must not be relied on as having been
authorized by the Trust. Neither the Prospectuses nor this SAI constitutes an
offer in any state in which, or to any person to whom, such offer may not
lawfully be made.

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

Cusips:

055924500
05576L700
05576L882
05576L874

52
<PAGE>

PART C. OTHER INFORMATION

ITEM 23. Exhibits.
---------

(a) Declaration of Trust of the Trust; 1
(i) Seventh Amended and Restated Establishment and
(ii) Designation of Series and Classes of Shares; 6
(b) By-Laws of the Trust; 1
(c) Specimen stock certificates for shares of beneficial interest of the Trust;
2
(d) Not applicable;
(e) Distributor's Contract; 6
(f) Not applicable;
(g) Custodian Agreement between the Registrant and Bankers Trust Company; 3
(i) Amendment #1 to Exhibit A of the Custodian Agreement; 6
(ii) Cash Services Addendum to Custodian Agreement; 6
(h) Administration and Services Agreement; 2
(i) Exhibit D to the Administration and Services Agreement; 5
(ii) Transfer Agency Agreement; 3
(iii) Expense Limitation Agreement filed herewith;
(i) Legal Opinion - Not applicable;
(j) Consent of Independent Accountants - filed herewith;
(k) Omitted Financial Statements - Not applicable;
(l) Initial Capital Understanding; 3
(m) Rule 12b-1 Plans - Not applicable;
(n) Financial Data Schedules - filed herewith;
(o) Rule 18f-3 Plan; 4.
___________________________________
1. Incorporated by reference to the Registration Statement on Form N-1A
("Registration Statement") as filed with the Commission on August 24, 1995.
2. Incorporated by reference to Pre-Effective Amendment No. 2 to Registrant's
Registration Statement as filed with the Commission on January 3, 1996.
3. Incorporated by reference to Post-Effective Amendment No. 1 to Registrant's
Registration Statement as filed with the Commission on April 29, 1996.
4. Incorporated by reference to Post-Effective Amendment No. 3 to Registrant's
Registration Statement as filed with the Commission on August 1, 1996.
5. Incorporated by reference to Post-Effective Amendment No. 7 to Registrant's
Registration Statement as filed with the Commission on April 30, 1998.
<PAGE>

6. Incorporated by reference to Post-Effective Amendment No. 8 to Registrant's
Registration Statement as filed with the Commission on February 26, 1999.

ITEM 24. Persons Controlled by or Under Common Control with Registrant.
--------------------------------------------------------------

Not applicable.

ITEM 25. Indemnification.
----------------

Incorporated by reference to Post-Effective Amendment No. 3 to Registrant's
Registration Statement as filed with the Commission on August 1, 1996.

Item 26. Business and Other Connections of Investment Adviser.
-----------------------------------------------------

Bankers Trust serves as investment adviser to the Portfolio. Bankers Trust, a
New York banking corporation, is a wholly owned subsidiary of Bankers Trust New
York Corporation. Bankers Trust conducts a variety of commercial banking and
trust activities and is a major wholesale supplier of financial services to the
international institutional market.

To the knowledge of the Trust, none of the directors or officers of Bankers
Trust, except those set forth below, is engaged in any other business,
profession, vocation or employment of a substantial nature, except that certain
directors and officers also hold various positions with and engage in business
for Bankers Trust Corporation. Set forth below are the names and principal
businesses of the directors and officers of Bankers Trust who are engaged in any
other business, profession, vocation or employment of a substantial nature.

Lee A. Ault III, 62
Director, Bankers Trust and Bankers Trust Corporation since 1997; Private
Investor; Former Chairman and Chief Executive Officer, Telecredit, Inc.; and
Director, Equifax, Inc., Office Depot, Inc., Sunrise Medical Inc. and Pacific
Crest Outward Bound School.

Neil R. Austrian, 59
Director, Bankers Trust and Bankers Trust Corporation since 1997; President and
Chief Operating Officer, National Football League; Director, Rafac Technology
and Office Depot, Inc.; and Trustee of Swarthmore College.
<PAGE>

George B. Beitzel, 70
Director, Bankers Trust and Bankers Trust Corporation since 1977; Retired Senior
Vice President and Director, International Business Machines Corporation;
Director, Computer Task Group, Phillips Petroleum Company, and Staff Leasing;
and Chairman Emeritus, Amherst College and Colonial Williamsburg Foundation.

Mark Bieler, 53

Executive Vice President, Bankers Trust Corporation since 1987; Managing
Director, Bankers Trust since 1992; Executive Vice President, Bankers Trust
1987-1992; and Senior Vice President and head of the Human Resources Department
since 1985.

Mary Cirillo, 51
Executive Vice President, Bankers Trust Corporation and Managing Director,
Bankers Trust since June 1997. Ms. Cirillo formerly held many positions in her
20-year career at Citicorp, including division executive from 1989 to 1992;
senior corporate officer for the business evaluation and corporate re-
engineering unit from 1993 to 1994; and Senior Vice President of Global Finance
Operations and Technology from 1994 to 1997. She is head of Bankers Trust's
Global Institutional Services business.

Richard H. Daniel, 52
Vice Chairman and Chief Financial Officer (Principal Financial Officer), Bankers
Trust Corporation and Bankers Trust since 1996; Vice Chairman, Bankers Trust
Corporation since April 1997; Controller, Bankers Trust Corporation and Bankers
Trust from 1996 to July 1998; Executive Vice President, Bankers Trust
Corporation from 1996 to April 1997; Vice Chairman, Bankers Trust since
September 1997; Managing Director, Bankers Trust from 1996 to September 1997.
Mr. Daniel formerly held the positions of chief financial officer of Federal
Home Loan Mortgage Corporation from 1994 to 1996, and executive vice president
and director of financial analysis and planning at BankAmerica Corporation from
1987 to 1994.

Yves C. de Balmann, 52
Vice Chairman, Bankers Trust Corporation since April 1997; Senior Vice
President, Bankers Trust Corporation from 1995 to 1997; Managing Director,
Bankers Trust from 1988 to September 1997; and Co-Chairman and Co-Chief
Executive Officer, BT Alex. Brown Incorporated.

Robert A. Ferguson, 53
Executive Vice President, Bankers Trust Corporation since April 1997; Senior
Vice President, Bankers Trust Corporation from 1995
<PAGE>

to 1997; Managing Director, Bankers Trust since 1985 and Bankers Trust Australia
Limited since 1986.

Phillip A. Griffiths, 60
Director, Bankers Trust and Bankers Trust Corporation since 1994; Director,
Institute for Advanced Study; Chairman, Committee on Science, Engineering and
Public Policy of the National Academies of Sciences and Engineering & the
Institute of Medicine; Member, National Academy of Sciences, American Academy of
Arts and Sciences and American Philosophical Society; Chairman and Member,
Nominations Committee and Committee on Science and Engineering Indicators,
National Science board; Trustee, North Carolina School of Science and
Mathematics and the Woodward Academy; and Former Member of the board of
directors, Research Triangle Institute.

Duncan P. Hennes, 42
Executive Vice President, Bankers Trust Corporation since September 1998;
Treasurer, Bankers Trust Corporation and Bankers Trust since September 1998;
Senior Vice President, Bankers Trust Corporation from 1990 to 1998; Managing
Director, Bankers Trust since 1990. Mr. Hennes is head of Bankers Trust's
Trading and Sales business and responsible for Treasury/Funding and Arbitrage.

William R. Howell, 63
Director, Bankers Trust and Bankers Trust Corporation since 1986; Chairman
Emeritus, J.C. Penney Company, Inc.; Director, Exxon Corporation, Halliburton
Company, Warner-Lambert Company, Williams, Inc., Central & South West Corp., and
the National Retail Federation; and Chairman, Southern Methodist University
Board of Trustees.

Vernon E. Jordan, Jr., 63
Director, Bankers Trust and Bankers Trust Corporation since 1972; Senior
Partner, Akin, Gump, Strauss, Hauer & Feld, LLP, Attorneys-at-law, Washington,
D.C. and Dallas, Texas; Former President, National Urban League, Inc.; Director,
American Express Company, Chancellor Media Corporation, Dow Jones, Inc., J.C.
Penney Company, Inc., Revlon Group Incorporated, Ryder System, Inc., Sara Lee
Corporation, Union Carbide Corporation and Xerox Corporation; and Trustee, The
Ford Foundation and Howard University.

Eugene A. Ludwig, 52
Vice Chairman, Bankers Trust Corporation and Bankers Trust since May 1998. Mr.
Ludwig formerly held the positions of Comptroller
<PAGE>

of the Currency of the United States from 1993 to April 1998, Chairman of the
Federal Financial Institutions Examination Council, Chairman of Neighborhood
Housing Services, and director of the Federal Deposit Insurance Corporation. Mr.
Ludwig is head of the Control Committee and Capital Commitment Committee and
responsible for risk and control, legal, regulatory and other governmental
issues central to implementing global strategies in securities underwriting,
lending and related businesses. In addition, Mr. Ludwig is responsible for the
Firm's corporate responsibility area.

Joseph A. Manganello, Jr., 63
Executive Vice President and Chief Credit Officer, Bankers Trust Corporation
since 1988; Managing Director of Bankers Trust since 1992; and Chief Credit
Officer of Bankers Trust since 1984; Executive Vice President of Bankers Trust
1982-1992; Department Head of the United States Department of Bankers Trust
prior to 1984. He is in charge of the Credit Risk Management Department.

I. David Marshall, 52
Executive Vice President and Chief Information Officer of Bankers Trust
Corporation and Managing Director and Chief Information Officer of Bankers Trust
since October 1996. Mr. Marshall formerly held the positions of executive vice
president and chief information officer of Canadian Imperial Bank of Commerce
from June 1995 to October 1996; group executive for Information Systems &
Operations and a member of the Executive Committee at Unitel Communications,
Inc., the operating arm of AT&T in Canada from 1993 to 1995; and from 1977 to
1993 he served with the Canadian Government consecutively as assistant auditor
general; assistant deputy minister, Information Technology for Revenue Canada
and assistant deputy minister, Information Technology for Employment and
Immigration Canada.

Hamish Maxwell, 72
Director of Bankers Trust and Bankers Trust Corporation since 1984; Retired
Chairman and Chief Executive Officer, Philip Morris Companies Inc.; Director,
Sola International Inc., and Chairman, WPP Group plc.

Rodney A. McLauchlan, 45
Executive Vice President, Bankers Trust Corporation since April 1997; Senior
Vice President, Bankers Trust Corporation from 1992 to April 1997; Managing
Director, BT Alex. Brown since September 1997; Managing Director, BT Securities
Corporation from 1995 to 1997; Managing Director, Bankers Trust from 1987 to
1995. As of 1998, he is Chairman of the Global Banking Group and is head of
<PAGE>

Bankers Trust's Latin American Investment Banking business. Mr. McLauchlan also
chairs the Latin American and Asian Advisory Boards and the Client Committee.

Frank N. Newman, 56
Director, Bankers Trust and Bankers Trust Corporation since 1995; Chairman of
the Board, Chief Executive Officer and President, Bankers Trust and Bankers
Trust Corporation; Former Deputy Secretary, United States Treasury; Former Vice
Chairman of the Board and Director, BankAmerica Corporation and Bank of America
NT&SA; Director, Dow Jones, Inc.; Trustee, Carnegie Hall; and Member, Board of
Overseers, Joan & Sanford I Weill Medical College and Joan & Sanford I. Weill
Graduate School of Medical Sciences of Cornell University.

N.J. Nicholas Jr., 59
Director of Bankers Trust and Bankers Trust Corporation since 1989; Investor;
Former Co-chief Executive Officer of Time Warner Inc. Director, Boston
Scientific Corporation, Priceline.com Inc. and Xerox Corporation.

Russell E. Palmer, 64
Director, Bankers Trust and Bankers Trust Corporation since 1988; Chairman and
Chief Executive Officer, The Palmer Group; Former Dean, The Wharton School,
University of Pennsylvania; Former Chief Executive Officer, Touche Ross & Co.
(now Deloitte & Touche). Director, Allied-Signal Inc., Federal Home Loan
Mortgage Corporation, GTE Corporation, The May Department Stores Company and
Safeguard Scientifics, Inc.; and Trustee, the University of Pennsylvania.

Mayo A. Shattuck III, 44
Vice Chairman, Bankers Trust Corporation since September 1997. He formerly held
the positions of President and Chief Operating Officer of Alex. Brown
Incorporated from 1991 to September 1997. He is Co-Chairman and Co-Chief
Executive Officer of BT Alex. Brown Incorporated.

Donald L. Staheli, 67Director, Bankers Trust and Bankers Trust Corporation since
1996;Retired Chairman of the Board and Chief Executive Officer, Continental
Grain Company; Director, Continental Grain Company, ContiFinancial Corporation,
Prudential Insurance Company of America and America's Promise; and Chairman, The
Points of The Light Foundation.

Patricia Carry Stewart, 70
<PAGE>

Director, Bankers Trust and Bankers Trust Corporation since 1977; Former Vice
President, The Edna McConnell Clark Foundation (a charitable foundation); Chair,
Community Foundation for Palm Beach and Martin Counties; Trustee Emerita,
Cornell University; and a life member, Board of Overseers, Joan & Sanford I
Weill Medical College and Joan & Sanford I. Weill Graduate School of Medical
Sciences of Cornell University.

G. Richard Thoman, 54
Director, Bankers Trust and Bankers Trust Corporation since 1997; President,
Chief Operating Officer and Director, DaimlerChrysler AG, Union Bancaire Privee
(Switzerland), General Electric Investments Equity Advisory Board, Yale School
of Management Advisory Board, Fletcher School of Law and Diplomacy Advisory
Board, the INSEAD U.S. Advisory Board and The Americas Society; President, Chief
Executive Officer and Director, Fuji Xerox Corporation, Ltd.; and Member,
Council on Foreign Relations.

George J. Vojta, 63
Director, Bankers Trust and Bankers Trust Corporation since 1997; Vice Chairman
of the Board, Bankers Trust and Bankers Trust Corporation; Director, Alicorp,
S.A., Globeset and Private Export Funding Corp.; Member, New York State Banking
Board; Vice Chairman of the Board of Trustees, St. Luke's-Roosevelt Hospital
Center; Partner, New York City Partnership; Chairman, Wharton Financial Services
Center; and Member, Bretton Woods Committee.

Paul A. Volcker, 71
Director, Bankers Trust and Bankers Trust Corporation since 1996; Former
Chairman and Chief Executive Officer, Wolfensohn & Co., Inc.; Former Chairman,
Board of Governors of the Federal Reserve System; Director, Nestle S.A.,
Prudential Insurance Company of America, American Council on Germany, Council on
Foreign Relations and The Japan Society; Trustee, The American Assembly; and
Member, the advisory boards of several international corporations.

Melvin A. Yellin, 56
Executive Vice President and General Counsel, Bankers Trust Corporation and
Managing Director and General Counsel of Bankers Trust since 1996; Senior Vice
President (Chief Legal Officer), Bankers Trust Corporation and Managing Director
(Chief Legal Officer) of Bankers Trust since 1995; Managing Director and Deputy
General Counsel, Bankers Trust from 1992 to 1995; Vice President and Counsel,
Bankers Trust from 1981 to 1992. He is in charge of the Legal Department.
<PAGE>

* Certain of the executive officers held the Senior Managing Director title for
a portion of 1996 and 1997. Bankers Trust eliminated the title effective January
1, 1998 and reverted to the use of the Managing Director title as the most
senior title below that of Vice Chairman.

Item 27. Principal Underwriters.

(a) ICC Distributors, Inc., the Distributor for shares of the Registrant, also
acts as principal underwriter for the following open-end investment
companies: BT Pyramid Mutual Funds, BT Institutional Funds, BT Investment
Funds, Cash Management Portfolio, Intermediate Tax Free Portfolio, NY Tax
Free Money Portfolio, Treasury Money Portfolio, International Equity
Portfolio, Equity 500 Index Portfolio, Capital Appreciation Portfolio,
Asset Management Portfolio and BT Investment Portfolios.

(b) Unless otherwise stated, the principal business address for the following
persons is Two Portland Square, Portland, Maine 04101.
<TABLE>
<CAPTION>

Name and Principal Positions and Offices Positions and Offices
Business Address With Distributor With Registrant
- ------------------ ---------------------- ---------------------
<S> <C> <C>

John Y. Keffer President None
Sara M. Morris Treasurer None
David I. Goldstein Secretary None
Benjamin L. Niles Vice President None
Margaret J. Fenderson Assistant Treasurer None
Dana L. Lukens Assistant Secretary None
Nanette K. Chern Chief Compliance Officer None

ITEM 28. Location of Accounts and Records.

BT Advisor Funds: BT Alex. Brown
(Registrant) One South Street
Baltimore, MD 21202

Bankers Trust Company: 130 Liberty Street
(Custodian, Investment Adviser New York, NY 10006
and Administrator)

Investors Fiduciary 127 West 10th Street,
<PAGE>

Trust Company: Kansas City, MO 64105.

ICC Distributors, Inc.: Two Portland Square
(Distributor) Portland, ME 04101

ITEM 29. Management Services.
--------------------

Not Applicable

ITEM 30. Undertakings.
-------------

Not Applicable
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as
amended, and the Investment Company Act of 1940, the Registrant, BT ADVISOR
FUNDS, certifies that it meets all of the requirements for effectiveness of this
Amendment to its Registration Statement pursuant to Rule 485(b) under the
Securities Act of 1933, as amended, and has duly caused this Amendment to the
Registrant's Registration Statement to be signed on its behalf by the
undersigned, thereto duly authorized, in the City of Baltimore and the State of
Maryland on the 26th day of April, 1999

BT ADVISOR FUNDS

By: /s/ DANIEL O. HIRSCH
Daniel O. Hirsch, Secretary
April 26, 1999

Pursuant to the requirements of the Securities Act of 1933, this
Amendment to its Registration Statement has been signed below by the following
person in the capacity and on the date indicated:

NAME TITLE DATE
- ---------------------------------------------------------------------

/s/ DANIEL O. HIRSCH Secretary April 26, 1999
Daniel O. Hirsch (Attorney in Fact for the Persons
Listed Below)

/s/ JOHN Y. KEFFER* President and
John Y. Keffer Chief Executive Officer

/s/ JOSEPH A. FINELLI* Treasurer (Principal
Joseph A. Finelli Financial and Accounting Officer)

/s/ S. LELAND DILL** Trustee
S. Leland Dill

/s/ KELVIN J. LANCASTER** Trustee
Kelvin J. Lancaster

/s/ PHILIP SAUNDERS, JR.** Trustee
Philip Saunders, Jr.
<PAGE>

* By Power of Attorney Incorporated by reference to Post-Effective Amendment
No. 8 to Registrant's Registration Statement as filed with the Commission on
February 26, 1999.
** By Power of Attorney Incorporated by reference to Post-Effective Amendment
No. 6 to Registrant's Registration Statement as filed with the Commission on
February 5, 1997.
<PAGE>

SIGNATURES

BT INVESTMENT PORTFOLIOS has duly caused this Post Effective Amendment No.
9 to the Registration Statement on Form N-1A of BT Investment Funds to be signed
on their behalf by the undersigned, duly authorized, in the City of Baltimore
and the State of Maryland on the 26th day of April, 1999.

BT INVESTMENT PORTFOLIOS

By: /s/ DANIEL O. HIRSCH
DANIEL O. HIRSCH, SECRETARY
April 26, 1999

This Post Effective Amendment No. 9 to the Registration Statement of
BT Advisor Funds has been signed below by the following persons in the
capacities indicated with respect to Small Cap Index Portfolio, EAFE(R) Equity
Index Portfolio and U.S. Bond Index Portfolio, each a series of BT INVESTMENT
PORTFOLIOS.

NAME TITLE DATE
- ----------------------------------------------------------------

/s/ DANIEL O. HIRSCH Secretary April 26, 1999
Daniel O. Hirsch (Attorney in Fact for the Persons
Listed Below)

/s/ JOHN Y. KEFFER* President and
John Y. Keffer Chief Executive Officer

/s/ JOSEPH A. FINELLI* Treasurer (Principal
Joseph A. Finelli Financial and Accounting Officer)

/s/ CHARLES P. BIGGAR** Trustee
Charles P. Biggar

/s/ S. LELAND DILL** Trustee
S. Leland Dill

/s/ PHILIP SAUNDERS, JR.** Trustee
Philip Saunders, Jr.

EXPENSE LIMITATION AGREEMENT

THIS EXPENSE LIMITATION AGREEMENT is made as of the 31st day of
December, 1998 by and between BT ADVISOR FUNDS, a Massachusetts Business trust
(the "Trust"), BT INVESTMENT PORTFOLIOS, a New York trust (a "Portfolio Trust"),
and BANKERS TRUST, a New York corporation (the "Adviser"), with respect to the
following:

WHEREAS, the Adviser serves as BT Advisor Funds' Investment Adviser
pursuant to an Investment Advisory Agreement dated August 6, 1996, the Adviser
serves as BT Investment Portfolios' Investment Adviser pursuant to an Investment
Advisory Agreement dated April 28, 1993, as amended, and each as re-approved
thereafter; and the Adviser serves as the Trust's Administrator pursuant to an
Administration and Services Agreement dated September 15, 1995, as amended,
(collectively, the "Agreements"); and

WHEREAS, the Adviser has voluntarily agreed, under the Agreements, to
waive its fees and reimburse expenses so that the total operating expenses for
each of the Trust's series (each a "Fund," collectively the "Funds") and each
Portfolio Trust's series (each a "Portfolio," collectively the "Portfolios")
will not exceed the percentage of average daily net assets as set forth on
Exhibit A; and

WHEREAS, the Trust and the Adviser desire to formalize this voluntary
fee waiver and expense reimbursement arrangement for a 16-month period beginning
on December 31, 1998 and ending on April 30, 2000.

NOW, in consideration of the mutual covenants herein contained and
other good and valuable consideration, the receipt whereof is hereby
acknowledged, the parties hereto agree as follows:

1. The Adviser agrees to waive its fees and reimburse expenses for a 16-month
period from December 31, 1998 to April 30, 2000 to the extent necessary so
that each Fund's total annual operating expenses do not exceed the
percentage of average daily net assets set forth on Exhibit A.
<PAGE>

2. Upon the termination of the Investment Advisory Agreement or the
Administration Agreement, this Agreement shall automatically terminate.

3. Any question of interpretation of any term or provision of this Agreement
having a counterpart in or otherwise derived from a term or provision of
the Investment Company Act of 1940 (the "1940 Act") shall be resolved by
reference to such term or provision of the 1940 Act and to interpretations
thereof, if any, by the United States Courts or in the absence of any
controlling decision of any such court, by rules, regulations or orders of
the Securities and Exchange Commission ("SEC") issued pursuant to said
Act. In addition, where the effect of a requirement of the 1940 Act
reflected in any provision of this Agreement is revised by rule,
regulation or order of the SEC, such provision shall be deemed to
incorporate the effect of such rule, regulation or order. Otherwise the
provisions of this Agreement shall be interpreted in accordance with the
laws of Massachusetts.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in duplicate by their respective officers as of the day and year first
above written.

[SEAL]

BT ADVISOR FUNDS

Attest: /s/ Amy M. Olmert By: /s/ Daniel O. Hirsch
---------------------- --------------------------
Name: Amy M. Olmert Name: Daniel O. Hirsch
Title: Secretary

BT INVESTMENT PORTFOLIOS

Attest: /s/ Amy M. Olmert By: /s/ Daniel O. Hirsch
---------------------- --------------------------
Name: Amy M. Olmert Name: Daniel O. Hirsch
Title: Secretary

BANKERS TRUST COMPANY

Attest: /s/ Amy M. Olmert By: /s/Gerald T. Lins
---------------------- --------------------------
Name: Amy M. Olmert Name: Gerald T. Lins
Title: Managing Director
<PAGE>

Exhibit A

Total Fund Operating Expenses
(as a percentage of average
Fund daily net assets)

BT Advisor U.S. Bond Index Fund
- Institutional Class 0.15%
BT Advisor EAFE Equity Index Fund
- Institutional Class 0.40%
BT Advisor Small Cap Index Fund
- Institutional Class 0.25%

<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE SMALL
CAP INDEX FUND - INSTITUTIONAL CLASS ANNUAL REPORT DATED DECEMBER 31, 1998 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH ANNUAL REPORT.
</LEGEND>
<CIK> 0000948630
<NAME> BT ADVISOR FUNDS
<SERIES>
<NUMBER> 1
<NAME> SMALL CAP INDEX - INSTITUTIONAL CLASS

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 115,345,153
<INVESTMENTS-AT-VALUE> 115,345,153
<RECEIVABLES> 147,319
<ASSETS-OTHER> 27,603
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 115,520,075
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 44,599
<TOTAL-LIABILITIES> 44,599
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 116,017,325
<SHARES-COMMON-STOCK> 11,933,140
<SHARES-COMMON-PRIOR> 3,442,833
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 7,835
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (549,684)
<NET-ASSETS> 115,475,476
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 1,053,195
<EXPENSES-NET> 109,132
<NET-INVESTMENT-INCOME> 944,063
<REALIZED-GAINS-CURRENT> 4,370,904
<APPREC-INCREASE-CURRENT> (8,975,850)
<NET-CHANGE-FROM-OPS> (3,660,933)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 946,125
<DISTRIBUTIONS-OF-GAINS> 9,811,005
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 13,766,196
<NUMBER-OF-SHARES-REDEEMED> 6,435,515
<SHARES-REINVESTED> 1,159,626
<NET-CHANGE-IN-ASSETS> 75,829,808
<ACCUMULATED-NII-PRIOR> 94,878
<ACCUMULATED-GAINS-PRIOR> (327,893)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 233,904
<AVERAGE-NET-ASSETS> 71,107,739
<PER-SHARE-NAV-BEGIN> 11.13
<PER-SHARE-NII> 0.06
<PER-SHARE-GAIN-APPREC> (0.41)
<PER-SHARE-DIVIDEND> 0.08
<PER-SHARE-DISTRIBUTIONS> 1.02
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 9.68
<EXPENSE-RATIO> 0.25
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<PAGE>

<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE SMALL
CAP INDEX FUND - ADVISOR CLASS ANNUAL REPORT DATED DECEMBER 31, 1998 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH ANNUAL REPORT.
</LEGEND>
<CIK> 0000948630
<NAME> BT ADVISOR FUNDS
<SERIES>
<NUMBER> 2
<NAME> SMALL CAP INDEX - ADVISOR CLASS

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 115,345,153
<INVESTMENTS-AT-VALUE> 115,345,153
<RECEIVABLES> 147,319
<ASSETS-OTHER> 27,603
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 115,520,075
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 44,599
<TOTAL-LIABILITIES> 44,599
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 114,124
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 7,835
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (549,684)
<NET-ASSETS> 0
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 1,053,195
<EXPENSES-NET> 109,132
<NET-INVESTMENT-INCOME> 944,063
<REALIZED-GAINS-CURRENT> 4,370,904
<APPREC-INCREASE-CURRENT> (8,975,850)
<NET-CHANGE-FROM-OPS> (3,660,933)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 946,125
<DISTRIBUTIONS-OF-GAINS> 9,811,005
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 35,264
<NUMBER-OF-SHARES-REDEEMED> 149,388
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 75,829,808
<ACCUMULATED-NII-PRIOR> 94,878
<ACCUMULATED-GAINS-PRIOR> (327,893)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 233,904
<AVERAGE-NET-ASSETS> 1,248,790
<PER-SHARE-NAV-BEGIN> 11.69
<PER-SHARE-NII> 0.06
<PER-SHARE-GAIN-APPREC> 0.45
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 12.20
<EXPENSE-RATIO> 0.45
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<PAGE>

<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE EAFE
EQUITY INDEX FUND - INSTITUTIONAL CLASS ANNUAL REPORT DATED DECEMBER 31, 1998
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH ANNUAL REPORT.
</LEGEND>
<CIK> 0000948630
<NAME> BT ADVISOR FUNDS
<SERIES>
<NUMBER> 3
<NAME> EAFE EQUITY INDEX - INSTITUTIONAL CLASS

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 42,205,168
<INVESTMENTS-AT-VALUE> 42,205,168
<RECEIVABLES> 254,716
<ASSETS-OTHER> 14,288
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 42,474,172
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 12,045
<TOTAL-LIABILITIES> 12,045
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 34,314,098
<SHARES-COMMON-STOCK> 3,663,034
<SHARES-COMMON-PRIOR> 3,556,906
<ACCUMULATED-NII-CURRENT> (540,222)
<OVERDISTRIBUTION-NII> (559,037)
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 9,247,288
<NET-ASSETS> 42,462,127
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 629,286
<EXPENSES-NET> 25,202
<NET-INVESTMENT-INCOME> 604,084
<REALIZED-GAINS-CURRENT> 39,644
<APPREC-INCREASE-CURRENT> 6,726,636
<NET-CHANGE-FROM-OPS> 7,370,364
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (891,299)
<DISTRIBUTIONS-OF-GAINS> (386,302)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 629,202
<NUMBER-OF-SHARES-REDEEMED> (632,885)
<SHARES-REINVESTED> 109,811
<NET-CHANGE-IN-ASSETS> 3,741,277
<ACCUMULATED-NII-PRIOR> (317,554)
<ACCUMULATED-GAINS-PRIOR> (147,832)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 171,821
<AVERAGE-NET-ASSETS> 32,221,709
<PER-SHARE-NAV-BEGIN> 9.98
<PER-SHARE-NII> 0.16
<PER-SHARE-GAIN-APPREC> 1.81
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> (0.36)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 11.59
<EXPENSE-RATIO> 0.40
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<PAGE>

<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BT
INSTITUTIONAL EAFE EQUITY INDEX FUND - ADVISOR CLASS ANNUAL REPORT DATED
DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH ANNUAL
REPORT.
</LEGEND>
<CIK> 0000948630
<NAME> BT ADVISOR FUNDS
<SERIES>
<NUMBER> 4
<NAME> EAFE EQUITY INDEX - ADVISOR CLASS

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 42,205,168
<INVESTMENTS-AT-VALUE> 42,205,168
<RECEIVABLES> 254,716
<ASSETS-OTHER> 14,288
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 42,474,172
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 12,045
<TOTAL-LIABILITIES> 12,045
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 34,314,098
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 333,679
<ACCUMULATED-NII-CURRENT> (540,222)
<OVERDISTRIBUTION-NII> (559,037)
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 9,247,288
<NET-ASSETS> 42,462,127
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 629,286
<EXPENSES-NET> 25,202
<NET-INVESTMENT-INCOME> 604,084
<REALIZED-GAINS-CURRENT> 39,644
<APPREC-INCREASE-CURRENT> 6,726,636
<NET-CHANGE-FROM-OPS> 7,370,364
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 211,779
<NUMBER-OF-SHARES-REDEEMED> (545,458)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 3,741,277
<ACCUMULATED-NII-PRIOR> (317,554)
<ACCUMULATED-GAINS-PRIOR> (147,832)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 171,821
<AVERAGE-NET-ASSETS> 3,767,196
<PER-SHARE-NAV-BEGIN> 9.63
<PER-SHARE-NII> 0.10
<PER-SHARE-GAIN-APPREC> 1.54
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 11.27
<EXPENSE-RATIO> 0.65
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<PAGE>

<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE U.S.
BOND INDEX FUND - INSTITUTIONAL CLASS ANNUAL REPORT DATED DECEMBER 31, 1998 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH ANNUAL REPORT.
</LEGEND>
<CIK> 0000948630
<NAME> BT ADVISOR FUNDS
<SERIES>
<NUMBER> 5
<NAME> U.S. BOND INDEX - INSTITUTIONAL CLASS

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 39,649,069
<INVESTMENTS-AT-VALUE> 39,649,069
<RECEIVABLES> 158,605
<ASSETS-OTHER> 13,446
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 39,821,120
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 30,995
<TOTAL-LIABILITIES> 30,995
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 39,082,737
<SHARES-COMMON-STOCK> 3,799,176
<SHARES-COMMON-PRIOR> 789,133
<ACCUMULATED-NII-CURRENT> 15,998
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 12,149
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 774,607
<NET-ASSETS> 39,790,125
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 1,267,359
<EXPENSES-NET> 17,056
<NET-INVESTMENT-INCOME> 1,250,303
<REALIZED-GAINS-CURRENT> 114,224
<APPREC-INCREASE-CURRENT> 348,343
<NET-CHANGE-FROM-OPS> 1,712,870
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,079,624)
<DISTRIBUTIONS-OF-GAINS> (275,177)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,041,324
<NUMBER-OF-SHARES-REDEEMED> (133,268)
<SHARES-REINVESTED> 101,987
<NET-CHANGE-IN-ASSETS> 31,429,102
<ACCUMULATED-NII-PRIOR> 14,862
<ACCUMULATED-GAINS-PRIOR> 136,018
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 126,690
<AVERAGE-NET-ASSETS> 18,965,786
<PER-SHARE-NAV-BEGIN> 10.29
<PER-SHARE-NII> 0.59
<PER-SHARE-GAIN-APPREC> 0.29
<PER-SHARE-DIVIDEND> 0.61
<PER-SHARE-DISTRIBUTIONS> 0.09
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 11.69
<EXPENSE-RATIO> 0.15
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<PAGE>

<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE U.S.
BOND INDEX FUND - ADVISOR CLASS ANNUAL REPORT DATED DECEMBER 31, 1998 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH ANNUAL REPORT.
</LEGEND>
<CIK> 0000948630
<NAME> BT ADVISOR FUNDS
<SERIES>
<NUMBER> 6
<NAME> U.S. BOND INDEX - ADVISOR CLASS

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 39,649,069
<INVESTMENTS-AT-VALUE> 39,649,069
<RECEIVABLES> 158,605
<ASSETS-OTHER> 13,446
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 39,821,120
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 30,995
<TOTAL-LIABILITIES> 30,995
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> (58,181)
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 23,556
<ACCUMULATED-NII-CURRENT> 15,998
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 12,149
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 774,607
<NET-ASSETS> 0
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 1,267,359
<EXPENSES-NET> 17,056
<NET-INVESTMENT-INCOME> 1,250,303
<REALIZED-GAINS-CURRENT> 114,224
<APPREC-INCREASE-CURRENT> 348,343
<NET-CHANGE-FROM-OPS> 1,712,870
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (169,643)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 762,794
<NUMBER-OF-SHARES-REDEEMED> (798,223)
<SHARES-REINVESTED> 11,878
<NET-CHANGE-IN-ASSETS> 31,429,102
<ACCUMULATED-NII-PRIOR> 14,862
<ACCUMULATED-GAINS-PRIOR> 136,018
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 126,690
<AVERAGE-NET-ASSETS> 5,032,657
<PER-SHARE-NAV-BEGIN> 10.26
<PER-SHARE-NII> 0.32
<PER-SHARE-GAIN-APPREC> 0.09
<PER-SHARE-DIVIDEND> 0.32
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.99
<EXPENSE-RATIO> 0.35
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<PAGE>

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 9 to the registration statement on Form N-1A (the "Registration
Statement") of our reports dated February 5, 1999, relating to the financial
statements and financial highlights appearing in the December 31, 1998 Annual
Reports to Shareholders of EAFE Equity Index Fund, Small Cap Index Fund, U.S.
Bond Index Fund (constituting parts of the BT Advisor Funds) and EAFE Equity
Index Portfolio, Small Cap Index Portfolio, and U.S. Bond Index Portfolio, which
are incorporated by reference into the Registration Statement. We also consent
to the references to us under the heading "Financial Highlights" in the
Prospectus and under the heading "Counsel and Independent Accountants" in the
Statement of Additional Information.

PricewaterhouseCoopers LLP
Baltimore, Maryland
April 26, 1999