BT INVESTMENT FUNDS, 497, 1996-02-13

BT INVESTMENT FUNDS
497, 1996-02-13

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<PAGE>

BT INVESTMENT FUNDS

PROSPECTUS: January 29, 1996
Please read this Prospectus carefully before investing and retain it for future
reference. It contains important information about the Fund that you should know
and can refer to in deciding whether the Fund's goals match your own.

A Statement of Additional Information (SAI) with the same date has been filed
with the Securities and Exchange Commission, and is incorporated herein by
reference. You may request a free copy of the Statement by calling the Fund's
Service Agent at 1-800-730-1313.

SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, BANKERS TRUST COMPANY AND THE SHARES ARE NOT FEDERALLY INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
AGENCY. AN INVESTMENT IN THE FUND IS SUBJECT TO RISK THAT MAY CAUSE THE VALUE OF
THE INVESTMENT TO FLUCTUATE, AND WHEN THE INVESTMENT IS REDEEMED, THE VALUE MAY
BE HIGHER OR LOWER THAN THE AMOUNT ORIGINALLY INVESTED BY THE INVESTOR.

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

Capital
Appreciation
Fund

o Seeks capital growth over the
long-term through investment
in medium-sized companies
that show growth potential.
Current income is a
secondary goal.

BANKERS TRUST COMPANY
Investment Adviser of the
Portfolio and Administrator

SIGNATURE BROKER-
DEALER SERVICES, INC.
Distributor
6 St. James Avenue
Boston, Massachusetts 02116
<PAGE>

TABLE OF CONTENTS
- ------------------------------------------------------------------------------
PAGE
..............................................................................
Summary of Fund Expenses 3
Fund Financial Highlights 5
Investment Objective Policies and Risks 6
Risk Factors; Matching the Fund to your Investment Needs 8
Net Asset Value 11
Purchase and Redemption of Shares 12
Dividends, Distributions and Taxes 15
Performance Information and Reports 15
Management of the Trust and Portfolio 16
Additional Information 21
- -----------------------------------------------------------------------------
<PAGE>

SUMMARY OF FUND EXPENSES

The following table provides: (i) a summary of expenses relating to purchases
and sales of the shares of the Capital Appreciation Fund (the "Fund") and the
annual operating expenses of the Fund and the expenses of the Capital
Appreciation Portfolio (the "Portfolio"), as a percentage of average net assets
of the Fund; and (ii) an example illustrating the dollar cost of such expenses
on a $1,000 investment in the Fund. THE TRUSTEES OF BT INVESTMENT FUNDS (THE
"TRUST") BELIEVE THAT THE AGGREGATE PER SHARE EXPENSES OF THE FUND AND THE
PORTFOLIO WILL BE LESS THAN OR APPROXIMATELY EQUAL TO THE EXPENSES WHICH THE
FUND WOULD INCUR IF THE TRUST RETAINED THE SERVICES OF AN INVESTMENT ADVISER AND
THE INVESTABLE ASSETS ("ASSETS") OF THE FUND WERE INVESTED DIRECTLY IN THE TYPE
OF SECURITIES BEING HELD BY THE PORTFOLIO.

- --------------------------------------------------------------------------------
ANNUAL OPERATING EXPENSES
(as a percentage of the average daily net assets of the Fund)
................................................................................
Investment advisory fee (after waiver) 0.52%
12b-1 fees 0.00
Other expenses (after reimbursements or waivers) 0.73
................................................................................
Total operating expenses (after reimbursements or waivers) 1.25%
................................................................................
EXAMPLE 1 year 3 years 5 years 10 years
................................................................................
You would pay the following expenses on a
$1,000 investment, assuming: (1) 5%
annual return; and (2) redemption at
the end of each time period $13 $40 $69 $151
- ------------------------------------------------------------------------------

The expense table and the example above show the costs and expenses that an
investor will bear directly or indirectly as a shareholder of the Fund. While
reimbursement of distribution expenses in amounts up to 0.20% of average net
assets are authorized to be made pursuant to the Plan of Distribution under Rule
12b-1 of the Investment Company Act of 1940, as amended (the "1940 Act"), it is
not expected that any payments will actually be made under that plan in the
foreseeable future. Bankers Trust Company ("Bankers Trust") has voluntarily
agreed to waive a portion of its investment advisory fee. Without such waiver,
the Portfolio's investment advisory fee would be equal to 0.65%. The expense
table and the example reflect a voluntary undertaking by Bankers Trust or
Signature Broker-Dealer Services, Inc. ("Signature") to waive or reimburse
expenses such that the total operating expenses will not exceed 1.25% of the
Fund's average net assets annually. In the absence of this undertaking, for the
period from January 1, 1995 to September 30, 1995, the total operating expenses
would have been equal to approximately 1.57% of the Fund's average net assets
annually. THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
Moreover, while each example assumes a 5% annual return, actual performance will
vary and may result in a return greater or less than 5%.

The Fund is sold by Signature as the Trust's distributor (the "Distributor") to
customers of Bankers Trust or to customers of another bank or a dealer or other
institution that has a sub-shareholder servicing agreement with Bankers Trust
(along with Bankers Trust, a "Servicing Agent"). Some Service Agents may impose
certain conditions on their customers in addition to or different from those
imposed by the Fund and may charge their customers a direct fee for their
services. Each Service Agent has agreed to transmit to shareholders who are its
customers appropriate disclosures of any fees that it may charge them directly.

Exclusive of Bankers Trust private clients, this Fund is available for (a)
accounts where an investment advisor or a financial planner has discretion over
such account and the account holder pays such person as compensation for its
advice and other services an annual fee of at least 0.50% on the assets in the
account; (b) accounts established under a "wrap fee" program or formal asset
allocation program where the account holder pays the program sponsor an annual
fee of at least 0.50% on the assets in the account; and (c) accounts established
through an automated clearing or similar system established for the use of
investment professionals and through which purchases and redemptions are
transmitted to the Fund on an omnibus basis.

For more information with respect to the expenses of the Fund and the Portfolio
see "Management of the Trust and Portfolio" herein.

FUND FINANCIAL HIGHLIGHTS

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

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
FOR THE PERIOD
MARCH 9, 1993
FOR THE PERIOD (COMMENCEMENT
JANUARY 1, 1995 FOR THE YEAR ENDED OF OPERATIONS) TO
SEPTEMBER 30, 1995 DECEMBER 31, 1994 DECEMBER 31, 1993
..............................................................................................................................
<S> <C> <C> <C>
SELECTED PER SHARE DATA
Net Asset Value, Beginning of Period $12.10 $11.72 $10.00
..............................................................................................................................
Income from Investment Operations
Net Investment (Loss) (0.07) (0.04) (0.01)
Net Realized and Unrealized Gain on Securities 4.80 0.42 1.73
..............................................................................................................................
Total from Investment Operations 4.73 0.38 1.72
..............................................................................................................................
Net Asset Value, End of Period $16.83 $12.10 $11.72
..............................................................................................................................
TOTAL INVESTMENT RETURN 39.09% 3.24% 21.54%<F1>
RATIOS AND SUPPLEMENTAL DATA
Ratio of Net Investment (Loss) to Average Net Assets (0.65)%<F1> (0.57)% (0.23)%<F1>
Ratio of Expenses to Average Net Assets,
Including Expenses of the Capital Appreciation Portfolio 1.25%<F1> 1.25% 1.25%<F1>
Decrease Reflected in Above Expense Ratio Due to
Absorption of Expenses by Bankers Trust 0.32%<F1> 0.54% 0.74%<F1>
Net Assets, End of Period
(000's omitted) $57,380 $42,737 $17,573
- -----------------------------------------------------------------------------------------------------------------------------------
<FN>
<F1> Annualized
</TABLE>

INVESTMENT OBJECTIVE, POLICIES AND RISKS

The Fund's investment objective is long-term capital growth; the production of
any current income is secondary to this objective.

The Trust seeks to achieve the investment objective of the Fund by investing all
the Assets of the Fund in the Capital Appreciation Portfolio, which has the same
investment objective as the Fund. There can be no assurances that the investment
objective of either the Fund or the Portfolio will be achieved. The investment
objective of each of the Fund and the Portfolio is not a fundamental policy and
may be changed upon notice to but without the approval of the Fund's
shareholders or the Portfolio's investors, respectively. See "Special
Information Concerning Master-Feeder Fund Structure" on page 10 herein.

CAPITAL APPRECIATION PORTFOLIO

The Portfolio invests primarily in growth-oriented common stocks of domestic
corporations and, to a lesser extent, foreign corporations. Bankers Trust, as
the Portfolio's investment adviser (the "Adviser"), employs a flexible
investment program in pursuit of the Portfolio's investment objective. The
Portfolio is not restricted to investments in specific market sectors. The
Portfolio may invest in any market sectors and in companies of any size and may
take advantage of any investment opportunity with attractive long-term
prospects. The Adviser takes advantage of its market access and the research
available to it to select investments in promising growth companies that are
involved in new technologies, new products, foreign markets and special
developments, such as research discoveries, acquisitions, recapitalizations,
liquidations or management changes, and companies whose stock may be undervalued
by the market. These situations are only illustrative of the types of investment
the Portfolio may make. The Portfolio is free to invest in any common stock
which in the Adviser's judgment provides above average potential for long-term
growth of capital and income.

The Portfolio will generally invest a majority of its assets in securities of
medium-sized companies (companies with a market capitalization of between $500
million and $2 billion), but may invest in securities of companies having
various levels of market capitalization, including smaller companies whose
securities may be more volatile and less liquid than securities issued by larger
companies with higher levels of net worth. Investments will be in companies in
various industries. Industry and company fundamentals along with key investment
themes and various quantitative screens will be used in the investment process.
Criteria for selection of individual securities include the issuer's competitive
environment and position, prospects for growth, managerial strength, earnings
momentum and quality, underlying asset value, relative market value and overall
marketability. The Portfolio will follow a disciplined selling process to lessen
market risks.

The Portfolio may also invest up to 25% of its assets in similar securities of
foreign issuers. For further information on foreign investments and related
hedging techniques, see "Risk Factors; Matching the Fund to Your Investment
Needs," "Additional Information" and the Statement of Additional Information.

Equity Investments. The Portfolio invests primarily in common stock and other
securities with equity characteristics, such as trust or limited partnership
interests, rights and warrants. These investments may or may not pay dividends
and may or may not carry voting rights. The Portfolio may also invest in
convertible securities when, due to market conditions, it is more advantageous
to obtain a position in an attractive company by purchase of its convertible
securities than by purchase of its common stock. The convertible securities in
which the Portfolio invests may include any debt securities or preferred stock
which may be converted into common stock or which carries the right to purchase
common stock. Convertible securities entitle the holder to exchange the
securities for a specified number of shares of common stock, usually of the same
company, at specified prices within a certain period of time and to receive
interest or dividends until the holder elects to exercise the conversion
privilege. Since the Portfolio invests in both common stock and convertible
securities, the risks of the general equity markets may be tempered to a degree
by the Portfolio's investments in convertible securities which are often not as
volatile as equity securities.

Short-Term Instruments. The Portfolio intends to stay invested in the securities
described above to the extent practical in light of its objective and long-term
investment perspective. However, the Portfolio's assets may be invested in
short-term instruments with remaining maturities of 397 days or less to meet
anticipated redemptions and expenses or for day-to-day operating purposes and
when, in Bankers Trust's opinion, it is advisable to adopt a temporary defensive
position because of unusual and adverse conditions affecting the equity markets.
In addition, when the Portfolio experiences large cash inflows through the sale
of securities and desirable equity securities that are consistent with the
Portfolio's investment objective are unavailable in sufficient quantities or at
attractive prices, the Portfolio may hold short-term investments for a limited
time pending availability of such equity securities. Short-term instruments
consist of foreign and domestic: (i) short-term obligations of sovereign
governments, their agencies, instrumentalities, authorities or political
subdivisions; (ii) other short-term debt securities rated Aa or higher by
Moody's Investors Service, Inc. ("Moody's") or AA or higher by Standard & Poor's
Corporation ("S&P") or, if unrated, of comparable quality in the opinion of
Bankers Trust; (iii) commercial paper; (iv) bank obligations, including
negotiable certificates of deposit, time deposits and bankers' acceptances; and
(v) repurchase agreements. At the time the Portfolio invests in commercial
paper, bank obligations or repurchase agreements, the issuer or the issuer's
parent must have outstanding debt rated Aa or higher by Moody's or AA or higher
by S&P or outstanding commercial paper or bank obligations rated Prime-1 by
Moody's or A-1 by S&P; or, if no such ratings are available, the instrument must
be of comparable quality in the opinion of Bankers Trust. These instruments may
be denominated in U.S. dollars or in foreign currencies.

OTHER INVESTMENTS AND INVESTMENT TECHNIQUES

The Portfolio may also utilize the following investments and investment
techniques and practices: Rule 144A securities, when-issued and delayed
delivery, securities lending, repurchase agreements, foreign investments,
options on stocks, options on stock indices, futures contracts on stock indices,
options on futures contracts, foreign currency exchange transactions and options
on foreign currencies. See "Additional Information" for further information.

ADDITIONAL INVESTMENT LIMITATIONS

As a diversified fund, no more than 5% of the assets of the Portfolio may be
invested in the securities of one issuer (other than U.S. Government
securities), except that up to 25% of the Portfolio's assets may be invested
without regard to this limitation. The Portfolio will not invest more than 25%
of its assets in the securities of issuers in any one industry. These are
fundamental investment policies of the Portfolio which may not be changed
without investor approval. No more than 15% of the Portfolio's net assets may be
invested in illiquid or not readily marketable securities (including repurchase
agreements and time deposits with remaining maturities of more than seven
calendar days). Additional investment policies of the Portfolio are contained in
the Statement of Additional Information.

RISK FACTORS; MATCHING THE FUND TO YOUR INVESTMENT NEEDS

By itself, the Fund does not constitute a balanced investment plan; the Fund and
the Portfolio seek to provide long-term capital growth, with the production of
any current income being incidental to this objective, by investments primarily
in growth-oriented common stocks of domestic corporations and, to a limited
extent, foreign corporations. The Fund is designed for those investors primarily
interested in capital growth from investments in medium-sized growth companies.
In view of the long-term capital growth objective of the Fund and the smaller
size of the companies, the risks of investment in the Fund may be greater than
the general equity markets, and changes in domestic and foreign interest rates
may also affect the value of the Portfolio's investments, and rising interest
rates can be expected to reduce the Fund's share value. A description of a
number of investments and investment techniques available to the Portfolio,
including foreign investments and the use of options and futures, and certain
risks associated with these investments and techniques is included under
"Additional Information." The Fund's share price, yield and total return
fluctuate and your investment may be worth more or less than your original cost
when you redeem your shares.

RISKS OF INVESTING IN FOREIGN SECURITIES

In seeking its investment objectives, the Portfolio may invest in securities of
foreign issuers. Foreign securities may involve a higher degree of risk and may
be less liquid or more volatile than domestic investments. Foreign securities
usually are denominated in foreign currencies, which means their value will be
affected by changes in the strength of foreign currencies relative to the U.S.
dollar as well as the other factors that affect security prices. Foreign
companies may not be subject to accounting standards or governmental supervision
comparable to U.S. companies, and there often is less publicly available
information about their operations. Generally, there is less governmental
regulation of foreign securities markets, and security trading practices abroad
may offer less protection to investors such as the Portfolio. The value of such
investments may be adversely affected by changes in political or social
conditions, diplomatic relations, confiscatory taxation, expropriation,
nationalization, limitation on the removal of funds or assets, or imposition of
(or change in) exchange control or tax regulations in those foreign countries.
Additional risks of foreign securities include settlement delays and costs,
difficulties in obtaining and enforcing judgments, and taxation of dividends at
the source of payment. The Portfolio will not invest more than 5% of the value
of its total assets in the securities of issuers based in developing countries,
including Eastern Europe.

PORTFOLIO TURNOVER

The Portfolio intends to manage its holdings actively to pursue its investment
objective. Since the Portfolio has a long-term investment perspective, it does
not intend to respond to short-term market fluctuations or to acquire securities
for the purpose of short-term trading; however, it may take advantage of
short-term trading opportunities that are consistent with its objective. The
annual portfolio turnover rate of the Portfolio may exceed 100%. Higher
portfolio turnover rates result in higher brokerage costs and possible adverse
tax consequences. For the period January 1, 1995 to September 30, 1995, the year
ended December 31, 1994 and the period from March 9, 1993 (commencement of
operations) to December 31, 1993, the Portfolio's portfolio turnover rate was
125%, 157% and 137%, respectively.

DERIVATIVES

The Portfolio may invest in various instruments that are commonly known as
derivatives. Generally, a derivative is a financial arrangement, the value of
which is based on, or "derived" from, a traditional security, asset or market
index. 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 for cash management purposes 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 the Adviser believes they offer the most economic means of improving the
risk/reward profile of the Portfolio. Derivatives will not be used to increase
portfolio risk above the level that could be achieved using only traditional
investment securities or to acquire exposure to changes in the value of assets
or indices that by themselves would not be purchased for the Portfolio. The use
of derivatives for non-hedging purposes may be considered speculative. A
description of the derivatives that the Portfolio may use and some of their
associated risks is found under "Additional Information."

SPECIAL INFORMATION CONCERNING MASTER-FEEDER FUND STRUCTURE

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

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

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

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

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

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

For descriptions of the investment objective, policies and restrictions of the
Portfolio, see "Investment Objective, Policies and Risks." For descriptions of
the management of the Portfolio, see "Management of the Trust and Portfolio"
herein and in the Statement of Additional Information. For descriptions of the
expenses of the Portfolio, see "Management of the Trust and Portfolio" herein.

NET ASSET VALUE
The net asset value per share of the Fund is calculated on each day on which the
New York Stock Exchange Inc. (the "NYSE") is open (each such day being a
"Valuation Day"). The NYSE is currently open on each day, Monday through Friday,
except: (a) January 1st, Presidents' Day (the third Monday in February), Good
Friday, Memorial Day (the last Monday in May), July 4th, Labor Day (the first
Monday in September), Thanksgiving Day (the last Thursday in November) and
December 25th; and (b) the preceding Friday or the subsequent Monday when one of
the calendar-determined holidays falls on a Saturday or Sunday, respectively.

PURCHASE AND REDEMPTION OF SHARES

PURCHASE OF SHARES

The Trust accepts purchase orders for shares of the Fund at the net asset value
per share of the Fund next determined on each Valuation Day. See "Net Asset
Value" above. There is no sales charge on the purchase of shares, but costs of
distributing shares of the Fund may be reimbursed from its assets, as described
herein. Service Agents may impose initial and subsequent investment minimums
that differ from the amounts presented in the "Minimum Investments" table below.
Shares of the Fund may be purchased in only those states where they may be
lawfully sold.

Purchase orders for shares of the Fund that are received by a Service Agent and
transmitted to Bankers Trust, as the Trust's transfer agent (the "Transfer
Agent"), prior to the Valuation Time (currently 4:00 p.m., New York time or
earlier should the NYSE close earlier) on any Valuation Day will be effective at
that day's Valuation Time. The Trust and Signature reserve the right to reject
any purchase order.

Shares must be purchased in accordance with procedures established by the
Transfer Agent and Service Agents, including Bankers Trust, in connection with
customers' accounts. It is the responsibility of each Service Agent to transmit
to the Transfer Agent purchase and redemption orders and to transmit to Bankers
Trust as the Trust's custodian (the "Custodian") purchase payments on behalf of
its customers in a timely manner, and a shareholder must settle with the Service
Agent his or her entitlement to an effective purchase or redemption order as of
a particular time. Because Bankers Trust is the Custodian and Transfer Agent of
the Trust, funds may be transferred directly from or to a customer's account
with Bankers Trust to or from the Fund without incurring the additional costs or
delays associated with the wiring of federal funds.

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

Automatic Investment Plan. The Fund may offer shareholders an automatic
investment plan under which shareholders may authorize some Service Agents to
place a purchase order each month or quarter for Fund shares. For further
information regarding the automatic investment plan, shareholders should contact
their Service Agent.

MINIMUM INVESTMENTS

TO OPEN AN ACCOUNT $2,500
For retirement accounts $ 500
Through automatic investment plans $1,000

TO ADD TO AN ACCOUNT $ 250
For retirement accounts $ 100
Through automatic investment plan $ 100

MINIMUM BALANCE $1,000
For retirement accounts None

REDEMPTION OF SHARES

Shareholders may redeem shares at the net asset value per share next determined
on each Valuation Day. Redemption requests should be transmitted by customers in
accordance with procedures established by the Transfer Agent and the
shareholder's Service Agent. Redemption requests for shares of the Fund received
by the Service Agent and transmitted to the Transfer Agent prior to the
Valuation Time (currently 4:00 p.m., New York time or earlier should the NYSE
close earlier) 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 with the Service Agent on 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 Service Agent must employ reasonable
procedures to confirm that the 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 such instructions received by telephone, providing written confirmation of
such transactions and/or tape recording of telephone instructions.

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

Automatic Cash Withdrawal Plan. The Fund may offer shareholders an automatic
cash withdrawal plan, under which shareholders who own shares of the Fund may
elect to receive periodic cash payments. Retirement plan accounts are eligible
for automatic cash withdrawal plans only where the shareholder is eligible to
receive qualified distributions. For further information regarding the automatic
cash withdrawal plan, shareholders should contact their Service Agent.

EXCHANGE PRIVILEGE

Shareholders may exchange their shares for shares of certain other funds in the
BT Family of Funds registered in their state. The Fund reserves the right to
terminate or modify the exchange privilege in the future. To make an exchange,
follow the procedures indicated in "Purchase of Shares" and "Redemption of
Shares" in that 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.

* 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 send a written confirmation of each exchange transaction.

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-sheltered plans. These plans contain special tax
advantages and let you invest for retirement while sheltering your investment
income from current taxes. Minimums may differ from those listed elsewhere in
the Prospectus.

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

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

* Simplified Employee Pension Plans (SEP): a relatively easy and inexpensive
alternative to retirement planning for sole proprietors, partnerships and
corporations. Under a SEP, employers make tax-deductible contributions to
their own and to eligible employees' IRA accounts. Employee contributions are
available through a "Salary Deferral" SEP for businesses with fewer than 25
eligible employees.

* Keogh Plans: defined contribution plans available to individuals with self-
employed income and nonincorporated businesses such as sole proprietors,
professionals and partnerships. Contributions are tax-deductible to the
employer and earnings are tax-sheltered until distribution.

* Corporate Profit-Sharing and Money-Purchase Plans: defined contribution
plans available to corporations to benefit their employees by making
contributions on their behalf and in some cases permitting their employees
to make contributions.

* 401(k) Programs: defined contribution plans available to corporations allowing
tax-deductible employer contributions and permitting employees to contribute a
percentage of their wages on a tax-deferred basis.

* 403(b) Custodian Accounts: defined contribution plans open to employees of
most nonprofit organizations and educational institutions.

* Deferred Benefit Plans: plan sponsors may invest all or part of their
pension assets in the Fund.

DIVIDENDS, DISTRIBUTIONS AND TAXES

Distributions. The Fund distributes substantially all of its net investment
income and capital gains to shareholders each year. Income dividends are
distributed on the first business day in April, July and October. In December,
another income dividend will be distributed plus any net capital gains. Unless a
shareholder instructs the Trust to pay such dividends and distributions in cash,
they will be automatically reinvested in additional shares of the Fund.

Federal Taxes. Distributions from the Fund's income and short-term capital gains
are taxed as dividends, and long-term capital gain distributions are taxed as
long-term capital gains. The Fund's distributions are taxable when they are
paid, whether you take them in cash or reinvest them in additional shares.
Distributions declared in December and paid in January are taxable as if paid on
December 31. The Fund will send each shareholder a tax statement by January 31
showing the tax status of the distributions received in the past year.

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

"Buying a Dividend." On the ex-date for a distribution from income and/or
capital gains, the Fund's share value is reduced by the amount of the
distribution. If you buy shares just before the ex-date ("buying a dividend"),
you will pay the full price for the shares and then receive a portion of the
price back as a taxable distribution.

PERFORMANCE INFORMATION AND REPORTS

The Fund's performance may be used from time to time in advertisements,
shareholder reports or other communications to shareholders or prospective
shareholders. Performance information may include the Fund's investment results
and/or comparisons of its investment results to the Standard and Poor's 500
Composite Stock Price Index, the Standard and Poor's MidCap 400 Index, the
Lipper General Equity Averages, the Lipper MidCap Average or other various
unmanaged indices or results of other mutual funds or investment or savings
vehicles. The Fund's investment results as used in such communications will be
calculated on a total return basis in the manner set forth below. From time to
time, fund rankings may be quoted from various sources, such as Lipper
Analytical Services, Inc., Value Line and Morningstar, Inc.

The Trust may provide period and average annualized "total return" quotations
for the Fund. The Fund's "total return" refers to the change in the value of an
investment in the Fund over a stated period based on any change in net asset
value per share and including the value of any shares purchasable with any
dividends or capital gains distributed during such period. Period total return
may be annualized. An annualized total return is a compounded total return which
assumes that the period total return is generated over a one-year period, and
that all dividends and capital gain distributions are reinvested. An annualized
total return will be higher than a period total rate of return if the period is
shorter than one year, because of the compounding effect.

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

Shareholders will receive financial reports semi-annually that include the
Portfolio's financial statements, including listings of investment securities
held by the Portfolio at those dates. Annual reports are audited by independent
accountants.

MANAGEMENT OF THE TRUST AND PORTFOLIO

BOARD OF TRUSTEES

The affairs of the Trust and the Portfolio are managed under the supervision of
their respective Boards of Trustees. By virtue of the responsibilities assumed
by Bankers Trust, as the administrator of the Trust and the Portfolio, neither
the Trust nor the Portfolio requires employees other than its officers. None of
the Trust's or the Portfolio's officers devotes full time to the affairs of the
Trust or the Portfolio.

The Trustees of the Trust who are not "interested persons," as defined in the
1940 Act, of the Trust or of the Portfolio, as the case may be, (the
"Independent Trustees") have adopted written procedures reasonably appropriate
to deal with potential conflicts of interest, up to and including creating
separate boards of trustees, arising from the fact that several of the same
individuals are trustees of the Trust and of the Portfolio. For more information
with respect to the Trustees of both the Trust and the Portfolio, see
"Management of the Trust and the Portfolios" in the Statement of Additional
Information.

INVESTMENT ADVISER

Bankers Trust, a New York banking corporation with principal offices at 280 Park
Avenue, New York, New York 10017, is a wholly owned subsidiary of Bankers Trust
New York Corporation. Bankers Trust conducts a variety of general banking and
trust activities and is a major wholesale supplier of financial services to the
international and domestic institutional markets. As of September 30, 1995,
Bankers Trust New York Corporation was the ninth largest bank holding company in
the United States with total assets of approximately $104 billion. Bankers Trust
is a worldwide merchant bank dedicated to servicing the needs of corporations,
governments, financial institutions and private clients through a global network
of over 120 offices in more than 40 countries. Investment management is a core
business of Bankers Trust, built on a tradition of excellence from its roots as
a trust bank founded in 1903. The scope of Bankers Trust's investment management
capability is unique due to its leadership positions in both active and passive
quantitative management and its presence in major equity and fixed income
markets around the world. Bankers Trust is one of the nation's largest and most
experienced investment managers with approximately $200 billion in assets under
management globally.

Bankers Trust has more than 50 years of experience managing retirement assets
for the nation's largest corporations and institutions. In the past, these
clients have been serviced through separate account and commingled fund
structures. Now, the BT Family of Funds brings Bankers Trust's extensive
investment management expertise -- once available to only the largest
institutions in the U.S. -- to individual investors. Bankers Trust's officers
have had extensive experience in managing investment portfolios having
objectives similar to those of the Portfolio.

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

Under its Investment Advisory Agreement, Bankers Trust receives a fee from the
Portfolio, computed daily and paid monthly, at the annual rate of 0.65% of the
average daily net assets of the Portfolio.

Bankers Trust has been advised by its counsel that, in counsel's opinion,
Bankers Trust currently may perform the services for the Trust and the Portfolio
described in this Prospectus and the Statement of Additional Information without
violation of the Glass-Steagall Act or other applicable banking laws or
regulations. State laws on this issue may differ from the interpretations of
relevant Federal law and banks and financial institutions may be required to
register as dealers pursuant to state securities law.

ADMINISTRATOR

Under its Administration and Services Agreement with the Trust, Bankers Trust
calculates the net asset value of the Fund and generally assists the Board of
Trustees of the Trust in all aspects of the administration and operation of the
Trust. The Administration and Services Agreement provides for the Trust to pay
Bankers Trust a fee, computed daily and paid monthly, at the rate of 0.65% of
the average daily net assets of the Fund.

Under an Administration and Services Agreement with the Portfolio, Bankers Trust
calculates the value of the assets of the Portfolio and generally assists the
Board of Trustees of the Portfolio in all aspects of the administration and
operation of the Portfolio. The Administration and Services Agreement provides
for the Portfolio to pay Bankers Trust a fee, computed daily and paid monthly,
at the rate of 0.10% of the average daily net assets of the Portfolio. Under
each Administration and Services Agreement, Bankers Trust may delegate one or
more of its responsibilities to others, including Signature, at Bankers Trust's
expense. For more information, see the Statement of Additional Information.

DISTRIBUTOR

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

Pursuant to the terms of the Trust's Plan of Distribution pursuant to Rule 12b-1
under the 1940 Act (the "Plan"), Signature may seek reimbursement in an amount
not exceeding 0.20% of the Fund's average daily net assets annually for expenses
incurred in connection with any activities primarily intended to result in the
sale of the Fund's shares, including, but not limited to: compensation to and
expenses (including overhead and telephone expenses) of account executives or
other employees of Signature who, as their primary activity, engage in or
support the distribution of shares; printing of prospectuses, statements of
additional information and reports for other than existing Fund shareholders in
amounts in excess of that typically used in connection with the distribution of
shares of the Fund; costs of placing advertising in various media; services of
parties other than Signature or its affiliates in formulating sales literature;
and typesetting, printing and distribution of sales literature. All costs and
expenses in connection with implementing and operating the Plan will be paid by
the Fund, subject to the 0.20% of net assets limitation. All costs and expenses
associated with preparing the prospectus and statement of additional information
and in connection with printing them for and distributing them to existing
shareholders and regulatory authorities, which costs and expenses would not be
considered distribution expenses for purposes of the Plan, will also be paid by
the Fund. To the extent expenses of Signature under the Plan in any fiscal year
of the Trust exceed amounts payable under the Plan during that year, those
expenses will not be reimbursed in any succeeding fiscal year. Expenses incurred
in connection with distribution activities will be identified to the Fund or the
other series of the Trust involved, although it is anticipated that some
activities may be conducted on a Trust-wide basis, with the result that those
activities will not be identifiable to any particular series. In the latter
case, expenses will be allocated among the series of the Trust on the basis of
their relative net assets. It is not expected that any payments will be made
under the Plan in the foreseeable future.

SERVICE AGENT

All shareholders must be represented by a Service Agent. Bankers Trust acts as a
Service Agent pursuant to its Administration and Services Agreement with the
Trust and receives no additional compensation from the Fund for such shareholder
services. The service fees of any other Service Agents, including
broker-dealers, will be paid by Bankers Trust from its fees. The services
provided by a Service Agent may include establishing and maintaining shareholder
accounts, processing purchase and redemption transactions, arranging for bank
wires, performing shareholder sub-accounting, answering client inquiries
regarding the Trust, assisting clients in changing dividend options, account
designations and addresses, providing periodic statements showing the client's
account balance, transmitting proxy statements, periodic reports, updated
prospectuses and other communications to shareholders and, with respect to
meetings of shareholders, collecting, tabulating and forwarding to the Trust
executed proxies and obtaining such other information and performing such other
services as the Administrator or the Service Agent's clients may reasonably
request and agree upon with the Service Agent. Service Agents may separately
charge their clients additional fees only to cover provision of additional or
more comprehensive services not already provided under the Administration and
Services Agreement with Bankers Trust, or of the type or scope not generally
offered by a mutual fund, such as cash management services or enhanced
retirement or trust reporting. In addition, investors may be charged a
transaction fee if they effect transactions in Fund shares through a broker or
agent. Each Service Agent has agreed to transmit to shareholders, who are its
customers, appropriate disclosures of any fees that it may charge them directly.

CUSTODIAN AND TRANSFER AGENT

Bankers Trust acts as Custodian of the assets of the Trust and the Portfolio and
serves as the Transfer Agent for the Trust and the Portfolio under the
Administration and Services Agreement with the Trust and the Portfolio.

ORGANIZATION OF THE TRUST

The Trust was organized on July 21, 1986 under the laws of the Commonwealth of
Massachusetts. The Fund was established and designated as a separate series of
the Trust on August 12, 1992. The Trust offers shares of beneficial interest of
separate series, par value $0.001 per share. The shares of the other series of
the Trust are offered through separate prospectuses. No series of shares has any
preference over any other series.

The Trust is an entity of the type commonly known as a "Massachusetts business
trust." Under Massachusetts law, shareholders of such a business trust may,
under certain circumstances, be held personally liable as partners for its
obligations. However, the risk of a shareholder incurring financial loss on
account of shareholder liability is limited to circumstances in which both
inadequate insurance existed and the Trust itself was unable to meet its
obligations.

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

The Portfolio, in which all the Assets of the Fund will be invested, is
organized as a trust under the laws of the State of New York. The Portfolio's
Declaration of Trust provides that the Fund and other entities investing in the
Portfolio (e.g., other investment companies, insurance company separate accounts
and common and commingled trust funds) will each be liable for all obligations
of the Portfolio. However, the risk of the Fund incurring financial loss on
account of such liability is limited to circumstances in which both inadequate
insurance existed and the Portfolio itself was unable to meet its obligations.
Accordingly, the Trustees of the Trust believe that neither the Fund nor its
shareholders will be adversely affected by reason of the Fund's investing in the
Portfolio.

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

EXPENSES OF THE TRUST

The Fund bears its own expenses. Operating expenses for the Fund generally
consist of all costs not specifically borne by Bankers Trust or Signature,
including administration and service fees, fees for necessary professional
services, amortization of organizational expenses, and costs associated with
regulatory compliance and maintaining legal existence and shareholder relations.
Bankers Trust and Signature have agreed to reimburse the Fund to the extent
required by applicable state law for certain expenses that are described in the
Statement of Additional Information. The Portfolio bears its own expenses.
Operating expenses for the Portfolio generally consist of all costs not
specifically borne by Bankers Trust or Signature, including investment advisory
and administration and services fees, fees for necessary professional services,
amortization of organizational expenses the costs associated with regulatory
compliance and maintaining legal existence and investor relations.

ADDITIONAL INFORMATION

Rule 144A Securities. The Portfolio may purchase securities in the United States
that are not registered for sale under Federal securities laws but which can be
resold to institutions under the Securities and Exchange Commission's ("SEC")
Rule 144A. Provided that a dealer or institutional trading market in such
securities exists, these restricted securities are treated as exempt from the
Portfolio's 15% limit on illiquid securities. Under the supervision of the Board
of Trustees of the Portfolio, Bankers Trust determines the liquidity of
restricted securities and, through reports from Bankers Trust, the Board will
monitor trading activity in restricted securities. Because Rule 144A is
relatively new, it is not possible to predict how these markets will develop. If
institutional trading in restricted securities were to decline, the liquidity of
the Portfolio could be adversely affected.

When-Issued and Delayed Delivery Securities. The Portfolio may purchase
securities on a when-issued or delayed delivery basis. Delivery of and payment
for these securities may take place as long as a month or more after the date of
the purchase commitment. The value of these securities is subject to market
fluctuation during this period and no income accrues to the Portfolio until
settlement takes place. The Portfolio maintains with the custodian a segregated
account containing high grade liquid securities in an amount at least equal to
these commitments. When entering into a when-issued or delayed delivery
transaction, the Portfolio will rely on the other party to consummate the
transaction; if the other party fails to do so, the Portfolio may be
disadvantaged.

Securities Lending. The Portfolio is permitted to lend up to 30% of the total
value of its securities. These loans must be secured continuously by cash or
equivalent collateral or by a letter of credit at least equal to the market
value of the securities loaned plus accrued income. By lending its securities,
the Portfolio can increase its income by continuing to receive income on the
loaned securities as well as by the opportunity to receive interest on the
collateral. Any gain or loss in the market price of the borrowed securities
which occurs during the term of the loan inures to the Portfolio and its
investors. In lending securities to brokers, dealers and other organizations,
the Portfolio is subject to risk which, like those associated with other
extensions of credit, include delays in recovery and possible loss of rights in
the collateral should the borrower fail financially.

Repurchase Agreements. In a repurchase agreement the Portfolio buys a security
and simultaneously agrees to sell it back at a higher price. In the event of the
bankruptcy of the other party to either a repurchase agreement or a securities
loan, the Portfolio could experience delays in recovering either its cash or the
securities it lent. To the extent that, in the meantime, the value of the
securities repurchased had decreased or the value of the securities lent had
increased, the Portfolio could experience a loss. In all cases, Bankers Trust
must find the creditworthiness of the other party to the transaction
satisfactory. A repurchase agreement is considered a collateralized loan under
the 1940 Act.

Foreign Investments. The Portfolio may invest in securities of foreign issuers
directly or in the form of American Depositary Receipts ("ADRs"), Global
Depositary Receipts ("GDRs"), European Depositary Receipts ("EDRs") or other
similar securities representing securities of foreign issuers. Designed for use
in U.S., international and European securities markets, respectively, ADRs, GDRs
and EDRs are alternatives to the purchase of the underlying securities in their
national markets and currencies. ADRs, GDRs and EDRs are subject to the same
risks as the foreign securities to which they relate.

With respect to certain countries in which capital markets are either less
developed or not easily accessed, investments by the Portfolio may be made
through investment in other investment companies that in turn are authorized to
invest in the securities of such countries. Investment in other investment
companies is limited in amount by the 1940 Act, will involve the indirect
payment of a portion of the expenses, including advisory fees, of such other
investment companies and may result in a duplication of fees and expenses.

Options on Stocks. The Portfolio may write and purchase put and call options on
stocks. A call option gives the purchaser of the option the right to buy, and
obligates the writer to sell, the underlying stock at the exercise price at any
time during the option period. Similarly, a put option gives the purchaser of
the option the right to sell, and obligates the writer to buy, the underlying
stock at the exercise price at any time during the option period. A covered call
option, which is a call option with respect to which the Portfolio owns the
underlying stock, sold by the Portfolio exposes the Portfolio during the term of
the option to possible loss of opportunity to realize appreciation in the market
price of the underlying stock or to possible continued holding of a stock which
might otherwise have been sold to protect against depreciation in the market
price of the stock. A covered put option sold by the Portfolio exposes the
Portfolio during the term of the option to a decline in price of the underlying
stock. A put option sold by the Portfolio is covered when, among other things,
cash or liquid securities are placed in a segregated account to fulfill the
obligations undertaken. To close out a position when writing covered options,
the Portfolio may make a "closing purchase transaction," which involves
purchasing an option on the same stock with the same exercise price and
expiration date as the option which it has previously written on the stock. The
Portfolio will realize a profit or loss for a closing purchase transaction if
the amount paid to purchase an option is less or more, as the case may be, than
the amount received from the sale thereof. To close out a position as a
purchaser of an option, the Portfolio may make a "closing sale transaction,"
which involves liquidating the Portfolio's position by selling the option
previously purchased.

The Portfolio intends to treat over-the-counter options ("OTC Options")
purchased and the assets used to "cover" OTC Options written as not readily
marketable and therefore subject to the limitations described in "Investment
Restrictions" in the Statement of Additional Information.

Options on Stock Indices. The Portfolio may purchase and write put and call
options on stock indices listed on stock exchanges. A stock index fluctuates
with changes in the market values of the stocks included in the index.

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

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

Futures Contracts on Stock Indices. The Portfolio may enter into contracts
providing for the making and acceptance of a cash settlement based upon changes
in the value of an index of securities ("Futures Contracts"). This investment
technique is designed only to hedge against anticipated future change in general
market prices which otherwise might either adversely affect the value of
securities held by the Portfolio or adversely affect the prices of securities
which are intended to be purchased at a later date for the Portfolio. A Futures
Contract may also be entered into to close out or offset an existing futures
position.

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

Although Futures Contracts would be entered into for hedging purposes only, such
transactions do involve certain risks. These risks could include a lack of
correlation between the Futures Contract and the equity market being hedged, a
potential lack of liquidity in the secondary market and incorrect assessments of
market trends which may result in poorer overall performance than if a Futures
Contract had not been entered into.

Brokerage costs will be incurred and "margin" will be required to be posted and
maintained as a good-faith deposit against performance of obligations under
Futures Contracts written for the Portfolio. The Portfolio may not purchase or
sell a Futures Contract if immediately thereafter its margin deposits on its
outstanding Futures Contracts would exceed 5% of the market value of the
Portfolio's total assets.

Options on Futures Contracts. The Portfolio may invest in options on such
Futures Contracts for similar purposes.

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

A forward foreign currency exchange contract is an obligation by the Portfolio
to purchase or sell a specific currency at a future date, which may be any fixed
number of days from the date of the contract. Forward foreign currency exchange
contracts establish an exchange rate at a future date. These contracts are
transferable in the interbank market conducted directly between currency traders
(usually large commercial banks) and their customers. A forward foreign currency
exchange contract generally has no deposit requirement and is traded at a net
price without commission. The Portfolio maintains with its custodian a
segregated account of high grade liquid assets in an amount at least equal to
its obligations under each forward foreign currency exchange contract. Neither
spot transactions nor forward foreign currency exchange contracts eliminate
fluctuations in the prices of the Portfolio's securities or in foreign exchange
rates, or prevent loss if the prices of these securities should decline.

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

Options on Foreign Currencies. The Portfolio may write covered put and call
options and purchase put and call options on foreign currencies for the purpose
of protecting against declines in the dollar value of portfolio securities and
against increases in the dollar cost of securities to be acquired. The Portfolio
may use options on currency to cross-hedge, which involves writing or purchasing
options on one currency to hedge against changes in exchange rates for a
different, but related currency. As with other types of options, however, the
writing of an option on foreign currency will constitute only a partial hedge up
to the amount of the premium received, and the Portfolio could be required to
purchase or sell foreign currencies at disadvantageous exchange rates, thereby
incurring losses. The purchase of an option on foreign currency may be used to
hedge against fluctuations in exchange rates although, in the event of exchange
rate movements adverse to the Portfolio's position, it may forfeit the entire
amount of the premium plus related transaction costs. In addition, the Portfolio
may purchase call options on currency when the Adviser anticipates that the
currency will appreciate in value.

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

As in the case of forward contracts, certain options on foreign currencies are
traded over-the-counter and involve liquidity and credit risks which may not be
present in the case of exchange-traded currency options. The Portfolio's ability
to terminate over-the-counter options ("OTC Options") will be more limited than
with exchange-traded options. It is also possible that broker-dealers
participating in OTC Options transactions will not fulfill their obligations.
Until such time as the staff of the SEC changes its position, the Portfolio will
treat purchased OTC Options and assets used to cover written OTC Options as
illiquid securities. With respect to options written with primary dealers in
U.S. Government securities pursuant to an agreement requiring a closing purchase
transaction at a formula price, the amount of illiquid securities may be
calculated with reference to the repurchase formula.

All options that the Portfolio writes will be covered under applicable
requirements of the SEC. The Portfolio will write and purchase options only to
the extent permitted by the policies of state securities authorities in states
where shares of the Fund are qualified for offer and sale.

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

Asset Coverage. To assure that the 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, the
Portfolio will cover such transactions, as required under applicable
interpretations of the SEC, either by owning the underlying securities or by
establishing a segregated account with the Portfolio's custodian containing high
grade liquid debt securities in an amount at all times equal to or exceeding the
Portfolio's commitment with respect to these instruments or contracts.

<PAGE>

[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>

INVESTMENT ADVISER OF THE PORTFOLIO AND ADMINISTRATOR
BANKERS TRUST COMPANY

DISTRIBUTOR
SIGNATURE BROKER-DEALER SERVICES, INC.

CUSTODIAN AND TRANSFER AGENT
BANKERS TRUST COMPANY

INDEPENDENT ACCOUNTANTS
COOPERS & LYBRAND L.L.P.

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. This Prospectus does not constitute an offer in any
state in which, or to any person to whom, such offer may not lawfully be made.
..............................................................................

<PAGE>

BT INVESTMENT FUNDS

International
Equity Fund

o Seeks long-term capital
appreciation primarily from
non-U.S. equities,
or other securities with equity
characteristics.

BANKERS TRUST COMPANY
Investment Adviser of the
Portfolio and Administrator

SIGNATURE BROKER-
DEALER SERVICES, INC.
Distributor
6 St. James Avenue
Boston, Massachusetts 02116

<PAGE>

TABLE OF CONTENTS

- --------------------------------------------------------------------------------
PAGE
................................................................................
Summary of Fund Expenses 3
Fund Financial Highlights 5
Investment Objective and Policies 6
Risk Factors; Matching the Fund to Your Investment Needs 8
Net Asset Value 12
Purchase and Redemption of Shares 13
Dividends, Distributions and Taxes 16
Performance Information and Reports 17
Management of the Trust and Portfolio 17
Additional Information 23
- --------------------------------------------------------------------------------

<PAGE>

SUMMARY OF FUND EXPENSES

The following table provides (i) a summary of expenses relating to purchases and
sales of the shares of the International Equity Fund (the "Fund") and the annual
operating expenses of the Fund and the expenses of the International Equity
Portfolio (the "Portfolio"), as a percentage of average net assets of the Fund
and (ii) an example illustrating the dollar cost of such expenses on a $1,000
investment in the Fund. THE TRUSTEES OF BT INVESTMENT FUNDS (THE "TRUST")
BELIEVE THAT THE AGGREGATE PER SHARE EXPENSES OF THE FUND AND THE PORTFOLIO WILL
BE LESS THAN OR APPROXIMATELY EQUAL TO THE EXPENSES WHICH THE FUND WOULD INCUR
IF THE TRUST RETAINED THE SERVICES OF AN INVESTMENT ADVISER AND THE INVESTABLE
ASSETS ("ASSETS") OF THE FUND WERE INVESTED DIRECTLY IN THE TYPE OF SECURITIES
BEING HELD BY THE PORTFOLIO.

- ------------------------------------------------------------------------------
ANNUAL OPERATING EXPENSES

(as a percentage of the average daily net assets of the Fund)
..............................................................................
Investment advisory fee (after reimbursements of waivers) 0.56%
12b-1 fees 0.00
Other expenses (after reimbursements or waivers) 0.94
..............................................................................
Total operating expenses (after reimbursements or waivers) 1.50%
..............................................................................

EXAMPLE 1 year 3 years 5 years 10 years
................................................................................
You would pay the following expenses on a
$1,000 investment, assuming: (1) 5% annual
return and (2) redemption at the end of
each time period $15 $47 $82 $179
- --------------------------------------------------------------------------------

The expense table and the example above show the costs and expenses that an
investor will bear directly or indirectly as a shareholder of the Fund. While
reimbursement of distribution expenses in amounts up to 0.20% of average net
assets are authorized to be made pursuant to the Plan of Distribution under Rule
12b-1 of the Investment Company Act of 1940, as amended (the "1940 Act"), it is
not expected that any payments will actually be made under that plan in the
foreseeable future. Bankers Trust Company ("Bankers Trust") has voluntarily
agreed to waive a portion of its investment advisory fee. Without such waiver,
the Portfolio's investment advisory fee would be equal to 0.65%. The expense
table and the example reflect a voluntary undertaking by Bankers Trust or
Signature Broker-Dealer Services, Inc. ("Signature") to waive or reimburse
expenses such that the total operating expenses will not exceed 1.50% of the
Fund's average net assets annually. In the absence of this undertaking, for the
period from January 1, 1995 to September 30, 1995, the total operating expenses
would have been equal to approximately 1.83% of the Fund's average net assets
annually. THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
Moreover, while each example assumes a 5% annual return, actual performance will
vary and may result in a return greater or less than 5%.

<PAGE>

Exclusive of Bankers Trust private banking clients, this Fund is available for
(a) accounts where an investment advisor or a financial planner has discretion
over such account and the account holder pays such person as compensation for
its advice and other services an annual fee of at least 0.50% on the assets in
the account; (b) accounts established under a "wrap fee" program or formal asset
allocation program where the account holder pays the program sponsor an annual
fee of at least 0.50% on the assets in the account; and (c) accounts established
through an automated clearing or similar system established for the use of
investment professionals and through which purchases and redemptions are
transmitted to the Fund on an omnibus basis.

For more information with respect to the expenses of the Fund and the Portfolio
see "Management of the Trust and Portfolio" herein.

<PAGE>

FUND FINANCIAL HIGHLIGHTS

The following table shows selected data for a share outstanding, total
investment return, ratios to average net assets and other supplemental data of
the Fund for each period indicated and has been audited by Coopers & Lybrand
L.L.P., the Fund's independent accountants, whose report thereon appears in the
Fund's Annual Report which is incorporated by reference in the Fund's Statement
of Additional Information.

<TABLE>
- ---------------------------------------------------------------------------------------------------
<CAPTION>
FOR THE PERIOD
FOR THE YEAR ENDED AUGUST 4, 1992
FOR THE PERIOD DECEMBER 31, (COMMENCEMENT
JANUARY 1, 1995 TO -------------- OF OPERATIONS) TO
SEPTEMBER 30, 1995 1994 1993 DECEMBER 31, 1992
...................................................................................................
<S> <C> <C> <C> <C>
SELECTED PER SHARE DATA
Net Asset Value, Beginning
of Period $13.37 $13.18 $ 9.75 $10.00
...................................................................................................
Income from Investment Operations
Net Investment Income 0.14 0.10 0.05 0.03
Net Realized and Unrealized
Gain (Loss) on Securities and
Foreign Currency 1.97 0.44 3.60 (0.28)
...................................................................................................
Total from Investment Operations 2.11 0.54 3.65 (0.25)
...................................................................................................
Less Dividends and Distributions
Dividends from Net Investment
Income (0.00)<F2> (0.09) (0.15) --
Distributions from Net
Realized Gain from
Securities Transactions (0.01) (0.26) (0.07) --
...................................................................................................
Total Dividends and
Distributions (0.01) (0.35) (0.22) --
...................................................................................................
Net Asset Value, End of Period $15.47 $13.37 $13.18 $9.75
...................................................................................................
TOTAL INVESTMENT RETURN 15.82% 4.12% 37.38% (6.01%)<F1>
RATIOS AND SUPPLEMENTAL DATA
Ratio of Net Investment
Income to Average Net Assets 1.55%<F1> 0.84% 0.79% 0.97%<F1>
Ratio of Expenses to Average
Net Assets, Including
Expenses of the
International Equity Portfolio 1.50%<F1> 1.50% 1.50% 1.50%<F1>
Decrease Reflected in Above
Expense Ratio Due to
Absorption of Expenses by
Bankers Trust 0.33%<F1> 0.37% 0.62% 1.36%<F1>
Net Assets, End of Period
(000's omitted) $82,807 $56,020 $33,869 $8,218
...................................................................................................
<FN>
<F1> Annualized
<F2> Less Than $0.01 Per Share
</TABLE>

<PAGE>

INVESTMENT OBJECTIVE AND POLICIES

The Fund's investment objective is long-term capital appreciation from
investment in foreign equity securities (or other securities with equity
characteristics); the production of any current income is incidental to this
objective.

The Trust seeks to achieve the investment objective of the Fund by investing all
the Assets of the Fund in the Portfolio, which has the same investment objective
as the Fund. There can be no assurances that the investment objective of either
the Fund or the Portfolio will be achieved. The investment objective of each of
the Fund and the Portfolio is not a fundamental policy and may be changed upon
notice to but without the approval of the Fund's shareholders or the Portfolio's
investors, respectively. See "Special Information Concerning Master-Feeder Fund
Structure" on page 11 herein.

INTERNATIONAL EQUITY PORTFOLIO

The Portfolio invests primarily in the equity securities of foreign issuers,
consisting of common stock and other securities with equity characteristics.
These issuers are primarily established companies based in developed countries
outside the United States. However, the Portfolio may also invest in securities
of issuers in underdeveloped countries. Investments in these countries will be
based on an acceptable degree of risk in anticipation of superior returns. Under
normal circumstances, the Portfolio will invest at least 65% of the value of its
total assets in the equity securities of issuers based in at least three
countries other than the United States. For further discussion of the unique
risks associated with investing in foreign securities in both developed and
underdeveloped countries, see "Risk Factors; Matching the Fund to Your
Investment Needs," "Additional Information" herein and the Statement of
Additional Information.

The Portfolio's investments will generally be diversified among several
geographic regions and countries. Criteria for determining the appropriate
distribution of investments among various countries and regions include the
prospects for relative growth among foreign countries, expected levels of
inflation, government policies influencing business conditions, the outlook for
currency relationships and the range of alternative opportunities available to
international investors.

In countries and regions with well-developed capital markets where more
information is available, Bankers Trust will seek to select individual
investments for the Portfolio. Criteria for selection of individual securities
include the issuer's competitive position, prospects for growth, managerial
strength, earnings quality, underlying asset value, relative market value and
overall marketability. The Portfolio may invest in securities of companies
having various levels of net worth, including smaller companies whose securities
may be more volatile than securities offered by larger companies with higher
levels of net worth.

In other countries and regions where capital markets are underdeveloped or not
easily accessed and information is difficult to obtain, the Portfolio may choose
to invest only at the market level. Here, the Portfolio may seek to achieve
country exposure through use of options or futures based on an established local
index. Similarly, country exposure may also be achieved through investments in
other registered investment companies. Restrictions on both these types of
investments are fully explained herein and in the Statement of Additional
Information.

The remainder of the Portfolio's assets will be invested in dollar and non-
dollar denominated short-term instruments. These investments are subject to the
conditions described in "Short-Term Instruments" below.

Equity Investments. The Portfolio invests primarily in common stock and other
securities with equity characteristics. For purposes of the Portfolio's policy
of investing at least 65% of the value of its total assets in the equity
securities of foreign issuers, equity securities are defined as common stock,
preferred stock, trust or limited partnership interests, rights and warrants,
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. The Portfolio invests in securities listed on foreign or domestic
securities exchanges and securities traded in foreign or domestic
over-the-counter markets and may invest in restricted or unlisted securities.

ADDITIONAL INVESTMENT TECHNIQUES

The Portfolio may also utilize the following investments and investment
techniques and practices: American Depositary Receipts, Global Depositary
Receipts and European Depositary Receipts, when-issued and delayed delivery
securities, Rule 144A securities, securities lending, repurchase agreements,
foreign currency exchange transactions, options on foreign currencies, options
on stocks, options on foreign stock indices, futures contracts on foreign stock
indices and options on futures contracts. See "Additional Information" for
further information.

ADDITIONAL INVESTMENT LIMITATIONS

RISK FACTORS; MATCHING THE FUND TO YOUR INVESTMENT NEEDS

By itself, the Fund does not constitute a balanced investment plan; the Fund
seeks long-term capital appreciation from investment primarily in the equity
securities (or other securities with equity characteristics) of foreign issuers.
Changes in domestic and foreign interest rates may affect the value of the
Portfolio's investments, and rising interest rates can be expected to reduce the
Fund's share value. A description of a number of investments and investment
techniques available to the Portfolio, including foreign investments and the use
of options and futures, and certain risks associated with these investments and
techniques is included under "Additional Information." The Fund's share price
and total return fluctuate and your investment may be worth more or less than
your original cost when you redeem your shares.

RISK OF INVESTING IN FOREIGN SECURITIES

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

The Portfolio may invest in the securities of issuers based in underdeveloped
countries, including those in Eastern Europe. Investment in securities of
issuers based in underdeveloped countries entails all of the risks of investing
in securities of foreign issuers outlined in this section to a heightened
degree. These heightened risks include: (i) greater risks of expropriation,
confiscatory taxation, nationalization, and less social, political and economic
stability; (ii) the smaller size of the market for such securities and a low or
nonexistent volume of trading, resulting in lack of liquidity and in price
volatility; (iii) certain national policies which may restrict the Portfolio's
investment opportunities including restrictions on investing in issuers or
industries deemed sensitive to relevant national interests; and (iv) in the case
of Eastern Europe, the absence of developed capital market and legal structures
governing private or foreign investment and private property and the possibility
that recent favorable economic and political developments could be slowed or
reversed by unanticipated events. The Portfolio will not invest more than 5% of
the value of its total assets in securities of issuers based in Eastern Europe.

Because foreign securities generally are denominated and pay dividends or
interest in foreign currencies, and the Portfolio holds various foreign
currencies from time to time, the value of the net assets of the Portfolio as
measured in U.S. dollars will be affected favorably or unfavorably by changes in
exchange rates. Generally, the Portfolio's currency exchange transactions will
be conducted on a spot (i.e., cash) basis at the spot rate prevailing in the
currency exchange market. The cost of the Portfolio's currency exchange
transactions will generally be the difference between the bid and offer spot
rate of the currency being purchased or sold. In order to protect against
uncertainty in the level of future foreign currency exchange rates, the
Portfolio is authorized to enter into certain foreign currency exchange
transactions. See "Additional Information."

In addition, while the volume of transactions effected on foreign stock
exchanges has increased in recent years, in most cases it remains appreciably
below that of the New York Stock Exchange Inc. (the "NYSE"). Accordingly, the
Portfolio's foreign investments may be less liquid and their prices may be more
volatile than comparable investments in securities of U.S. companies. Moreover,
the settlement periods for foreign securities, which are often longer than those
for securities of U.S. issuers, may affect portfolio liquidity. In buying and
selling securities on foreign exchanges, the Portfolio normally pays fixed
commissions that are generally higher than the negotiated commissions charged in
the United States. In addition, there is generally less government supervision
and regulation of securities exchanges, brokers and issuers in foreign countries
than in the United States.

PORTFOLIO TURNOVER

Bankers Trust intends to manage the Portfolio actively in pursuit of its
investment objective. The Portfolio does not expect to trade in securities for
short-term profits but, when circumstances warrant, securities may be sold
without regard to the length of time held. The Portfolio's portfolio turnover
rate for the period January 1, 1995 to September 30, 1995, the years ended
December 31, 1994 and 1993 and the period from August 4, 1992 (commencement of
operations) to December 31, 1992 was 21%, 15%, 17% and 7%, respectively.

DERIVATIVES

The Portfolio may invest in various instruments that are commonly known as
derivatives. Generally, a derivative is a financial arrangement, the value of
which is based on, or "derived" from, a traditional security, asset or market
index. Some "derivatives" such as mortgage-related and other asset-backed
securities are in many respects like any other investment, although they may be
more volatile or less liquid than more traditional debt securities. There are,
in fact, many different types of derivatives and many different ways to use
them. There are a range of risks associated with those uses. 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 for cash management purposes 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 the Adviser
believes they offer the most economic means of improving the risk/reward profile
of the Portfolio. Derivatives will not be used to increase portfolio risk above
the level that could be achieved using only traditional investment securities or
to acquire exposure to changes in the value of assets or indices that by
themselves would not be purchased for the Portfolio. The use of derivatives for
non-hedging purposes may be considered speculative. A description of the
derivatives that the Portfolio may use and some of their associated risks is
found under "Additional Information."

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

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

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

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

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

For descriptions of the investment objective, policies and restrictions of the
Portfolio, see "Investment Objective and Policies." For descriptions of the
management of the Portfolio, see "Management of the Trust and Portfolio" herein
and in the Statement of Additional Information. For descriptions of the expenses
of the Portfolio, see "Management of the Trust and Portfolio" herein.

NET ASSET VALUE

The net asset value per share of the Fund is calculated on each day on which the
NYSE is open (each such day being a "Valuation Day"). The NYSE is currently open
on each day, Monday through Friday, except (a) January 1st, Presidents' Day (the
third Monday in February), Good Friday, Memorial Day (the last Monday in May),
July 4th, Labor Day (the first Monday in September), Thanksgiving Day (the last
Thursday in November) and December 25th; and (b) the preceding Friday or the
subsequent Monday when one of the calendar determined holidays falls on a
Saturday or Sunday, respectively.

PURCHASE AND REDEMPTION OF SHARES
PURCHASE OF SHARES

Purchase orders for shares of the Fund that are received by a Service Agent and
transmitted to Bankers Trust, as the Trust's transfer agent (the "Transfer
Agent"), prior to the Valuation Time (currently 4:00 p.m., New York time or
earlier, should the NYSE close earlier) on any Valuation Day will be effective
at that day's Valuation Time. The Trust and Signature reserve the right to
reject any purchase order.

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

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

MINIMUM INVESTMENTS

TO OPEN AN ACCOUNT $2,500
For retirement accounts $ 500
Through automatic investment plans $1,000

TO ADD TO AN ACCOUNT $ 250
For retirement accounts $ 100
Through automatic investment plan $ 100

MINIMUM BALANCE $1,000

For retirement accounts None

REDEMPTION OF SHARES

Shareholders may redeem shares at the net asset value per share next determined
on each Valuation Day. Redemption requests should be transmitted by customers in
accordance with procedures established by the Transfer Agent and the
shareholder's Service Agent. Redemption requests for shares of the Fund received
by the Service Agent and transmitted to the Transfer Agent prior to the
Valuation Time (currently 4:00 p.m., New York time or earlier, should the NYSE
close earlier) 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 with the Service Agent on 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 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.

EXCHANGE PRIVILEGE

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

* 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).

TAX-SAVING RETIREMENT PLANS

* Individual Retirement Accounts (IRAs): personal savings plans that offer
tax advantages for individuals to set aside money for retirement and allow

new contributions of $2,000 per tax year.

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

* 403(b) Custodian Accounts: defined contribution plans open to employees of
most nonprofit organizations and educational institutions.

* Deferred Benefit Plans: plan sponsors may invest all or part of their
pension assets in the Fund.

DIVIDENDS, DISTRIBUTIONS AND TAXES

Distributions. The Fund distributes substantially all of its net investment
income and capital gains to shareholders each year. Income dividends and any net
capital gains are normally distributed in December. Unless a shareholder
instructs the Trust to pay such dividends and distributions in cash, they will
be automatically reinvested in additional shares of the Fund.

Federal Taxes. Distributions from the Fund's income and short-term capital gains
are taxed as dividends, and long-term capital gain distributions are taxed as
long-term capital gains. The Fund's distributions are taxable when they are
paid, whether you take them in cash or reinvest them in additional shares.
Distributions declared to shareholders of record in November and December and
paid in January are taxable as if paid on December 31. The Fund will send each
shareholder a tax statement by January 31 showing the tax status of the
distributions received in the past year.

Other Tax Information. In addition to Federal taxes, you may be subject to state
or local taxes on your investment, depending on the laws in your area. Income
received by the Portfolio from sources within foreign countries may be subject
to withholding and other taxes imposed by such countries. Tax conventions
between certain countries and the United States may reduce or eliminate such
taxes. It is impossible to determine the effective rate of foreign tax in
advance since the amount of the Portfolio's assets to be invested in various
countries will vary.

If the Portfolio is liable for foreign taxes, and if more than 50% of the value
of the Portfolio's total assets at the close of its taxable year consists of
stocks or securities of foreign corporations, it may make an election pursuant
to which certain foreign taxes paid by it would be treated as having been paid
directly by shareholders of the entities, such as the Fund, which have invested
in the Portfolio. Pursuant to such election, the amount of foreign taxes paid
will be included in the income of Fund shareholders, and Fund shareholders
(except tax-exempt shareholders) may, subject to certain limitations, claim
either a credit or deduction for the taxes. Each Fund shareholder will be
notified after the close of the Portfolio's taxable year whether the foreign
taxes paid will "pass through" for that year and, if so, such notification will
designate (a) the shareholder's portion of the foreign taxes paid to each such
country and (b) the portion which represents income derived from sources within
each such country.

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

PERFORMANCE INFORMATION AND REPORTS

The Fund's performance may be used from time to time in advertisements,
shareholder reports or other communications to shareholders or prospective
shareholders. Performance information may include the Fund's investment results
and/or comparisons of its investment results to the MSCI GDP weighted EAFE
Index, MSCI EAFE Index, and the Lipper International Average or other various
unmanaged indices or results of other mutual funds or investment or savings
vehicles. The Fund's investment results as used in such communications will be
calculated on a total rate of return basis in the manner set forth below. From
time to time, fund rankings may be quoted from various sources, such as Lipper
Analytical Services, Inc., Value Line and Morningstar, Inc.

The Trust may provide period and average annualized "total return" quotations
for the Fund. The Fund's "total return" refers to the change in the value of an
investment in the Fund over a stated period based on any change in net asset
value per share and including the value of any shares purchasable with any
dividends or capital gains distributed during such period. Period total return
may be annualized. An annualized total return is a compounded total return which
assumes that the period total return is generated over a one-year period, and
that all dividends and capital gain distributions are reinvested. An annualized
total return will be higher than a period total return if the period is shorter
than one year, because of the compounding effect.

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

Shareholders will receive financial reports semi-annually that include the
Portfolio's financial statements, including a listing of investment securities
held by the Portfolio at those dates. Annual reports are audited by independent
accountants.

MANAGEMENT OF THE TRUST AND PORTFOLIO
BOARD OF TRUSTEES

The affairs of the Trust and the Portfolio are managed under the supervision of
their respective Boards of Trustees. By virtue of the responsibilities assumed
by Bankers Trust, the administrator of the Trust and Portfolio, neither the
Trust nor the Portfolio requires employees other than its executive officers.
None of the executive officers of the Trust or the Portfolio devotes full time
to the affairs of the Trust or the Portfolio.

The Trustees of the Trust who are not "interested persons" (as defined in the
1940 Act) (the "Independent Trustees") or of the Portfolio, as the case may be,
have adopted written procedures reasonably appropriate to deal with potential
conflicts of interest, up to and including creating separate boards of trustees,
arising from the fact that several of the same individuals are trustees of the
Trust and of the Portfolio. For more information with respect to the Trustees of
both the Trust and the Portfolio, see "Management of the Trust and Portfolios"
in the Statement of Additional Information.

INVESTMENT ADVISER

The Trust has not retained the services of an investment adviser since the Trust
seeks to achieve the investment objective of the Fund by investing all the
Assets of the Fund in the Portfolio. The Portfolio has retained the services of
Bankers Trust, as investment adviser. Mr. Michael Levy has been the primary
portfolio manager for the International Equity Fund since 1995. He also heads
the international active equity team, which is responsible for the day to day
management of the Portfolio. Mr. Levy has been the head of this team since
joining Bankers Trust in March, 1993, and is Managing Director and International
Equity Strategist of Bankers Trust. The international active equity team has
provided input into the management of the Portfolio since the Portfolio's
commencement of operations. Prior to joining Bankers Trust, Mr. Levy was an
investment banker and an equity analyst with Oppenheimer & Company. He has
twenty-four years of business experience, of which fourteen years have been in
the investment industry.

Robert Reiner has been the co-manager of the Fund since 1995. As Vice
President-Global Investment Management and Bankers Trust, he has been
responsible for managing global portfolios and developing analytical and
investment tools for the group's global equity team. As a member of the Fund's
portfolio management team, he focuses primarily on Japanese and European
markets. Prior to joining Bankers Trust, he was an equity analyst and also
provided macroeconomic coverage for Scudder, Stevens and Clark. He previously
served as Senior Analyst at Sanford C. Bernstein & Co. and was instrumental in
the development of Bernstein's International Value Fund. Mr. Reiner spent more
than nine years at Standard & Poor's Corporation, where he was a member of its
international ratings group. His tenure included managing the day to day
operations of Standard & Poor's Corporation Tokyo office for three years.

Under its Investment Advisory Agreement, Bankers Trust receives a fee from the
Portfolio, computed daily and paid monthly, at the annual rate of 0.65% (before
waiver) of the average daily net assets of the Portfolio.

ADMINISTRATOR

Under its Administration and Services Agreement with the Trust, Bankers Trust
calculates the net asset value of the Fund and generally assists the Board of
Trustees of the Trust in all aspects of the administration and operation of the
Trust. The Administration and Services Agreement provides for the Trust to pay
Bankers Trust a fee, computed daily and paid monthly, at the annual rate of
0.85% of the average daily net assets of the Fund.

Under an Administration and Services Agreement with the Portfolio, Bankers Trust
calculates the value of the assets of the Portfolio and generally assists the
Board of Trustees of the Portfolio in all aspects of the administration and
operation of the Portfolio. The Administration and Services Agreement provides
for the Portfolio to pay Bankers Trust a fee, computed daily and paid monthly,
at the annual rate of 0.15% of the average daily net assets of the Portfolio.
Under each Administration and Services Agreement, Bankers Trust may delegate one
or more of its responsibilities to others, including Signature, at Bankers
Trust's expense. For more information, see the Statement of Additional
Information.

DISTRIBUTOR

Pursuant to the terms of the Trust's Plan of Distribution pursuant to Rule 12b-1
under the 1940 Act (the "Plan"), Signature may seek reimbursement in an amount
not exceeding 0.20% of the Fund's average daily net assets annually for expenses
incurred in connection with any activities primarily intended to result in the
sale of the Fund's shares, including, but not limited to: compensation to and
expenses (including overhead and telephone expenses) of account executives or
other employees of Signature who, as their primary activity, engage in or
support the distribution of shares; printing of prospectuses, statements of
additional information and reports for other than existing Fund shareholders in
amounts in excess of that typically used in connection with the distribution of
shares of the Fund; costs of placing advertising in various media; services of
parties other than Signature or its affiliates in formulating sales literature;
and typesetting, printing and distribution of sales literature. All costs and
expenses in connection with implementing and operating the Plan will be paid by
the Fund, subject to the 0.20% of net assets limitation. All costs and expenses
associated with preparing the Fund's prospectuses and statements of additional
information and in connection with printing them for and distributing them to
existing shareholders and regulatory authorities, which costs and expenses would
not be considered distribution expenses for purposes of the Plan, will also be
paid by the Fund. To the extent expenses of Signature under the Plan in any
fiscal year of the Trust exceed amounts payable under the Plan during that year,
those expenses will not be reimbursed in any succeeding fiscal year. Expenses
incurred in connection with distribution activities will be identified to the
Fund or the other series of the Trust involved, although it is anticipated that
some activities may be conducted on a Trust-wide basis, with the result that
those activities will not be identifiable to any particular series. In the
latter case, expenses will be allocated among the series of the Trust on the
basis of their relative net assets. It is not expected that any payments will be
made under the Plan in the foreseeable future.

SERVICE AGENT

CUSTODIAN AND TRANSFER AGENT

ORGANIZATION OF THE TRUST

The Trust was organized on July 21, 1986 under the laws of the Commonwealth of
Massachusetts. The Fund is a separate series of the Trust. The Trust offers
shares of beneficial interest of separate series, par value $0.001 per share.
The shares of the other series of the Trust are offered through separate
prospectuses. No series of shares has any preference over any other series.

The Trust is an entity commonly known as a "Massachusetts business trust." Under
Massachusetts law, shareholders of such a business trust may, under certain
circumstances, be held personally liable as partners for its obligations.
However, the risk of a shareholder incurring financial loss on account of
shareholder liability is limited to circumstances in which both inadequate
insurance existed and the Trust itself was unable to meet its obligations.

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

EXPENSES OF THE TRUST

The Fund bears its own expenses. Operating expenses for the Fund generally
consist of all costs not specifically borne by Bankers Trust or Signature,
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.
Bankers Trust and Signature have agreed to reimburse the Fund to the extent
required by applicable state law for certain expenses that are described in the
Statement of Additional Information. The Portfolio bears its own expenses.
Operating expenses for the Portfolio generally consist of all costs not
specifically borne by Bankers Trust or Signature, including investment advisory
and administration and services fees, fees for necessary professional services,
amortization of organizational expenses, the costs associated with regulatory
compliance and maintaining legal existence and investor relations.

ADDITIONAL INFORMATION

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

When-Issued and Delayed Delivery Securities. The Portfolio may purchase
securities on a when-issued or delayed delivery basis. Delivery of and payment
for these securities may take place as long as a month or more after the date of
the purchase commitment. The value of these securities is subject to market
fluctuation during this period and no income accrues to the Portfolio until
settlement takes place. The Portfolio maintains with the Custodian a segregated
account containing high grade liquid securities in an amount at least equal to
these commitments. When entering into a when-issued or delayed delivery
transaction, the Portfolio will rely on the other party to consummate the
transaction; if the other party fails to do so, the Portfolio may be
disadvantaged.

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

To close out a position when writing covered options, the Portfolio may make a
"closing purchase transaction," which involves purchasing an option on the same
stock with the same exercise price and expiration date as the option which it
has previously written on the stock. The Portfolio will realize a profit or loss
for a closing purchase transaction if the amount paid to purchase an option is
less or more, as the case may be, than the amount received from the sale
thereof. To close out a position as a purchaser of an option, the Portfolio may
make a "closing sale transaction," which involves liquidating the Portfolio's
position by selling the option previously purchased.

The Portfolio intends to treat OTC Options purchased and the assets used to
"cover" OTC Options written as not readily marketable and therefore subject to
the limitations described in "Investment Restrictions" in the Statement of
Additional Information.

Options on Foreign Stock Indices. The Portfolio may purchase and write put and
call options on foreign stock indices listed on domestic and foreign stock
exchanges. A stock index fluctuates with changes in the market values of the
stocks included in the index.

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

To the extent permitted by U.S. federal or state securities laws, the Portfolio
may invest in options on foreign stock indices in lieu of direct investment in
foreign securities. The Portfolio may also use foreign stock index options for
hedging purposes.

Futures Contracts on Foreign Stock Indices. The Portfolio may enter into
contracts providing for the making and acceptance of a cash settlement based
upon changes in the value of an index of foreign securities ("Futures
Contracts"). This investment technique is designed only to hedge against
anticipated future change in general market prices which otherwise might either
adversely affect the value of securities held by the Portfolio or adversely
affect the prices of securities which are intended to be purchased at a later
date for the Portfolio. A Futures Contract may also be entered into to close out
or offset an existing futures position.

Although Futures Contracts would be entered into for hedging purposes only, such
transactions do involve certain risks. These risks could include a lack of
correlation between the Futures Contract and the foreign equity market being
hedged, a potential lack of liquidity in the secondary market and incorrect
assessments of market trends which may result in poorer overall performance than
if a Futures Contract had not been entered into.

Options on Futures Contracts. The Portfolio may invest in options on such
futures contracts for similar purposes.

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

Asset Coverage. To assure that the 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, the
Portfolio will cover such transactions, as required under applicable
interpretations of the SEC, either by owning the underlying securities or by
establishing a segregated account with the Portfolio's Custodian containing high
grade liquid debt securities in an amount at all times equal to or exceeding the
Portfolio's commitment with respect to these instruments or contracts.

<PAGE>

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<PAGE>

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<PAGE>

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<PAGE>

INVESTMENT ADVISER OF THE PORTFOLIO AND ADMINISTRATOR
BANKERS TRUST COMPANY

DISTRIBUTOR
SIGNATURE BROKER-DEALER SERVICES, INC.

CUSTODIAN AND TRANSFER AGENT
BANKERS TRUST COMPANY

INDEPENDENT ACCOUNTANTS
COOPERS & LYBRAND L.L.P.

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. This Prospectus does not constitute an offer in any
state in which, or to any person to whom, such offer may not lawfully be made.
..............................................................................

<PAGE>

BT INVESTMENT FUNDS

PROSPECTUS: JANUARY 29, 1996
Please read this Prospectus carefully before investing and retain it for future
reference. It contains important information about the Fund that you should know
and can refer to in deciding whether the Fund's goals match your own. A
Statement of Additional Information (SAI) with the same date has been filed with
the Securities and Exchange Commission, and is incorporated herein by reference.
You may request a free copy of the Statement by calling the Fund's Service Agent
at 1-800-730-1313.

THE PORTFOLIO MAY BORROW MONEY FOR INVESTMENT IN SECURITIES. SUCH LEVERAGE WILL
EXAGGERATE ANY INCREASE OR DECREASE IN THE VALUE OF SHARES IN THE FUND.
BORROWING ALSO INVOLVES COSTS TO THE PORTFOLIO. SEE "LEVERAGE" ON PAGE 9 HEREIN.
INVESTMENTS IN LATIN AMERICAN SECURITIES MARKETS AND THE USE OF LEVERAGE CAN
INVOLVE SIGNIFICANT RISKS. THE FUND MAY BE CONSIDERED A SPECULATIVE INVESTMENT
AND IS DESIGNED FOR AGGRESSIVE INVESTORS.

Latin American
Equity Fund

o Seeks long-term capital
appreciation through
investment primarily in the
equity securities of Latin
American issuers or
companies domiciled in
or doing business in
Latin America.

BANKERS TRUST COMPANY
Investment Adviser of the
Portfolio and Administrator

SIGNATURE BROKER-
DEALER SERVICES, INC.
Distributor
6 St. James Avenue
Boston, Massachusetts 02116
<PAGE>

TABLE OF CONTENTS
- ------------------------------------------------------------------------------
PAGE
..............................................................................
Summary of Fund Expenses 3
Fund Financial Highlights 5
Investment Objective, Policies and Risks 6
Risk Factors; Matching the Fund to your Investment Needs 10
Net Asset Value 16
Purchase and Redemption of Shares 16
Dividends, Distributions and Taxes 19
Performance Information and Reports 20
Management of the Trust and BT Investment Portfolios 21
Additional Information 26
- ----------------------------------------------------------------------------

<PAGE>

SUMMARY OF FUND EXPENSES
The following table provides (i) a summary of expenses relating to purchases
and sales of the shares of the Latin American Equity Fund (the "Fund") and the
aggregate annual operating expenses of the Fund and the expenses of the Latin
American Equity Portfolio (the "Portfolio"), as a percentage of average net
assets of the Fund and (ii) an example illustrating the dollar cost of such
expenses on a $1,000 investment in the Fund. THE TRUSTEES OF THE BT INVESTMENT
FUNDS (THE "TRUST") BELIEVE THAT THE AGGREGATE PER SHARE EXPENSES OF THE FUND
AND THE PORTFOLIO WILL BE LESS THAN OR APPROXIMATELY EQUAL TO THE EXPENSES
WHICH THE FUND WOULD INCUR IF THE TRUST RETAINED THE SERVICES OF AN INVESTMENT
ADVISER AND THE INVESTABLE ASSETS ("ASSETS") OF THE FUND WERE INVESTED
DIRECTLY IN THE TYPE OF SECURITIES BEING HELD BY THE PORTFOLIO.

- ------------------------------------------------------------------------------
ANNUAL OPERATING EXPENSES
(as a percentage of the average daily net assets of the Fund)
..............................................................................
Investment advisory fee (after reimbursement or waiver) 0.41%
12b-1 fees 0.00
Other expenses (after reimbursements or waivers) 1.59
..............................................................................
Total operating expenses (after reimbursements
or waivers) 2.00%
..............................................................................
EXAMPLE 1 year 3 years 5 years 10 years
..............................................................................
You would pay the following expenses
on a $1,000 investment, assuming
(1) 5% annual return and (2)
redemption at the end of
each time period $20 $63 $108 $233
- ------------------------------------------------------------------------------

The expense table and the example above show the costs and expenses that an
investor will bear directly or indirectly as a shareholder of the Fund. While
reimbursement of distribution expenses in amounts up to 0.20% of average net
assets are authorized to be made pursuant to the Plan of Distribution under
Rule 12b-1 of the Investment Company Act of 1940, as amended (the "1940 Act")
it is not expected that any payments will actually be made under that plan in
the foreseeable future. Bankers Trust Company ("Bankers Trust") has
voluntarily agreed to waive a portion of its investment advisory fee. Without
such waiver, the Portfolio's investment advisory fee would be equal to 1.00%.
The expense table and the example reflect a voluntary undertaking by Bankers
Trust or Signature Broker-Dealer Services, Inc. ("Signature") to waive or
reimburse expenses such that total operating expenses will not exceed 2.00% of
the Fund's average net assets annually. In the absence of this undertaking,
for the fiscal year ended September 30, 1995, the total operating expenses
would be equal to approximately 3.17% of the Fund's average net assets
annually. THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
Moreover, while each example assumes a 5% annual return, actual performance
will vary and may result in a return greater or less than 5%.

<PAGE>

The Fund is sold by Signature as the Trust's distributor (the "Distributor")
to customers of Bankers Trust or to customers of another bank or a dealer or
other institution that has a sub-shareholder servicing agreement with Bankers
Trust (along with Bankers Trust, a "Service Agent"). Some Service Agents may
impose certain conditions on their customers in addition to or different from
those imposed by the Fund and may charge their customers a direct fee for
their services. Each Service Agent has agreed to transmit to shareholders who
are its customers appropriate disclosures of any fees that it may charge them
directly.

Exclusive of Bankers Trust private banking clients, this Fund is available for
(a) accounts where an investment advisor or a financial planner has discretion
over such account and the account holder pays such person as compensation for
its advice and other services an annual fee of at least 0.50% on the assets in
the account; (b) accounts established under a "wrap fee" program or formal
asset allocation program where the account holder pays the program sponsor an
annual fee of at least 0.50% on the assets in the account; and (c) accounts
established through an automated clearing or similar system established for
the use of investment professionals and through which purchases and
redemptions are transmitted to the Fund on an omnibus basis.

For more information with respect to the expenses of the Fund and the
Portfolio see "Management of the Trust and BT Investment Portfolios" herein.

<PAGE>

FUND FINANCIAL HIGHLIGHTS
The following table shows selected data for a share outstanding, total
investment return, ratios to average net assets and other supplemental data of
the Fund for each period indicated and has been audited by Coopers & Lybrand
L.L.P., the Fund's independent accountants, whose report thereon appears in
the Fund's Annual Report which is incorporated by reference in the Fund's
Statement of Additional Information.
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
OCTOBER 25, 1993
FOR THE (COMMENCEMENT
YEAR ENDED OF OPERATIONS) TO
SEPTEMBER 30, 1995 SEPTEMBER 30, 1994
...............................................................................................................
<S> <C> <C>
SELECTED PER SHARE DATA
...............................................................................................................
Net Asset Value, Beginning of Period $ 14.59 $ 10.00
...............................................................................................................
Income from Investment Operations
Net Investment Income 0.03 0.00<F2>
Net Realized and Unrealized Gain (loss) on Securities and
Foreign Currency (5.92) 4.59
...............................................................................................................
Total from Investment Operations (5.89) 4.59
...............................................................................................................
Less Distributions
Distributions from Net Realized Gain from Securities
Transactions (0.20) --
...............................................................................................................
Net Asset Value, End of Period $ 8.50 $ 14.59
...............................................................................................................
TOTAL INVESTMENT RETURN (40.68%) 50.01%<F1>

RATIOS AND SUPPLEMENTAL DATA
Ratio of Net Investment Income to Average Net Assets 0.29% 0.03%<F1>
Ratio of Expenses to Average Net Assets, Including Expenses
of the Latin American Equity Portfolio 2.00% 2.00%<F1>
Decrease Reflected in Above Expense Ratio Due to Absorption
of Expenses by Bankers Trust 1.17% 1.27%<F1>
Net Assets, End of Period (000's omitted) $13,624 $27,489
- ---------------------------------------------------------------------------------------------------------------
<FN>
<F1> Annualized
<F2> Less than $0.01 per share
</TABLE>

<PAGE>

INVESTMENT OBJECTIVE POLICIES AND RISKS
The Fund's investment objective is long-term capital appreciation from
investment primarily in the equity securities (or other securities with equity
characteristics) of companies domiciled in, or doing business in, Latin
America; the production of any current income is incidental to this objective.

The Trust seeks to achieve the investment objective of the Fund by investing
all the Assets of the Fund in the Portfolio, which has the same investment
objective as the Fund. There can be no assurances that the investment
objective of either the Fund or the Portfolio will be achieved. The investment
objective of each of the Fund and the Portfolio is not a fundamental policy
and may be changed upon notice to but without the approval of the Fund's
shareholders or the Portfolio's investors, respectively. See "Special
Information Concerning Master-Feeder Fund Structure" on page 14 herein.

LATIN AMERICAN EQUITY PORTFOLIO
The investment objective of the Portfolio is long-term capital appreciation
through investment primarily in the equity securities (or other securities
with equity characteristics) of companies domiciled in, or doing business in,
Latin America; the production of any income is incidental to this objective.
It is expected under normal conditions that at least 65% of the Portfolio's
total assets will be invested in the equity securities of Latin American
issuers. There can be no assurance that the Portfolio will be able to achieve
its investment objective.

For purposes of this prospectus, "Latin America" is defined as Mexico, and all
countries in Central America and South America, including Argentina, Brazil,
Chile and Venezuela. The Portfolio will invest in Argentina, Brazil, Chile,
Colombia, Peru, Mexico and Venezuela.

Equity Investments. The Portfolio invests primarily in common stock and other
securities with equity characteristics. For purposes of the Portfolio's policy
of investing at least 65% of the value of its total assets in the equity
securities of Latin American issuers, "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 American Depositary Receipts ("ADRs"), Global Depositary Receipts
("GDRs") and European Depositary Receipts ("EDRs"), 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.
The Portfolio invests in securities listed on foreign or domestic securities
exchanges and securities traded in foreign or domestic over-the-counter
markets and may invest in restricted or unlisted securities.

With respect to certain countries in which capital markets are either less
developed or not easily accessed, investments by the Portfolio may be made
through investment in closed-end investment companies that in turn are
authorized to invest in the securities of such countries. Investment in other
investment companies is limited in amount by the 1940 Act, will involve the
indirect payment of a portion of the expenses, including advisory fees, of
such other investment companies and may result in a duplication of fees and
expenses.

As used in this prospectus, "securities of Latin American issuers" is defined
as: (i) securities of companies the principal securities trading market for
which is in Latin America; (ii) securities, traded in any market, of companies
that derive 50% or more of their total revenue from either goods or services
produced in Latin America or sales made in Latin America; (iii) securities of
companies organized under the laws of, and with a principal office in, Latin
America; or (iv) securities issued or guaranteed by the government of a
country in Latin America, its agencies or instrumentalities, political
subdivisions or the central bank of such a country. Determinations as to
eligibility will be made by Bankers Trust, under the supervision of the Board
of Trustees of BT Investment Portfolios, based on publicly available
information and inquiries made to the companies. (See "Risk Factors; Matching
the Fund to your Investment Needs," for a discussion of the nature of
information publicly available for non-U.S. companies.)

Bankers Trust intends to consider investment only in those countries in Latin
America in which it believes investing is feasible and does not involve undue
political risks. As of the date of this Prospectus, this list included
Argentina, Brazil, Chile, Colombia, Mexico, Peru and Venezuela. The list of
acceptable countries will be reviewed by Bankers Trust and approved by the
Board of Trustees of BT Investment Portfolios, on a periodic basis and any
additions or deletions with respect to such list will be made in accordance
with changing economic and political circumstances involving such countries.

The Portfolio's investments will be diversified among at least three Latin
American countries. Criteria for determining the appropriate distribution of
investments among various countries and regions include the prospects for
relative growth among the countries, expected levels of inflation, government
policies influencing business conditions, the outlook for currency
relationships and the range of alternative opportunities available to
international investors. The Portfolio seeks to benefit from economic and
other developments in Latin America.

Bankers Trust will seek to select individual investments for the Portfolio.
Criteria for selection of individual securities include the issuer's
competitive position, prospects for growth, managerial strength, earnings
quality, underlying asset value, relative market value and overall
marketability. The Portfolio may invest in securities of companies having
various levels of net worth, including smaller companies whose securities may
be more volatile than securities offered by larger companies with higher
levels of net worth.

Fixed Income Investments. For purposes of seeking capital appreciation, the
Portfolio may invest up to 35% of its total assets in debt securities (defined
as bonds, notes, debentures, commercial paper, certificates of deposit, time
deposits and bankers' acceptances) of Latin American issuers which are rated
at least C by Standard & Poor's Corporation ("S&P") or C by Moody's Investors
Service, Inc. ("Moody's") or, if unrated, of comparable quality in the opinion
of Bankers Trust. See "Risk Factors." As an operating policy, which may be
changed by the Board of Trustees of BT Investment Portfolios, the Fund will
not invest more than 10% of its total assets in debt securities rated BBB or
lower by S&P or Baa or lower by Moody's. Securities which are rated BBB by S&P
or Baa by Moody's possess speculative characteristics. Investments in lower-
rated long-term obligations, including securities rated from BB to C by S&P or
Ba to C by Moody's or, if unrated, of comparable quality in the opinion of
Bankers Trust, involve special risks as compared with investments in higher-
rated debt obligations, including greater sensitivity to general economic
downturns and significant increases in interest rates, greater market price
volatility, and less liquid secondary trading markets. Regardless of rating
levels, all debt securities considered for purchase (whether rated or unrated)
will be carefully analyzed by Bankers Trust to insure, to the extent possible,
that the planned investment is sound. Bonds rated C by S&P are of the lowest
quality and may be used when the issuer has filed a bankruptcy petition, but
debt payments are still being paid. Moody's lowest rating is C, which is
applied to bonds which have extremely poor prospects for ever attaining any
real investment standing. Certain debt securities can provide the potential
for capital appreciation based on various factors such as changes in interest
rates, economic and market conditions, improvement in an issuer's ability to
repay principal and pay interest and ratings upgrades. Additionally,
convertible bonds offer the potential for capital appreciation through the
conversion feature, which enables the holder of the bond to benefit from
increases in the market price of the securities into which they are
convertible.

Brady Bonds. The Portfolio may also invest in "Brady bonds," which have
recently been issued by the governments of Argentina, Costa Rica, Mexico,
Nigeria, Uruguay, Venezuela, Brazil and the Philippines, as well as other
emerging market countries. Most Brady bonds are currently rated below BBB by
S&P or Baa by Moody's. While Bankers Trust is not aware of the occurrence of
any payment defaults on Brady bonds, investors should recognize that these
debt securities have been issued only recently and, accordingly, do not have a
long payment history. Brady bonds may be collateralized or uncollateralized,
are issued in various currencies (primarily the U.S. dollar) and are actively
traded in the secondary market for Latin American debt.

Reverse Repurchase Agreements. In a reverse repurchase agreement, the
Portfolio agrees to sell portfolio securities to financial institutions such
as banks and broker-dealers and to repurchase them at a mutually agreed date
and price. At the time the Portfolio enters into a reverse repurchase
agreement, it will place in a segregated custodial account the following:
cash; U.S. Government securities; or highgrade liquid debt obligations having
a value equal to the repurchase price, including accrued interest. Reverse
repurchase agreements involve the risk that the market value of the securities
sold by the Portfolio may decline below the repurchase price of those
securities. Reverse repurchase agreements are considered to be borrowings by
the Portfolio for purposes of the limitations described in "Leverage" below.

Repurchase Agreements. The Portfolio may engage in repurchase agreement
transactions with banks and governmental securities dealers approved by the
Trustees of the Portfolio. Under the terms of a typical repurchase agreement,
the Portfolio would acquire an underlying debt obligation of a kind in which
the Portfolio could invest for a relatively short period (usually not more
than one week) subject to an obligation of the seller to repurchase, and the
Portfolio to resell, the obligation at an agreed price and time, thereby
determining the yield during the Portfolio's holding period. This arrangement
results in a fixed rate of return that is not subject to market fluctuations
during the Portfolio's holding period. The value of the underlying securities
will be at least equal at all times to the total amount of the repurchase
obligations, including interst. The Portfolio bears a risk of loss in the
event that the other party to a repurchase agreement defaults on its
obligations and the Portfolio is delayed in or prevented from exercising its
rights to dispose of the collateral securities, including the risk of a
possible decline in the value of the underlying securities during the period
in which the Portfolio seeks to assert these rights. Bankers Trust, acting
under the supervision of the Board of Trustees of BT Investment Portfolios
reviews the creditworthiness of those banks and dealers with which the
Portfolio enters in repurchase agreements and monitors on an ongoing basis the
value of the securities subject to repurchase agreements to ensure that it is
maintained at the required level.

Leverage. The Portfolio may borrow up to one-third of the value of its total
assets, from banks or through the use of reverse repurchase agreements, to
increase its holdings of portfolio securities. Under the 1940 Act, the
Portfolio is required to maintain continuous asset coverage of 300% with
respect to such borrowings and to sell (within three days) sufficient
portfolio holdings to restore such coverage if it should decline to less than
300% due to market fluctuations or otherwise, even if such liquidations of the
Portfolio's holdings may be disadvantageous from an investment standpoint.

Leveraging by means of borrowing may exaggerate the effect of any increase or
decrease in the value of the Portfolio's securities and the Fund's net asset
value, and money borrowed by the Portfolio will be subject to interest and
other costs (which may include commitment fees and/or the cost of maintaining
minimum average balances) which may or may not exceed the income received from
the securities purchased with borrowed funds.

ADDITIONAL INVESTMENT TECHNIQUES
The Portfolio may also utilize the following investments and investment
techniques and practices: American Depositary Receipts, Global Depositary
Receipts and European Depositary Receipts, when-issued and delayed delivery
securities, Rule 144A securities, securities lending, foreign currency
exchange transactions, options on foreign currencies, options on stocks,
options on foreign stock indices, futures contracts on foreign stock indices,
options on futures contracts. See "Additional Information" for further
information.

ADDITIONAL INVESTMENT LIMITATIONS
As a diversified fund, no more than 5% of the assets of the Portfolio may be
invested in the securities of one issuer (other than U.S. Government
securities), except that up to 25% of the Portfolio's assets may be invested
without regard to this limitation. The Portfolio will not invest more than 25%
of its assets in the securities of issuers in any one industry. These are
fundamental investment policies of the Portfolio which may not be changed
without investor approval. As an operating (non-fundamental) policy, no more
than 15% of the Portfolio's net assets may be invested in illiquid or not
readily marketable securities (including repurchase agreements and time
deposits with remaining maturities of more than seven calendar days). Also, no
more than 15% of the Portfolio's net assets may be invested in securities
restricted as to transfer or re-sale, including Rule 144A securities. See
"Additional Information Rule 144A Securities." Additional investment policies
of the Portfolio are contained in the Statement of Additional Information.

RISK FACTORS; MATCHING THE FUND TO YOUR INVESTMENT NEEDS
Shareholders should understand that all investments involve risk and there can
be no guarantee against loss resulting from an investment in the Fund, nor can
there be any assurance that the Fund's investment objective will be attained.
As with any investment in securities, the value of, and income from, an
investment in the Fund can decrease as well as increase, depending on a
variety of factors which may affect the values and income generated by the
Portfolio's securities, including economic conditions, market factors and
currency exchange rates in Latin America. Additionally, investment decisions
made by Bankers Trust will not always be profitable or prove to have been
correct.

By itself, the Fund does not constitute a balanced investment plan; the Fund
and the Portfolio seek long-term capital appreciation from investments
described above. Changes in domestic and foreign interest rates may affect the
value of the Portfolio's investments, and rising interest rates can be
expected to reduce the Fund's share value. A description of a number of
investments and investment techniques available to the Portfolio, including
foreign investments and the use of options and futures, and certain risks
associated with these investments and techniques is included under "Additional
Information." The Fund's share price, yield and total return fluctuate and
your investment may be worth more or less than your original cost when you
redeem your shares.

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

The Portfolio will invest in the securities of issuers based in underdeveloped
countries. Investment in securities of issuers based in underdeveloped
countries entails all of the risks of investing in securities of foreign
issuers outlined in this section to a heightened degree. These heightened
risks include: (i) greater risks of expropriation, confiscatory taxation,
nationalization, and less social, political and economic stability; (ii) the
smaller size of the market for such securities and a low or nonexistent volume
of trading, resulting in lack of liquidity and in price volatility; (iii)
certain national policies which may restrict the Portfolio's investment
opportunities including restrictions on investing in issuers or industries
deemed sensitive to relevant national interests; (iv) the economies of Latin
American countries may be predominantly based in only a few industries, may be
highly vulnerable to changes in local or global trade conditions, and may
suffer from extreme and volatile debt burdens or inflation rates; and (v)
securities of issuers located in Latin America may have limited marketability
and may be subject to more abrupt or erratic price movements.

Governments of many Latin American countries have exercised and continue to
exercise substantial influence over many aspects of the private sector through
the ownership or control of many companies, including some of the largest in
those countries. As a result, government actions in the future could have a
significant effect on economic conditions which may adversely affect prices of
certain portfolio securities. Expropriation, confiscatory taxation,
nationalization, political, economic or social instability or other similar
developments, such as military coups, have occurred in the past and could also
adversely affect the Portfolio's investments in this region.

In recent years, there have been significant improvements in some Latin
American economies; however, others continue to experience economic problems,
including high inflation rates and high interest rates. The emergence of Latin
American economies and securities markets will require economic and fiscal
discipline, as well as stable political and social conditions. Recovery may
also be influenced by international economic conditions, particularly those in
the United States, by world prices for oil and other commodities, and
international trade agreements such as the North American Free Trade
Agreement. Because Latin American securities generally are denominated and pay
dividends or interest in currencies of Latin American countries, and the
Portfolio holds various foreign currencies from time to time, the value of the
net assets of the Portfolio as measured in U.S. dollars will be affected
favorably or unfavorably by changes in exchange rates. In order to protect
against uncertainty in the level of future foreign currency exchange rates,
the Portfolio is authorized to enter into certain foreign currency exchange
transactions. See "Additional Information."

Furthermore, the Portfolio's foreign investments may be less liquid and their
prices may be more volatile than comparable investments in securities of U.S.
companies. The settlement periods for foreign securities, which are often
longer than those for securities of U.S. issuers, may affect portfolio
liquidity. There is generally less government supervision and regulation of
securities exchanges, brokers and issuers in foreign countries than in the
United States.

In addition to brokerage commissions, custodial services and other costs
relating to investment in emerging markets, such as Latin America, are
generally more expensive than in the United States. Some markets have been
unable to keep pace with the volume of securities transactions, making it
difficult to conduct certain transactions. The inability of the Portfolio to
make intended security purchases due to settlement problems could cause the
Portfolio to miss attractive investment opportunities. Inability to dispose of
a portfolio security due to settlement problems could result either in losses
to the Portfolio due to subsequent declines in the value of the security, or,
if the Portfolio has entered into a contract to sell the security, could
result in possible liability to the purchaser.

RISKS OF INVESTING IN HIGH YIELD ("JUNK") BONDS
The Portfolio is authorized to invest up to 35% of its total assets in medium
quality or high risk, lower quality debt securities (commonly known as "junk
bonds") that are rated between BBB and as low as D by S&P, and between Baa and
as low as C by Moody's or, if unrated, of comparable quality in the opinion of
Bankers Trust. As an operating policy, which may be changed by the Board of
Trustees of BT Investment Portfolios, the Portfolio will not invest more than
10% of its total assets in debt securities rated BBB or lower by S&P or Baa or
lower by Moody's. The Board may consider a change in this operating policy if,
in its judgment, economic conditions change such that a higher level of
investment in high risk, lower quality debt securities would be consistent
with the interests of the Portfolio and its investors. High risk, lower
quality debt securities, commonly referred to as "junk bonds" are regarded on
balance, as predominantly speculative with respect to the issuer's capacity to
pay interest and repay principal in accordance with the terms of the
obligation and may be in default. Unrated debt securities are not necessarily
of lower quality than rated securities but they may not be attractive to as
many buyers. Regardless of rating levels, all debt securities considered for
purchase (whether rated or unrated) will be carefully analyzed by Bankers
Trust to insure, to the extent possible, that the planned investment is sound.
The Portfolio may, from time to time, purchase defaulted debt securities if,
in the opinion of Bankers Trust, the issuer may resume interest payments in
the near future. As an operating policy, the Portfolio will not invest more
than 10% of its total assets (at the time of purchase) in defaulted debt
securities, which may be illiquid.

PORTFOLIO TURNOVER
The frequency of portfolio transactions -- the Portfolio's turnover rate --
will vary from year to year depending on market conditions. The Portfolio's
turnover rate for the year ended September 30, 1995 and for the period from
October 25, 1993 (commencement of operations) through September 30, 1994, was
161% and 124%, respectively. Because a higher portfolio turnover rate
increases transaction costs and may increase taxable capital gains, Bankers
Trust carefully weighs the anticipated benefits of short-term investment
against these consequences.

DERIVATIVES
The Portfolio may invest in various instruments that are commonly known as
derivatives. Generally, a derivative is a financial arrangement, the value of
which is based on, or "derived" from, a traditional security, asset, or market
index. Some "derivatives" such as mortgage-related and other asset-backed
securities are in many respects like any other investment, although they may
be more volatile or less liquid than more traditional debt securities. There
are, in fact, many different types of derivatives and many different ways to
use them. There are a range of risks associated with those uses. 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 for cash management purposes 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 the Adviser believes they offer the most economic means of
improving the risk/reward profile of the Portfolio. Derivatives will not be
used to increase portfolio risk above the level that could be achieved using
only traditional investment securities or to acquire exposure to changes in
the value of assets or indices that by themselves would not be purchased for
the Portfolio. The use of derivatives for non-hedging purposes may be
considered speculative. A description of the derivatives that the Portfolio
may use and some of their associated risks is found under "Additional
Information."

Futures contracts and related options are discussed under "Additional
Information." Successful use of futures contracts and related options is
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 foreign currency on which
the futures or options contracts is based and 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 is 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.

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

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

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

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

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

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

For descriptions of the investment objective, policies and restrictions of the
Portfolio, see "Investment Objective, Policies and Risks." For descriptions of
the management of the Portfolio, see "Management of the Trust and BT
Investment Portfolios" herein and "Management of the Trust and Portfolios" in
the Statement of Additional Information. For descriptions of the expenses of
the Portfolio, see "Management of the Trust and BT Investment Portfolios"
herein.

NET ASSET VALUE
The net asset value per share of the Fund is calculated on each day on which
the New York Stock Exchange Inc. (the "NYSE") is open (each such day being a
"Valuation Day"). The NYSE is currently open on each day, Monday through
Friday, except (a) January 1st, Presidents' Day (the third Monday in
February), Good Friday, Memorial Day (the last Monday in May), July 4th, Labor
Day (the first Monday in September), Thanksgiving Day (the last Thursday in
November) and December 25th; and (b) the preceding Friday or the subsequent
Monday when one of the calendar-determined holidays falls on a Saturday or
Sunday, respectively.

The net asset value per share of the Fund is calculated once on each Valuation
Day as of the close of regular trading on the NYSE (the "Valuation Time"),
which is currently 4:00 p.m., New York time or in the event that the NYSE
closes early, at the time of such early closing. The net asset value per share
of the Fund is computed by dividing the value of the Fund's Assets (i.e., the
value of its investment in the Portfolio and other assets), less all
liabilities, by the total number of its shares outstanding. The Portfolio's
securities and other assets are valued primarily on the basis of market
quotations or, if quotations are not readily available, by Bankers Trust,
pursuant to procedures adopted by the Portfolio's Board of Trustees. These
procedures require Bankers Trust to value such a security at the same value as
an equivalent security which is readily marketable, in making such
comparisons, and to consider all relevant factors, in making such comparisons,
under applicable guidelines of the Securities and Exchange Commission (the
"SEC"). See "Valuation of Securities" in the Statement of Additional
Information for more information.

PURCHASE AND REDEMPTION OF SHARES

PURCHASE OF SHARES
The Trust accepts purchase orders for shares of the Fund at the net asset
value per share of the Fund next determined on each Valuation Day. See "Net
Asset Value" above. There is no sales charge on the purchase of shares, but
costs of distributing shares of the Fund may be reimbursed from its assets, as
described herein. Service Agents may impose initial and subsequent investment
minimums that differ from the amounts present in the "Minimum Investment"
table below. Shares of the Fund may be purchased in only those states where
they may be lawfully sold.

Purchase orders for shares of the Fund that are received by a Service Agent
and transmitted to Bankers Trust, as the Trust's transfer agent (the "Transfer
Agent"), prior to the Valuation Time (currently 4:00 p.m., New York time or
earlier should the NYSE close earlier) on any Valuation Day will be effective
at that day's Valuation Time. The Trust and Signature reserve the right to
reject any purchase order.

Shares must be purchased in accordance with procedures established by the
Transfer Agent and Service Agents, including Bankers Trust, in connection with
customers' accounts. It is the responsibility of each Service Agent to
transmit to the Transfer Agent purchase and redemption orders and to transmit
to Bankers Trust as the Trust's custodian (the "Custodian") purchase payments
on behalf of its customers in a timely manner, and a shareholder must settle
with the Service Agent his or her entitlement to an effective purchase or
redemption order as of a particular time. Because Bankers Trust is the
Custodian and Transfer Agent of the Trust, funds may be transferred directly
from or to a customer's account with Bankers Trust to or from the Fund without
incurring the additional costs or delays associated with the wiring of Federal
funds.

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

MINIMUM INVESTMENTS

TO OPEN AN ACCOUNT $2,500
For retirement accounts $ 500
Through automatic investment plans $1,000

TO ADD TO AN ACCOUNT $ 250
For retirement accounts $ 100
Through automatic investment plans $ 100

MINIMUM BALANCE $1,000
For retirement accounts None

REDEMPTION OF SHARES
Shareholders may redeem shares at the net asset value per share next determined
on each Valuation Day. Redemption requests should be transmitted by customers in
accordance with procedures established by the Transfer Agent and the
shareholder's Service Agent. Redemption requests for shares of the Fund received
by the Service Agent and transmitted to the Transfer Agent prior to the
Valuation Time (currently 4:00 p.m., New York time or earlier should the NYSE
close earlier) 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 with the Service Agent on 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 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. A Service Agent
may on at least 30 days' notice involuntarily redeem a shareholder's account
with the Fund having a minimum market value of less than $5,000 (excluding
retirement plans), but not if an account is below the minimum due to a change
in market value. See "Minimum Investments" above for minimum balance amounts.

Automatic Cash Withdrawal Plan. The Fund may offer shareholders an automatic
cash withdrawal plan, under which shareholders who own shares of the Fund may
elect to receive periodic cash payments. Retirement plan accounts are eligible
for automatic cash withdrawal plans only where the shareholder is eligible to
receive qualified distributions. For further information regarding the
automatic cash withdrawal plan, shareholders should contact their Service
Agent.

EXCHANGE PRIVILEGE
Shareholders may exchange their shares for shares of certain other funds in
the BT Family of Funds registered in their state. The Fund reserves the right
to terminate or modify the exchange privilege in the future. To make an
exchange, follow the procedures indicated in "Purchase of Shares" and
"Redemption of Shares" in that 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.

* 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).

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-sheltered plans. These plans contain
special tax advantages and let you invest for retirement while sheltering your
investment income from current taxes. Minimums may differ from those listed
elsewhere in the Prospectus.

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

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

* Simplified Employee Pension Plans (SEP): a relatively easy and inexpensive
alternative to retirement planning for sole proprietors, partnerships and
corporations. Under a SEP, employers make tax-deductible contributions to
their own and to eligible employees' IRA accounts. Employee contributions
are available through a "Salary Deferral" SEP for businesses with fewer than
25 eligible employees.

* 401(k) Programs: defined contribution plans available to corporations
allowing tax-deductible employer contributions and permitting employees to
contribute a percentage of their wages on a tax-deferred basis.

* 403(b) Custodian Accounts: defined contribution plans open to employees of
most nonprofit organizations and educational institutions.

* Deferred Benefit Plans: plan sponsors may invest all or part of their
pension assets in the Fund.

DIVIDENDS, DISTRIBUTIONS AND TAXES
Distributions. The Fund distributes substantially all of its net investment
income and capital gains to shareholders each year. Income dividends and any
net capital gains are distributed in December. Unless a shareholder instructs
the Trust to pay such dividends and distributions in cash, they will be
automatically reinvested in additional shares of the Fund.

Federal Taxes. Distributions from the Fund's income and short-term capital
gains are taxed as dividends, and long-term capital gain distributions are
taxed as long-term capital gains. The Fund's distributions are taxable when
they are paid, whether you take them in cash or reinvest them in additional
shares. Distributions declared to shareholders of record in November and
December and paid in January are taxable as if paid on December 31. The Fund
will send each shareholder a tax statement by January 31 showing the tax
status of the distributions received in the past year.

Capital Gains. You may realize a capital gain or loss when you redeem (sell)
or exchange shares. Because the 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.

Other Tax Information. In addition to Federal taxes, you may be subject to
state or local taxes on your investment, depending on the laws in your area.

Income received by the Portfolio from sources within foreign countries may be
subject to withholding and other taxes imposed by such countries. Tax
conventions between certain countries and the United States may reduce or
eliminate such taxes. It is impossible to determine the effective rate of
foreign tax in advance since the amount of the Portfolio's assets to be
invested in various countries will vary.

If the Portfolio is liable for foreign taxes, and if more than 50% of the
value of the Portfolio's total assets at the close of its taxable year
consists of stocks or securities of foreign corporations, it may make an
election pursuant to which certain foreign taxes paid by it would be treated
as having been paid directly by shareholders of the entities, such as the
Fund, which have invested in the Portfolio. Pursuant to such election, the
amount of foreign taxes paid will be included in the income of Fund
shareholders, and Fund shareholders (except tax-exempt shareholders) may,
subject to certain limitations, claim either a credit or deduction for the
taxes. Each Fund shareholder will be notified after the close of the
Portfolio's taxable year whether the foreign taxes paid will "pass through"
for that year and, if so, such notification will designate (a) the
shareholder's portion of the foreign taxes paid to each such country and (b)
the portion which represents income derived from sources within each such
country.

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

PERFORMANCE INFORMATION AND REPORTS
The Fund's performance may be used from time to time in advertisements,
shareholder reports or other communications to shareholders or prospective
shareholders. Performance information may include the Fund's investment
results and/or comparisons of its investment results to various unmanaged
indices such as the IFCG Latin America Index, IFCI Latin America Index or
Lipper Latin American Funds Average or results of other mutual funds or
investment or savings vehicles. The Fund's investment results as used in such
communications will be calculated on a total rate of return basis in the
manner set forth below. From time to time, fund rankings may be quoted from
various sources, such as Lipper Analytical Services, Inc., Value Line and
Morningstar, Inc.

The Trust may provide period and average annualized "total return" quotations
for the Fund. The Fund's "total return" refers to the change in the value of
an investment in the Fund over a stated period based on any change in net
asset value per share and including the value of any shares purchasable with
any dividends or capital gains distributed during such period. Period total
return may be annualized. An annualized total return is a compounded total
return which assumes that the period total return is generated over a one-year
period, and that all dividends and capital gain distributions are reinvested.
An annualized total return will be higher than a period total return if the
period is shorter than one year because of the compounding effect.

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

MANAGEMENT OF THE TRUST AND BT INVESTMENT PORTFOLIOS

BOARD OF TRUSTEES
The affairs of the Trust and the BT Investment Portfolios are managed under
the supervision of their respective Boards of Trustees. By virtue of the
responsibilities assumed by Bankers Trust, as the Administrator of the Trust
and the BT Investment Portfolios, neither the Trust nor BT Investment
Portfolios requires employees other than its officers. None of the Trust's or
BT Investment Portfolios' officers devotes full time to the affairs of the
Trust or the BT Investment Portfolios.

The Trustees of the Trust who are not "interested persons" (as defined in the
1940 Act) of the Trust or of the BT Investment Portfolios, as the case may be,
(the "Independent Trustees") have adopted written procedures reasonably
appropriate to deal with potential conflicts of interest, up to and including
creating separate boards of trustees, arising from the fact that several of
the same individuals are trustees of the Trust and of BT Investment
Portfolios. For more information with respect to the Trustees of both the
Trust and BT Investment Portfolios, see "Management of the Trust and the
Portfolios" in the Statement of Additional Information.

INVESTMENT ADVISER
The Trust has not retained the services of an investment adviser since the
Trust seeks to achieve the investment objective of the Fund by investing all
the Assets of the Fund in the Portfolio. BT Investment Portfolios has retained
the services of Bankers Trust, as investment adviser. Maria-Elena Carrion
(CFA), Vice President of Bankers Trust, is primarily responsible for the day-
to-day management of the Portfolio. Ms. Carrion has been employed by Bankers
Trust since April, 1993 and has managed the Portfolio's assets since its
inception. Prior to April, 1993, Ms. Carrion was employed by Latin American
Securities (London) (from June, 1991 to April, 1993). Prior to June, 1991, Ms.
Carrion was employed by US Trust Company (from September, 1986 to June, 1991).

Bankers Trust, a New York banking corporation with principal offices at 280
Park Avenue, New York, New York 10017, is a wholly owned subsidiary of Bankers
Trust New York Corporation. Bankers Trust conducts a variety of general
banking and trust activities and is a major wholesale supplier of financial
services to the international and domestic institutional markets. As of
September 30, 1995, Bankers Trust New York Corporation was the ninth largest
bank holding company in the United States with total assets of approximately
$104 billion. Bankers Trust is a worldwide merchant bank dedicated to
servicing the needs of corporations, governments, financial institutions and
private clients through a global network of over 120 offices in more than 40
countries. Investment management is a core business of Bankers Trust, built on
a tradition of excellence from its roots as a trust bank founded in 1903. The
scope of Bankers Trust's investment management capability is unique due to its
leadership positions in both active and passive quantitative management and
its presence in major equity and fixed income markets around the world.
Bankers Trust is one of the nation's largest and most experienced investment
managers with approximately $200 billion in assets under management globally.

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

All orders for investment transactions on behalf of the Portfolio are placed
by Bankers Trust with broker-dealers and other financial intermediaries that
it selects, including those affiliated with Bankers Trust. A Bankers Trust
affiliate will be used in connection with a purchase or sale of an investment
for the Portfolio only if Bankers Trust believes that the affiliate's charge
for the transaction does not exceed usual and customary levels. The Portfolio
will not invest in obligations for which Bankers Trust or any of its
affiliates is the ultimate obligor or accepting bank. The Portfolio may,
however, invest in the obligations of correspondents or customers of Bankers
Trust.

Under its Investment Advisory Agreement, Bankers Trust receives a fee from the
Portfolio, computed daily and paid monthly, at the annual rate of 1.00% of the
average daily net assets of the Portfolio. This fee is higher than the
investment advisory fee of most investment companies; however, it is not
higher than most funds investing in international or Latin American
securities.

Bankers Trust has been advised by its counsel that, in counsel's opinion,
Bankers Trust currently may perform the services for the Trust and the
Portfolio described in this Prospectus and the Statement of Additional
Information without violation of the Glass-Steagall Act or other applicable
banking laws or regulations. State laws on this issue may differ from the
interpretations of relevant Federal law and banks and financial institutions
may be required to register as dealers pursuant to state securities law.

ADMINISTRATOR
Under its Administration and Services Agreement with the Trust, Bankers Trust
calculates the net asset value of the Fund and generally assists the Board of
Trustees of the Trust in all aspects of the administration and operation of
the Trust. The Administration and Services Agreement provides for the Trust to
pay Bankers Trust a fee, computed daily and paid monthly, at the annual rate
of 0.95% of the average daily net assets of the Fund.

Under an Administration and Services Agreement with BT Investment Portfolios,
Bankers Trust calculates the value of the assets of the Portfolio and
generally assists the Board of Trustees of BT Investment Portfolios in all
aspects of the administration and operation of BT Investment Portfolios. The
Administration and Services Agreement provides for the Portfolio to pay
Bankers Trust a fee, computed daily and paid monthly, at the annual rate of
0.20% of the average daily net assets of the Portfolio. Under the
Administration and Services Agreement, Bankers Trust may delegate one or more
of its responsibilities to others, including Signature, at Bankers Trust's
expense. For more information, see the Statement of Additional Information.

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

Pursuant to the terms of the Trust's Plan of Distribution pursuant to Rule
12b-1 under the 1940 Act (the "Plan"), Signature may seek reimbursement in an
amount not exceeding 0.20% of the Fund's average daily net assets annually for
expenses incurred in connection with any activities primarily intended to
result in the sale of the Fund's shares, including, but not limited to:
compensation to and expenses (including overhead and telephone expenses) of
account executives or other employees of Signature who, as their primary
activity, engage in or support the distribution of shares, printing of
prospectuses, statements of additional information and reports for other than
existing Fund shareholders in amounts in excess of that typically used in
connection with the distribution of shares of the Fund; costs of placing
advertising in various media; services of parties other than Signature or its
affiliates in formulating sales literature; and typesetting, printing and
distribution of sales literature. All costs and expenses in connection with
implementing and operating the Plan will be paid by the Fund, subject to the
0.20% of net assets limitation. All costs and expenses associated with
preparing the Fund's prospectus and statement of additional information and in
connection with printing them for and distributing them to existing
shareholders and regulatory authorities, which costs and expenses would not be
considered distribution expenses for purposes of the Plan, will also be paid
by the Fund. To the extent expenses of Signature under the Plan in any fiscal
year of the Trust exceed amounts payable under the Plan during that year,
those expenses will not be reimbursed in any succeeding fiscal year. Expenses
incurred in connection with distribution activities will be identified to the
Fund or the other series of the Trust involved, although it is anticipated
that some activities may be conducted on a Trust-wide basis, with the result
that those activities will not be identifiable to any particular series. In
the latter case, expenses will be allocated among the series of the Trust on
the basis of their relative net assets. It is not expected that any payment
will be made under the Plan in the foreseeable future.

SERVICE AGENT
All shareholders must be represented by a Service Agent. Bankers Trust acts as
a Service Agent pursuant to its Administration and Services Agreement with the
Trust and receives no additional compensation from the Fund for such
shareholder services. The service fees of any other Service Agents, including
broker-dealers, will be paid by Bankers Trust from its fees. The services
provided by a Service Agent may include establishing and maintaining
shareholder accounts, processing purchase and redemption transactions,
arranging for bank wires, performing shareholder sub-accounting, answering
client inquiries regarding the Trust, assisting clients in changing dividend
options, account designations and addresses, providing periodic statements
showing the client's account balance, transmitting proxy statements, periodic
reports, updated prospectuses and other communications to shareholders and,
with respect to meetings of shareholders, collecting, tabulating and
forwarding to the Trust executed proxies and obtaining such other information
and performing such other services as the Administrator or the Service Agent's
clients may reasonably request and agree upon with the Service Agent. Service
Agents may separately charge their clients additional fees only to cover
provision of additional or more comprehensive services not already provided
under the Administration and Services Agreement with Bankers Trust, or of the
type or scope not generally offered by a mutual fund, such as cash management
services or enhanced retirement or trust reporting. Each Service Agent has
agreed to transmit to shareholders, who are its customers, appropriate
disclosures of any fees that it may charge them directly.

CUSTODIAN AND TRANSFER AGENT
Bankers Trust acts as Custodian of the assets of the Trust and BT Investment
Portfolios and serves as the Transfer Agent for the Trust and BT Investment
Portfolios under the Administration and Services Agreements with the Trust and
BT Investment Portfolios.

ORGANIZATION OF THE TRUST
The Trust was organized on July 21, 1986 under the laws of the Commonwealth of
Massachusetts. The Fund is a separate series of the Trust and was established
and designated as a separate series of the Trust on August 6, 1993. The Trust
offers shares of beneficial interest of separate series, par value $0.001 per
share. The shares of the other series of the Trust are offered through
separate prospectuses. No series of shares has any preference over any other
series.

The Trust is an entity commonly known as a "Massachusetts business trust."
Under Massachusetts law, shareholders of such a business trust may, under
certain circumstances, be held personally liable as partners for its
obligations. However, the risk of a shareholder incurring financial loss on
account of shareholder liability is limited to circumstances in which both
inadequate insurance existed and the Trust itself was unable to meet its
obligations.

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

The Portfolio is a series of BT Investment Portfolios, an open-end management
investment company. BT Investment Portfolios was organized as a trust under
the laws of the State of New York. BT Investment Portfolios' Declaration of
Trust provides that the Fund and other entities investing in the Portfolio
(e.g., other investment companies, insurance company separate accounts and
common and commingled trust funds) will each be liable for all obligations of
the Portfolio. However, the risk of the Fund incurring financial loss on
account of such liability is limited to circumstances in which both inadequate
insurance existed and the Portfolio itself was unable to meet its obligations.
Accordingly, the Trustees of the Trust believe that neither the Fund nor its
shareholders will be adversely affected by reason of the Fund's investing in
the Portfolio. The interests in BT Investment Portfolios are divided into
separate series, such as the Portfolio. No series of BT Investment Portfolios
has any preference over any other series.

The series of BT Investment Portfolios will vote separately or together in the
same manner as the series of the Trust. Under certain circumstances, the
investors in one or more series of BT Investment Portfolios could control the
outcome of these votes.

EXPENSES OF THE TRUST
The Fund bears its own expenses. Operating expenses for the Fund generally
consist of all costs not specifically borne by Bankers Trust or Signature,
including administration and service fees, fees for necessary professional
services, amortization of organizational expenses, and costs associated with
regulatory compliance and maintaining legal existence and shareholder
relations. Bankers Trust and Signature have agreed to reimburse the Fund to
the extent required by applicable state law for certain expenses that are
described in the Statement of Additional Information. The Portfolio bears its
own expenses. Operating expenses for the Portfolio generally consist of all
costs not specifically borne by Bankers Trust or Signature, including
investment advisory and administration and services fees, fees for necessary
professional services, amortization of organizational expenses, the costs
associated with regulatory compliance and maintaining legal existence and
investor relations.

ADDITIONAL INFORMATION
American Depositary Receipts, Global Depositary Receipts and European
Depositary Receipts. The Portfolio may invest in securities of foreign issuers
directly or in the form of American Depositary Receipts ("ADRs"), Global
Depositary Receipts ("GDRs"), European Depositary Receipts ("EDRs") or other
similar securities representing securities of foreign issuers. These
securities may not necessarily be denominated in the same currency as the
securities they represent. Designed for use in U.S. and European securities
markets, respectively, ADRs, GDRs and EDRs are alternatives to the purchase of
the underlying securities in their national markets and currencies. ADRs, GDRs
and EDRs are subject to the same risks as the foreign securities to which they
relate.

When-Issued and Delayed Delivery Securities. The Portfolio may purchase
securities on a when-issued or delayed delivery basis. Delivery of and payment
for these securities may take place as long as a month or more after the date
of the purchase commitment. The value of these securities is subject to market
fluctuation during this period and no income accrues to the Portfolio until
settlement takes place. The Portfolio maintains with the Custodian a
segregated account containing high grade liquid securities in an amount at
least equal to these commitments. When entering into a when-issued or delayed
delivery transaction, the Portfolio will rely on the other party to consummate
the transaction; if the other party fails to do so, the Portfolio may be
disadvantaged.

Rule 144A Securities. The Portfolio may purchase securities in the United
States that are not registered for sale under Federal securities laws but
which can be resold to institutions under the SEC's Rule 144A. Provided that a
dealer or institutional trading market in such securities exists, these
restricted securities are treated as exempt from the Portfolio's 15% limit on
illiquid securities. Under the supervision of the Board of Trustees of the
Portfolio, Bankers Trust determines the liquidity of restricted securities
and, through reports from Bankers Trust, the Board will monitor trading
activity in restricted securities. Because Rule 144A is relatively new, it is
not possible to predict how these markets will develop. If institutional
trading in restricted securities were to decline, the liquidity of the
Portfolio could be adversely affected.

Securities Lending. The Portfolio is permitted to lend up to 30% of the total
value of its securities. These loans must be secured continuously by cash or
equivalent collateral or by a letter of credit at least equal to the market
value of the securities loaned plus accrued income. By lending its securities,
the Portfolio can increase its income by continuing to receive income on the
loaned securities as well as by the opportunity to receive interest on the
collateral. Any gain or loss in the market price of the borrowed securities
which occurs during the term of the loan inures to the Portfolio and its
investors. In lending securities to brokers, dealers and other organizations,
the Portfolio is subject to risks which, like those associated with other
extensions of credit, include delays in recovery and possible loss of rights
in the collateral should the borrower fail financially.

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

A forward foreign currency exchange contract is an obligation by the Portfolio
to purchase or sell a specific currency at a future date, which may be any
fixed number of days from the date of the contract. Forward foreign currency
exchange contracts establish an exchange rate at a future date. These
contracts are transferable in the interbank market conducted directly between
currency traders (usually large commercial banks) and their customers. A
forward foreign currency exchange contract generally has no deposit
requirement and is traded at a net price without commission. The Portfolio
maintains with its custodian a segregated account of high grade liquid assets
in an amount at least equal to its obligations under each forward foreign
currency exchange contract. Neither spot transactions nor forward foreign
currency exchange contracts eliminate fluctuations in the prices of the
Portfolio's securities or in foreign exchange rates, or prevent loss if the
prices of these securities should decline.

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

Options on Foreign Currencies. The Portfolio may write covered put and call
options and purchase put and call options on foreign currencies for the
purpose of protecting against declines in the dollar value of portfolio
securities and against increases in the dollar cost of securities to be
acquired. The Portfolio may use options on cur-
rency to cross-hedge, which involves writing or purchasing options on one
currency to hedge against changes in exchange rates for a different, but
related currency. As with other types of options, however, the writing of an
option on foreign currency will constitute only a partial hedge up to the
amount of the premium received, and the Portfolio could be required to
purchase or sell foreign currencies at disadvantageous exchange rates, thereby
incurring losses. The purchase of an option on foreign currency may be used to
hedge against fluctuations in exchange rates although, in the event of
exchange rate movements adverse to the Portfolio's position, it may forfeit
the entire amount of the premium plus related transaction costs. In addition,
the Portfolio may purchase call options on a currency when the investment
adviser anticipates that the currency will appreciate in value.

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

As in the case of forward contracts, certain options on foreign currencies are
traded over-the-counter and involve liquidity and credit risks which may not
be present in the case of exchange-traded currency options. The Portfolio's
ability to terminate over-the-counter options ("OTC Options") will be more
limited than with exchange-traded options. It is also possible that broker-
dealers participating in OTC Options transactions will not fulfill their
obligations. Until such time as the staff of the SEC changes its position, the
Portfolio will treat purchased OTC Options and assets used to cover written
OTC Options as illiquid securities. With respect to options written with
primary dealers in U.S. Government Securities pursuant to an agreement
requiring a closing purchase transaction at a formula price, the amount of
illiquid securities may be calculated with reference to the repurchase
formula.

Options on Stocks. The Portfolio may write and purchase options on stocks. A
call option gives the purchaser of the option the right to buy, and obligates
the writer to sell, the underlying stock at the exercise price at any time
during the option period. Similarly, a put option gives the purchaser of the
option the right to sell, and obligates the writer to buy, the underlying
stock at the exercise price at any time during the option period. A covered
call option, which is a call option with respect to which the Portfolio owns
the underlying stock, sold by the Portfolio exposes the Portfolio during the
term of the option to possible loss of opportunity to realize appreciation in
the market price of the underlying stock or to possible continued holding of a
stock which might otherwise have been sold to protect against depreciation in
the market price of the stock. A covered put option sold by the Portfolio
exposes the Portfolio during the term of the option to a decline in price of
the underlying stock. A put option sold by the Portfolio is covered when,
among other things, cash or liquid securities are placed in a segregated
account to fulfill the obligations undertaken.

To close out a position when writing covered options, the Portfolio may make a
"closing purchase transaction," which involves purchasing an option on the
same stock with the same exercise price and expiration date as the option
which it has previously written on the stock. The Portfolio will realize a
profit or loss for a closing purchase transaction if the amount paid to
purchase an option is less or more, as the case may be, than the amount
received from the sale thereof. To close out a position as a purchaser of an
option, the Portfolio may make a "closing sale transaction," which involves
liquidating the Portfolio's position by selling the option previously
purchased.

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

To the extent permitted by U.S. Federal or state securities laws, the
Portfolio may invest in options on foreign stock indices in lieu of direct
investment in foreign securities. The Portfolio may also use foreign stock
index options for hedging purposes.

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

Futures Contracts on Foreign Stock Indices. The Portfolio may enter into
contracts providing for the making and acceptance of a cash settlement based
upon changes in the value of an index of foreign securities ("Futures
Contracts"). This investment technique is designed only to hedge against
anticipated future change in general market prices which otherwise might
either adversely affect the value of securities held by the Portfolio or
adversely affect the prices of securities which are intended to be purchased
at a later date for the Portfolio. A Futures Contract may also be entered into
to close out or offset an existing futures position.

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

Although Futures Contracts would be entered into for hedging purposes only,
such transactions do involve certain risks. These risks could include a lack
of correlation between the Futures Contract and the foreign equity market
being hedged, a potential lack of liquidity in the secondary market and
incorrect assessments of market trends which may result in poorer overall
performance than if a Futures Contract had not been entered into.

Brokerage costs will be incurred and "margin" will be required to be posted
and maintained as a good-faith deposit against performance of obligations
under Futures Contracts written for the Portfolio. The Portfolio may not
purchase or sell a Futures Contract if immediately thereafter its margin
deposits on its outstanding Futures Contracts would exceed 5% of the market
value of the Portfolio's total assets.

Options on Futures Contracts. The Portfolio may invest in options on such
futures contracts for similar purposes.

The Portfolio will write and purchase put and call options only to the extent
permitted by the policies of state securities authorities in states where
shares of the Fund are qualified for offer and sale.

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

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

<PAGE>

INVESTMENT ADVISER OF THE PORTFOLIO AND ADMINISTRATOR
BANKERS TRUST COMPANY

DISTRIBUTOR
SIGNATURE BROKER-DEALER SERVICES, INC.

CUSTODIAN AND TRANSFER AGENT
BANKERS TRUST COMPANY

INDEPENDENT ACCOUNTANTS
COOPERS & LYBRAND L.L.P.

<PAGE>

BT INVESTMENT FUNDS

UNLIKE OTHER MUTUAL FUNDS, THE FUND SEEKS TO ACHIEVE ITS INVESTMENT OBJECTIVE BY
INVESTING ALL OF ITS INVESTABLE ASSETS IN THE PORTFOLIO WHICH IS A SEPARATE FUND
WITH AN IDENTICAL INVESTMENT OBJECTIVE. SEE "SPECIAL INFORMATION CONCERNING
MASTER-FEEDER FUND STRUCTURE" ON PAGE 19. THE PORTFOLIO MAY BORROW MONEY FOR
INVESTMENT IN SECURITIES. SUCH LEVERAGE WILL EXAGGERATE ANY INCREASE OR DECREASE
IN THE VALUE OF SHARES IN THE FUND. BORROWING ALSO INVOLVES COSTS TO THE
PORTFOLIO. SEE "LEVERAGE" ON PAGE 13 HEREIN.

THIS PORTFOLIO INVESTS PRIMARILY IN LOWER RATED BONDS, COMMONLY KNOWN AS "JUNK
BONDS." INVESTMENTS OF THIS TYPE ARE SUBJECT TO A GREATER RISK OF LOSS OF
PRINCIPAL AND INTEREST. PURCHASERS OF SHARES OF THE FUND SHOULD CAREFULLY ASSESS
THE RISK ASSOCIATED WITH AN INVESTMENT IN THE FUND. THE FUND MAY BE CONSIDERED A
SPECULATIVE INVESTMENT AND IS DESIGNED FOR AGGRESSIVE INVESTORS. SHARES OF THE
FUND ARE NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT. SHARES OF THE
FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, BANKERS
TRUST COMPANY AND THE SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY. AN
INVESTMENT IN THE FUND IS SUBJECT TO RISK THAT MAY CAUSE THE VALUE OF THE
INVESTMENT TO FLUCTUATE, AND WHEN THE INVESTMENT IS REDEEMED, THE VALUE MAY BE
HIGHER OR LOWER THAN THE AMOUNT ORIGINALLY INVESTED BY THE INVESTOR.

Global
High Yield
Securities Fund

O Seeks high current income,
through investment in a non-
diversified portfolio of high
yield, non-investment grade
debt securities issued in
many of the world's securities
markets.

BANKERS TRUST COMPANY
Investment Adviser of the
Portfolio and Administrator

SIGNATURE BROKER-
DEALER SERVICES, INC.
Distributor
6 St. James Avenue
Boston, Massachusetts 02116

<PAGE>

TABLE OF CONTENTS

- --------------------------------------------------------------------------------
PAGE

................................................................................
Summary of Fund Expenses 3
Fund Financial Highlights 5
Investment Objective, Policies and Risks 6
Risk Factors; Matching the Fund to Your Investment Needs 14
Net Asset Value 20
Purchase and Redemption of Shares 21
Dividends, Distributions and Taxes 24
Performance Information and Reports 25
Management of the Trust and BT Investment Portfolios 26
Additional Information 31
Appendix 37
- --------------------------------------------------------------------------------

<PAGE>

SUMMARY OF FUND EXPENSES

The following table provides (i) a summary of expenses relating to purchases and
sales of the shares of the Global High Yield Securities Fund (the "Fund") and
the annual operating expenses of the Fund and the expenses of the Global High
Yield Securities Portfolio (the "Portfolio"), as a percentage of average net
assets of the Fund and (ii) an example illustrating the dollar cost of such
expenses on a $1,000 investment in the Fund. THE TRUSTEES OF BT INVESTMENT FUNDS
(THE "TRUST") BELIEVE THAT THE AGGREGATE PER SHARE EXPENSES OF THE FUND AND THE
PORTFOLIO WILL BE LESS THAN OR APPROXIMATELY EQUAL TO THE EXPENSES WHICH THE
FUND WOULD INCUR IF THE TRUST RETAINED THE SERVICES OF AN INVESTMENT ADVISER AND
THE INVESTABLE ASSETS ("ASSETS") OF THE FUND WERE INVESTED DIRECTLY IN THE TYPE
OF SECURITIES BEING HELD BY THE PORTFOLIO.

- --------------------------------------------------------------------------------
ANNUAL OPERATING EXPENSES

(as a percentage of the average daily net assets of the Fund)
................................................................--..............
Investment advisory fee (after reimbursement or waiver) 0.41%
12b-1 fees 0.00
Other expenses (after reimbursements or waivers) 1.09
................................................................................
Total operating expenses (after reimbursements or waivers) 1.50%
................................................................................
EXAMPLE 1 year 3 years 5 years 10 years
..............................................................................
You would pay the following expenses on a
$1,000 investment, assuming (1) 5%
annual return and (2) redemption at the
end of each time period $15 $47 $82 $179
- --------------------------------------------------------------------------------

The expense table and the example above show the costs and expenses that an
investor will bear directly or indirectly as a shareholder of the Fund. While
reimbursement of distribution expenses in amounts up to 0.20% of average net
assets are authorized to be made pursuant to the Plan of Distribution under Rule
12b-1 of the Investment Company Act of 1940, as amended (the "1940 Act") it is
not expected that any payments will actually be made under that plan in the
foreseeable future. Bankers Trust Company ("Bankers Trust") has voluntarily
agreed to waive a portion of its investment advisory fee. Without such waiver,
the Portfolio's investment advisory fee would be equal to 0.80%. The expense
table and the example reflect a voluntary undertaking by Bankers Trust or
Signature Broker-Dealer Services, Inc. ("Signature") to waive or reimburse
expenses such that the total operating expenses will not exceed 1.50% of the
Fund's average net assets annually. Prior to September 15, 1995, Bankers Trust
and Signature voluntarily undertook to waive and reimburse expenses such that
total operating expense would not exceed 1.75%. The expense information in the
above table has been restated to reflect the new expense waiver. In the absence
of this undertaking, for the fiscal year ended September 30, 1995, the total
operating expenses would be equal to approximately 2.61% of the Fund's average
net assets annually. THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF
PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE
SHOWN. Moreover, while each example assumes a 5% annual return, actual
performance will vary and may result in a return greater or less than 5%.

The Fund is sold by Signature as the Trust's distributor (the "Distributor") to
customers of Bankers Trust or to customers of another bank or a dealer or other
institution that has a sub-shareholder servicing agreement with Bankers Trust
(along with Bankers Trust, a "Service Agent"). Some Service Agents may impose
certain conditions on their customers in addition to or different from those
imposed by the Fund and may charge their customers a direct fee for their
services. Each Service Agent has agreed to transmit to shareholders who are its
customers appropriate disclosures of any fees that it may charge them directly.

For more information with respect to the expenses of the Fund and the Portfolio
see "Management of the Trust and BT Investment Portfolios" herein.

<PAGE>

FUND FINANCIAL HIGHLIGHTS

The following table shows selected data for a share outstanding, total
investment return, ratios to average net assets and other supplemental data for
the Fund for each period indicated and has been audited by Coopers & Lybrand
L.L.P., the Fund's independent accountants, whose report thereon appears in the
Fund's Annual Report which is incorporated by reference in the Fund's Statement
of Additional Information.

- ------------------------------------------------------------------------------
FOR THE PERIOD
DECEMBER 14, 1993
FOR THE (COMMENCEMENT
YEAR ENDED OF OPERATIONS) TO
SEPTEMBER 30, 1995 SEPTEMBER 30, 1994
..............................................................................
SELECTED PER SHARE DATA
Net Asset Value, Beginning of Period $ 10.29 $ 10.00
..............................................................................
Income from Investment Operations
Net Investment Income 0.77 0.31
Net Realized and Unrealized (Loss)
on Securities and Foreign Currency (0.41) (0.02)
..............................................................................
Total from Investment Operations 0.36 0.29
..............................................................................
Less Dividends
Distributions from Net Investment Income (0.87) --
..............................................................................
Net Asset Value, End of Period $ 9.78 $ 10.29
..............................................................................
TOTAL INVESTMENT RETURN 4.28% 3.66%*
RATIOS AND SUPPLEMENTAL DATA
Ratio of Net Investment Income to Average
Net Assets 8.68% 5.44%*
Ratio of Expenses to Average Net Assets,
Including Expenses of the Global High
Yield Securities Portfolio 1.74% 1.75%*
Decrease Reflected in Above Expense Ratio
Due to Absorption of Expenses by Bankers
Trust 0.87% 1.08%*
Net Assets, End of Period (000's omitted) $22,913 $14,738
- ------------------------------------------------------------------------------
*Annualized

INVESTMENT OBJECTIVE, POLICIES AND RISKS

The Fund's investment objective is high current income from investment in a
non-diversified portfolio of high yield, non-investment grade debt securities
issued in many of the world's securities markets. Capital appreciation will be
considered when consistent with the primary investment objective of high current
income. The Portfolio intends to invest in Brady Bonds and other sovereign debt
and in high risk, lower quality debt securities commonly referred to as "junk
bonds" and regarded as predominantly speculative with respect to the issuer's
capacity to pay interest and repay principal in accordance with the terms of the
obligation as well as in the debt securities of issuers located in emerging
markets, Brady bonds and other sovereign debt.

The Portfolio is classified as a "non-diversified" investment company under the
1940 Act and may invest a greater portion of its assets in a single issuer than
a diversified fund. As a result, the Portfolio may be more susceptible to any
single economic, political or regulatory occurrence than a diversified fund.

GLOBAL HIGH YIELD SECURITIES PORTFOLIO

Under normal circumstances, at least 65% of the Portfolio's assets will be
invested in high yield, non-investment grade debt securities of both
governmental and corporate issuers in both the major industrialized markets and
the so-called "emerging markets." The world's industrialized markets generally
include but are not limited to the following: Australia, Austria, Belgium,
Canada, Denmark, Finland, France, Germany, Hong Kong, Ireland, Italy, Japan,
Luxemborg, the Netherlands, New Zealand, Norway, Singapore, Spain, Sweden,
Switzerland, the United Kingdom, and the United States; the world's emerging
markets generally include but are not limited to the following: Argentina,
Bolivia, Brazil, Chile, China, Colombia, Costa Rica, the Czech Republic,
Ecuador, Egypt, Greece, Hungary, India, Indonesia, Israel, the Ivory Coast,
Jordan, Malaysia, Mexico, Morocco, Nicaragua, Nigeria, Pakistan, Peru, the
Philippines, Poland, Portugal, Romania, Russia, Slovakia, Slovenia, South
Africa, South Korea, Sri Lanka, Taiwan, Thailand, Turkey, Uruguay, Venezuela,
Vietnam and Zimbabwe. The Portfolio may also invest in securities of issuers
located in Eastern Europe which may at any time revert back to Communist
governments and nationalized industries. Higher risk is associated with
investing in developing countries such as expropriation and withholding
dividends at the source.

Although Bankers Trust considers each of the above countries, both
industrialized and emerging, eligible for investment pursuant to the Portfolio's
objective, the Portfolio will not be invested in all such markets at all times.
Furthermore, investing in some of these markets may be neither feasible nor
desirable from time to time, due to the lack of adequate custodial arrangements
for the Portfolio's assets, exchange controls and overly burdensome
repatriation, the lack of organized and liquid securities markets, and
unacceptable political risks. Under normal circumstances, the Portfolio will
invest in at least three of the emerging markets listed above.

The Portfolio generally invests in securities which are rated BBB or lower by
Standard & Poor's Corporation ("S&P") or Baa or lower by Moody's Investors
Service, Inc. ("Moody's") or, if unrated, of comparable quality in the opinion
of Bankers Trust. Securities which are rated BBB by S&P or Baa by Moody's
possess some speculative characteristics. A description of the rating categories
is contained in the Appendix herein. THERE IS NO LOWER LIMIT WITH RESPECT TO THE
RATING CATEGORIES FOR SECURITIES IN WHICH THE PORTFOLIO MAY INVEST. See "Risk
Factors: Matching the Fund to Your Investment Needs -- Risks of Investing in
High Yield Securities ("Junk Bonds")."

Lower-rated securities will usually offer higher yields than higher-rated
securities. However, there is more risk associated with these investments. This
is because of the reduced creditworthiness and increased risk of default that
these securities carry. Lower-rated securities generally tend to reflect
short-term corporate and market developments to a greater extent than higher-
rated securities which react primarily to fluctuations in the general level of
interest rates. Short-term corporate and market developments affecting the
prices and liquidity of lower-rated securities could include adverse news
impacting major issues, and underwriters or dealers in lower-rated or unrated
securities. In addition, since there are fewer investors in lower-rated
securities, it may be harder to sell securities at an optimum time.

An economic downturn may adversely affect the value of some lower-rated bonds.
Such a downturn may especially affect highly leveraged companies or companies in
cyclically sensitive industries, where deterioration in a company's cash flow
may impair its ability to meet its obligation to pay principal and interest to
bondholders in a timely fashion. From time to time, as a result of changing
conditions, issuers of lower-rated bonds may seek or may be required to
restructure the terms and conditions of the securities they have issued. As a
result of these restructurings, holders of lower-rated securities may receive
less principal and interest than originally expected at the time such bonds were
purchased. In the event of a restructuring, the Portfolio may bear additional
legal or administrative expenses in order to maximize recovery from an issuer.
The secondary trading market for lower-rated bonds is generally less liquid than
the secondary trading market for higher-rated bonds.

Asset Allocation. The Portfolio invests in debt obligations allocated among
diverse markets and denominated in various currencies, including multi- currency
units such as European Currency Units ("ECUs"). The Portfolio may purchase
securities that are issued by the government or a company or financial
institution of one country but denominated in the currency (or multi-currency
unit) of another country. Bankers Trust will allocate the assets of the
Portfolio in securities of issuers in countries and currency denominations where
the combination of fixed income market returns, the price appreciation potential
of fixed income securities and currency exchange rate movements will present
opportunities primarily for high current income and secondarily for capital
appreciation. In so doing, Bankers Trust intends to take full advantage of the
different yield, risk and return characteristics that investment in the fixed
income markets of different countries can provide. Fundamental economic
strength, credit quality, currency and interest rate trends and diversification
to manage risk will be the principal determinants of the emphasis given to
various country, geographic and industry sectors within the Portfolio.
Securities held by the Portfolio may be invested without limitation as to
maturity and are summarized according to the following general classifications;
emerging market debt securities, Brady bonds, loan participations and
assignments, convertible securities, preferred stock, industrialized market debt
securities, leverage, reverse repurchase agreements, short-term instruments and
repurchase agreements.

Emerging Markets Debt Securities. In addition to the risks inherent in
investment in debt securities of U.S. issuers, investments in debt securities
denominated in foreign currencies involve certain other risks. Less public
information may be available concerning non-U.S. issuers as compared to U.S.
issuers. Non-U.S. issuers are generally not subject to accounting, auditing
and financial practices comparable to those applicable to U.S. issuers.

In investing in bonds denominated in non-U.S. currencies, the Portfolio will be
subject to the risk of currency fluctuations. Non-U.S. currencies may be
affected by devaluation, adverse political and economic developments, and
governmental restrictions. The values of foreign investments and the investment
income derived from them may also be affected adversely by changes in currency
exchange control regulations. Although the Portfolio will invest primarily in
securities denominated in U.S. dollars or in currencies that are fully
convertible into U.S. dollars, it is a possibility that individual securities
might suffer loss of value or liquidity due to foreign government imposition of
currency exchange controls.

Securities denominated in foreign currencies of U.S. or non-U.S. issuers may
be less liquid and their prices more volatile than securities issued by U.S.
issuers and denominated in U.S. dollars. In addition, investing in non-U.S.
securities and securities denominated in non-U.S. currencies often entails
costs not associated with investments in U.S. dollar-denominated securities of
U.S. issuers such as the cost of converting U.S. dollars to foreign currency,
higher brokerage commissions, custodial expenses and other fees. Non-U.S.
dollar denominated securities may be subject to withholding or other taxes in
the relevant jurisdiction, which may reduce the yield on the securities to the
Portfolio and which may not be recoverable by the Fund or its investors.

Sovereign and Supranational Debt Obligations. Debt instruments issued or
guaranteed by foreign governments, agencies, and supranational organizations
("sovereign debt obligations"), especially sovereign debt obligations of
developing countries, may involve a high degree of risk, and may be in default
or present the risk of default. The issuer of the obligation or the governmental
authorities that control the repayment of the debt may be unable or unwilling to
repay principal and interest when due, and may require renegotiation or
rescheduling of debt payments. In addition, prospects for repayment of principal
and interest may depend on political as well as economic factors.

Brady Bonds. The Portfolio will also invest in "Brady bonds," which have
recently been issued by the governments of Argentina, Costa Rica, Mexico,
Nigeria, Uruguay, Venezuela, Brazil and the Philippines, as well as other
emerging market countries. Most Brady bonds are currently rated below BBB by S&P
or Baa by Moody's. While Bankers Trust is not aware of the occurrence of any
payment defaults on Brady bonds, investors should recognize that these debt
securities have been issued only recently and, accordingly, do not have a long
payment history. Brady bonds may be collateralized or uncollateralized, are
issued in various currencies (primarily the U.S. dollar) and are actively traded
in the secondary market for Latin American debt.

Loan Participations and Assignments. The Portfolio may invest in fixed and
floating rate loans ("loans") arranged through private negotiations between a
borrower and one or more institutions ("lenders"). The majority of the
Portfolio's investments in loans in emerging markets is expected to be in the
form of participations in loans ("participations") and assignments of portions
of loans from third parties ("assignments"). The Portfolio may also invest in
loans, participations or assignments of loans to borrowers located in the
industrialized world. Participations typically will result in the Portfolio
having a contractual relationship only with the lender, not the borrower. The
Portfolio will have the right to receive payments of principal, interest and any
fees to which it is entitled only from the lender selling the participation and
only upon receipt by the lender of the payments from the borrower. In connection
with purchasing participations, the Portfolio generally will have no right to
enforce compliance by the borrower with the terms of the loan agreement relating
to the loan ("loan agreement"), nor any rights of set-off against the borrower,
and the Portfolio may not directly benefit from any collateral supporting the
loan in which it has purchased the participation. As a result, the Portfolio
will assume the credit risk of both the borrower and the lender that is selling
the participation. In the event of the insolvency of the lender selling the
participation, the Portfolio may be treated as a general creditor of the lender
and may not benefit from any set-off between the lender and the borrower. The
Portfolio will acquire participations only if the lender interpositioned between
the Portfolio and the borrower is determined by Bankers Trust to be
creditworthy. When the Portfolio purchases assignments from lenders, the
Portfolio will acquire direct rights against the borrower on the loan; however,
since assignments are arranged through private negotiations between the
potential assignees and assignors, the rights and obligations acquired by the
Portfolio as the purchaser of an assignment may differ from, and be more limited
than, those held by the assigning lender.

The Portfolio may have difficulty disposing of assignments and participations.
The liquidity of such securities is limited and the Portfolio anticipates that
such securities could only be sold to a limited number of institutional
investors. The lack of a liquid secondary market could have an adverse impact on
the value of such securities and on the Portfolio's ability to dispose of
particular assignments or participations when necessary to meet the Portfolio's
liquidity needs or in response to a specific economic event, such as a
deterioration in the creditworthiness of the borrower. The lack of a liquid
secondary market for assignments and participations also may make it more
difficult in valuing the Portfolio and, therefore, calculating the net asset
value per share of the Fund. All assignments and participations shall be
considered to be illiquid securities by the Portfolio. The investment by the
Portfolio in illiquid securities, including assignments and participations, is
limited to a total of 15% of total assets.

Convertible Securities. A convertible security is a fixed income security, such
as 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 derivable from a common stock but lower than that
afforded by a non-convertible debt security -- a convertible security also
affords an investor the opportunity, through its conversion feature, to
participate in the capital appreciation of common stock into which it is
convertible.

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

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

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

Industrialized Market Debt Securities. Under normal market conditions, the
Portfolio will invest in certain securities that are issued by corporate or
guaranteed borrowers located in the world's industrialized markets. These debt
securities may pay interest in cash or in additional securities, at fixed or
adjustable rates or may be zero coupon securities and may be convertible into
common stock or other securities. Bankers Trust selects securities for the
Portfolio by considering, among other factors, price and yield, interest
coverage and financial resources, the liquidity of the secondary trading market
in the security, factors relating to the issuer's industry in general and its
sensitivity to economic conditions, its operating history and quality of
management, and regulatory matters.

The Portfolio will invest in higher-yielding, lower-rated U.S.
dollar-denominated debt securities, which may involve high risk and are
predominantly speculative in character. These securities are commonly known as
"junk bonds." Investments in lower-rated long-term debt obligations, including
securities rated from BB to D by S&P or Ba to C by Moody's or, if unrated, of
comparable quality in the opinion of Bankers Trust involve special risks as
compared with investments in higher-rated debt obligations, including greater
sensitivity to general economic downturns and significant increases in interest
rates, greater market price volatility, and less liquid secondary trading
markets. See "Risk Factors; Matching the Fund to Your Investment Needs." The net
asset value per share of the Fund can be expected to increase or decrease
depending on real or perceived changes in the credit risks associated with the
Portfolio's investments, changes in interest rates and other factors generally
affecting the credit markets.

Most of the debt securities in which the Portfolio invests are rated, at the
time of investment, at least CCC by S&P or Caa by Moody's or, if unrated, of
comparable quality in the opinion of Bankers Trust. Such securities are regarded
by S&P as predominantly speculative with respect to the capacity to pay interest
and repay principal in accordance with the terms of the contract. Debt rated Caa
by Moody's is regarded as being of poor standing and may be in default or there
may be present elements of danger with respect to the payment of principal or
interest.

Certain of the debt securities in which the Portfolio invests are rated, at the
time of investment, or may be downgraded while held by the Portfolio, to ratings
below CCC by S&P or Caa by Moody's or, if unrated, their credit quality may be
or may decline to levels less than equivalent to such ratings in the opinion of
Bankers Trust. Such debt securities are highly speculative and may be in default
or payment of interest or principal may be in arrears. The issuers of such
securities may be involved in bankruptcy or reorganization proceedings or may be
restructuring outstanding debt. Defaulted debt securities may never resume
interest payments or repay principal. Investing in bankrupt and troubled
companies involves special risk. The Portfolio will not invest more than 10% of
its assets in debt securities rated below CCC by S&P or Caa by Moody's or, if
unrated, of comparable quality in the opinion of Bankers Trust.

The Portfolio is not required to dispose of debt securities whose credit quality
declines at some point after the security is purchased; however, no more than
25% of the Portfolio's assets will be invested at any time in securities rated
less than CCC by S&P or Caa by Moody's or, if unrated, of comparable quality in
the opinion of Bankers Trust. S&P's lowest rating for bonds is CI, which is
reserved for income bonds on which no interest is being paid and D, which is
reserved for debt in default and in respect of which payment of interest or
repayment of principal is in arrears. Moody's lowest rating is C, which is
applied to bonds which have extremely poor prospects for ever attaining any real
investment standing. Other than as set forth above, there is no restriction on
the percentage of the Portfolio's assets which may be invested in bonds of a
particular rating.

Repurchase Agreements. The Portfolio may engage in repurchase agreement
transactions with banks and governmental securities dealers approved by the
Trustees of the Portfolio. Under the terms of a typical repurchase agreement,
the Portfolio would acquire an underlying debt obligation of a kind in which the
Portfolio could invest for a relatively short period (usually not more than one
week) subject to an obligation of the seller to repurchase, and the Portfolio to
resell, the obligation at an agreed price and time, thereby determining the
yield during the Portfolio's holding period. This arrangement results in a fixed
rate of return that is not subject to market fluctuations during the Portfolio's
holding period. The value of the underlying securities will be at least equal at
all time to the total amount of the repurchase obligations, including interest.
The Portfolio bears a risk of loss in the event that the other party to a
repurchase agreement defaults on its obligations and the Portfolio is delayed in
or prevented from exercising its rights to dispose of the collateral securities,
including the risk of a possible decline in the value of the underlying
securities during the period in which the Portfolio seeks to assert these
rights. Bankers Trust, acting under the supervision of the Board of Trustees of
BT Investment Portfolios, reviews the creditworthiness of those banks and
dealers with which the Portfolio enters in repurchase agreements and monitors on
an ongoing basis the value of the securities subject to repurchase agreements to
ensure that it is maintained at the required level. Repurchase agreements are
considered collateralized loans under the 1940 Act.

Leverage. The Portfolio may borrow up to one-third of the value of its total
assets, from banks or through the use of reverse repurchase agreements, to
increase its holdings of portfolio securities. Under the 1940 Act, the Portfolio
is required to maintain continuous asset coverage of 300% with respect to such
borrowings and to sell (within three days) sufficient portfolio holdings to
restore such coverage if it should decline to less than 300% due to market
fluctuations or otherwise, even if such liquidations of the Portfolio's holdings
may be disadvantageous from an investment standpoint.

Leveraging by means of borrowing may exaggerate the effect of any increase or
decrease in the value of the Portfolio securities and the Fund's net asset value
and money borrowed by the Portfolio will be subject to interest and other costs
(which may include commitment fees and/or the cost of maintaining minimum
average balances) which may or may not exceed the income received from the
securities purchased with borrowed funds.

Reverse Repurchase Agreements. In a reverse repurchase agreement the Portfolio
agrees to sell portfolio securities to financial institutions such as banks and
broker-dealers and to repurchase them at a mutually agreed date and price. At
the time the Portfolio enters into a reverse repurchase agreement, it will place
in a segregated custodial account the following: cash; U.S. Government
securities; or high grade liquid debt obligations having a value equal to the
repurchase price, including accrued interest. Reverse repurchase agreements
involve the risk that the market value of the securities sold by the Portfolio
may decline below the repurchase price of those securities. Reverse repurchase
agreements are considered to be borrowings by the Portfolio for purposes of the
limitations described in "Leverage" above.

NON-DIVERSIFIED INVESTMENT COMPANY

The Portfolio and the Fund are each classified as a "non-diversified" investment
company so that with respect to 50% of the Portfolio's assets it will be able to
invest more than 5% of its assets in obligations of one or more issuers, while
being limited with respect to the other half of its assets to investments not
exceeding 5% of the Portfolio's total assets. (A "diversified" investment
company would be required under the 1940 Act to maintain at least 75% of its
assets in cash (including foreign currency), cash items, U.S. Government
securities, and other securities limited per issuer to not more than 5% of the
investment company's total assets.) In order to enable the Fund to qualify as a
regulated investment company under the Internal Revenue Code of 1986, as amended
(the "Code"), the Portfolio, among other things, may not invest more than 25% of
its assets in obligations of any one issuer (other than U.S. Government
securities). As a "non-diversified" investment company, the Portfolio may invest
a greater proportion of its assets in the securities of a smaller number of
issuers and therefore may be subject to greater market and credit risk than a
more broadly diversified fund.

The Portfolio will not have more than 25% of the current value of its total
assets invested in any single industry, provided that this restriction shall not
apply to debt securities issued or guaranteed by the U.S. Government or its
agencies or instrumentalities.

OTHER INVESTMENTS AND INVESTMENT TECHNIQUES

The Portfolio may also utilize the following investments and investment
techniques and practices: when-issued or delayed delivery securities, Rule 144A
securities, securities lending, zero coupon securities and floating rate bonds,
foreign currency exchange transactions, options on foreign currencies, options
on foreign bond indices, futures contracts on foreign bond indices and options
on futures contracts. See "Additional Information" for further information.

ADDITIONAL INVESTMENT LIMITATIONS

No more than 15% of the Portfolio's net assets may be invested in illiquid or
not readily marketable securities (including assignments, participations,
repurchase agreements and time deposits with remaining maturities of more than
seven calendar days). Additional investment policies of the Portfolio are
contained in the Statement of Additional Information.

RISK FACTORS; MATCHING THE FUND TO YOUR INVESTMENT NEEDS

Shareholders should understand that all investments involve risk and there can
be no guarantee against loss resulting from an investment in the Fund, nor can
there be any assurance that the Fund's investment objective will be attained. As
with any investment in securities, the value of, and income from, an investment
in the Fund can decrease as well as increase, depending on a variety of factors
which may affect the values and income generated by the Portfolio's securities,
including general economic conditions, market factors and currency exchange
rates. Additionally, investment decisions made by Bankers Trust will not always
be profitable or prove to have been correct.

By itself, the Fund does not constitute a balanced investment plan; the Fund and
the Portfolio seek high current income from investments described above. Changes
in domestic and foreign interest rates may affect the value of the Portfolio's
investments, and rising interest rates can be expected to reduce the Fund's
share value. A description of a number of investments and investment techniques
available to the Portfolio, including foreign investments and the use of options
and futures, and certain risks associated with these investments and techniques
is included under "Additional Information." The Fund's share price, yield and
total return fluctuate and your investment may be worth more or less than your
original cost when you redeem your shares.

RISKS OF INVESTING IN FOREIGN SECURITIES

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

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

RISKS OF INVESTING IN EMERGING MARKETS

The Portfolio will invest in the securities of issuers based in some of the
world's underdeveloped emerging markets, including those in Eastern Europe.
Investment in securities of issuers based in underdeveloped countries entails
all of the risks of investing in securities of foreign issuers outlined in this
section to a heightened degree. These heightened risks include: (i) greater
risks of expropriation, confiscatory taxation, nationalization, and less social,
political and economic stability; (ii) the smaller size of the market for such
securities and a low or nonexistent volume of trading, resulting in lack of
liquidity and in price volatility; (iii) certain national policies which may
restrict the Portfolio's investment opportunities including restrictions on
investing in issuers or industries deemed sensitive to relevant national
interests; and (iv) in the case of Eastern Europe, the absence of developed
capital market and legal structures governing private or foreign investment and
private property and the possibility that recent favorable economic and
political developments could be slowed or reversed by unanticipated events.

So long as the Communist Party continues to exercise a significant or, in some
countries, dominant role in Eastern European countries, investments in such
countries will involve risks of nationalization, expropriation and confiscatory
taxation. The Communist governments of a number of Eastern European countries
expropriated large amounts of private property in the past, in many cases
without adequate compensation, and there may be no assurance that such
expropriation will not occur in the future. In the event of such expropriation,
the Portfolio could lose a substantial portion of any investments it has made in
the affected countries. Further, no accounting standards exist in Eastern
European countries. Finally, even though certain Eastern European currencies may
be convertible into U.S. dollars, the conversion rates may be artificial to the
actual market values and may be adverse to Fund shareholders.

In addition to brokerage commissions, custodial services and other costs
relating to investment in emerging markets are generally more expensive than in
the United States. Such markets have been unable to keep pace with the volume of
securities transactions, making it difficult to conduct such transactions. The
inability of the Portfolio to make intended security purchases due to settlement
problems could cause the Portfolio to miss attractive investment opportunities.
Inability to dispose of a security due to settlement problems could result
either in losses to the Portfolio due to subsequent declines in the value of the
security or, if the Portfolio has entered into a contract to sell the security,
could result in possible liability to the purchaser.

RISKS OF INVESTING IN HIGH YIELD SECURITIES ("JUNK BONDS") Under normal
circumstances, a majority of the Portfolio's assets will be invested in fixed
income securities offering high current income. Such high yield, fixed income
securities are ordinarily in the lower rating categories of recognized rating
agencies or will be non-rated and of equivalent quality in the opinion of
Bankers Trust. They are commonly known as "junk bonds." The market value for
such securities tends to be less sensitive to changes in prevailing interest
rates than higher-rated securities but more sensitive to individual corporate
developments than higher-rated securities. Such lower- rated securities also
tend to be more sensitive to economic conditions than are higher-rated
securities. Accordingly, these securities are considered predominantly
speculative with respect to the issuer's capacity to pay interest and repay
principal in accordance with the terms of the obligation and will generally
involve more credit risk than securities in the higher- rated categories. Even
securities rated BBB or Baa by S&P and Moody's, respectively, possess some
speculative characteristics. There are risks involved in applying credit ratings
as a method for evaluating high yield obligations in that credit ratings
evaluate the safety of principal and interest payments, not market value risk.
In addition, credit rating agencies may not change credit ratings on a timely
basis to reflect changes in economic or company conditions that affect a
security's market value. The Portfolio will rely on Bankers Trust's judgment,
analysis and experience in evaluating the creditworthiness of an issuer. In this
evaluation, Bankers Trust will take into consideration, among other things, the
issuer's ability to cover interest and fixed charges, factors relating to the
issuer's industry and its sensitivity to economic conditions and trends, its
operating history, the quality of the issuer's management and regulatory
matters.

The Portfolio is authorized to invest in high risk, lower quality debt
securities without limit. Investments in lower-rated long-term obligations,
including securities rated from BB to D by S&P or Ba to C by Moody's or, if
unrated, of comparable quality in the opinion of Bankers Trust, involve special
risks as compared with investments in higher-rated debt obligations, including
greater sensitivity to general economic downturns and significant increases in
interest rates, greater market price volatility, and less liquid secondary
trading markets. Regardless of rating levels, all debt securities considered for
purchase (whether rated or unrated) will be carefully analyzed by Bankers Trust
to insure, to the extent possible, that the planned investment is sound. The
Portfolio may, from time to time, purchase defaulted debt securities if, in the
opinion of Bankers Trust, the issuer may resume interest payments in the near
future. The Fund will not invest more than 10% of its total assets (at the time
of purchase) in defaulted debt securities, which may be illiquid.

The risk of loss due to default by the issuer is significantly greater for the
holders of high yield securities because such securities are generally unsecured
and are often subordinated to other obligations of the issuer. During an
economic downturn or a sustained period of rising interest rates, highly
leveraged issuers of high yield securities may experience financial stress and
may not have sufficient revenues to meet their interest payment obligations. An
issuer's ability to service its debt obligations may also be adversely affected
by specific corporate developments, its inability to meet specific projected
business forecasts, or the unavailability of additional financing.

Factors adversely affecting the market value of high yield and other securities
will adversely affect the Fund's net asset value per share. In addition, the
Portfolio may incur additional expenses to the extent it is required to seek
recovery upon a default in the payment of principal of or interest on its
portfolio holdings.

Futures contracts and related option transactions are discussed under
"Additional Information." Successful use of futures contracts and related
options is 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 foreign currency on which the
futures or options contract is based and movements in the securities or currency
of 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 is subject to similar risk considerations. In addition, by writing
covered call options, the Portfolio gives up the opportunity, which the option
is in effect, to profit from any price increase in the underlying securities
above the option exercise price.

There are further risk factors, including possible losses through the holding of
securities in domestic and foreign custodian banks and depositories, described
elsewhere in the Prospectus and in the Statement of Additional Information.

PORTFOLIO TURNOVER

The frequency of portfolio transactions -- the Portfolio's turnover rate -- will
vary from year to year depending on market conditions. The Portfolio's turnover
rate for the year ended September 30, 1995 and for the period from December 14,
1993 (commencement of operations) through September 30, 1994, was 169% and 347%,
respectively. Because a higher turnover rate increases transaction costs and may
increase taxable capital gains, Bankers Trust carefully weighs the anticipated
benefits of short-term investment against these consequences.

DERIVATIVES

The Portfolio may invest in various instruments that are commonly known as
derivatives. Generally, a derivative is a financial arrangement, the value of
which is based on, or "derived" from, a traditional security, asset, or market
index. Some "derivatives" such as mortgage-related and other asset-backed
securities are in many respects like any other investment, although they may be
more volatile or less liquid than more traditional debt securities. There are,
in fact, many different types of derivatives and many different ways to use
them. There are a range of risks associated with those uses. 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 for cash management purposes 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 the Adviser
believes they offer the most economic means of improving the risk/reward profile
of the Portfolio. Derivatives will not be used to increase portfolio risk above
the level that could be achieved using only traditional investment securities or
to acquire exposure to changes in the value of assets or indexes that by
themselves would not be purchased for the Portfolio. The use of derivatives for
non-hedging purposes may be considered speculative. A description of the
derivatives that the Portfolio may use and some of their associated risks is
found under "Additional Information."

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

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

For descriptions of the investment objective, policies and restrictions of the
Portfolio, see "Investment Objective, Policies and Risks." For descriptions of
the management of the Portfolio, see "Management of the Trust and BT Investment
Portfolios" herein and "Management of the Trust and Portfolios" in the Statement
of Additional Information. For descriptions of the expenses of the Portfolio,
see "Management of the Trust and BT Investment Portfolios" herein.

NET ASSET VALUE

The net asset value per share of the Fund is calculated on each day on which the
New York Stock Exchange Inc. (the "NYSE") is open (each such day being a
"Valuation Day"). The NYSE is currently open on each day, Monday through Friday,
except: (a) January 1st, Presidents' Day (the third Monday in February), Good
Friday, Memorial Day (the last Monday in May), July 4th, Labor Day (the first
Monday in September), Thanksgiving Day (the last Thursday in November) and
December 25th; and (b) the preceding Friday or the subsequent Monday when one of
the calendar-determined holidays falls on a Saturday or Sunday, respectively.

The net asset value per share of the Fund is calculated once on each Valuation
Day as of the close of regular trading on the NYSE (the "Valuation Time"), which
is currently 4:00 p.m., New York time or in the event that the NYSE closes
early, at the time of such early closing. The net asset value per share of the
Fund is computed by dividing the value of the Fund's Assets (i.e., the value of
its investment in the Portfolio and other assets), less all liabilities, by the
total number of its shares outstanding. The Portfolio's securities and other
assets are valued primarily on the basis of market quotations or, if quotations
are not readily available by Bankers Trust, pursuant to procedures adopted by
the Portfolio's Board of Trustees. These procedures require Bankers Trust to
value such a security at the same value as an equivalent security which is
readily marketable and, in making such comparisons, to consider all relevant
factors under applicable guidelines of the Securities and Exchange Commission
(the "SEC"). See "Valuation of Securities" in the Statement of Additional
Information for more information.

PURCHASE AND REDEMPTION OF SHARES
PURCHASE OF SHARES

Purchase orders for shares of the Fund that are received by a Service Agent and
transmitted to Bankers Trust, as the Trust's transfer agent (the "Transfer
Agent"), prior to the Valuation Time (currently 4:00 p.m., New York time or
earlier, should the NYSE close earlier) on any Valuation Day will be effective
at that day's Valuation Time. The Trust and Signature reserve the right to
reject any purchase order.

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

Automatic Investment Plan. The Fund may offer shareholders an automatic

investment plan under which shareholders may authorize some Service Agents to

place a purchase order each month or quarter for Fund shares. For further

information regarding the automatic investment plan, shareholders should contact
their Service Agent.

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

MINIMUM INVESTMENTS

TO OPEN AN ACCOUNT $2,500
For retirement accounts $ 500
Through automatic investment plans $1,000

TO ADD TO AN ACCOUNT $ 250
For retirement accounts $ 100
Through automatic investment plans $ 100

MINIMUM BALANCE $1,000
For retirement accounts None

REDEMPTION OF SHARES

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

EXCHANGE PRIVILEGE

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

* 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).

TAX-SAVING RETIREMENT PLANS

* Individual Retirement Accounts (IRAs): personal savings plans that offer
tax advantages for individuals to set aside money for retirement and allow

new contributions of $2,000 per tax year.

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

* 403(b) Custodian Accounts: defined contribution plans open to employees of
most nonprofit organizations and educational institutions.

* Deferred Benefit Plans: plan sponsors may invest all or part of their
pension assets in the Fund.

DIVIDENDS, DISTRIBUTIONS AND TAXES

Federal Taxes. Distributions from the Fund's income and short-term capital gains
are taxed as dividends, and long-term capital gain distributions are taxed as
long-term capital gains. The Fund's distributions are taxable when they are
paid, whether you take them in cash or reinvest them in additional shares.
Distributions declared to shareholders of record in November and December and
paid in January are taxable as if paid on December 31. The Fund will send each
shareholder a tax statement by January 31 showing the tax status of the
distributions received in the past year.

Other Tax Information. In addition to Federal taxes, you may be subject to
state or local taxes on your investment, depending on the laws in your area.

If the Portfolio is liable for foreign taxes, and if more than 50% of the value
of the Portfolio's total assets at the close of its taxable year consists of
securities of foreign corporations, it may make an election pursuant to which
certain foreign taxes paid by it would be treated as having been paid directly
by shareholders of the entities, such as the Fund, which have invested in the
Portfolio. Pursuant to such election, the amount of foreign taxes paid will be
included in the income of Fund shareholders, and Fund shareholders (except
tax-exempt shareholders) may, subject to certain limitations, claim either a
credit or deduction for the taxes. Each Fund shareholder will be notified after
the close of the Portfolio's taxable year whether the foreign taxes paid will
"pass through" for that year and, if so, such notification will designate (a)
the shareholder's portion of the foreign taxes paid to each such country and (b)
the portion which represents income derived from sources within each such
country.

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

PERFORMANCE INFORMATION AND REPORTS

The Fund's performance may be used from time to time in advertisements,
shareholder reports or other communications to shareholders or prospective
shareholders. Performance information may include the Fund's investment results
and/or comparisons of its investment results to various unmanaged indices such
as the JP Morgan Emerging Markets Bonds Indices and the Merrill Lynch High Yield
Master Index or results of other mutual funds or investment or savings vehicles.
The Fund will compare its performance to the results of a blending of these
Indices. The Fund's investment results as used in such communications will be
calculated on a yield or total rate of return basis in the manner set forth
below. From time to time, fund rankings may be quoted from various sources, such
as Lipper Analytical Services, Inc., Value Line and Morningstar, Inc.

The Trust may provide period and average annualized "total return" quotations
for the Fund. The Fund's "total return" refers to the change in the value of an
investment in the Fund over a stated period based on any change in net asset
value per share and including the value of any shares purchasable with any
dividends or capital gains distributed during such period. Period total return
quotations may be annualized. An annualized total return is a compounded total
return which assumes that the period total return is generated over a one-year
period, and that all dividends and capital gain distributions are reinvested. An
annualized total return will be higher than a period total return if the period
is shorter than one year because of the compounding effect.

The Trust may provide annualized "yield" quotations for the Fund. The "yield" of
the Fund refers to the income generated by an investment in the Fund over a
30-day or one-month period (which period shall be stated in any such
advertisement or communications). This income is then annualized; that is, the
amount generated by the investment over the period is assumed to be generated
over a one-year period and is shown as a percentage of investment.

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

MANAGEMENT OF THE TRUST AND
BT INVESTMENT PORTFOLIOS

BOARD OF TRUSTEES

The affairs of the Trust and BT Investment Portfolios are managed under the
supervision of their respective Boards of Trustees. By virtue of the
responsibilities assumed by Bankers Trust, as the Administrator of the Trust and
BT Investment Portfolios, neither the Trust nor BT Investment Portfolios
requires employees other than its officers. None of the Trust's or BT Investment
Portfolios' officers devotes full time to the affairs of the Trust or BT
Investment Portfolios.

The Trustees of the Trust who are not "interested persons" (as defined in the
1940 Act) of the Trust or of the BT Investment Portfolios, as the case may be,
(the "Independent Trustees") have adopted written procedures reasonably
appropriate to deal with potential conflicts of interest, up to and including
creating separate boards of trustees, arising from the fact that several of the
same individuals are trustees of the Trust and BT Investment Portfolios. For
more information with respect to the Trustees of both the Trust and BT
Investment Portfolios, see "Management of the Trust and the Portfolios" in the
Statement of Additional Information.

INVESTMENT ADVISER

The Trust has not retained the services of an investment adviser since the Trust
seeks to achieve the investment objective of the Fund by investing all the
Assets of the Fund in the Portfolio. BT Investment Portfolios has retained the
services of Bankers Trust, as investment adviser. David A Reiss, Vice President
of Bankers Trust and Stephen C. Freidheim, Managing Director of Bankers Trust
are responsible for the day-to-day management of the Portfolio. Mr. Reiss has
been employed by Bankers Trust since March, 1994 and has managed the Portfolio's
assets since March, 1994. From September, 1989 to March, 1994, Mr. Reiss was a
Portfolio Manager at Kidder Peabody Asset Management. Prior to September, 1989,
he was an associate in Mortgage Research at Goldman, Sachs & Co. Mr. Freidheim
has been employed by Bankers Trust since August, 1993 and has managed the
Portfolio's assets since December, 1993. From July, 1990 to July, 1993 he was a
Senior Vice President and Director of Research and Trading at Nomura Securities
International. Mr. Freidheim was also on the Board of Directors of Nomura
Corporate Research and Asset Management. Prior to July, 1990, he was Director of
Research at Kidder, Peabody High Yield Asset Management.

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

All orders for investment transactions on behalf of the Portfolio are placed by
Bankers Trust with broker-dealers and other financial intermediaries that it
selects, including those affiliated with Bankers Trust. A Bankers Trust
affiliate will be used in connection with a purchase or sale of an investment
for the Portfolio only if Bankers Trust believes that the affiliate's charge for
the transaction does not exceed usual and customary levels. The Portfolio will
not invest in obligations for which Bankers Trust or any of its affiliates is
the ultimate obligor or accepting bank. The Portfolio may, however, invest in
the obligations of correspondents or customers of Bankers Trust.

Under its Investment Advisory Agreement, Bankers Trust receives a fee from the
Portfolio computed daily and paid monthly at the annual rate of 0.80% of the
average daily net assets of the Portfolio.

ADMINISTRATOR

Under its Administration and Services Agreement with the Trust, Bankers Trust
calculates the net asset value of the Fund and generally assists the Board of
Trustees of the Trust in all aspects of the administration and operation of the
Trust. The Administration and Services Agreement provides for the Trust to pay
Bankers Trust a fee computed daily and paid monthly at the rate of 0.95% of the
average daily net assets of the Fund.

Under an Administration and Services Agreement with BT Investment Portfolios,
Bankers Trust calculates the value of the assets of the Portfolio and generally
assists the Board of Trustees of BT Investment Portfolios in all aspects of the
administration and operation of BT Investment Portfolios. The Administration and
Services Agreement provides for the Portfolio to pay Bankers Trust a fee
computed daily and paid monthly at the rate of 0.20% of the average daily net
assets of the Portfolio. Under the Administration and Services Agreement,
Bankers Trust may delegate one or more of its responsibilities to others,
including Signature, at Bankers Trust's expense. For more information, see the
Statement of Additional Information.

DISTRIBUTOR

Pursuant to the terms of the Trust's Plan of Distribution pursuant to Rule 12b-1
under the 1940 Act (the "Plan"), Signature may seek reimbursement in an amount
not exceeding 0.20% of the Fund's average daily net assets annually for expenses
incurred in connection with any activities primarily intended to result in the
sale of the Fund's shares, including, but not limited to: compensation to and
expenses (including overhead and telephone expenses) of account executives or
other employees of Signature who, as their primary activity, engage in or
support the distribution of shares; printing of prospectuses, statements of
additional information and reports for other than existing Fund shareholders in
amounts in excess of that typically used in connection with the distribution of
shares of the Fund; costs of placing advertising in various media; services of
parties other than Signature or its affiliates in formulating sales literature;
and typesetting, printing and distribution of sales literature. All costs and
expenses in connection with implementing and operating the Plan will be paid by
the Fund, subject to the 0.20% of net assets limitation. All costs and expenses
associated with preparing the Fund's prospectus and statement of additional
information and in connection with printing them for and distributing them to
existing shareholders and regulatory authorities, which costs and expenses would
not be considered distribution expenses for purposes of the Plan, will also be
paid by the Fund. To the extent expenses of Signature under the Plan in any
fiscal year of the Trust exceed amounts payable under the Plan during that year,
those expenses will not be reimbursed in any succeeding fiscal year. Expenses
incurred in connection with distribution activities will be identified to the
Fund or the other series of the Trust involved, although it is anticipated that
some activities may be conducted on a Trust-wide basis, with the result that
those activities will not be identifiable to any particular series. In the
latter case, expenses will be allocated among the series of the Trust on the
basis of their relative net assets. It is not expected that any payment will be
made under the Plan in the foreseeable future.

SERVICE AGENT

All shareholders must be represented by a Service Agent. Bankers Trust acts as a
Service Agent pursuant to its Administration and Services Agreement with the
Trust and receives no additional compensation from the Fund for such shareholder
services. The service fees of any other Service Agents, including
broker-dealers, will be paid by Bankers Trust from its fees. The services
provided by a Service Agent may include establishing and maintaining shareholder
accounts, processing purchase and redemption transactions, arranging for bank
wires, performing shareholder sub-accounting, answering client inquiries
regarding the Trust, assisting clients in changing dividend options, account
designations and addresses, providing periodic statements showing the client's
account balance, transmitting proxy statements, periodic reports, updated
prospectuses and other communications to shareholders and, with respect to
meetings of shareholders, collecting, tabulating and forwarding to the Trust
executed proxies and obtaining such other information and performing such other
services as the Administrator or the Service Agent's clients may reasonably
request and agree upon with the Service Agent. Service Agents may separately
charge their clients additional fees only to cover provision of additional or
more comprehensive services not already provided under the Administration and
Services Agreement with Bankers Trust, or of the type or scope not generally
offered by a mutual fund, such as cash management services or enhanced
retirement or trust reporting. Each Service Agent has agreed to transmit to
shareholders, who are its customers, appropriate disclosures of any fees that it
may charge them directly.

CUSTODIAN AND TRANSFER AGENT

Bankers Trust acts as Custodian of the assets of the Trust and BT Investment
Portfolios and serves as the Transfer Agent for the Trust and BT Investment
Portfolios under the Administration and Services Agreement with the Trust and BT
Investment Portfolios.

ORGANIZATION OF THE TRUST

The Trust was organized on July 21, 1986 under the laws of the Commonwealth of
Massachusetts. The Fund is a separate series of the Trust and was established
and designated as a separate series of the Trust on August 6, 1993. The Trust
offers shares of beneficial interest of separate series, par value $0.001 per
share. The shares of the other series of the Trust are offered through separate
prospectuses. No series of shares has any preference over any other series.

The Portfolio is a series of BT Investment Portfolios, an open-end management
investment company. BT Investment Portfolios was organized as a trust under the
laws of the State of New York. BT Investment Portfolios' Declaration of Trust
provides that the Fund and other entities investing in the Portfolio (e.g.,
other investment companies, insurance company separate accounts and common and
commingled trust funds) will each be liable for all obligations of the
Portfolio. However, the risk of the Fund incurring financial loss on account of
such liability is limited to circumstances in which both inadequate insurance
existed and the Portfolio itself was unable to meet its obligations.
Accordingly, the Trustees of the Trust believe that neither the Fund nor its
shareholders will be adversely affected by reason of the Fund's investing in the
Portfolio. The interests in BT Investment Portfolios are divided into separate
series, such as the Portfolio. No series of BT Investment Portfolios has any
preference over any other series.

Each series of the Trust will not be involved in any vote involving a Portfolio
in which it does not invest its Assets. Shareholders of all of the series of the
Trust will, however, vote together to elect Trustees of the Trust and for
certain other matters. Under certain circumstances, the shareholders of one or
more series could control the outcome of these votes. The series of BT
Investment Portfolios will vote together or separately on matters in the same
manner, and in the same circumstances, as do the series of the Trust. As with
the Trust, the investors in one or more series of BT Investment Portfolios could
control the outcome of these votes.

EXPENSES OF THE TRUST

The Fund bears its own expenses. Operating expenses for the Fund generally
consist of all costs not specifically borne by Bankers Trust or Signature,
including administration and service fees, fees for necessary professional
services, amortization of organizational expenses, and costs associated with
regulatory compliance and maintaining legal existence and shareholder relations.
Bankers Trust and Signature have agreed to reimburse the Fund to the extent
required by applicable state law for certain expenses that are described in the
Statement of Additional Information. The Portfolio bears its own expenses.
Operating expenses for the Portfolio generally consist of all costs not
specifically borne by Bankers Trust or Signature, including investment advisory
and administration and services fees, fees for necessary professional services,
amortization of organizational expenses, the costs associated with regulatory
compliance and maintaining legal existence and investor relations.

ADDITIONAL INFORMATION

When-Issued and Delayed Delivery Securities. The Portfolio may purchase
securities on a when-issued or delayed delivery basis. Delivery of and payment
for these securities may take place as long as a month or more after the date of
the purchase commitment. The value of these securities is subject to market
fluctuation during this period and no income accrues to the Portfolio until
settlement takes place. The Portfolio maintains with the Custodian a segregated
account containing high grade liquid securities in an amount at least equal to
these commitments. When entering into a when-issued or delayed delivery
transaction, the Portfolio will rely on the other party to consummate the
transaction; if the other party fails to do so, the Portfolio may be
disadvantaged.

Rule 144A Securities. The Portfolio may purchase securities in the United States
that are not registered for sale under Federal securities laws but which can be
resold to institutions under the SEC's Rule 144A. Provided that a dealer or
institutional trading market in such securities exists, these restricted
securities are treated as exempt from the Portfolio's 15% limit on illiquid
securities. Under the supervision of the Board of Trustees of the Portfolio,
Bankers Trust determined the liquidity of restricted securities and, through
reports from Bankers Trust, the Board will monitor trading activity in
restricted securities. Because Rule 144A is relatively new, it is not possible
to predict how these markets will develop. If institutional trading in
restricted securities were to decline, the liquidity of the Portfolio could be
adversely affected.

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

Floating Rate Bonds. The Portfolio may purchase floating rate bonds which may
have interest rates that move in tandem with a benchmark, helping to stabilize
their prices.

Options on Foreign Currencies. The Portfolio may write covered put and call
options and purchase put and call options on foreign currencies for the purpose
of protecting against declines in the dollar value of portfolio securities and
against increases in the dollar cost of securities to be acquired. The Portfolio
may use options on currency to cross-hedge, which involves writing or purchasing
options on one currency to hedge against changes in exchange rates for a
different, but related currency. As with other types of options, however, the
writing of an option on foreign currency will constitute only a partial hedge up
to the amount of the premium received, and the Portfolio could be required to
purchase or sell foreign currencies at disadvantageous exchange rates, thereby
incurring losses. The purchase of an option on foreign currency may be used to
hedge against fluctuations in exchange rates although, in the event of exchange
rate movements adverse to the Portfolio's position, it may forfeit the entire
amount of the premium plus related transaction costs. In addition, the Portfolio
may purchase call options on currency when the investment adviser anticipates
that the currency will appreciate in value.

Options on Foreign Bond Indices. The Portfolio may purchase and write put and
call options on foreign indices listed on domestic and foreign exchanges. A bond
index fluctuates with changes in the market values of the bonds included in the
index.

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

To the extent permitted by U.S. Federal or state securities laws, the Portfolio
may invest in options on foreign bond indices in lieu of direct investment in
foreign bonds. The Portfolio may also use foreign bond index options for hedging
purposes.

Because the value of a bond option depends upon movements in the level of the
index rather than the price of a particular bond, whether the Portfolio will
realize a gain or loss from the purchase or writing of options on an index
depends upon movements in the level of bond prices in the securities market
generally, rather than movements in the price of a particular security.
Accordingly, successful use by the Portfolio of options on bond indices will be
subject to Bankers Trust's ability to predict correctly movements in the
direction of the corresponding bond market generally. This requires different
skills and techniques than predicting changes in the price of individual bonds.

Futures Contracts on Foreign Bond Indices. The Portfolio may enter into
contracts providing for the making and acceptance of a cash settlement based
upon changes in the value of an index of foreign bonds ("Futures Contracts").
This investment technique is designed only to hedge against anticipated future
change in general market prices which otherwise might either adversely affect
the value of securities held by the Portfolio or adversely affect the prices of
securities which are intended to be purchased at a later date for the Portfolio.
A Futures Contract may also be entered into to close out or offset an existing
futures position.

Although Futures Contracts would be entered into for hedging purposes only, such
transactions do involve certain risks. These risks could include a lack of
correlation between the Futures Contract and the foreign bond market being
hedged, a potential lack of liquidity in the secondary market and incorrect
assessments of market trends which may result in poorer overall performance than
if a Futures Contract had not been entered into.

Options on Futures Contracts. The Portfolio may invest in options on such
futures contracts for similar purposes.

The Portfolio will write and purchase put and call options only to the extent
permitted by the policies of state securities authorities in states where shares
of the Fund are qualified for offer and sale.

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

<PAGE>

APPENDIX
DESCRIPTION OF MOODY'S CORPORATE BOND RATINGS:

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

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

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

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

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

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

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

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

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

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

DESCRIPTION OF S&PS CORPORATE BOND RATINGS:

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

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

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

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

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

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

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

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

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

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

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

<PAGE>

INVESTMENT ADVISER OF THE PORTFOLIO AND ADMINISTRATOR
BANKERS TRUST COMPANY

DISTRIBUTOR
SIGNATURE BROKER-DEALER SERVICES, INC.

CUSTODIAN AND TRANSFER AGENT
BANKERS TRUST COMPANY

INDEPENDENT ACCOUNTANTS
COOPERS & LYBRAND L.L.P.

COUNSEL

WILLKIE FARR & GALLAGHER

<PAGE>

BT INVESTMENT FUNDS

PROSPECTUS: JANUARY 29, 1996

Please read this Prospectus carefully before investing and retain it for future
reference. It contains important information about the Fund that you should know
and can refer to in deciding whether the Fund's goals match your own.

Small Cap Fund

o Seeks long-term capital growth
through investment in smaller sized
growth companies.

BANKERS TRUST COMPANY
Investment Adviser of the
Portfolio and Administrator

SIGNATURE BROKER-
DEALER SERVICES, INC.
Distributor
6 St. James Avenue
Boston, Massachusetts 02116

<PAGE>

TABLE OF CONTENTS
- ------------------------------------------------------------------------------
PAGE
..............................................................................
Summary of Fund Expenses 3
Fund Financial Highlights 5
Investment Objective, Policies and Risks 6
Risk Factors; Matching the Fund to Your Investment Needs 8
Net Asset Value 11
Purchase and Redemption of Shares 12
Dividends, Distributions and Taxes 15
Performance Information and Reports 15
Management of the Trust and BT Investment Portfolios 16
Additional Information 21
- ------------------------------------------------------------------------------

<PAGE>

SUMMARY OF FUND EXPENSES
The following table provides (i) a summary of estimated expenses relating to
purchases and sales of the shares of the Small Cap Fund (the "Fund") and the
annual operating expenses of the Fund and the expenses of the Small Cap
Portfolio (the "Portfolio"), as a percentage of average net assets of the Fund
and (ii) an example illustrating the dollar cost of such expenses on a $1,000
investment in the Fund. THE TRUSTEES OF BT INVESTMENT FUNDS (THE "TRUST")
BELIEVE THAT THE AGGREGATE PER SHARE EXPENSES OF THE FUND AND THE PORTFOLIO
WILL BE LESS THAN OR APPROXIMATELY EQUAL TO THE EXPENSES WHICH THE FUND WOULD
INCUR IF THE TRUST RETAINED THE SERVICES OF AN INVESTMENT ADVISER AND THE
INVESTABLE ASSETS ("ASSETS") OF THE FUND WERE INVESTED DIRECTLY IN THE TYPE OF
SECURITIES BEING HELD BY THE PORTFOLIO.

EXAMPLE 1 year 3 years 5 years 10 years
..................................................................................................................
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the end of each time period $13 $40 $69 $151
- ------------------------------------------------------------------------------------------------------------------
</TABLE>

The expense table and the example above show the costs and expenses that an
investor will bear directly or indirectly as a shareholder of the Fund. While
reimbursement of distribution expenses in amounts up to 0.20% of average net
assets are authorized to be made pursuant to the Plan of Distribution under Rule
12b-1 of the Investment Company Act of 1940, as amended (the "1940 Act"), it is
not expected that any payments will actually be made under that plan in the
foreseeable future. Bankers Trust Company ("Bankers Trust") has voluntarily
agreed to waive a portion of its investment advisory fee. Without such waiver,
the Portfolio's investment advisory fee would be equal to 0.65%. The expense
table and the example reflect a voluntary undertaking by Bankers Trust or
Signature Broker-Dealer Services, Inc. ("Signature") to waive or reimburse
expenses such that the total operating expenses will not exceed 1.25% of the
Fund's average net assets annually. In the absence of this undertaking, for the
fiscal year ended September 30, 1995, the total operating expenses would be
equal to approximately 1.59% of the Fund's average net assets annually. THE
EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES AND
ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. Moreover, while each
example assumes a 5% annual return, actual performance will vary and may result
in a return greater or less than 5%.

The Fund is sold by Signature as the Trust's distributor (the "Distributor") to
customers of Bankers Trust or to customers of another bank or a dealer or other
institution that has a sub-shareholder servicing agreement with Bankers Trust
(along with Bankers Trust, a "Service Agent"). Some Service Agents may impose
certain conditions on their customers in addition to or different from those
imposed by the Fund and may charge their customers a direct fee for their
services. Each Service Agent has agreed to transmit to shareholders who are its
customers appropriate disclosures of any fees that it may charge them directly.

For more information with respect to the expenses of the Fund and the Portfolio
see "Management of the Trust and BT Investment Portfolios" herein.

<PAGE>

FUND FINANCIAL HIGHLIGHTS
The following table shows selected data for a share outstanding, total
investment return, ratios to average net assets and other supplemental data
for the Fund for each period indicated and has been audited by Coopers &
Lybrand L.L.P., the Fund's independent accountants, whose report thereon
appears in the Fund's Annual Report which is incorporated by reference in the
Fund's Statement of Additional Information.

- ------------------------------------------------------------------------------
FOR THE PERIOD
OCTOBER 21, 1993
FOR THE (COMMENCEMENT
YEAR ENDED OF OPERATIONS) TO
SEPTEMBER 30, 1995 SEPTEMBER 30, 1994
- ------------------------------------------------------------------------------
SELECTED PER SHARE DATA
..............................................................................
Net Asset Value, Beginning of Period $ 11.60 $ 10.00
..............................................................................
Income from Investment Operations
Net Investment (Loss) (0.04) (0.03)
Net Realized and Unrealized Gain on
Securities 6.94 1.63
..............................................................................
Total from Investment Operations 6.90 1.60
..............................................................................
Net Asset Value, End of Period $ 18.50 $ 11.60
..............................................................................
TOTAL INVESTMENT RETURN 59.48% 17.06%*
RATIOS AND SUPPLEMENTAL DATA
Ratio of Net Investment (Loss) to Average
Net Assets (0.46%) (0.58%)*
Ratio of Expenses to Average Net Assets,
Including Expenses of the Small Cap
Portfolio 1.25% 1.25%*
Decrease Reflected in Above Expense Ratio Due
to Absorption of Expenses by Bankers Trust 0.34% 0.86%*
Net Assets, End of Period (000's omitted) $122,935 $21,332
- ------------------------------------------------------------------------------
*Annualized

<PAGE>

INVESTMENT OBJECTIVE, POLICIES AND RISKS
The Fund's investment objective is long-term capital growth; the production of
any current income is secondary to this objective.

The Trust seeks to achieve the investment objective of the Fund by investing all
the Assets of the Fund in the Portfolio, which has the same investment objective
as the Fund. There can be no assurances that the investment objective of either
the Fund or the Portfolio will be achieved. The investment objective of each of
the Fund and the Portfolio is not a fundamental policy and may be changed upon
notice to, but without the approval of the Fund's shareholders or the
Portfolio's investors, respectively. See "Special Information Concerning
Master-Feeder Fund Structure" on page 10 herein.

SMALL CAP PORTFOLIO

The Portfolio seeks to provide long term capital growth by investing primarily
in equity securities of smaller companies. The Portfolio's policy is to invest
in equity securities of smaller companies that Bankers Trust, as the Portfolio's
investment adviser (the "Adviser"), believes are in an early stage or
transitional point in their development and have demonstrated or have the
potential for above average capital growth. The Adviser will select companies
which have the potential to gain market share in their industry, achieve and
maintain high and consistent profitability or produce increases in earnings. The
Adviser also seeks companies with strong company management and superior
fundamental strength.

The Adviser employs a flexible investment program in pursuit of the Portfolio's
investment objective. The Adviser takes advantage of its market access and the
research available to it to select investments in promising growth companies
that are involved in new technologies, new products, foreign markets and special
developments, such as research discoveries, acquisitions, recapitalizations,
liquidations or management changes, and companies whose stock may be undervalued
by the market. These situations are only illustrative of the types of investment
the Portfolio may make. The Portfolio is free to invest in any common stock
which in the Adviser's judgment provides above average potential for long-term
growth of capital and income.

Under normal market conditions, the Portfolio will invest at least 65% of its
assets in smaller companies (with market capitalizations less than $750 million
at time of purchase that offer strong potential for capital growth). Small
capitalization companies have the potential to show earnings growth over time
that is well above the growth rate of the overall economy. The Portfolio may
also invest in larger, more established companies that the Adviser believes may
offer the potential for strong capital growth due to their relative market
position, anticipated earnings growth, changes in management or other similar
opportunities. The Portfolio will follow a disciplined selling process to lessen
market risks.

For temporary defensive purposes, when in the opinion of the Adviser market
conditions so warrant, the Portfolio may invest all or a portion of its assets
in common stocks of larger, more established companies or in fixed-income
securities or short-term money market securities. To the extent the Portfolio is
engaged in temporary defensive investments, the Portfolio will not be pursuing
its investment objective.

ADDITIONAL INVESTMENT TECHNIQUES
The Portfolio may also utilize the following investments and investment
techniques and practices: Rule 144A securities, when-issued and delayed delivery
securities, securities lending, repurchase agreements, foreign investments,
options on stocks, options on stock indices, futures contracts on stock indices,
options on futures contracts, foreign currency exchange transactions and options
on foreign currencies. See "Additional Information" for further information.

ADDITIONAL INVESTMENT LIMITATIONS
As a diversified fund, no more than 5% of the assets of the Portfolio may be
invested in the securities of one issuer (other than U.S. Government
securities), except that up to 25% of the Portfolio's assets may be invested
without regard to this limitation. The Portfolio will not invest more than 25%
of its assets in the securities of issuers in any one industry. These are
fundamental investment policies of the Portfolio which may not be changed
without investor approval. No more than 15% of the Portfolio's net assets may be
invested in illiquid or not readily marketable securities (including repurchase
agreements and time deposits with remaining maturities of more than seven
calendar days). Additional investment policies of the Portfolio are contained in
the Statement of Additional Information.

RISK FACTORS; MATCHING THE FUND TO YOUR INVESTMENT NEEDS
By itself, the Fund does not constitute a balanced investment plan; the Fund and
the Portfolio seek to provide long-term capital growth, with the production of
any current income being incidental to this objective, by investments primarily
in growth-oriented common stocks of domestic corporations and, to a limited
extent, foreign corporations. The Fund is designed for those investors primarily
interested in capital growth from investments in smaller-sized growth companies.
In view of the long-term capital growth objective of the Fund and the smaller
size of the companies, the risks of investment in the Fund may be greater than
the general equity markets, and changes in domestic and foreign interest rates
may also affect the value of the Portfolio's investments, and rising interest
rates can be expected to reduce the Fund's share value. A description of a
number of investments and investment techniques available to the Portfolio,
including foreign investments and the use of options and futures, and certain
risks associated with these investments and techniques is included under
"Additional Information." The Fund's share price, yield and total return
fluctuate and your investment may be worth more or less than your original cost
when you redeem your shares.

RISKS OF INVESTING IN FOREIGN SECURITIES
In seeking its investment objectives, the Portfolio may invest in securities of
foreign issuers. Foreign securities may involve a higher degree of risk and may
be less liquid or more volatile than domestic investments. Foreign securities
usually are denominated in foreign currencies, which means their value will be
affected by changes in the strength of foreign currencies relative to the U.S.
dollar as well as the other factors that affect security prices. Foreign
companies may not be subject to accounting standards or governmental supervision
comparable to U.S. companies, and there often is less publicly available
information about their operations. Generally, there is less governmental
regulation of foreign securities markets, and security trading practices abroad
may offer less protection to investors such as the Portfolio. The value of such
investments may be adversely affected by changes in political or social
conditions, diplomatic relations, confiscatory taxation, expropriation,
nationalization, limitation on the removal of funds or assets, or imposition of
(or change in) exchange control or tax regulations in those foreign countries.
Additional risks of foreign securities include settlement delays and costs,
difficulties in obtaining and enforcing judgments, and taxation of dividends at
the source of payment. The Portfolio will not invest more than 5% of the value
of its total assets in the securities of issuers based in developing countries,
including Eastern Europe.

PORTFOLIO TURNOVER
The Portfolio intends to manage its holdings actively to pursue its investment
objective. Since the Portfolio has a long-term investment perspective, it does
not intend to respond to short-term market fluctuations or to acquire securities
for the purpose of short-term trading; however, it may take advantage of
short-term trading opportunities that are consistent with its objective. The
Portfolio's turnover rate for the year ended September 30, 1995 and for the
period from October 21, 1993 (commencement of operations) through September 30,
1994 was 161% and 154%, respectively. Because a higher portfolio turnover rate
increases transaction costs and may increase taxable capital gains, Bankers
Trust carefully weighs the anticipated benefits of short-term investment against
these consequences.

DERIVATIVES
The Portfolio may invest in various instruments that are commonly known as
derivatives. Generally, a derivative is a financial arrangement, the value of
which is based on, or "derived" from, a traditional security, asset, or market
index. Some "derivatives" such as mortgage-related and other asset-backed
securities are in many respects like any other investment, although they may be
more volatile or less liquid than more traditional debt securities. There are,
in fact, many different types of derivatives and many different ways to use
them. There are a range of risks associated with those uses. 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 for cash management purposes 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 the Adviser
believes they offer the most economic means of improving the risk/reward profile
of the Portfolio. Derivatives will not be used to increase portfolio risk above
the level that could be achieved using only traditional investment securities or
to acquire exposure to changes in the value of assets or indices that by
themselves would not be purchased for the Portfolio. The use of derivatives for
non-hedging purposes may be considered speculative. A description of the
derivatives that the Portfolio may use and some of their associated risks is
found under "Additional Information."

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

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

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

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

For descriptions of the investment objective, policies and restrictions of the
Portfolio, see "Investment Objective, Policies and Risks." For descriptions of
the management of the Portfolio, see "Management of the Trust and BT Investment
Portfolios" herein and "Management of the Trust and Portfolios" in the Statement
of Additional Information. For descriptions of the expenses of the Portfolio,
see "Management of the Trust and BT Investment Portfolios" herein.

PURCHASE AND REDEMPTION OF SHARES
PURCHASE OF SHARES
The Trust accepts purchase orders for shares of the Fund at the net asset value
per share of the Fund next determined on each Valuation Day. See "Net Asset
Value" above. There is no sales charge on the purchase of shares, but costs of
distributing shares of the Fund may be reimbursed from its assets, as described
herein. Service Agents may impose initial and subsequent investment minimums
that differ from the amounts presented in the "Minimum Investments" table below.
Shares of the Fund may be purchased in only those states where they may be
lawfully sold.

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

MINIMUM INVESTMENTS

TO OPEN AN ACCOUNT $2,500
For retirement accounts $ 500
Through automatic investment plans $1,000

TO ADD TO AN ACCOUNT $ 250
For retirement accounts $ 100
Through automatic investment plan $ 100

MINIMUM BALANCE $1,000
For retirement accounts None

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

EXCHANGE PRIVILEGE
Shareholders may exchange their shares for shares of certain other funds in the
BT Family of Funds registered in their state. The Fund reserves the right to
terminate or modify the exchange privilege in the future. To make an exchange,
follow the procedures indicated in "Purchase of Shares" and "Redemption of
Shares" in that 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.

* 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).

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-sheltered plans. These plans contain special tax
advantages and let you invest for retirement while sheltering your investment
income from current taxes. Minimums may differ from those listed elsewhere in
the Prospectus.

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

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

* 403(b) Custodian Accounts: defined contribution plans open to employees of
most nonprofit organizations and educational institutions.

* Deferred Benefit Plans: plan sponsors may invest all or part of their
pension assets in the Fund.

DIVIDENDS, DISTRIBUTIONS AND TAXES
Distributions. The Fund distributes substantially all of its net investment
income and capital gains to shareholders each year. Income dividends if any, are
distributed on the first business day in April, July and October. In December,
another income dividend will be distributed plus any net capital gains. Unless a
shareholder instructs the Trust to pay such dividends and distributions in cash,
they will be automatically reinvested in additional shares of the Fund.

"Buying a Dividend." On the ex-date for a distribution from income and/or
capital gains, the Fund's share value is reduced by the amount of the
distribution. If you buy shares just before the record date ("buying a
dividend"), you will pay the full price for the shares and then receive a
portion of the price back as a taxable distribution.

PERFORMANCE INFORMATION AND REPORTS
The Fund's performance may be used from time to time in advertisements,
shareholder reports or other communications to shareholders or prospective
shareholders. Performance information may include the Fund's investment results
and/or comparisons of its investment results to various unmanaged indices such
as the Russell 2000 Index or Lipper Small Company Growth Funds Average or
results of other mutual funds or investment or savings vehicles. The Fund's
investment results as used in such communications will be calculated on a total
rate of return basis in the manner set forth below. From time to time, fund
rankings may be quoted from various sources, such as Lipper Analytical Services,
Inc., Value Line and Morningstar, Inc.

The Trust may provide period and average annualized "total return" quotations
for the Fund. The Fund's "total return" refers to the change in the value of an
investment in the Fund over a stated period based on any change in net asset
value per share and including the value of any shares purchasable with any
dividends or capital gains distributed during such period. Period total return
may be annualized. An annualized total return is a compounded total return which
assumes that the period total return is generated over a one-year period, and
that all dividends and capital gain distributions are reinvested. An annualized
total return will be higher than a period total return if the period is shorter
than one year, because of the compounding effect.

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

MANAGEMENT OF THE TRUST AND
BT INVESTMENT PORTFOLIOS
BOARD OF TRUSTEES
The affairs of the Trust and BT Investment Portfolios are managed under the
supervision of their respective Boards of Trustees. By virtue of the
responsibilities assumed by Bankers Trust, as the Administrator of the Trust and
BT Investment Portfolios, neither the Trust nor BT Investment Portfolios
requires employees other than its officers. None of the Trust's or BT Investment
Portfolios' officers devotes full time to the affairs of the Trust or BT
Investment Portfolios.

The Trustees of the Trust who are not "interested persons," (as defined in the
1940 Act) of the Trust or of the BT Investment Portfolios, as the case may be,
(the "Independent Trustees") have adopted written procedures reasonably
appropriate to deal with potential conflicts of interest, up to and including
creating separate boards of trustees, arising from the fact that several of the
same individuals are trustees of the Trust and BT Investment Portfolios. For
more information with respect to the Trustees of both the Trust and the
Portfolio, see "Management of the Trust and Portfolios" in the Statement of
Additional Information.

INVESTMENT ADVISER
The Trust has not retained the services of an investment adviser since the Trust
seeks to achieve the investment objective of the Fund by investing all the
Assets of the Fund in the Portfolio. The Portfolio has retained the services of
Bankers Trust, as investment adviser. Ms. Mary Lisanti, Managing Director of
Bankers Trust, is responsible for the day-to-day management of the Portfolio.
Ms. Lisanti has been employed by Bankers Trust since February, 1993 and has
managed the Portfolio's assets since October, 1993. Prior to 1993, she was a
Vice President and Portfolio Manager with Lieber and Company/The Evergreen Funds
(since 1990).

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

All orders for investment transactions on behalf of the Portfolio are placed by
Bankers Trust with broker-dealers and other financial intermediaries that it
selects, including those affiliated with Bankers Trust. A Bankers Trust
affiliate will be used in connection with a purchase or sale of an investment
for the Portfolio only if Bankers Trust believes that the affiliate's charge for
the transaction does not exceed usual and customary levels. The Portfolio will
not invest in obligations for which Bankers Trust or any of its affiliates is
the ultimate obligor or accepting bank. The Portfolio may, however, invest in
the obligations of correspondents or customers of Bankers Trust.

Under its investment advisory agreement, Bankers Trust receives a fee from the
Portfolio computed daily and paid monthly at the annual rate of 0.65% of the
average daily net assets of the Portfolio.

ADMINISTRATOR
Under its Administration and Services Agreement with the Trust, Bankers Trust
calculates the net asset value of the Fund and generally assists the Board of
Trustees of the Trust in all aspects of the administration and operation of the
Trust. The Administration and Services Agreement provides for the Trust to pay
Bankers Trust a fee, computed daily and paid monthly, at the annual rate of
0.65% of the average daily net assets of the Fund.

Under an Administration and Services Agreement with BT Investment Portfolios,
Bankers Trust calculates the value of the assets of the Portfolio and generally
assists the Board of Trustees of the Portfolio in all aspects of the
administration and operation of the Portfolio. The Administration and Services
Agreement provides for the Portfolio to pay Bankers Trust a fee, computed daily
and paid monthly, at the annual rate of 0.10% of the average daily net assets of
the Portfolio. Under each Administration and Services Agreement, Bankers Trust
may delegate one or more of its responsibilities to others, including Signature,
at Bankers Trust's expense. For more information, see the Statement of
Additional Information.

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

Pursuant to the terms of the Trust's Plan of Distribution pursuant to Rule 12b-1
under the 1940 Act (the "Plan"), Signature may seek reimbursement in an amount
not exceeding 0.20% of the Fund's average daily net assets annually for expenses
incurred in connection with any activities primarily intended to result in the
sale of the Fund's shares, including, but not limited to: compensation to and
expenses (including overhead and telephone expenses) of account executives or
other employees of Signature who, as their primary activity, engage in or
support the distribution of shares; printing of prospectuses, statements of
additional information and reports for other than existing Fund shareholders in
amounts in excess of that typically used in connection with the distribution of
shares of the Fund; costs of placing advertising in various media; services of
parties other than Signature or its affiliates in formulating sales literature;
and typesetting, printing and distribution of sales literature. All costs and
expenses in connection with implementing and operating the Plan will be paid by
the Fund, subject to the 0.20% of net assets limitation. All costs and expenses
associated with preparing the prospectus and statement of additional information
and in connection with printing them for and distributing them to existing
shareholders and regulatory authorities, which costs and expenses would not be
considered distribution expenses for purposes of the Plan, will also be paid by
the Fund. To the extent expenses of Signature under the Plan in any fiscal year
of the Trust exceed amounts payable under the Plan during that year, those
expenses will not be reimbursed in any succeeding fiscal year. Expenses incurred
in connection with distribution activities will be identified to the Fund or the
other series of the Trust involved, although it is anticipated that some
activities may be conducted on a Trust-wide basis, with the result that those
activities will not be identifiable to any particular series. In the latter
case, expenses will be allocated among the series of the Trust on the basis of
their relative net assets. It is not expected that any payment will be made
under the Plan in the foreseeable future.

SERVICE AGENT
All shareholders must be represented by a Service Agent. Bankers Trust acts as a
Service Agent pursuant to its Administration and Services Agreement with the
Trust and receives no additional compensation from the Fund for such shareholder
services. The service fees of any other Service Agents, including
broker-dealers, will be paid by Bankers Trust from its fees. The services
provided by a Service Agent may include establishing and maintaining shareholder
accounts, processing purchase and redemption transactions, arranging for bank
wires, performing shareholder sub-accounting, answering client inquiries
regarding the Trust, assisting clients in changing dividend options, account
designations and addresses, providing periodic statements showing the client's
account balance, transmitting proxy statements, periodic reports, updated
prospectuses and other communications to shareholders and, with respect to
meetings of shareholders, collecting, tabulating and forwarding to the Trust
executed proxies and obtaining such other information and performing such other
services as the Administrator or the Service Agent's clients may reasonably
request and agree upon with the Service Agent. Service Agents may separately
charge their clients additional fees only to cover provision of additional or
more comprehensive services not already provided under the Administration and
Services Agreement with Bankers Trust, or of the type or scope not generally
offered by a mutual fund, such as cash management services or enhanced
retirement or trust reporting. Each Service Agent has agreed to transmit to
shareholders, who are its customers, appropriate disclosures of any fees that it
may charge them directly.

ORGANIZATION OF THE TRUST
The Trust was organized on July 21, 1986 under the laws of the Commonwealth of
Massachusetts. The Fund is a separate series of the Trust and was established
and designated as a separate series of the Trust on August 12, 1992. The Trust
offers shares of beneficial interest of separate series, par value $0.001 per
share. The shares of the other series of the Trust are offered through separate
prospectuses. No series of shares has any preference over any other series.

The Portfolio is a series of BT Investment Portfolios, an open-end management
investment company. BT Investment Portfolios was organized as a trust under the
laws of the State of New York. BT Investment Portfolios' Declaration of Trust
provides that the Fund and other entities investing in the Portfolio (e.g.,
other investment companies, insurance company separate accounts and common and
commingled trust funds) will each be liable for all obligations of the
Portfolio. However, the risk of the Fund incurring financial loss on account of
such liability is limited to circumstances in which both inadequate insurance
existed and the Portfolio itself was unable to meet its obligations.
Accordingly, the Trustees of the Trust believe that neither the Fund nor its
shareholders will be adversely affected by reason of the Fund's investing in the
Portfolio. The interest in BT Investment Portfolios are divided into separate
series, such as the Portfolio. No series of BT Investment Portfolios has any
preference over any other series.

EXPENSES OF THE TRUST
The Fund bears its own expenses. Operating expenses for the Fund generally
consist of all costs not specifically borne by Bankers Trust or Signature,
including administration and service fees, fees for necessary professional
services, amortization of organizational expenses, and costs associated with
regulatory compliance and maintaining legal existence and shareholder relations.
Bankers Trust and Signature have agreed to reimburse the Fund to the extent
required by applicable state law for certain expenses that are described in the
Statement of Additional Information. The Portfolio bears its own expenses.
Operating expenses for the Portfolio generally consist of all costs not
specifically borne by Bankers Trust or Signature, including investment advisory
and administration and services fees, fees for necessary professional services,
amortization of organizational expenses, the costs associated with regulatory
compliance and maintaining legal existence and investor relations.

ADDITIONAL INFORMATION
Rule 144A Securities. The Portfolio may purchase securities in the United States
that are not registered for sale under Federal securities laws but which can be
resold to institutions under SEC Rule 144A. Provided that a dealer or
institutional trading market in such securities exists, these restricted
securities are treated as exempt from the Portfolio's 15% limit on illiquid
securities. Under the supervision of the Board of Trustees of the Portfolio,
Bankers Trust determines the liquidity of restricted securities and, through
reports from Bankers Trust, the Board will monitor trading activity in
restricted securities. Because Rule 144A is relatively new, it is not possible
to predict how these markets will develop. If institutional trading in
restricted securities were to decline, the liquidity of the Portfolio could be
adversely affected.

Securities Lending. The Portfolio is permitted to lend up to 30% of the total
value of its securities. These loans must be secured continuously by cash or
equivalent collateral or by a letter of credit at least equal to the market
value of the securities loaned plus accrued income. By lending its securities,
the Portfolio can increase its income by continuing to receive income on the
loaned securities as well as by the opportunity to receive interest on the
collateral. Any gain or loss in the market price of the borrowed securities
which occurs during the term of the loan inures to the Portfolio and its
investors. In lending securities to brokers, dealers and other organizations,
the Portfolio is subject to risks which, like those associated with other
extensions of credit, include delays in recovery and possible loss of rights in
the collateral should the borrower fail financially.

Foreign Investments. The Portfolio may invest in securities of foreign issuers
directly or in the form of American Depositary Receipts ("ADRs"), Global
Depositary Receipts ("GDRs"), European Depositary Receipts ("EDRs") or other
similar securities representing securities of foreign issuers. These securities
may not necessarily be denominated in the same currency as the securities they
represent. Designed for use in U.S., and European securities markets,
respectively, ADRs, GDRs and EDRs are alternatives to the purchase of the
underlying securities in their national markets and currencies. ADRs, GDRs and
EDRs are subject to the same risks as the foreign securities to which they
relate.

Options on Futures Contracts. The Portfolio may invest in options on such
Futures Contracts for similar purposes.

All options that the Portfolio writes will be covered under applicable
requirements of the SEC.

The Portfolio will write and purchase options only to the extent permitted by
the policies of state securities authorities in states where shares of the Fund
are qualified for offer and sale.

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

<PAGE>

INVESTMENT ADVISER OF THE PORTFOLIO AND ADMINISTRATOR
BANKERS TRUST COMPANY

DISTRIBUTOR
SIGNATURE BROKER-DEALER SERVICES, INC.

CUSTODIAN AND TRANSFER AGENT
BANKERS TRUST COMPANY

INDEPENDENT ACCOUNTANTS
COOPERS & LYBRAND L.L.P.

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. This Prospectus does not constitute an offer in any
state in which, or to any person to whom, such offer may not lawfully be made.

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

<PAGE>

BT INVESTMENT FUNDS

UNLIKE OTHER MUTUAL FUNDS, THE FUND IS AN OPEN-END MANAGEMENT INVESTMENT COMPANY
WHICH SEEKS TO ACHIEVE ITS INVESTMENT OBJECTIVE BY INVESTING ALL OF ITS
INVESTABLE ASSETS IN THE PORTFOLIO WHICH IS A SEPARATE FUND WITH AN IDENTICAL
INVESTMENT OBJECTIVE. SEE "SPECIAL INFORMATION CONCERNING MASTER-FEEDER FUND
STRUCTURE" ON PAGE 15.

Pacific Basin
Equity Fund

o Seeks long-term capital
appreciation from investment
primarily in the equity
securities of the Pacific Basin
region issuers or companies
domiciled in or doing
business in the Pacific Basin,
other than Japan.

BANKERS TRUST COMPANY
Investment Adviser of the
Portfolio and Administrator

SIGNATURE BROKER-
DEALER SERVICES, INC.
Distributor
6 St. James Avenue
Boston, Massachusetts 02116
<PAGE>

TABLE OF CONTENTS

- --------------------------------------------------------------------------------
PAGE
................................................................................
Summary of Fund Expenses 3
Fund Financial Highlights 5
Investment Objective, Policies and Risks 6
Risk Factors; Matching the Fund to Your Investment Needs 9
Net Asset Value 17
Purchase and Redemption of Shares 17
Dividends, Distributions and Taxes 20
Performance Information and Reports 21
Management of the Trust and BT Investment Portfolios 22
Additional Information 28
- --------------------------------------------------------------------------------

<PAGE>

SUMMARY OF FUND EXPENSES

The following table provides (i) a summary of expenses relating to purchases and
sales of the shares of the Pacific Basin Equity Fund (the "Fund") and the annual
operating expenses of the Fund and the expenses of the Pacific Basin Equity
Portfolio (the "Portfolio"), as a percentage of average net assets of the Fund
and (ii) an example illustrating the dollar cost of such expenses on a $1,000
investment in the Fund. THE TRUSTEES OF BT INVESTMENT FUNDS (THE "TRUST")
BELIEVE THAT THE AGGREGATE PER SHARE EXPENSES OF THE FUND AND THE PORTFOLIO WILL
BE LESS THAN OR APPROXIMATELY EQUAL TO THE EXPENSES WHICH THE FUND WOULD INCUR
IF THE TRUST RETAINED THE SERVICES OF AN INVESTMENT ADVISER AND THE INVESTABLE
ASSETS ("ASSETS") OF THE FUND WERE INVESTED DIRECTLY IN THE TYPE OF SECURITIES
BEING HELD BY THE PORTFOLIO.

- --------------------------------------------------------------------------------
ANNUAL OPERATING EXPENSES

(as a percentage of the average daily net assets of the Fund)
................................................................................
Investment advisory fee (after reimbursements or waivers) 0.74%
12b-1 fees 0.00
Other expenses (after reimbursements or waivers) 1.01
................................................................................
Total operating expenses (after reimbursements or waivers) 1.75%
................................................................................
EXAMPLE 1 year 3 years 5 years 10 years
................................................................................
You would pay the following expenses on
a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at
the end of each time period $18 $55 $95 $206
- --------------------------------------------------------------------------------

The expense table and the example above show the costs and expenses that an
investor will bear directly or indirectly as a shareholder of the Fund. While
reimbursement of distribution expenses in amounts up to 0.20% of average net
assets are authorized to be made pursuant to the Plan of Distribution under Rule
12b-1 of the Investment Company Act of 1940, as amended (the "1940 Act") it is
not expected that any payments will actually be made under that plan in the
foreseeable future. Bankers Trust Company ("Bankers Trust") has voluntarily
agreed to waive a portion of its investment advisory fee. Without such waiver,
the Portfolio's investment advisory fee would be equal to 0.75%. The expense
table and the example reflect a voluntary undertaking by Bankers Trust or
Signature Broker-Dealer Services, Inc. ("Signature") to waive or reimburse
expenses such that the total operating expenses will not exceed 1.75% of the
Fund's average net assets annually. In the absence of this undertaking, for the
fiscal year ended September 30, 1995, the total operating expenses would be
equal to approximately 2.27% of the Fund's average net assets annually. THE
EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES AND
ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. Moreover, while each
example assumes a 5% annual return, actual performance will vary and may result
in a return greater or less than 5%.

<PAGE>

The Fund is sold by Signature as the Trust's distributor (the "Distributor") to
customers of Bankers Trust or to customers of another bank or dealer or other
institution that has a sub-shareholder servicing agreement with Bankers Trust
(along with Bankers Trust, a "Service Agent"). Some Service Agents may impose
certain conditions on their customers in addition to or different from those
imposed by the Fund and may charge their customers a direct fee for their
services. Each Service Agent has agreed to transmit to shareholders who are its
customers appropriate disclosures of any fees that it may charge them directly.

For more information with respect to the expenses of the Fund and the Portfolio
see "Management of the Trust and BT Investment Portfolios" herein.

<PAGE>

FUND FINANCIAL HIGHLIGHTS

- --------------------------------------------------------------------------------
FOR THE PERIOD
NOVEMBER 1, 1993
FOR THE (COMMENCEMENT
YEAR ENDED OF OPERATIONS) TO
SEPTEMBER 30, 1995 SEPTEMBER 30, 1994
................................................................................
SELECTED PER SHARE DATA
................................................................................
Net Asset Value, Beginning of Period $ 11.82 $ 10.00
................................................................................
Income from Investment Operations
Net Investment Income (Loss) 0.01 (0.04)
Net Realized and Unrealized Gain on
Securities and Foreign Currency (0.49) 1.86
................................................................................
Total from Investment Operations (0.48) 1.82
................................................................................
Less Distributions
Distributions from Net Realized Gain
from Securities Transactions (0.38) --
................................................................................
Net Asset Value, End of Period $ 10.96 $ 11.82
................................................................................
TOTAL INVESTMENT RETURN (3.87%) 20.11%*
RATIOS AND SUPPLEMENTAL DATA
Ratio of Net Investment Income (Loss)
to Average Net Assets 0.12% (0.59%)*
Ratio of Expenses to Average Net
Assets, Including Expenses
of the Pacific Basin Equity Portfolio 1.75% 1.75%*
Decrease Reflected in Above Expense
Ratio Due to Absorption of
Expenses by Bankers Trust 0.52% 0.60%*
Net Assets, End of Period (000's omitted) $24,504 $25,362
- --------------------------------------------------------------------------------
*Annualized

<PAGE>

INVESTMENT OBJECTIVE, POLICIES AND RISKS

The Fund's investment objective is long-term capital appreciation from
investment primarily in the equity securities (or other securities with equity
characteristics) of companies domiciled in, or doing business in the Pacific
Basin region, other than Japan; the production of any current income is
incidental to this objective.

PACIFIC BASIN EQUITY PORTFOLIO

The investment objective of the Portfolio is long-term capital appreciation
through investment primarily in the equity securities of companies domiciled in,
or doing business in, the Pacific Basin region, other than Japan. This shall
include securities of issuers: (1) which are organized under the laws of Pacific
Basin countries (see below); (2) for which the principal securities trading
market is in a Pacific Basin country; or (3) which derive a significant
proportion (at least 50 percent) of their revenues or profits from goods
produced or sold, investments made, or services performed in the countries of
the Pacific Basin or which have at least 50 percent of their assets situated in
the countries of the Pacific Basin. The production of any income is incidental
to this objective. It is expected under normal conditions that at least 65% of
the Portfolio's assets will be invested in the equity securities of issuers
located in the Pacific Basin. There can be no assurance that the Portfolio will
be able to achieve its investment objective.

For the purpose of this Prospectus, the "Pacific Basin" includes, but not
limited to the following countries: Hong Kong, India, Indonesia, Malaysia, New
Zealand, Pakistan, the Philippines, the People's Republic of China, Singapore,
Sri Lanka, South Korea, Thailand and Taiwan.

The Portfolio will be managed using a disciplined, value-oriented investment
philosophy that stresses the inherent value of, and the medium term outlook for,
the companies under examination. Experience has proven that often the real basis
of a business is quite different from that perceived by the market: a
misconception that usually results in its shares trading below its true business
or replacement value. The exploitation of this "perception/reality" gap is a
hallmark of the investment style that has been adopted for the Portfolio, and a
potential source of value for its investors.

"Value" investing means trying to find companies which are mispriced by the
market for reasons of neglect, fashion or misconception. These opportunities
arise out of legislative changes, industrial restructuring and technology
advancements, for example. As a result, Bankers Trust as investment adviser (the
"Adviser") and the sub-investment adviser attach great importance to analyzing
trends and accessing possible breaks with traditional price patterns. At the
company level, the emphasis is placed on assessing the inherent "business" value
of the firm. While this often varies from the stock market's valuation, the
Adviser and the sub-investment adviser believe a company's stock price tends to
gravitate to their "business" value over time.

The Portfolio will not invest more than 20% of the value of its total assets in
issuers domiciled in China.

For further discussion of the unique risks associated with investing in foreign
securities in both developed and underdeveloped countries, see "Risk Factors;
Matching the Fund to your Investment Needs," herein and the Statement of
Additional Information.

The Portfolio's investments will generally be diversified among several
geographic regions and countries in the Pacific Basin. Criteria for determining
the appropriate distribution of investment among various countries and regions
include the prospects for relative growth among foreign countries, expected
levels of inflation, government policies influencing business conditions, the
outlook for currency relationships and the range of alternative opportunities
available to international investors.

In other countries and regions where capital markets are underdeveloped or not
easily accessed and information is difficult to obtain, the Portfolio may choose
to invest only at the market level. Here, the Portfolio may seek to achieve
country exposure through use of options on futures based on an established local
index. Similarly, country exposure may also be achieved through investments in
other registered investment companies. Restrictions on both these types of
investments are fully explained herein and in the Statement of Additional
Information.

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

OTHER INVESTMENTS AND INVESTMENT TECHNIQUES

The Portfolio may also utilize the following investments and investment
techniques and practices: American Depositary Receipts, Global Depositary
Receipts, European Depositary Receipts, when-issued and delayed delivery
securities, Rule 144A securities, securities lending, foreign currency exchange
transactions, options on foreign currencies, options on stocks, options on
foreign stock indices, futures contracts on foreign stock indices, options on
futures contracts and repurchase agreements. See "Additional Information" for
further information.

ADDITIONAL INVESTMENT LIMITATIONS

RISK FACTORS; MATCHING THE FUND TO YOUR INVESTMENT NEEDS

Shareholders should understand that all investments involve risk and there can
be no guarantee against loss resulting from an investment in the Fund, nor can
there be any assurance that the Fund's investment objective will be attained. As
with any investment in securities, the value of, and income from, an investment
in the Fund can decrease as well as increase, depending on a variety of factors
which may affect the values and income generated by the Portfolio's securities
including economic conditions, market factors and currency exchange rates in the
Pacific Basin. Additionally, investment decisions made by Bankers Trust will not
always be profitable or prove to have been correct.

By itself, the Fund does not constitute a balanced investment plan; the Fund and
the Portfolio seek long-term capital appreciation from investment primarily in
the equity securities (or other securities with equity characteristics) of
foreign issuers. Change in domestic and foreign interest rates may affect the
value of the Portfolio's investments, and rising interest rates can be expected
to reduce the Fund's share value. A description of a number of investments and
investment techniques available to the Portfolio, including foreign investments
and the use of options and futures, and certain risks associated with these
investments and techniques is included under "Additional Information." The
Fund's share price, yield and total return fluctuate and your investment may be
worth more or less than your original cost when you redeem your shares.

RISKS OF INVESTING IN FOREIGN SECURITIES

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

The Portfolio may invest in the securities of issuers based in underdeveloped
countries, including those in the Pacific Basin. Investment in securities of
issuers based in underdeveloped countries entails all of the risks of investing
in securities of foreign issuers outlined in this section to a heightened
degree.

These heightened risks include: (i) greater risks of expropriation, confiscatory
taxation, nationalization, and less social, political and economic stability;
(ii) the smaller size of the market for such securities and a low or
non-existent volume of trading, resulting in lack of liquidity and in price
volatility; (iii) certain national policies which may restrict the Portfolio's
investment opportunities including restrictions on investing in issuers or
industries deemed sensitive to relevant national interest; and (iv) in the case
of Eastern Europe and the People's Republic of China, the absence of developed
capital market and legal structures governing private or foreign investment and
private property and the possibility that recent favorable economic and
political developments could be slowed or reversed by unanticipated events. See
"Risk Factors; Investment in China." The Portfolio will not invest more than 5%
of the value of its total assets in securities of issuers based in Eastern
Europe.

In addition, while the volume of the transactions effected on foreign stock
exchanges has increased in recent years, in most cases it remains appreciably
below that of the New York Stock Exchange Inc. (the "NYSE"). Accordingly, the
Portfolio's foreign investments may be less liquid and their prices may be more
volatile than comparable investments in securities of U.S. companies. Moreover,
the settlement periods for foreign securities, which are often longer than those
for securities of U.S. issuers, may affect portfolio liquidity.

In buying and selling securities on foreign exchanges, the Portfolio normally
pays fixed commissions that are generally higher than the negotiated commissions
charged in the United States. In addition, there is generally less government
supervision and regulation of securities exchange, brokers and issuers in
foreign countries than in the United States. Bankers Trust intends to manage the
Portfolio actively in pursuit of its investment objective. However, the annual
portfolio turnover rate of the Portfolio is generally not expected to exceed
100%. The Portfolio does not expect to trade in securities for short-term
profits but, when circumstances warrant, securities may be sold without regard
to the length of time held.

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

Risk Factors; Investments in China. The People's Republic of China ("China") has
had for many centuries a well deserved reputation for being closed to
foreigners, with trade with the outside world being carried on under terms of
extreme restriction and under central control. Such conditions were maintained
in the first thirty years of the Communist regime which began in 1949; however
there have been several stages of evolution, from the institution of an
industrialization program in the 1950s to a modernization policy commencing in
1978 which combined economic development with the beginnings of opening the
country.

The economic reform plan thus begun was designed to bring in foreign investment
capital and technological skills. The result has been a move towards a more
mixed economy away from the previous centrally planned economy. The process of
devolving responsibility for all aspects of enterprise to local management and
authorities continues, even though the system of socialism with Chinese
characteristics involves considerable influence by the central government on
production and marketing.

In order to attract foreign investment, China has since 1978 designated certain
areas of the country where overseas investors can receive special investment
incentives and tax concessions. There are five Special Economic Zones (Shenzhen,
Shantou and Zhuhai in Guangdong Province, Xiamen in Fujian Province and Hainan
Island, which itself is a province). Fourteen coastal cities have been
designated as "open cities" and certain Open Economic Zones have been
established in coastal areas. Shanghai has established the Pudong New Area.
Twenty-seven High and New Technology Industrial Development Zones have been
approved where preferential treatment is given to enterprises which are
confirmed as technology intensive.

Exports continue to rise strongly, although China remains vulnerable to United
States economic conditions and possible trade sanctions, unless it liberalizes
current import restrictions and improves its human rights record. However,
imports are also expected to rise and may outstrip exports in terms of growth
rates.

There are currently two officially recognized securities exchanges in China --
The Shanghai Securities Exchange which opened in December 1990 and The Shenzhen
Stock Exchange which opened in July 1991. Shares traded on these Exchanges are
two types -- "A" shares which can be traded only by Chinese investors and "B"
shares which can be traded only by individuals and corporations not resident in
China.

In Shanghai, all "B" Shares are denominated in Chinese renminbi ("RMB"), but all
transactions in "B" shares must be settled in U.S. dollars, and all
distributions made on "B" shares are payable in U.S. dollars, the exchange rate
being the weighted average exchange rate for the U.S. dollar as published by the
Shanghai Foreign Exchange Adjustment Centre.

In Shenzhen, the purchase and sale prices for "B" shares are quoted in Hong Kong
dollars. Dividends and other lawful revenue derived from "B" shares are
calculated in RMB but payable in Hong Kong dollars, the rate of exchange being
the average rate published by Shenzhen Foreign Exchange Adjustment Centre.

There are no foreign exchange restrictions on the repatriation of gains made on
or income derived from "B" Shares, subject to the payment of taxes imposed by
China thereon.

Company law relating to companies limited by shares and regulations regarding
the issuing of shares by equity joint ventures have not yet been developed on a
national basis. The Shenzhen municipality issued regulations in 1992 relating to
joint stock companies, and the Shanghai municipality has a draft joint stock
company law under review. Regulations governing the trading of securities on
both the Shenzhen and the Shanghai stock exchanges have been issued by each
municipality; there is no national securities legislation as yet.

The securities markets in the China Region 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 Chinese 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 China 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 Chinese securities markets may represent a
disproportionately large percentage of market capitalization and trading value.
The limited liquidity of securities markets in China may also affect the
Portfolio's ability to acquire or dispose of securities at the price and time it
wishes to do so. Accordingly, during periods of rising securities prices in the
more illiquid Chinese securities markets, the Portfolio's ability to participate
fully in such price increases may be limited by its investment policy of
investing not more than 15% of its net assets in illiquid securities.
Conversely, the 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
Chinese securities markets are susceptible to being influenced by large
investors trading significant blocks of securities.

The Chinese, Hong Kong and Taiwan 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.

Economies of countries in the China Region may differ favorably or unfavorably
from the U.S. economy in such respects as rate of growth of gross national
product, rate of inflation, capital reinvestment, resource self-sufficiency and
balance of payments position. As an export-driven economy, the economy of China
is affected by developments in the economies of its principal trading partners.
Revocation by the United States of China's "Most Favored Nation" trading status,
which the U.S. President and Congress reconsider annually, would adversely
affect the trade and economic development of China and Hong Kong. Hong Kong and
Taiwan have limited natural resources, resulting in dependence on foreign
sources for certain raw materials and economic vulnerability to global
fluctuations of price and supply.

China governmental actions can have a significant effect on the economic
conditions in China, which could adversely affect the value and liquidity of the
Portfolio's investments. Although the Chinese Government has recently begun to
institute economic reform policies, there can be no assurances that it will
continue to pursue such policies or, if it does, that such policies will
succeed.

The securities industry in China is not well developed. China has no securities
laws of nationwide applicability. The municipal securities regulations adopted
by Shanghai and Shenzhen municipalities are very new, as are their respective
securities exchanges and other self-regulatory organizations. In addition,
Chinese stockbrokers and other intermediaries may not perform as well as their
counterparts in the United States and other more developed securities markets.
The prices at which the Portfolio may acquire investments may be affected by
trading by persons with material non-public information and by securities
transactions by brokers in anticipation of transactions by the Portfolio in
particular securities.

China does not have a comprehensive system of laws, although substantial changes
have occurred in this regard in recent years. The corporate form of organization
has only recently been permitted in China and national regulations governing
corporations were introduced only in May, 1992. Prior to the introduction of
such regulations, Shanghai had adopted a set of corporate regulations applicable
to corporations located or listed in Shanghai, and the relationship between the
two sets of regulations is not clear. Consequently, until a firmer legal basis
is provided, even such fundamental corporate law tenets as the limited liability
status of Chinese issuers and their authority to issue shares remain open to
question. Laws regarding fiduciary duties of officers and directors and the
protection of shareholders are not well developed. China's judiciary is
relatively inexperienced in enforcing the laws that exist, leading to a higher
than usual degree of uncertainty as to the outcome of any litigation. Even where
adequate law exists in China, it may be impossible to obtain swift and equitable
enforcement of such law, or to obtain enforcement of the judgement by a court of
another jurisdiction. The bankruptcy laws pertaining to state enterprises have
rarely been used and are untried in regard to an enterprise with foreign
shareholders, and there can be no assurance that such shareholders, including
the Portfolio, would be able to realize the value of the assets of the
enterprise or receive payment in convertible currency. As the Chinese legal
system develops, the promulgation of new laws, changes to existing laws and the
preemption of local laws by national laws may adversely affect foreign
investors, including the Portfolio. The uncertainties faced by foreign investors
in China are exacerbated by the fact that many laws, regulations and decrees of
China are not publicly available, but merely circulated internally.

PORTFOLIO TURNOVER

The frequency of portfolio transactions -- the Portfolio's turnover rate -- will
vary from year to year depending on market conditions. The Portfolio's turnover
rate for the year ended September 30, 1995, and for the period from November 1,
1993 (commencement of operations) through September 30, 1994, was 104% and 40%,
respectively. Because a higher turnover rate increases transaction costs and may
increase taxable capital gains, Bankers Trust carefully weighs the anticipated
benefits of short-term investment against these consequences.

DERIVATIVES

The Portfolio may invest in various instruments that are commonly known as
derivatives. Generally, a derivative is a financial arrangement, the value of
which is based on, or "derived" from, a traditional security, asset, or market
index. Some "derivatives" such as mortgage-related and other asset-backed
securities are in many respects like any other investment, although they may be
more volatile or less liquid than more traditional debt securities. There are,
in fact, many different types of derivatives and many different ways to use
them. There are a range of risks associated with those uses. 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 for cash management purposes 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 the Adviser
believes they offer the most economic means of improving the risk/reward profile
of the Portfolio. Derivatives will not be used to increase Portfolio risk above
the level that could be achieved using only traditional investment securities or
to acquire exposure to changes in the value of assets or indices that by
themselves would not be purchased for the Portfolio. The use of derivatives for
non-hedging purposes may be considered speculative. A description of the
derivatives that the Portfolio may use and some of their associated risks is
found under "Additional Information."

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

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

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

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

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

For descriptions of the investment objective, policies and restrictions of the
Portfolio, see "Investment Objective, Policies and Risks." For descriptions of
the management of the Portfolio, see "Management of the Trust and BT Investment
Portfolios" herein and "Management of the Trust and Portfolios" in the Statement
of Additional Information. For descriptions of the expenses of the Portfolio,
see "Management of the Trust and BT Investment Portfolios" herein.

NET ASSET VALUE

The net asset value per share of the Fund is calculated on each day on which the
NYSE is open (each such day being a "Valuation Day"). The NYSE is currently open
on each day, Monday through Friday, except: (a) January 1st, Presidents' Day
(the third Monday in February), Good Friday, Memorial Day (the last Monday in
May), July 4th, Labor Day (the first Monday in September), Thanksgiving Day (the
last Thursday in November) and December 25th; and (b) the preceding Friday or
the subsequent Monday when one of the calendar determined holidays falls on a
Saturday or Sunday, respectively.

The net asset value per share of the Fund is calculated on each Valuation Day as
of the close of regular trading on the NYSE (the "Valuation Time") which is
currently 4:00 p.m., New York time or in the event that the NYSE closes early,
at the time of such early closing. The net asset value per share of the Fund is
computed by dividing the value of the Fund's Assets (i.e., the value of its
investment in the Portfolio and other assets) less all liabilities, by the total
number of its shares outstanding. The Portfolio's securities and other assets
are valued primarily on the basis of market quotations or, if quotations are not
readily available, by Bankers Trust, pursuant to procedures adopted by the
Portfolio's Board of Trustees. These procedures require Bankers Trust to value
such a security at the same value as an equivalent security which is readily
marketable, in making such comparisons, and to consider all relevant factors, in
making such comparisons, under applicable guidelines of the SEC. See "Valuation
of Securities" in the Statement of Additional Information for more information.

PURCHASE AND REDEMPTION OF SHARES
PURCHASE OF SHARES

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

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

MINIMUM INVESTMENTS

TO OPEN AN ACCOUNT $2,500
For retirement accounts $ 500
Through automatic investment plans $1,000

TO ADD TO AN ACCOUNT $ 250
For retirement accounts $ 100
Through automatic investment plans $ 100

MINIMUM BALANCE $1,000
For retirement accounts None

REDEMPTION OF SHARES

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

EXCHANGE PRIVILEGE

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

* 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).

TAX SAVING RETIREMENT PLANS

Retirement plans offer significant tax savings and are available to individuals,
partnerships, small business, corporations, non-profit 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-sheltered plans. These plans contain special tax
advantages and let you invest for retirement while sheltering your investment
income from current taxes. Minimums may differ from those listed elsewhere in
the Prospectus.

* Individual Retirement Accounts (IRAs): personal savings plans that offer tax
advantages for individuals to set aside money for retirement and allow new

contributions of $2,000 per tax year.

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

* Simplified Employees Pension Plans (SEP): a relatively easy and inexpensive
alternative to retirement planning for sole proprietors, partnerships and
corporations. Under a SEP, employers make deductible contributions to their
own and to eligible employees' IRA accounts. Employee contributions are
available through a "Salary Deferral" SEP for businesses with fewer than 25
eligible employees.

* Keogh Plans: defined contribution plans available to individuals with self-
employed income and non incorporated businesses such as sole proprietors,
professionals and partnerships. Contributions are tax-deductible to the
employer and earnings are tax sheltered until distribution.

* Corporate Profit Sharing and Money Purchase Plans: defined contribution
plans available to corporations to benefit their employees by making
contributions on their behalf and in some cases permitting their employees
to make contributions.

* 401(k) Programs: defined contribution plans available to corporations allowing
tax deductible employer contributions and permitting employees to contribute a
percentage of their wage on a tax-deferred basis.

* 403(b) Custodian Accounts: defined contribution plans open to employees of
most non-profit organization and educational institutions.

* Deferred Benefit Plans: plan sponsors may invest all or part of their
pension assets in the Fund.

DIVIDENDS, DISTRIBUTIONS AND TAXES

Distributions. The Fund distributes substantially all of its net investment
income and capital gains to shareholders each year. Income dividends and any net
capital gains are distributed in December. Unless a shareholder instructs the
Trust to pay such dividends and distributions in cash, they will be
automatically reinvested in additional shares of the Fund.

Federal Taxes. Distributions from the Fund's income and short-term capital gains
are taxed as dividends and long-term capital gains. The Fund's distributions are
taxable when they are paid, whether you take them in cash or reinvest them in
additional shares. Distributions declared to shareholders of record in November
and December and paid in January are taxable as if paid on December 31. The Fund
will send each shareholder a tax statement by January 31 showing the tax status
of the distributions received in the past year.

"Buying a Dividend." On the ex-date for a distribution from income and/or
capital gains, the Fund's share value is reduced by the amount of distribution.
If you buy shares just before the ex-date ("buying a dividend"), you will pay
the full price for the shares and then receive a portion of the price back as a
taxable distribution.

Other Tax Information. In addition to Federal taxes, you may be subject to
state or local taxes on your investment, depending on the laws in your area.

If the Portfolio is liable for foreign taxes, and if more than 50% of the value
of the Portfolio's total assets at the close of its taxable year consists of
stocks or securities of foreign corporations, it may make an election pursuant
to which certain foreign taxes paid by it would be treated as having been paid
directly by shareholders of the entities, such as the Fund which have invested
in the Portfolio. Pursuant to such election, the amount of foreign taxes paid
will be included in the income for Fund shareholders, and Fund shareholders
(except tax-exempt shareholders) may, subject to certain limitations, claim
either a credit or deduction for the taxes. Each Fund shareholder will be
notified after the close of the Portfolio's taxable year whether the foreign
taxes paid will "pass through" for that year and, if so, such notifications will
designate (a) the shareholder's portion of the foreign taxes paid to each such
country and (b) the portion which represents income derived from sources within
each such country.

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

PERFORMANCE INFORMATION AND REPORTS

The Fund's performance may be used from time to time in advertisements,
shareholder reports or other communications to shareholders or prospective
shareholders. Performance information may include the Fund's investment results
and/or comparisons of its investment results to various unmanaged indices such
as MSCI Combined Asia Index, MSCI combined Far East Free Excluding Japan Index,
or Lipper Pacific Region Funds Average or results of other mutual funds or
investment or savings vehicles. The Fund's investment results as used in such
communications will be calculated on a total rate of return basis in the manner
set forth below. From time to time, fund rankings may be quoted from various
sources, such as Lipper Analytical Services, Inc., Value Line and Morningstar,
Inc.

The Trust may provide period and average annualized "total return" quotations
for the Fund. The Fund's "total return" refers to the change in the value of an
investment in the Fund over a stated period based on any change in net asset
value per share and including the value of any shares purchasable with any
dividends or capital gains distributed during such period. Period total return
may be annualized. An annualized total return is a compounded total return which
assumes that the period total return is generated over a one-year period, and
that all dividends and capital gain distributions are reinvested. An annualized
total return will be higher than a period total return if the period is shorter
than one year because of the compounding effect.

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

MANAGEMENT OF THE TRUST AND BT INVESTMENT PORTFOLIOS

BOARD OF TRUSTEES

The affairs of the Trust and the BT Investment Portfolios are managed under the
supervision of their respective Board of Trustees. By virtue of the
responsibilities assumed by Bankers Trust, as the Administrator of the Trust and
the BT Investment Portfolios, neither the Trust nor BT Investment Portfolios
requires employees other than its officers. None of the Trust's or BT Investment
Portfolios' officers devotes full time to the affairs of the Trust or BT
Investment Portfolios.

The Trustees of the Trust who are not "interested persons" (as defined in the
1940 Act) of the Trust or of the BT Investment Portfolios, as the case may be,
(the "Independent Trustees") have adopted written procedures reasonably
appropriate to deal with potential conflicts of interest, up to and including
creating separate boards of trustees, arising from the fact that several of the
same individuals are trustees of the Trust and BT Investment Portfolios. For
more information with respect to the Trustees of both the Trust and BT
Investment Portfolios, see "Management of the Trust and Portfolios" in the
Statement of Additional Information.

INVESTMENT ADVISER

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

All orders for investment transactions on behalf of the Portfolio are placed by
Bankers Trust with broker-dealers and other financial intermediaries that it
selects, including those affiliated with Bankers Trust. A Bankers Trust
affiliate will be used in connection with a purchase or a sale of an investment
for the Portfolio only if Bankers Trust believes that the affiliate's charge for
the transaction does not exceed usual and customary levels. The Portfolio will
not invest in obligations for which Bankers Trust or any of its affiliates is
the ultimate obligor or accepting bank. The Portfolio may, however, invest in
the obligations of correspondents or customers of Bankers Trust.

Under its Investment Advisory Agreement, Bankers Trust receives a fee from the
Portfolio, computed daily and paid monthly, at the annual rate of 0.75% of the
average daily net assets of the Portfolio. Although the investment advisory fee
is higher than the investment advisory fee paid by most funds, it is not higher
than the investment advisory fees paid by many other international or Pacific
Basin funds.

SUB-INVESTMENT ADVISER

Bankers Trust has entered into a sub-investment advisory agreement (the "Sub-
Advisory Agreement") with BT Fund Managers International Limited ("BT Fund
Managers International"), a wholly owned subsidiary of Bankers Trust Australia
Limited ("BTAL") in Sydney. BTAL is a wholly owned subsidiary of Bankers Trust
New York Corporation. Under the Sub-Advisory Agreement, Bankers Trust may
receive investment advice and research services with respect to companies based
in the Pacific Basin and may grant BT Fund Managers International investment
management authority as well as the authority to buy and sell securities if
Bankers Trust believes it would be beneficial to the Portfolio. Under the
Sub-Advisory Agreement, BT Fund Managers International receives a fee from
Bankers Trust for providing investment advice and research services, computed
daily and paid monthly, at the annual rate of 0.60% of the average daily assets
of the Portfolio.

BTAL, which was granted a banking license in 1986, is the parent of Bankers
Trust Australia Group which has offices in Sydney, Melbourne, Perth, Brisbane,
Adelaide, London and Hong Kong. A representative office of Bankers Trust Company
was opened in Australia in 1966 and Australian merchant banking operations
commences in 1969. A related organization, Bankers Trust New Zealand Limited,
was established in 1986. Although BTAL has not previously served as investment
adviser for a registered investment company, BTAL provides investment services
for a range of clients.

Paul Durham, Vice President of BTAL, is responsible for the day-to-day
management of the Portfolio. Mr. Durham has been employed by Bankers Trust since
January, 1988 and has managed the Portfolio's assets since November, 1993.

ADMINISTRATOR

Under its Administration and Services Agreement with the Trust, Bankers Trust
calculates the net asset value of the Fund and generally assists the Board of
Trustees of the Trust in all aspects of the administration and operation of the
Trust. The Administration and Services Agreement provides for the Trust to pay
Bankers Trust a fee, computed daily and paid monthly, at the annual rate of
0.75% of the average daily net assets of the Fund.

Under an Administration and Services Agreement with BT Investment Portfolios,
Bankers Trust calculates the value of the assets of the Portfolio and generally
assists the Board of Trustees of BT Investment Portfolios in all aspects of the
administration and operation of BT Investment Portfolios. The Administration and
Services Agreement provides for the Portfolio to pay Bankers Trust a fee,
computed daily and paid monthly, at the annual rate of 0.25% of the average
daily net assets of the Portfolio. Under the Administration and Services
Agreement, Bankers Trust may delegate one or more of its responsibilities to
others, including Signature, at Bankers Trust's expense. For more information,
see the Statement of Additional Information.

DISTRIBUTOR

Pursuant to the terms of the Trust's Plan of Distribution pursuant to Rule 12b-1
under the 1940 Act (the "Plan"), Signature may seek reimbursement in an amount
not exceeding 0.20% of the Fund's average daily net assets annually for expenses
incurred in connection with any activities primarily intended to result in the
sale of the Fund's shares, including, but not limited to, compensation to and
expenses (including overhead and telephone expenses) of account executives or
other employees of Signature who, as their primary activity, engage in or
support the distribution of shares; printing of prospectuses, statements of
additional information and reports for other than existing Fund shareholders in
amounts in excess of that typically used in connection with the distribution of
shares of the Fund; costs of placing advertising in various media; services of
parties other than Signature or its affiliates in formulating sales literature,
and typesetting, printing and distribution of sales literature. All costs and
expenses in connection with implementing and operating the Plan will be paid by
the Fund, subject to the 0.20% of net assets limitation. All costs and expenses
associated with preparing the Fund's prospectus and statement of additional
information and in connection with printing them for and distributing them to
existing shareholders and regulatory authorities, which costs and expenses would
not be considered distribution expenses for purposes of the Plan, will also be
paid by the Fund. To the extent expenses of Signature under the Plan in any
fiscal year of the Trust exceed amounts payable under the Plan during that year,
those expenses will not be reimbursed in any succeeding fiscal year. Expenses
incurred in connection with distribution activities will be identified to the
Fund or the other series of the Trust involved, although it is anticipated that
some activities may be conducted on a Trust-wide basis, with the result that
those activities will not be identifiable to any particular series. In the
latter case, expenses will be allocated among the series of the Trust on the
basis of their relative net assets. It's not expected that any payment will be
made under the Plan in the foreseeable future.

SERVICE AGENT

All shareholders must be represented by a Service Agent. Bankers Trust acts as a
Service Agent pursuant to its Administration and Services Agreement with the
Trust and receives no additional compensation from the Fund for such shareholder
services. The service fees of any other Service Agent, including broker-dealers,
will be paid by Bankers Trust from its fees. The services provided by a Service
Agent may include establishing and maintaining shareholder accounts, processing
purchase and redemption transactions, arranging for bank wires, performing
shareholder sub-accounting, answering client inquiries regarding the Trust,
assisting clients in changing dividend options, account designations and
addresses, providing periodic statements showing the client's account balance,
transmitting proxy statements, periodic reports, updated prospectuses and other
communications to shareholders and, with respect to meetings of shareholders,
collecting, tabulating and forwarding to the Trust executed proxies and
obtaining such other information and performing such other services as 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 Service Agreement
with Bankers Trust, or the type of scope not generally offered by a mutual fund,
such as cash management services or enhanced retirement or trust reporting. 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

ORGANIZATION OF THE TRUST

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

The Portfolio is a series of BT Investment Portfolios, an open-end management
investment company. BT Investment Portfolios was organized as a trust under the
laws of the State of New York. BT Investment Portfolios' Declaration of Trust
provides that the Fund and other entities investing in the Portfolio (e.g.,
other investment companies, insurance company separate accounts and common and
commingled trust funds) will each be liable for all obligations of the
Portfolio. However, the risk of the Fund incurring financial loss on account of
such liability is limited to circumstances in which both inadequate insurance
existed and the Portfolio itself was unable to meet its obligations.
Accordingly, the Trustees of the Trust believe that neither the Fund nor its
shareholders will be adversely affected by reason of the Fund's investing in the
Portfolio. The interests in BT Investment Portfolios are divided into separate
series, such as the Portfolio. No series of BT Investment Portfolios has any
preference over any other series.

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

EXPENSES OF THE TRUST

The Fund bears its own expenses. Operating expenses for the Fund generally
consist of all costs not specifically borne by Bankers Trust or Signature,
including administration and service fees, fees for necessary professional
services, amortization of organizational expenses, and costs associated with
regulatory compliance and maintaining legal existence and shareholder relations.
Bankers Trust and Signature have agreed to reimburse the Fund to the extent
required by applicable state law for certain expenses that are described in the
Statement of Additional Information. The Portfolio bears its own expenses.
Operating expenses for the Portfolio generally consist of all costs not
specifically borne by Bankers Trust or Signature, including investment advisory
and administration and services fees, fees for necessary professional services,
amortization of organizational expenses, the costs associated with regulatory
compliance and maintaining legal existence and investor relations.

ADDITIONAL INFORMATION

American Depositary Receipts ("ADRs"), Global Depositary Receipts ("GDRs") and
European Depositary Receipts ("EDRs"). The Portfolio may invest in securities of
foreign issuers directly in the form of ADRs, GDRs, EDRs or other similar
securities representing securities of foreign issuers. These securities may not
necessarily be denominated in the same currency as the securities they
represent. Designed for use in U.S. and European securities markets,
respectively, ADRs, GDRs and EDRs are alternatives to the purchase of the
underlying securities in their national markets and currencies. ADRs, GDRs and
EDRs are subject to the same risks as the foreign securities to which they
relate.

When Issued and Delayed Delivery Securities. The Portfolio may purchase
securities on a when-issued or delayed delivery basis. Delivery of and payment
for these securities may take place as long as a month or more after the date of
the purchase commitment. The value of these securities is subject to market
fluctuation during this period and no income accrues to the Portfolio unless
settlement takes place. The Portfolio maintains with the Custodian a segregated
account containing high grade liquid securities in an amount at least equal to
these commitments. When entering into a when-issued or delayed delivery
transaction, the Portfolio will rely on the other party to consummate the
transaction; if the other party fails to do so, the Portfolio may be
disadvantaged.

Rule 144A Securities. The Portfolio may purchase securities in the United States
that are not registered for sale under Federal securities laws but which can be
resold to institutions under the SEC's Rule 144A. Provided that a dealer or
institutional trading market in such securities exists, these restricted
securities are treated as exempt from the Portfolio's 15% limit on illiquid
securities. Under the supervision of the Board of Trustees of the Portfolio,
Bankers Trust determines the liquidity of restricted securities and, through
reports from Bankers Trust, the Board will monitor trading activity in
restricted securities. Because Rule 144A is relatively new, it is not possible
to predict how these markets will develop. If institutional trading in
restricted securities were to decline, the liquidity of the Portfolio could be
adversely affected.

A forward foreign currency exchange contract is an obligation by the Portfolio
to purchase or to sell a specific currency at a future date, which may be any
fixed number of days from the date of the contract. Forward foreign currency
exchange contracts establish an exchange rate at a future date. These contracts
are transferable in the inter bank market conducted directly between currency
traders (usually large commercial banks) and their customers. A forward foreign
currency exchange contract generally has no deposit requirement and is traded at
a net price without commission. The Portfolio maintains with its custodian a
segregated account of high grade liquid assets in an amount at least equal to
its obligations under each forward foreign currency exchange contract. Neither
spot transactions nor forward foreign currency exchange contracts eliminate
fluctuations in the prices of the Portfolio's securities or in foreign exchange
rates, or prevent loss if the prices of these securities should decline.

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

Options on Foreign Currencies. The Portfolio may write covered put and call
options and purchase put and call options on foreign currencies for the purpose
of protecting against declines in the dollar value of portfolio securities and
against increases in the dollar cost of securities to be acquired. The Portfolio
may use options on currency to cross-hedge, which involves writing or purchasing
options on one currency to hedge against changes in exchange rates for a
different, but related currency. As with other types of options, however, the
writing of an option on foreign currency will constitute only a partial hedge up
to the amount of the premium received, and the Portfolio could be required to
purchase or sell foreign currencies at disadvantageous exchange rates, thereby
incurring losses. The purchase of an option on foreign currency may be used to
hedge against fluctuations in exchange rates although, in the event of exchange
rate movements adverse to the Portfolio's position, it may forfeit the entire
amount of the premium plus related transaction costs. In addition, the Portfolio
may purchase call options on a currency when the investment adviser anticipates
that the currency will appreciate in value.

As in the case of forward contracts, certain options on foreign currencies are
traded over-the-counter and involve liquidity and credit risks which may not be
present in the case of exchange-rated currency options. The Portfolio's ability
to terminate over-the-counter options ("OTC Options") will be more limited than
the exchange-traded options. It is also possible that broker-dealers
participating in OTC Options transactions will not fulfill their obligations.
Until such time as the staff of the SEC changes its position, the Portfolio will
treat purchased OTC Options and assets used to cover written OTC Options as
illiquid securities. With respect to options written with primary dealers in
U.S. Government securities pursuant to an agreement requiring a closing purchase
transaction at a formula price, the amount of illiquid securities may be
calculated with reference to the repurchase formula.

Options on Stocks. The Portfolio may write and purchase options on stocks. A
call option gives the purchaser of the option the right to buy, and obligates
the writer to sell, the underlying stock at the exercise price at any time
during the option period. Similarly, a put option gives the purchaser of the
option the right to sell, and obligates the writer to buy the underlying stock
at the exercise price at any time during the option period. A covered call
option with respect to which the Portfolio owns the underlying stock sold by the
Portfolio exposes the Portfolio during the term of the option to possible loss
of opportunity to realize appreciation in the market price of the underlying
stock or to possible continued holding of a stock which might otherwise have
been sold to protect against depreciation in the market price of the stock. A
covered put option sold by the Portfolio exposes the Portfolio during the term
of the option to a decline in price of the underlying stock. A put option sold
by the Portfolio is covered, when among other things, cash or liquid securities
are placed in a segregated account to fulfill the obligations undertaken.

To close out a position when writing covered options, the Portfolio may make a
"closing purchase transaction" which involves purchasing an option on the same
stock with the same exercise price and expiration date as the option which it
has previously written on the stock. The Portfolio will realize a profit or loss
for a closing purchase transaction if the amount paid to purchase an option is
less or more, as the case may be, than the amount received from the sale
thereof. To close out a position as a purchaser of an option, the Portfolio, may
make a "closing sale transaction" which involves liquidating the Portfolio's
position by selling the option previously purchased.

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

To the extent permitted by U.S. Federal or state securities laws, the Portfolio
may invest in options on foreign stock indices in lieu of direct investment in
foreign securities. The Portfolio may also use foreign stock index options for
hedging purposes.

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

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

Although Futures Contracts would be entered into for hedging purposes only, such
transactions do involve certain risks. These risks could include a lack of
correlation between the Futures Contract and the foreign equity market being
hedged, a potential lack of liquidity in the secondary market and incorrect
assessments of market trends which may result in poorer overall performance than
if a Futures Contract had not been entered into.

Brokerage costs will be incurred and "margin" will be required to be posted and
maintained as a good faith deposit against performance of obligations under
Futures Contracts written for the Portfolio. The Portfolio may not purchase or
sell a Futures Contract if immediately thereafter its margin deposits on its
outstanding Futures Contracts would exceed 5% of the market value of the
Portfolio's total assets.

Options on Futures Contracts. The Portfolio may invest in options on such
futures contracts for similar purposes. The Portfolio will write and purchase
put and call options only to the extent permitted by the policies of state
securities authorities in states where shares of the Fund are qualified for
offer and sale.

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

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

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INVESTMENT ADVISER OF THE PORTFOLIO AND ADMINISTRATOR
BANKERS TRUST COMPANY

DISTRIBUTOR
SIGNATURE BROKER-DEALER SERVICES, INC.

CUSTODIAN AND TRANSFER AGENT
BANKERS TRUST COMPANY

INDEPENDENT ACCOUNTANTS
COOPERS & LYBRAND L.L.P.

COUNSEL

WILLKIE FARR & GALLAGHER

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

<PAGE>

BT0494 STATEMENT OF
ADDITIONAL INFORMATION
JANUARY 29, 1996

BT INVESTMENT
OCAPITAL APPRECIATION FUND
OINTERNATIONAL EQUITY FUND

BT Investment Funds (the "Trust") is comprised of several funds. The shares of
two of the funds--Capital Appreciation Fund and International Equity Fund (each,
a "Fund")--are described herein.

TABLE OF CONTENTS

Investment Objectives, Policies and Restrictions . . . . . . . . . 3
Performance Information . . . . . . . . . . . . . . . . . . . . . 22
Valuation of Securities; Redemptions and Purchases in Kind . . . . 25
Management of the Trust and The Portfolios . . . . . . . . . . . . 27
Organization of the Trust . . . . . . . . . . . . . . . . . . . . 34
Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . 39
Appendix (Bond, Commercial Paper and Municipal
Obligations Ratings) . . . . . . . . . . . . . . . . . . . . . . A-1

As described in the Prospectuses, the Trust seeks to achieve the investment
objectives of each Fund by investing all the investable assets ("Assets") of the
Fund in a diversified open-end management investment company having the same
investment objectives as the Fund. These investment companies are, respectively,
Capital Appreciation Portfolio and International Equity Portfolio (collectively,
the "Portfolios").

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

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

The Trust's Prospectuses for each Fund, dated January 29, 1996, provide the
basic information investors should know before investing, and may be obtained
without charge by calling the Trust at the telephone number listed below or by
contacting any Service Agent. This Statement of Additional Information, which is
not a Prospectus, is intended to provide additional information regarding the
activities and operations of the Trust and should be read in conjunction with
that Fund's Prospectus. This Statement of Additional Information is not an offer
of any Fund for which an investor has not received a Prospectus. Capitalized
terms not otherwise defined in this Statement of Additional Information have the
meanings accorded to them in the Trust's Prospectuses.

<PAGE>

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

6 ST. JAMES AVENUE BOSTON, MASSACHUSETTS 02116 (800) 730-1313

<PAGE>

INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS

INVESTMENT OBJECTIVES

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

INVESTMENT POLICIES

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

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

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

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

For a description of commercial paper ratings, see the Appendix.

SHORT-TERM INSTRUMENTS. When a Portfolio experiences large cash inflows through
the sale of securities and desirable equity securities, that are consistent with
the Portfolio's investment objective, which are unavailable in sufficient
quantities or at attractive prices, the Portfolio may hold short-term
investments for a limited time pending availability of such equity securities.
Short-term instruments consist of foreign and domestic: (i) short-term
obligations of

<PAGE>

sovereign governments, their agencies, instrumentalities, authorities or
political subdivisions; (ii) other short-term debt securities rated AA or higher
by S&P or Aa or higher by Moody's or, if unrated, of comparable quality in the
opinion of Bankers Trust; (iii) commercial paper; (iv) bank obligations,
including negotiable certificates of deposit, time deposits and banker's
acceptances; and (v) repurchase agreements. At the time the Portfolio invests in
commercial paper, bank obligations or repurchase agreements, the issuer of the
issuer's parent must have outstanding debt rated AA or higher by S&P or Aa or
higher by Moody's or outstanding commercial paper or bank obligations rated A-1
by S&P or Prime-1 by Moody's; or, if no such ratings are available, the
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.

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

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

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

<PAGE>

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

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

FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS

GENERAL. The successful use of such instruments draws upon the Adviser's skill
and experience with respect to such instruments and usually depends on the
Adviser's ability to forecast interest rate and currency exchange rate movements
correctly. Should interest or exchange rates move in an unexpected manner, 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.

<PAGE>

markets" by the Commodity Futures Trading Commission ("CFTC"), and must be
executed through a futures commission merchant, or brokerage firm, which is a
member of the relevant contract market. Futures contracts trade on a number of
exchange markets, and, through their clearing corporations, the exchanges
guarantee performance of the contracts as between the clearing members of the
exchange. A Portfolio may enter into futures contracts which are based on debt
securities that are backed by the full faith and credit of the U.S. Government,
such as long-term U.S. Treasury Bonds, Treasury Notes, Government National
Mortgage Association modified pass-through mortgage-backed securities and
three-month U.S. Treasury Bills. A Portfolio may also enter into futures
contracts which are based on bonds issued by entities other than the U.S.
Government.

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

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

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

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

<PAGE>

more liquid than the cash market, the use of futures contracts as an investment
technique allows the Portfolio to maintain a defensive position without having
to sell its portfolio securities.

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

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

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

<PAGE>

OPTIONS ON FUTURES CONTRACTS. Each Portfolio may purchase and write options on
futures contracts for hedging purposes. The purchase of a call option on a
futures contract is similar in some respects to the purchase of a call option on
an individual security. Depending on the pricing of the option compared to
either the price of the futures contract upon which it is based or the price of
the underlying debt securities, it may or may not be less risky than ownership
of the futures contract or underlying debt securities. As with the purchase of
futures contracts, when a Portfolio is not fully invested it may purchase a call
option on a futures contract to hedge against a market advance due to declining
interest rates.

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

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

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

The Board of Trustees of each Portfolio has adopted the requirement that futures
contracts and options on futures contracts be used only as a hedge and not for
speculation. In addition to this requirement, the Board of Trustees of each
Portfolio has also adopted a restriction that the Portfolio will not enter into
any futures contracts or options on futures contracts if immediately thereafter
the amount of margin deposits on all the futures contracts of the Portfolio and
premiums paid on outstanding options on futures contracts owned by the Portfolio
(other than those entered into for bona fide hedging purposes) would exceed 5%
of the market value of the total assets of the Portfolio.

<PAGE>

OPTIONS ON FOREIGN CURRENCIES. Each 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, a Portfolio will have the right to sell such currency
for a fixed amount in dollars and will thereby offset, in whole or in part, the
adverse effect on its portfolio which otherwise would have resulted.

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

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

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

Each Portfolio may write covered call options on foreign currencies. A call
option written on a foreign currency by a 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

<PAGE>

its portfolio. A call option is also covered if the Portfolio has a call on the
same foreign currency and in the same principal amount as the call written where
the exercise price of the call held (a) is equal to or less than the exercise
price of the call written or (b) is greater than the exercise price of the call
written if the difference is maintained by the Portfolio in cash, U.S.
Government securities and other high quality liquid debt securities in a
segregated account with its custodian.

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

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

Options on foreign currencies traded on national securities exchanges are within
the jurisdiction of the SEC, as are other securities traded on such exchanges.
As a result, many of the protections provided to traders on organized exchanges
will be available with respect to such transactions. In particular, all foreign
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

<PAGE>

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

As in the case of forward contracts, certain options on foreign currencies are
traded over-the-counter and involve liquidity and credit risks which may not be
present in the case of exchange-traded currency options. A Portfolio's ability
to terminate over-the-counter options will be more limited than with
exchange-traded options. It is also possible that broker-dealers participating
in over-the-counter options transactions will not fulfill their obligations.
Until such time as the staff of the SEC changes its position, each Portfolio
will treat purchased over-the-counter options and assets used to cover written
over-the-counter options as illiquid securities. With respect to options written
with primary dealers in U.S. Government securities pursuant to an agreement
requiring a closing purchase transaction at a formula price, the amount of
illiquid securities may be calculated with reference to the repurchase formula.

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

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

When a Portfolio writes a covered call option, it gives the purchaser of the
option the right to buy the 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 security to the option holder at the exercise price. By writing a

<PAGE>

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 from a closing
purchase transaction if the amount paid to purchase an option is less or more,
as the case may be, than the amount received from the sale thereof. To close out
a position as a purchaser of an option, the Portfolio, may make a "closing sale
transaction" which involves liquidating the Portfolio's position by selling the
option previously purchased. Where the Portfolio cannot effect a closing
purchase transaction, it may be forced to incur brokerage commissions or dealer
spreads in selling securities it receives or it may be forced to hold underlying
securities until an option is exercised or expires.

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

<PAGE>

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 holdings, at a
specified price during the option period. The purchase of protective puts is
designed merely to offset or hedge against a decline in the market value of the
Portfolio's holdings. 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.

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

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

A Portfolio may engage in over-the-counter options transactions with
broker-dealers who make markets in these options. At present, approximately ten
broker-dealers, including several of the largest primary dealers in U.S.
Government securities, make these markets. The ability to terminate
over-the-counter option positions is more limited than with exchange-traded
option positions because the predominant market is the issuing broker rather
than an exchange, and may involve the risk that broker-dealers participating in
such transactions will not fulfill their obligations. To reduce this risk, the
Portfolio will purchase such options only from broker-dealers who are primary
government securities dealers recognized by the Federal Reserve Bank of New York
and who agree to (and are expected to be capable of) entering into closing
transactions, although there can be no guarantee that any such option will be
liquidated at a favorable price prior to expiration. The Adviser will monitor
the creditworthiness of dealers with whom the Portfolio enters into such options
transactions under the general supervision of the Portfolios' Trustees.

<PAGE>

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."

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

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

A forward foreign currency exchange contract is an obligation by a Portfolio to
purchase or sell a specific currency at a future date, which may be any fixed
number of days from the date of the contract. Forward foreign currency exchange
contracts establish an exchange rate at a future date. These contracts are
transferable in the interbank market conducted directly between currency traders
(usually large commercial banks) and their customers. A forward foreign currency
exchange contract generally has no deposit requirement and is traded at a net
price without commission. Each Portfolio maintains with its custodian a
segregated account of high grade liquid assets in an amount at least equal to
its obligations under each forward foreign currency exchange contract. Neither
spot transactions nor forward foreign currency exchange contracts eliminate

<PAGE>

fluctuations in the prices of the Portfolio's securities or in foreign exchange
rates, or prevent loss if the prices of these securities should decline.

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

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

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

<PAGE>

RATING SERVICES

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

INVESTMENT RESTRICTIONS

The following investment restrictions are "fundamental policies" of each Fund
and each Portfolio and may not be changed with respect to the Fund or the
Portfolio without the approval of a "majority of the outstanding voting
securities" of the Fund or the Portfolio, as the case may be. "Majority of the
outstanding voting securities" under the Investment Company Act of 1940, as
amended (the "1940 Act"), and as used in this Statement of Additional
Information and the Prospectuses, 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, each Portfolio (or Fund) may not (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 objective):

(1) borrow money or mortgage or hypothecate assets of the Portfolio
(Fund), except that in an amount not to exceed 1/3 of the current value of the
Portfolio's (Fund's) assets, it may borrow money as a temporary measure for
extraordinary or emergency purposes and enter into reverse repurchase agreements
or dollar roll transactions, and except that it may pledge, mortgage or
hypothecate not more than 1/3 of such assets to secure such borrowings (it is
intended that money would be borrowed only from banks and only either to
accommodate requests for the withdrawal of beneficial interests (redemption of

<PAGE>

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

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

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

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

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

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

STATE AND FEDERAL RESTRICTIONS. In order to comply with certain state and
Federal statutes and policies, the Portfolios (or the Trust, on behalf of the
Funds) 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 objective):

<PAGE>

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

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

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

(iv) sell securities it does not own (short sells) 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 that the Portfolio
(Fund) contemporaneously owns or where the Portfolio has the right to obtain
securities equivalent in kind and amount to those sold, i.e., short sales
against the box.) (The Portfolio (Fund) currently does not engage in short
selling.);

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

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

<PAGE>

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

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

(ix) invest more than 15% of the Portfolio's (Fund's) net assets (taken
at the greater of cost or market value) in securities that are illiquid or not
readily marketable (excluding Rule 144A securities deemed by the Board of
Trustees of the Portfolio (Trust) to be liquid);

(x) with respect to 75% of its assets, invest more than 5% of its total
assets in the securities (excluding U.S. Government securities) of any one
issuer;

(xi) invest in securities issued by an issuer any of whose officers,
directors, trustees or security holders is an officer or Trustee of the Portfo
lio (Trust), or is an officer or director of the Adviser, if after the purchase
of the securities of such issuer for the Portfolio (Fund) one or more of such
persons owns beneficially more than 1/2 of 1% of the shares or securities, or
both, all taken at market value, of such issuer, and such persons owning more
than 1/2 of 1% of such shares or securities together own beneficially more than
5% of such shares or securities, or both, all taken at market value;

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

(xiii) write puts and calls on securities unless each of the following
conditions are met: (a) the security underlying the put or call is within the
investment practices of the Portfolio (Fund) and the option is issued by the
OCC, 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

<PAGE>

written, the Portfolio (Fund) establishes a segregated account with its
custodian consisting of cash or short-term U.S. Government securities equal in
value to the amount the Portfolio (Fund) will be obligated to pay upon exercise
of the put (this account must be maintained until the put is exercised, has
expired, or the Portfolio (Fund) has purchased a closing put, which is a put of
the same series as the one previously written); and

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

There will be no violation of any investment restriction if that restriction is
complied with at the time the relevant action is taken, notwithstanding a later
change in 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.

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

PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS

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

<PAGE>

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 Rules of Fair Practice of the
National Association of Securities Dealers, Inc. and such other policies as the
Trustees of the Portfolio may determine, the Adviser may consider sales of
shares of the Trust and of other investment company clients of Bankers Trust as
a factor in the selection of broker-dealers to execute portfolio transactions.
Bankers Trust will make such allocations if commissions are comparable to those
charged by nonaffiliated, qualified broker-dealers for similar services.

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

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

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

<PAGE>

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 period from January 1, 1995 through September 30, 1995, the years ended
December 31, 1994 and 1993, International Equity Portfolio paid brokerage
commissions in the amount of $132,894, $110,580 and $63,523, respectively.

PERFORMANCE INFORMATION

STANDARD PERFORMANCE INFORMATION

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

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

Capital
Appreciation International
FUND1 EQUITY FUND2

Total Return
for 1 Year ended
September 30, 1995 43.36% 13.84%

<PAGE>

Capital
Appreciation International
FUND1 EQUITY FUND2

Cumulative
Total Return
for the Period from
Commencement of
Operations through
September 30, 1995 68.30% 61.50%

Average Annual
Total Return for
the Period from
Commencement of
Operations through
September 30, 1995 22.53% 16.40%

1Fund commenced operations on March 9, 1993 2Fund commenced operations
on August 4, 1992.

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

COMPARISON OF FUND PERFORMANCE

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

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

<PAGE>

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

<PAGE>

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.

VALUATION OF SECURITIES; REDEMPTIONS AND PURCHASES IN KIND

Securities for which market quotations are not readily 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:

<PAGE>

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 readily available, the
Adviser of the Portfolio will value such securities based upon all relevant
factors as outlined in FRR 1.

The Trust, on behalf of each Fund, and each Portfolio reserve the right, if
conditions exist which make cash payments undesirable, to honor any request for
redemption or withdrawal by making payment in whole or in part in readily
marketable securities chosen by the Trust, or the Portfolio, as the case may be,
and valued as they are for purposes of computing the Fund's or the Portfolio's
net asset value, as the case may be (a redemption in kind). If payment is made
to a Fund shareholder in securities, an investor, including the Fund, may incur
transaction expenses in converting these securities into cash. The Trust, on
behalf of 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. Each 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

<PAGE>

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 may
be a taxable transaction to the shareholder. (Consult your tax adviser for
future tax guidance.) 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 the 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. Each Fund reserves the right to accept or reject at its own
option any and all securities offered in payment for its shares.

MANAGEMENT OF THE TRUST AND THE PORTFOLIOS

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

The Trustees and officers of the Trust and Portfolios, their age and their
principal occupations during the past five years are set forth below. Their
titles may have varied during that period. Asterisks indicate those Trustees who
are "interested persons" (as defined in the 1940 Act) of the Trust. Unless
otherwise indicated, the address of each Trustee and officer is 6 St. James
Avenue, Boston, Massachusetts.

TRUSTEES OF THE TRUST

KELVIN J. LANCASTER (aged 71) -- Trustee; Professor, Department of Economics,
Columbia University. His address is 35 Claremont Avenue, New York, New York
10027.

PHILIP SAUNDERS, JR. (aged 60) -- 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.

<PAGE>

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

PHILIP W. COOLIDGE* (aged 44) -- President and Trustee; Chairman, Chief
Executive Officer and President, Signature Financial Group, Inc. ("SFG") (since
December, 1988) and Signature (since April, 1989).

TRUSTEES OF THE PORTFOLIOS

CHARLES P. BIGGAR (aged 65) -- Trustee; Retired; Director of Chase/NBW Bank
Advisory Board; Director, Batemen, Eichler, Hill Richards Inc.; formerly Vice
President of International Business Machines and President of the National
Services and the Field Engineering Divisions of IBM. His address is 12 Hitching
Post Lane, Chappaqua, New York 10514.

S. LELAND DILL (aged 65) -- Trustee; Retired; Director, Coutts & Co. Group,
Coutts & Co. (U.S.A.) International; Director, Zweig Series Trust; formerly
Partner of KPMG Peat Marwick; Director, Vinters International Company, Inc.;
General Partner of Pemco (an investment company registered under the 1940 Act).
His address is 5070 North Ocean Drive, Singer Island, Florida 33404.

PHILIP W. COOLIDGE* (aged 44) -- President and Trustee; Chairman, Chief
Executive Officer and President, SFG (since December, 1988) and Signature (since
April, 1989).

OFFICERS OF THE TRUST AND PORTFOLIOS

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

JOHN R. ELDER (aged 47) -- Treasurer; Vice President, SFG (since April, 1995);
Treasurer, Phoenix Family of Mutual Funds (prior to April, 1995); Audit Manager,
Price Waterhouse (prior to 1983).

DAVID G. DANIELSON (aged 30) -- Assistant Treasurer; Assistant Manager, SFG
(since May, 1991); Graduate Student, Northeastern University (from April, 1990
to March, 1991); Tax Accountant & Systems Analyst, Putnam Companies (prior to
March, 1990).

JAMES S. LELKO, JR. (aged 30) -- Assistant Treasurer; Assistant Manager, SFG
(since January 1993); Senior Tax Compliance Accountant, Putnam Investments
(prior to December 1992).

BARBARA M. O'DETTE (aged 36) -- Assistant Treasurer; Assistant Treasurer, SFG
(since December, 1988) and Signature (since April, 1989).

<PAGE>

DANIEL E. SHEA (aged 33) -- Assistant Treasurer; Assistant Manager, SFG (since
November 1993); Supervisor and Senior Technical Advisor, Putnam Investments
(prior to November 1993).

LINDA T. GIBSON (aged 30) -- Assistant Secretary; Legal Counsel and Assistant
Secretary, SFG (since May, 1992); Assistant Secretary, Signature (since October,
1992); student, Boston University School of Law (September, 1989 to May, 1992);
Product Manager, SFG (January, 1989 to September, 1989).

THOMAS M. LENZ (aged 37) -- Secretary; Vice President and Associate General
Counsel, SFG (since November, 1989); Assistant Secretary, Signature (since
February, 1991); Attorney, Ropes & Gray (prior to November, 1989).

MOLLY S. MUGLER (aged 44) -- Assistant Secretary; Legal Counsel and Assistant
Secretary, SFG (since December, 1988); Assistant Secretary, Signature (since
April, 1989).

ANDRES E. SALDANA (aged 33) -- Assistant Secretary; Legal Counsel, SFG (since
November, 1992); Assistant Secretary, Signature (since September, 1993);
Attorney, Ropes & Gray (September, 1990 to November, 1992); law student, Yale
Law School (September, 1987 to May, 1990).

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

No person who is an officer or director of Bankers Trust is an officer or
Trustee of the Trust or the Portfolios. No director, officer or employee of
Signature or any of its affiliates will receive any compensation from the Trust
or the Portfolios for serving as an officer or Trustee of the Trust or the
Portfolios. The Trust pays each Trustee who is not a director, officer or
employee of the Adviser, the Distributor, the Administrator or any of their
affiliates an annual fee of $10,000, respectively, per annum plus $1,250,
respectively, per meeting attended and reimburses them for travel and
out-of-pocket expenses. The Portfolios, Cash Management Portfolio, Treasury
Money Portfolio, Tax Free Money Portfolio, NY Tax Free Money Portfolio, Utility
Portfolio, Equity 500 Index Portfolio, Short/Intermediate U.S. Government
Securities Portfolio, Intermediate Tax Free Portfolio, Asset Management
Portfolio and BT Investment Portfolios (together with the Trust, the "Fund
Complex") collectively pay each Trustee who is not a director, officer or
employee of the Adviser, the Distributor, the Administrator or any of their
affiliates an annual fee of $10,000, respectively, per annum plus $1,250,
respectively, per meeting attended and reimburses them for travel and
out-of-pocket expenses.

For the period from January 1, 1995 to September 30, 1995, the Capital
Appreciation Fund incurred Trustees fees equal to $1,173. For the same period,
Capital Appreciation Portfolio incurred Trustees fees equal to $1,107.

For the period from January 1, 1995 to September 30, 1995, the International
Equity Fund incurred Trustees fees equal to $1,138. For the same period,
International Equity Portfolio incurred Trustees fees equal to $1,079.

<PAGE>

The following table reflects fees paid to the Trustees of the Trust and
Portfolio for the year ended September 30, 1995.

TRUSTEE COMPENSATION TABLE
<TABLE>
<CAPTION>

PENSION OR
RETIREMENT
BENEFITS ACCRUED
AGGREGATE AS PART OF TRUST ESTIMATED ANNUAL TOTAL COMPENSATION
NAME OF PERSON, COMPENSATION OR PORTFOLIO BENEFITS UPON FROM FUND COMPLEX
POSITION FROM TRUST EXPENSES RETIREMENT PAID TO TRUSTEES
<S> <C> <C> <C> <C>

Kelvin J. Lancaster, $12,500 none none $12,500
Trustee of Trust

Philip Saunders, Jr, $12,500 none none $12,500
Trustee of Trust
and Portfolios

S. Leland Dill, $12,500 none none $12,500
Trustee of Trust
and Portfolios

Philip W. Coolidge, none none none none
Trustee of Trust
and Portfolios

Charles P. Biggar, none none none $12,500
Trustee of Portfolios

</TABLE>

Bankers Trust reimbursed the Funds and Portfolios for a portion of their
Trustees fees for the period above. See "Investment Adviser" and "Administrator"
below.

INVESTMENT ADVISER

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

Bankers Trust bears all expenses in connection with the performance of services
under each Advisory Agreement. The Trust and each Portfolio bears certain other

<PAGE>

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

For the period from January 1, 1995 to September 30, 1995, and the years ended
December 31, 1994 and 1993, Bankers Trust aggregated $322,696, $322,489 and
$25,031 respectively, in compensation for investment advisory services provided
to International Equity Portfolio. During the same periods, Bankers Trust
reimbursed $108,743, $117,653 and $65,394, respectively, to that 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.

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

<PAGE>

ADMINISTRATOR

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

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

For the period from January 1, 1995 to September 30, 1995, the year ended
December 31, 1994 and the period from March 9, 1993 (commencement of operations)
through December 31, 1993, Bankers Trust aggregated $229,796, $165,092 and
$43,514, respectively, in compensation for administrative and other services
provided to the Capital Appreciation Fund. During the same periods, Bankers
Trust reimbursed $48,877, $79,097 and $18,173, respectively, to cover expenses.
For the period from January 1, 1995 to September 30, 1995, the year ended
December 31, 1994 and the period from March 9, 1993 (commencement of operations)
through December 31, 1993, Bankers Trust received $74,224, $50,677 and $10,415,
respectively, in compensation for administrative and other services provided to
Capital Appreciation Portfolio.

For the period from January 1, 1995 to September 30, 1995, and the years ended
December 31, 1994 and 1993, Bankers Trust aggregated $421,538, $421,138 and
$141,760, respectively, in compensation for administrative and other services
provided to the International Equity Fund. During the same periods, Bankers
Trust reimbursed $52,956, $66,603 and $37,428, respectively, to cover expenses.
For the period from January 1, 1995 to September 30, 1995, and the years ended
December 31, 1994 and 1993, Bankers Trust received $74,468, $74,420 and $25,031,
respectively, in compensation for administrative and other services provided to
International Equity Portfolio.

<PAGE>

Bankers Trust has agreed that if in any 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, Bankers Trust will reimburse the Fund
for the excess expense to the extent required by state law. As of the date of
this Statement of Additional Information, the most restrictive annual expense
limitation applicable to any Fund is 2.5% of the Fund's first $30 million of
average annual net assets, 2.0% of the next $70 million of average annual net
assets and 1.5% of the remaining average annual net assets.

CUSTODIAN AND TRANSFER AGENT

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

USE OF NAME

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

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

BANKING REGULATORY MATTERS

Bankers Trust has been advised by its counsel that in its opinion Bankers Trust
may perform the services for the Portfolios contemplated by the Advisory
Agreements and other activities for the Funds and the Portfolios described in
the Prospectuses and this Statement of Additional Information without violation
of the Glass-Steagall Act or other applicable banking laws or regulations.
However, counsel has pointed out that future changes in either Federal or state
statutes and regulations concerning the permissible activities of banks or trust
companies, as well as future judicial or administrative decisions or
interpretations of present and future statutes and regulations, might prevent
Bankers Trust from continuing to perform those services for the Trust and the
Portfolios. State laws on this issue may differ from the interpretations of

<PAGE>

relevant Federal law and banks and financial institutions may be required to
register as dealers pursuant to state securities law. If the circumstances
described above should change, the Boards of Trustees would review the
relationships with Bankers Trust and consider taking all actions necessary in
the circumstances.

COUNSEL AND INDEPENDENT ACCOUNTANTS

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

ORGANIZATION OF THE TRUST

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

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

The Trust was organized under the name BT Tax-Free Investment Trust and assumed
its current name of BT Investment Funds on May 16, 1988.

Except as described below, whenever the Trust is requested to vote on a
fundamental policy of the Portfolio, the Trust will hold a meeting of the Fund's
shareholders and will cast its vote as instructed by the Fund's shareholders.
Fund shareholders who do not vote will not affect the Trust's votes at the
Portfolio meeting. The percentage of the Trust's votes representing Fund
shareholders not voting will be voted by the Trustees of the Trust in the same
proportion as the Fund shareholders who do, in fact, vote.

Except as described below, whenever the Fund is requested to vote on matters
pertaining to the Portfolio, the Fund will hold a meeting of its shareholders
and

<PAGE>

will cast its votes proportionately as instructed by Fund shareholders. However,
subject to applicable statutory and regulatory requirements, the Fund would not
request a vote of its shareholders with respect to (a) any proposal relating to
the Portfolio, which proposal, if made with respect to the Fund, would not
require the vote of the shareholders of the Fund, or (b) any proposal with
respect to the Portfolio that is identical in all material respects to a
proposal that has previously been approved by shareholders of the Fund. Any
proposal submitted to holders in the Portfolio, and that is not required to be
voted on by shareholders of the Fund, would nonetheless be voted on by the
Trustees of the Trust.

TAXATION

TAXATION OF THE FUNDS

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

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

<PAGE>

in accordance with a calendar year distribution requirement are subject to a
nondeductible 4% excise tax. To prevent imposition of the excise tax, the Fund
must distribute during each calendar year an amount equal to the sum of: (1) at
least 98% of its ordinary income (not taking into account any capital gains or
losses) for the calendar year; (2) at least 98% of its capital gains in excess
of its capital losses (adjusted for certain ordinary losses, as prescribed by
the Code) for the one-year period ending on October 31 of the calendar year; and
(3) any ordinary income and capital gains for previous years that was not
distributed during those years. A distribution will be treated as paid on
December 31 of the current calendar year if it is declared by the Fund in
October, November or December with a record date in such a month and paid by the
Fund during January of the following calendar year. Such distributions will be
taxable to shareholders in the calendar year in which the distributions are
declared, rather than the calendar year in which the distributions are received.
To prevent application of the excise tax, the Fund intends to make its
distributions in accordance with the calendar year distribution requirement.

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

CAPITAL APPRECIATION PORTFOLIO AND INTERNATIONAL EQUITY PORTFOLIO

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

If the Portfolio is liable for foreign taxes, and if more than 50% of the value
of the Portfolio's total assets at the close of its taxable year consists of
stocks or securities of foreign corporations, it may make an election pursuant
to which certain foreign taxes paid by it would be treated as having been paid
directly by shareholders of the entities, such as the corresponding Fund, which
have invested in the Portfolio. Pursuant to such election, the amount of foreign
taxes paid will be included in the income of the corresponding Fund's
shareholders, and such Fund shareholders (except tax-exempt shareholders) may,
subject to certain limitations, claim either a credit or deduction for the
taxes. Each such Fund shareholder will be notified after the close of the
Portfolio's taxable year whether the foreign taxes paid will "pass through" for
that year and, if so, such notification will designate (a) the shareholder's
portion of the foreign taxes paid to each such country and (b) the portion which
represents income derived from sources within each such country.

<PAGE>

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

DISTRIBUTIONS

Dividends paid out of the Fund's investment company taxable income will be
taxable to a U.S. shareholder as ordinary income. Distributions of net capital
gains, if any, designated as capital gain dividends are taxable as long-term
capital gains, regardless of how long the shareholder has held the Fund's
shares, and are not eligible for the dividends-received deduction. Shareholders
receiving distributions in the form of additional shares, rather than cash,
generally will have a cost basis in each such share equal to the net asset value
of a share of the Fund on the reinvestment date. Shareholders will be notified
annually as to the U.S. Federal tax status of distributions.

TAXATION OF THE PORTFOLIOS

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

Distributions received by a Fund from the corresponding Portfolio generally will
not result in the Fund recognizing any gain or loss for Federal income tax
purposes, except that: (1) gain will be recognized to the extent that any cash
distributed exceeds the Fund's basis in its interest in the Portfolio prior to
the distribution; (2) income or gain may be realized if the distribution is made
in liquidation of the Fund's entire interest in the Portfolio and includes a
disproportionate share of any unrealized receivables held by the Portfolio; and
(3) loss may be recognized if the distribution is made in liquidation of the
Fund's entire interest in the Portfolio and consists solely of cash and/or
unrealized receivables. A Fund's basis in its interest in the corresponding
Portfolio generally will equal the amount of cash and the basis of any property
which the Fund invests in the Portfolio, increased by the Fund's share of income
from the Portfolio, and decreased by the amount of any cash distributions and
the basis of any property distributed from the Portfolio.

SALE OF SHARES

<PAGE>

dividend reinvestment plan) within a period of 61 days beginning 30 days before
and ending 30 days after disposition of the shares. In such a case, the basis of
the shares acquired will be adjusted to reflect the disallowed loss. Any loss
realized by a shareholder on a disposition of Fund shares held by the
shareholder for six months or less will be treated as a long-term capital loss
to the extent of any distributions of net capital gains received by the
shareholder with respect to such shares.

FOREIGN WITHHOLDING TAXES

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

BACKUP WITHHOLDING

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

FOREIGN SHAREHOLDERS

The tax consequences to a foreign shareholder of an investment in a Fund may be
different from those described herein. Foreign shareholders are advised to
consult their own tax advisers with 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. The investment by
each Fund in the corresponding Portfolio does not cause the Fund to be liable
for any income or franchise tax in the State of New York.

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.

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

<PAGE>

FINANCIAL STATEMENTS

The following financial statements for each Fund or Portfolio have been
filed with the SEC pursuant to section 30(b) of the 1940 Act and Rule 30b2-1
thereunder and are hereby incorporated herein by reference. A copy of such
financial statement will be provided, without charge, to each person receiving
this statement of additional information.

CAPITAL APPRECIATION FUND:

Statement of Assets and Liabilities, September 30, 1995 Statement of
Operations for the period January 1, 1995 to September 30, 1995
Statement of Changes in Net Assets for the period from January 1, 1995
to September 30, 1995 and the year ended December 31, 1994 Financial
Highlights: Supplemental data for each period indicated Notes to
Financial Statements Report of Independent Accountants

CAPITAL APPRECIATION PORTFOLIO

Statement of Assets and Liabilities, September 30, 1995 Statement of
Operations for the period from January 1, 1995 to September 30, 1995
Statement of Changes in Net Assets for the period from January 1, 1995
to September 30, 1995 and the year ended December 31, 1994 Financial
Highlights: Selected ratios and supplemental data for each period
indicated Schedule of Portfolio Investments, September 30, 1995 Notes
to Financial Statements Report of Independent Accountants

<PAGE>

INTERNATIONAL EQUITY FUND:

Statement of Assets and Liabilities, September 30, 1995 Statement of
Operations for the period from January 1, 1995 to September 30, 1995
Statement of Changes in Net Assets for the period from January 1, 1995
to September 30, 1995 and the year ended December 31, 1994 Financial
Highlights: Supplemental data for each period indicated Notes to
Financial Statements Report of Independent Accountants

INTERNATIONAL EQUITY PORTFOLIO:

<PAGE>

APPENDIX

COMMERCIAL PAPER RATINGS

S&P'S COMMERCIAL PAPER RATINGS

A is the highest commercial paper rating category utilized by S&P,
which uses the numbers 1+, 1, 2 and 3 to denote relative strength within its A
classification. Commercial paper issues rated A by S&P have the following
characteristics: Liquidity ratios are better than industry average. Long-term
debt rating is A or better. The issuer has access to at least two additional
channels of borrowing. Basic earnings and cash flow are in an upward trend.
Typically, the issuer is a strong company in a well-established industry and has
superior management.

MOODY'S COMMERCIAL PAPER RATINGS

Issuers rated Prime-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations. Prime-1
repayment capacity will normally be evidenced by the following characteristics:
leading market positions in well-established industries; high rates of return on
funds employed; conservative capitalization structures with moderate reliance on
debt and ample asset protection; broad margins in earnings coverage of fixed
financial charges and high internal cash generation; well-established access to
a range of financial markets and assured sources of alternate liquidity.

Issuers rated Prime-2 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations. This will
normally be evidenced by many of the characteristics cited above but to a lesser
degree. Earnings trends and coverage ratios, while sound, will be more subject
to variation. Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternate liquidity is maintained.

Issuers rated Prime-3 (or related supporting institutions) have an
acceptable capacity for repayment of short-term promissory obligations. The
effect of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in changes in
the level of debt protection measurements and the requirement for relatively
high financial leverage. Adequate alternate liquidity is maintained.

FITCH INVESTORS SERVICE AND DUFF & PHELPS COMMERCIAL PAPER RATINGS

Commercial paper rated "Fitch-1" is considered to be the highest grade
paper and is regarded as having the strongest degree of assurance for timely
payment. "Fitch-2" is considered very good grade paper and reflects an assurance
of timely payment only slightly less in degree than the strongest issue.

A-1

<PAGE>

Commercial paper issues rated "Duff 1" by Duff & Phelps, Inc. have the
following characteristics: very high certainty of timely payment, excellent
liquidity factors supported by strong fundamental protection factors, and risk
factors which are very small. Issues rated "Duff 2" have a good certainty of
timely payment, sound liquidity factors and company fundamentals, small risk
factors, and good access to capital markets.

A-2

<PAGE>

DISTRIBUTOR

Signature Broker-Dealer Services, Inc. BT INVESTMENT FUNDS
6 St. James Avenue
Boston, MA 02116
(800) 545-1074

INVESTMENT ADVISER EACH PORTFOLIO oCAPITAL APPRECIATION FUND
oINTERNATIONAL EQUITY FUND
Bankers Trust Company
280 Park Avenue
New York, NY 10017

TRANSFER AGENT

Bankers Trust Company
280 Park Avenue
New York, NY 10017

CUSTODIAN

Bankers Trust Company STATEMENT OF
280 Park Avenue ADDITIONAL INFORMATION
New York, NY 10017 JANUARY 29, 1996

INDEPENDENT ACCOUNTANTS

Coopers & Lybrand L.L.P.
1100 Main Street, Suite 900
Kansas City, MO 64105

LEGAL COUNSEL

Willkie Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, NY 10022-4669

BT0494
<PAGE>

BT0361C STATEMENT OF
ADDITIONAL INFORMATION
JANUARY 29, 1996

BT INVESTMENT FUNDS
OLATIN AMERICAN EQUITY FUND
OGLOBAL HIGH YIELD SECURITIES FUND
OSMALL CAP FUND
OEUROPEAN EQUITY FUND
OPACIFIC BASIN EQUITY FUND
OINTERNATIONAL BOND FUND

BT Investment Funds (the "Trust") is comprised of several funds. The
shares of the following funds -- Latin American Equity Fund, Global High Yield
Securities Fund, Small Cap Fund, European Equity Fund, Pacific Basin Equity Fund
and International Bond Fund (each, a "Fund") -- are described herein.

TABLE OF CONTENTS

Investment Objectives, Policies and Restrictions . . . . . . . . . 3
Performance Information . . . . . . . . . . . . . . . . . . . . . 32
Valuation of Securities; Redemptions and Purchases in Kind . . . . 35
Management of the Trust and Portfolios . . . . . . . . . . . . . . 37
Organization of the Trust . . . . . . . . . . . . . . . . . . . . 46
Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . 50
Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1

As described in the Prospectuses, the Trust seeks to achieve the
investment objectives of each Fund by investing all the investable assets
("Assets") of the Fund (with the exception of the Global High Yield Securities
Fund) in a diversified open-end management investment company having the same
investment objectives as the Fund. The Global High Yield Securities Fund invests
its Assets in a non-diversified open-end management investment company (or
series thereof). These investment companies (or a series thereof) are,
respectively, Latin American Equity Portfolio, Global High Yield Securities
Portfolio, Small Cap Portfolio, European Equity Portfolio, Pacific Basin Equity
Portfolio and International Bond Portfolio (collectively, the "Portfolios") and
are each a series of BT Investment Portfolios.

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

The Trust's Prospectuses for each Fund are each dated January 29, 1996.
The Prospectuses provide the basic information investors should know before
investing and may be obtained without charge by calling the Trust at the
telephone number listed below or by contacting any Service Agent. This Statement

<PAGE>

of Additional Information, which is not a Prospectus, is intended to provide
additional information regarding the activities and operations of the Trust and
should be read in conjunction with that Fund's Prospectus. This Statement of
Additional Information is not an offer of any Fund for which an investor has not
received a Prospectus. Capitalized terms not otherwise defined in this Statement
of Additional Information have the meanings accorded to them in the Trust's
Prospectuses.

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

6 St. James Avenue Boston, Massachusetts 02116 (800) 730-1313

<PAGE>

INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS

INVESTMENT OBJECTIVES

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

INVESTMENT POLICIES

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

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

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

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

For a description of commercial paper ratings, see the Appendix herein.

SHORT-TERM INSTRUMENTS. When a Portfolio experiences large cash inflows
through the sale of securities and desirable equity securities, that are
consistent with the Portfolio's investment objective, which are unavailable in
sufficient quantities or at attractive prices, the Portfolio may hold short-term
investments for a limited time pending availability of such equity securities.
Short-term instruments consist of foreign and domestic: (i) short-term

<PAGE>

obligations of sovereign governments, their agencies, instrumentalities,
authorities or political subdivisions; (ii) other short-term debt securities
rated AA or higher by S&P or Aa or higher by Moody's or, if unrated, of
comparable quality in the opinion of Bankers Trust; (iii) commercial paper; (iv)
bank obligations, including negotiable certificates of deposit, time deposits
and banker's acceptances; and (v) repurchase agreements. At the time the
Portfolio invests in commercial paper, bank obligations or repurchase
agreements, the issuer of the issuer's parent must have outstanding debt rated
AA or higher by S&P or Aa or higher by Moody's or outstanding commercial paper
or bank obligations rated A-1 by S&P or Prime-1 by Moody's; or, if no such
ratings are available, the 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.

LOWER-RATED DEBT SECURITIES ("Junk Bonds"). While the market for high
yield corporate debt securities has been in existence for many years and has
weathered previous economic downturns, the 1980's brought a dramatic increase in
the use of such securities to fund highly leveraged corporate acquisitions and
restructuring. Past experience may not provide an accurate indication of future
performance of the high yield bond market, especially during periods of economic
recession. In fact, from 1989 to 1991, the percentage of lower-rated debt
securities that defaulted rose significantly above prior levels.

The market for lower-rated debt securities may be thinner and less
active than that for higher rated debt securities, which can adversely affect
the prices at which the former are sold. If market quotations are not available,
lower- rated debt securities will be valued in accordance with procedures
established by the Board of Trustees, including the use of outside pricing
services. Judgement plays a greater role in valuing high yield corporate debt
securities than is the case for securities for which more external sources for
quotations and last sale information is available. Adverse publicity and
changing investor perception may affect the ability of outside pricing services
to value lower- rated debt securities and the Global High Yield Securities
Portfolio's ability to dispose of these securities.

Since the risk of default is higher for lower-rated debt securities,
Bankers Trust's research and credit analysis are an especially important part of
managing securities of this type held by the Portfolio. In considering
investments for the Portfolio, Bankers Trust will attempt to identify those
issuers of high yielding debt securities whose financial conditions are adequate
to meet future obligations, have improved or are expected to improve in the
future. Bankers Trust's analysis focuses on relative values based on such
factors as interest on dividend coverage, asset coverage, earnings prospects and
the experience and managerial strength of the issuer.

The Global High Yield Securities Portfolio may choose, at its expense
or in conjunction with others, to pursue litigation or otherwise exercise its
rights as a security holder to seek to protect the interest of security holders
if it determines this to be in the best interest of the Global High Yield
Securities Fund.

<PAGE>

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

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

The Securities and Exchange Commission the (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.

FOREIGN SECURITIES: SPECIAL CONSIDERATIONS CONCERNING EASTERN EUROPE.
The Global High Yield Securities Portfolio, European Equity Portfolio and
International Bond Portfolio may invest in foreign securities issued by Eastern

<PAGE>

European countries. Investments in companies domiciled in Eastern European
countries may be subject to potentially greater risks than those of other
foreign issuers. These risks include: (i) potentially less social, political and
economic stability; (ii) the small current size of the markets for such
securities and the low volume of trading, which result in less liquidity and in
greater price volatility; (iii) certain national policies which may restrict the
Portfolios' investment opportunities, including restrictions on investment in
issuers or industries deemed sensitive to national interests; (iv) foreign
taxation; (v) the absence of developed legal structures governing private or
foreign investment or allowing for judicial redress for injury to private
property; (vi) the absence, until recently in certain Eastern European
countries, of a capital market structure or market-oriented economy; and (vii)
the possibility that recent favorable economic developments in Eastern Europe
may be slowed or reversed by unanticipated political or social events in such
countries, or in the Commonwealth of Independent States (consisting of the
Republics of the former Union of Soviet Socialist Republics).

The economic situation remains difficult for Eastern European countries
in transition from central planning, following what has already been a sizable
decline in output. The contraction now appears to be bottoming out in parts of
Eastern Europe. Following three successive years of output declines, there are
preliminary indications of a turnaround in the former Czech and Slovak Federal
Republic, Hungary and Poland; growth in private sector activity and strong
exports now appear to have contained the fall in output. A number of their
governments, including those of Hungary and Poland, are currently implementing
or considering reforms directed at political and economic liberalization,
including efforts to foster multi-party political systems, decentralize economic
planning, and a move toward free-market economies. But key aspects of the reform
and stabilization efforts have not yet been fully implemented, and there remain
risks of policy slippage. At present, no Eastern European country has a
developed stock market, but Poland, Hungary and the Czech Republic have small
securities markets in operation.

In many other countries of the region, output losses have been even
larger. These declines reflect the adjustment difficulties during the early
stages of the transition, high rates of inflation, the compression of imports,
disruption in trade among the countries of the former Soviet Union, and
uncertainties about the reform process itself. Large-scale subsidies are
delaying industrial restructuring and are exacerbating the fiscal situation. A
reversal of these adverse factors is not anticipated in the near term, and
output is expected to decline further in most of these countries. In the Russian
Federation and most other countries of the former Soviet Union, economic
conditions are of particular concern because of economic instability due to
political unrest and armed conflicts in many regions. Further, no accounting
standards exist in Eastern European countries. Although certain Eastern European
currencies may be convertible into U.S. dollars, the conversion rates may be
artificial to the actual market values and may be adverse to each Fund's
shareholders.

BRADY BONDS. The Latin American Equity Portfolio and Global High Yield
Securities Portfolio may invest in "Brady bonds," which have been issued by the
governments of Argentina, Brazil, Costa Rica, Mexico, Nigeria, Philippines,
Uruguay and Venezuela. Most Brady bonds are currently rated below BBB by

<PAGE>

Standard & Poor's Corporation ("S&P") or Baa by Moody's Investors Services Inc.
("Moody's").

The Brady Plan was conceived by the U.S. Treasury in the 1980's in an
attempt to produce a debt restructuring program which would enable a debt
country to (i) reduce the absolute level of debt of its creditor banks, and (ii)
reschedule its external debt repayments, based upon its ability to service such
debts by persuading its creditor banks to accept a debt write-off by offering
them a selection of options, each of which represented an attractive substitute
for the nonperforming debt. Although it was envisaged that each debtor country
would agree to a unique package of options with its creditor banks, the plan was
that these options would be based upon the following:(i) a discount bond
carrying a market rate of interest (whether fixed or floating), with principal
collateralized by the debtor country with cash or securities in an amount equal
to at least one year of rolling interest; (ii) a par bond carrying a low rate of
interest (whether fixed or floating), collateralized in the same way as in (i)
above; and (iii) retention of existing debt (thereby avoiding a debt write-off)
coupled with an advance of new money or subscription of new bonds.

The Latin American Equity Portfolio and Global High Yield Securities
Portfolio may invest in either collateralized or uncollateralized Brady bonds.
U.S. dollar-denominated, collateralized Brady bonds, which may be fixed rate par
bonds or floating rate discount bonds, are collateralized in full as to
principal by U.S. Treasury zero coupon bonds having the same maturity as the
bonds. Interest payments on such bonds generally are collateralized by cash or
securities in an amount that in the case of fixed rate bonds, is equal to at
least one year of rolling interest payments or, in the case of floating rate
bonds, initially is equal to at least one year's rolling interest payments based
on the applicable interest rate at the time and is adjusted at regular intervals
thereafter.

FOREIGN SECURITIES: SPECIAL CONSIDERATIONS CONCERNING LATIN AMERICA.
Investing in securities of Latin American issuers may entail risks relating to
the potential political and economic instability of certain Latin American
countries and the risks of expropriation, nationalization, confiscation or the
imposition of restrictions on foreign investment and on repatriation of capital
invested. In the event of expropriation, nationalization or other confiscation
by any country, the Latin American Equity Fund could lose its entire investment
in any such country.

The securities markets of Latin American countries are substantially
smaller, less developed, less liquid and more volatile than the major securities
markets in the U.S. Disclosure and regulatory standards are in many respects
less stringent than U.S. standards. Furthermore, there is a lower level of
monitoring and regulation of the markets and the activities of investors in such
markets.

The limited size of many Latin American securities markets and limited
trading volume in the securities of Latin American issuers compared to volume of
trading in the securities of U.S. issuers could cause prices to be erratic for
reasons apart from factors that affect the soundness and competitiveness of the
securities issuers. For example, limited market size may cause prices to be

<PAGE>

unduly influenced by traders who control large positions. Adverse publicity and
investors' perceptions, whether or not based on in-depth fundamental analysis,
may decrease the value and liquidity of portfolio securities.

The economies of Latin American countries may be predominantly based in
only a few industries, may be highly vulnerable to changes in local or global
trade conditions, and may suffer from extreme and volatile debt burdens or
inflation rates. Securities of issuers located in Latin America may have limited
marketability and may be subject to more abrupt or erratic price movements.

Latin American Equity Portfolio invests in securities denominated in
currencies of Latin American 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.

Some Latin American countries also may have managed currencies, which
are not free floating against the U.S. dollar. In addition, there is risk that
certain Latin American countries may restrict the free conversion of their
currencies into other currencies. Further, certain Latin American currencies may
not be internationally traded. Certain of these currencies have experienced a
steep devaluation relative to the U.S. dollar. Any devaluations in the
currencies in which the Portfolio's securities are denominated may have a
detrimental impact on the Fund's net asset value.

The economies of individual Latin American countries may differ
favorably or unfavorably from the U.S. economy in such respects as the rate of
growth of gross domestic product, the rate of inflation, capital reinvestment,
resource self-sufficiency and balance of payments position. Certain Latin
American countries have experienced high levels of inflation which can have a
debilitating effect on an economy. Furthermore, certain Latin American countries
may impose withholding taxes on dividends payable to the Portfolio at a higher
rate than those imposed by other foreign countries. This may reduce the Fund's
investment income available for distribution to shareholders.

Certain Latin American countries such as Argentina, Brazil and Mexico
are among the world's largest debtors to commercial banks and foreign
governments. At times, certain Latin American countries have declared moratoria
on the payment of principal and/or interest on outstanding debt. Investment in
sovereign debt can involve a high degree of risk. The governmental entity that
controls the repayment of sovereign debt may not be able or willing to repay the
principal and/or interest when due in accordance with the terms of such debt. A
governmental entity's willingness or ability to repay principal and interest due
in a timely manner may be affected by, among other factors, its cash flow
situation, the extent of its foreign reserves, the availability of sufficient
foreign exchange on the date a payment is due, the relative size of the debt
service burden to the economy as a whole, the governmental entity's policy
towards the International Monetary Fund, and the political constraints to which
a governmental entity may be subject. Governmental entities may also be
dependent on expected disbursements from foreign governments, multilateral
agencies and others abroad to reduce principal and interest arrearage on their
debt. The commitment on the part of these governments, agencies and others to
make such disbursements may be conditioned on a governmental entity's

<PAGE>

implementation of economic reforms and/or economic performance and the timely
service of such debtor's obligations. Failure to implement such reforms, achieve
such levels of economic performance or repay principal or interest when due may
result in the cancellation of such third parties' commitments to lend funds to
the governmental entity, which may further impair such debtor's ability or
willingness to service its debts in a timely manner. Consequently, governmental
entities may default on their sovereign debt.

Holders of sovereign debt, including the Portfolio, may be requested to
participate in the rescheduling of such debt and to extend further loans to
governmental entities. There is no bankruptcy proceeding by which defaulted
sovereign debt may be collected in whole or in part.

Latin America is a region rich in natural resources such as oil,
copper, tin, silver, iron ore, forestry, fishing, livestock and agriculture. The
region has a large population (roughly 300 million) representing a large
domestic market. Economic growth was strong in the 1960's and 1970's, but slowed
dramatically (and in some instances was negative) in the 1980's as a result of
poor economic policies, higher international interest rates, and the denial of
access to new foreign capital. Although a number of Latin American countries are
currently experiencing lower rates of inflation and higher rates of real growth
in Gross Domestic Product than they have in the past, other Latin American
countries continue to experience significant problems, including high inflation
rates and high interest rates. Capital flight has proven a persistent problem
and external debt has been forcibly rescheduled. Political turmoil, high
inflation, capital repatriation restrictions and nationalization have further
exacerbated conditions.

Large budget deficits and a high level of state ownership in many
productive and service areas have given way to balanced budgets and
privatization in Mexico, Brazil, Chile and Argentina. Changes in political
leadership have encouraged the implementation of market oriented economic
policies such as balanced budgets. Privatization trade reform and monetary
reform have been among the steps taken to modernize the Latin American economies
and to regenerate growth in the region. However, governments of many Latin
American countries have exercised and continue to exercise substantial influence
over many aspects of the private sector through the ownership or control of many
companies, including some of the largest in those countries. As a result,
government actions in the future could have a significant effect on economic
conditions which may adversely affect prices of certain portfolio securities.
Expropriation, confiscatory taxation, nationalization, political, economic or
social instability or other similar developments, such as military coups, have
occurred in the past and could also adversely affect the Portfolio's investments
in this region.

Changes in political leadership, the implementation of market oriented
economic policies, such as privatization, trade reform and fiscal and monetary
reform are among the recent steps taken to renew economic growth. External debt
is being restructured and flight capital (domestic capital that has left the
home country) has begun to return. Inflation control efforts have also been
implemented. Free Trade Zones are being discussed in various areas around the
region, the most notable being a free trade zone between Mexico and the U.S.
Various trade agreements have also been formed within the region such as the

<PAGE>

Andean Pact, Mercosur and North American Free Trade Agreement (NAFTA). The
largest of these is NAFTA, which was implemented on January 1, 1994. Latin
American equity markets can be extremely volatile and in the past have shown
little correlation with the U.S. market. Currencies are typically weak, but most
are now relatively free floating, and it is not unusual for the currencies to
undergo wide fluctuations in value over short periods of time due to changes in
the market.

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.

Thailand has been transformed into one of the fastest growing stock
markets in the world. On February 23, 1991, the military staged its 17th coup
since the overthrow of the absolute monarchy in 1932. The newly appointed
government quickly focused on the economy and enacted major tax revisions,
slashing personal income tax and reducing taxes on imports. Most significantly,
it pushed through a 7% value added tax. Released from political consideration by
the coup, the Bank of Thailand was finally able to implement a monetary
tightening. As a result, interest rates rose and GDP declined to 7.7% from 10%
the previous year. The government continues to move ahead with new projects -
especially telecommunications, roads and port facilities - needed to refurbish
the country's overtaxed infrastructure. Nonetheless, political unrest coupled
with the shooting of anti-government demonstrators in May 1992 has caused many
international businesses to question Thailand's political stability.

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

<PAGE>

In terms of GDP, industrial standards and level of education, South
Korea is second only to Japan in Asia. It enjoys the benefits of a diversified
economy with well developed sectors in electronics, automotive, textiles and
shoe manufacturing, steel and shipbuilding among others. The driving force
behind the economy's dynamic growth has been the planned development of an
export-oriented economy in a vigorously entrepreneurial society. Real GDP grew
about 7.5% in 1991. Labor unrest was noticeably calmer, unemployment averaged a
low of 2.3%, and investment was strong. Inflation rates, however, are beginning
to challenge South Korea's strong economic performance. In addition, the
international situation between South and North Korea continues to improve. Both
Koreas joined the United Nations separately in late 1991, creating another forum
for negotiation and joint cooperation.

Indonesia is a mixed economy with many socialist institutions and
central planning, but has recently placed emphasis on deregulation and private
enterprise. Like Thailand, Indonesia has extensive natural wealth, yet with a
large and rapidly increasingly population, it remains a poor country.
Agriculture, including forestry and fishing, is an important sector, accounting
for 21% of GDP and over 50% of the labor force. Once the world's largest rice
importer, Indonesia is now nearly self-sufficient.

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

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

FOREIGN SECURITIES: SPECIAL CONSIDERATIONS CONCERNING CHINA AND CHINA
REGION. China's economic reform plan was designed to bring in foreign investment
capital and technological skills. The result has been a move towards a more
mixed economy away from the previous centrally planned economy. The process of
devolving responsibility for all aspects of enterprise to local management and
authorities continues, even though the system of socialism with Chinese
characteristics involves considerable influence by the central government on
production and marketing.

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and Hainan Island, which itself is a province). Fourteen coastal cities have
been designated as "open cities" and certain Open Economic Zones have been
established in coastal areas. Shanghai has established the Pudong New Area.
Twenty-seven High and New Technology Industrial Development Zones have been
approved where preferential treatment is given to enterprises which are
confirmed as technology intensive.

China has had for many centuries a well deserved reputation for being
closed to foreigners, with trade with the outside world being carried on under
terms of extreme restriction and under central control. Such conditions were
maintained in the first thirty years of the Communist regime which began in
1949; however there have been several stages of evolution, from the institution
of an industrialization program in the 1950s to a modernization policy
commencing in 1978 which combined economic development with the beginnings of
opening the country.

The securities markets in the China Region 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 Chinese 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 China 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 Chinese securities markets may represent a
disproportionately large percentage of market capitalization and trading value.
The limited liquidity of securities markets in China may also affect the
Portfolio's ability to acquire or dispose of securities at the price and time it
wishes to do so. Accordingly, during periods of rising securities prices in the
more illiquid Chinese securities markets, the Portfolio's ability to participate
fully in such price increases may be limited by its investment policy of
investing not more than 15% of its net assets in illiquid securities.
Conversely, the 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
Chinese securities markets are susceptible to being influenced by large
investors trading significant blocks of securities.

The Chinese, Hong Kong and Taiwan 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.

China Governmental actions can have a significant effect on the
economic conditions in China, which could adversely affect the value and
liquidity of the Portfolio's investments. Although the Chinese Government has
recently begun to institute economic reform policies, there can be no assurances
that it will continue to pursue such policies or, if it does, that such policies
will succeed.

<PAGE>

addition, Chinese stockbrokers and other intermediaries may not perform as well
as their counterparts in the United States and other more developed securities
markets. The prices at which the Portfolio may acquire investments may be
affected by trading by persons with material non-public information and by
securities transactions by brokers in anticipation of transactions by the
Portfolio in particular securities.

China does not have a comprehensive system of laws, although
substantial changes have occurred in this regard in recent years. The corporate
form of organization has only recently been permitted in China and national
regulations governing corporations were introduced only in May, 1992. Prior to
the introduction of such regulations, Shanghai had adopted a set of corporate
regulations applicable to corporations located or listed in Shanghai, and the
relationship between the two sets of regulations is not clear. Consequently,
until a firmer legal basis is provided, even such fundamental corporate law
tenets as the limited liability status of Chinese issuers and their authority to
issue shares remain open to question. Laws regarding fiduciary duties of
officers and directors and the protection of shareholders are not well
developed. China's judiciary is relatively inexperienced in enforcing the laws
that exist, leading to a higher than usual degree of uncertainty as to the
outcome of any litigation. Even where adequate law exists in China, it may be
impossible to obtain swift and equitable enforcement of such law, or to obtain
enforcement of the judgement by a court of another jurisdiction. The bankruptcy
laws pertaining to state enterprises have rarely been used and are untried in
regard to an enterprise with foreign shareholders, and there can be no assurance
that such shareholders, including the Portfolio, would be able to realize the
value of the assets of the enterprise or receive payment in convertible
currency. As the Chinese legal system develops, the promulgation of new laws,
changes to existing laws and the preemption of local laws by national laws may
adversely affect foreign investors, including the Portfolio. The uncertainties
faced by foreign investors in China are exacerbated by the fact that many laws,
regulations and decrees of China are not publicly available, but merely
circulated internally.

Exports continue to rise strongly, although China remains vulnerable to
United States economic conditions and possible trade sanctions, unless it
liberalizes current import restrictions and improves its human rights record.
However, imports are also expected to rise and may outstrip exports in terms of
growth rates.

There are currently two officially recognized securities exchanges in
China -- The Shanghai Securities Exchange which opened in December 1990 and The
Shenzhen Stock Exchange which opened in July 1991. Shares traded on these
Exchanges are two types -- "A" shares which can be traded only by Chinese
investors and "B" shares which can be traded only by individuals and
corporations not resident in China.

In Shanghai, all "B" Shares are denominated in Chinese renminbi
("RMB"), but all transactions in "B" shares must be settled in U.S. dollars, and
all distributions made on "B" shares are payable in U.S. dollars, the exchange
rate being the weighted average exchange rate for the U.S. dollar as published
by the Shanghai Foreign Exchange Adjustment Centre.

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In Shenzhen, the purchase and sale prices for "B" shares are quoted in
Hong Kong dollars. Dividends and other lawful revenue derived from "B" shares
are calculated in RMB but payable in Hong Kong dollars, the rate of exchange
being the average rate published by Shenzhen Foreign Exchange Adjustment Centre.

There are no foreign exchange restrictions on the repatriation of gains
made on or income derived from "B" Shares, subject to the payment of taxes
imposed by China thereon.

Company law relating to companies limited by shares and regulations
regarding the issuing of shares by equity joint ventures have not yet been
developed on a national basis. The Shenzhen municipality issued regulations in
1992 relating to joint stock companies, and the Shanghai municipality has a
draft joint stock company law under review. Regulations governing the trading of
securities on both the Shenzhen and the Shanghai stock exchanges have been
issued by each municipality; there is no national securities legislation as yet.

Economies of countries in the China Region may differ favorably or
unfavorably from the U.S. economy in such respects as rate of growth of gross
domestic product, rate of inflation, capital reinvestment, resource
self-sufficiency and balance of payments position. As an export-driven economy,
the economy of China is affected by developments in the economies of its
principal trading partners. Revocation by the United States of China's "Most
Favored Nation" trading status, which the U.S. President and Congress reconsider
annually, would adversely affect the trade and economic development of China and
Hong Kong. Hong Kong and Taiwan have limited natural resources, resulting in
dependence on foreign sources for certain raw materials and economic
vulnerability to global fluctuations of price and supply.

FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS

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

FUTURES CONTRACTS. A Portfolio may enter into contracts for the
purchase or sale for future delivery of fixed-income securities, foreign
currencies, or contracts based on financial indices including any index of U.S.
Government securities, foreign government securities or corporate debt
securities. U.S. futures contracts have been designed by exchanges which have
been designated "contracts markets" by the Commodity Futures Trading Commission
("CFTC"), and must be executed through a futures commission merchant, or
brokerage firm, which is a member of the relevant contract market. Futures
contracts trade on a number of exchange markets, and, through their clearing
corporations, the exchanges guarantee performance of the contracts as between
the clearing members of the

<PAGE>

exchange. A Portfolio may enter into futures contracts which are based on debt
securities that are backed by the full faith and credit of the U.S. Government,
such as long-term U.S. Treasury Bonds, Treasury Notes, GNMA modified
pass-through mortgage-backed securities and three-month U.S. Treasury Bills. A
Portfolio may also enter into futures contracts which are based on bonds issued
by entities other than the U.S. Government.

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

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

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

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

<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
participants entering into offsetting transactions rather than making or taking
delivery. To the extent participants decide to make or take delivery, liquidity
in the futures market could be reduced, thus producing distortion. Third, from
the point of view of speculators, the margin deposit requirements in the futures
market are less onerous than margin requirements in the securities market.
Therefore, increased participation by speculators in the futures market may
cause temporary price distortions. Due to the possibility of distortion, a
correct forecast of general interest rate trends by the Adviser may still not
result in a successful transaction.

In addition, futures contracts entail risks. Although the Adviser
believes that use of such contracts will benefit the 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.

<PAGE>

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

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

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

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

The Board of Trustees of each Portfolio has adopted a further
restriction that the Portfolio will not enter into any futures contracts or
options on futures contracts if immediately thereafter the amount of margin
deposits on all the futures contracts of the Portfolio and premiums paid on
outstanding options on futures contracts owned by the Portfolio (other than
those entered into for bona fide hedging purposes) would exceed 5% of the market
value of the total assets of the Portfolio.

<PAGE>

the Portfolio may purchase put options on the foreign currency. If the value of
the currency does decline, a Portfolio will have the right to sell such currency
for a fixed amount in dollars and will thereby offset, in whole or in part, the
adverse effect on its portfolio which otherwise would have resulted.

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

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

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

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

<PAGE>

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

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

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

The purchase and sale of exchange-traded foreign currency options,
however, is subject to the risks of the availability of a liquid secondary
market described above, as well as the risks regarding adverse market movements,
margining of options written, the nature of the foreign currency market,
possible intervention by governmental authorities and the effects of other
political and economic events. In addition, exchange-traded options on foreign
currencies involve certain risks not presented by the over-the-counter market.
For example, exercise and settlement of such options must be made exclusively
through the OCC, which has established banking relationships in applicable
foreign countries for this purpose. As a result, the OCC may, if it determines
that foreign

<PAGE>

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

As in the case of forward contracts, certain options on foreign
currencies are traded over-the-counter and involve liquidity and credit risks
which may not be present in the case of exchange-traded currency options. A
Portfolio's ability to terminate over-the-counter options will be more limited
than with exchange-traded options. It is also possible that broker-dealers
participating in over-the-counter options transactions will not fulfill their
obligations. Until such time as the staff of the SEC changes its position, each
Portfolio will treat purchased over-the-counter options and assets used to cover
written over-the-counter options as illiquid securities. With respect to options
written with primary dealers in U.S. Government securities pursuant to an
agreement requiring a closing purchase transaction at a formula price, the
amount of illiquid securities may be calculated with reference to the repurchase
formula.

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

OPTIONS ON SECURITIES. With the exception of International Bond
Portfolio, 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

<PAGE>

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 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.

<PAGE>

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 holdings, at a
specified price during the option period. The purchase of protective puts is
designed merely to offset or hedge against a decline in the market value of the
Portfolio's holdings. 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.

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

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

OPTIONS ON SECURITIES INDICES. In addition to options on securities,
each Portfolio, with the exception of International Bond 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.

<PAGE>

Such options will be used for the purposes described above under "Options on
Securities."

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

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

A forward foreign currency exchange contract is an obligation by a
Portfolio to purchase or sell a specific currency at a future date, which may be
any fixed number of days from the date of the contract. Forward foreign currency
exchange contracts establish an exchange rate at a future date. These contracts
are transferable in the interbank market conducted directly between currency
traders (usually large commercial banks) and their customers. A forward foreign
currency exchange contract generally has no deposit requirement and is traded at
a net price without commission. Each Portfolio maintains with its custodian a
segregated account of high grade liquid assets in an amount at least equal to
its obligations under each forward foreign currency exchange contract. Neither
spot transactions nor forward foreign currency exchange contracts eliminate
fluctuations in the prices of the Portfolio's securities or in foreign exchange
rates, or prevent loss if the prices of these securities should decline.

<PAGE>

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

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

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

RATING SERVICES

<PAGE>

quality. Although these ratings are an initial criterion for selection of
portfolio investments, Bankers Trust also makes its own evaluation of these
securities, subject to review by the Board of Trustees. After purchase by a
Portfolio, an obligation may cease to be rated or its rating may be reduced
below the minimum required for purchase by the Portfolio. Neither event would
require a Fund to eliminate the obligation from its portfolio, but Bankers Trust
will consider such an event in its determination of whether a Fund should
continue to hold the obligation. A description of the ratings used herein and in
the Funds' Prospectuses is set forth in the Appendix herein.

INVESTMENT RESTRICTIONS

The following investment restrictions are "fundamental policies" of
each Fund and each Portfolio and may not be changed with respect to the Fund or
the Portfolio without the approval of a "majority of the outstanding voting
securities" of the Fund or the Portfolio, as the case may be. "Majority of the
outstanding voting securities" under the Investment Company Act of 1940, as
amended (the "1940 Act"), and as used in this Statement of Additional
Information and the Prospectuses, 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) net assets, it may borrow money (but only as a temporary
measure for extraordinary or emergency purposes in the case of the Small Cap
Portfolio (Fund), 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

<PAGE>

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

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

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

As an operating policy, no Portfolio will invest in another open-end
registered investment company.

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

(i) borrow money (including through reverse repurchase or forward
roll transactions) for any purpose in excess of 5% of the
Portfolio's (Fund's) total assets (taken at cost), except that
the Portfolio

<PAGE>

(Fund) may borrow for temporary or emergency purposes up to
1/3 of its total assets;

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

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

(iv) sell securities it does not own (short sales) 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 that the
Portfolio (Fund) contemporaneously owns or where the Portfolio
has the right to obtain securities equivalent in kind and
amount to those sold, i.e., short sales against the box.) (the
Portfolios (Funds) currently do not engage in short selling);

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

(vi) purchase securities issued by any investment company except by
purchase in the open market where no commission or profit to a
sponsor or dealer results from such purchase other than the
customary broker's commission, or except when such purchase,
though not made in the open market, is part of a plan of
merger or consolidation; provided, however, that securities of
any investment company will not be purchased for the Portfolio
(Fund) if such purchase at the time thereof would cause: (a)
more than 10% of the Portfolio's (Fund's) total assets (taken
at the greater of cost or market value) to be invested in the
securities of such issuers; (b) more than 5% of the
Portfolio's (Fund's) total assets (taken at the greater of
cost or market value) to be invested in any one investment
company; or (c) more than 3% of the outstanding voting
securities of any such issuer to be held for the Portfolio
(Fund); provided further that, except in the case of a merger
or consolidation, the Portfolio (Fund) shall not purchase any
securities of any open-end investment company unless (1) the
Portfolio's investment adviser waives the investment advisory
fee

<PAGE>

with respect to assets invested in other open-end investment
companies and (2) the Portfolio incurs no sales charge in
connection with the investment;

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

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

(ix) invest more than 15% of the Portfolio's (Fund's) net assets
(taken at the greater of cost or market value) in securities
that are illiquid or not readily marketable (excluding Rule
144A securities deemed by the Board of Trustees of the
Portfolio (Trust) to be liquid);

(x) with respect to 75% (50% in the case of Global High Yield
Securities Portfolio (Fund)) of the Portfolio's (Fund's) total
assets, purchase securities of any issuer if such purchase at
the time thereof would cause the Portfolio (Fund) to hold more
than 10% of any class of securities of such issuer, for which
purposes all indebtedness of an issuer shall be deemed a
single class and all preferred stock of an issuer shall be
deemed a single class, except that futures or option contracts
shall not be subject to this restriction;

(xi) with respect to 75% (50% in the case of Global High Yield
Securities Portfolio (Fund)) of the Portfolio's (Fund's) total
assets, invest more than 5% of its total assets in the
securities (excluding U.S. Government securities) of any one
issuer and in the case of Global High Yield Securities
Portfolio (Fund) invest more than 25% of its total assets in
any one issuer;

(xii) invest in securities issued by an issuer any of whose
officers, directors, trustees or security holders is an
officer or Trustee of the Portfolio (Trust), or is an officer
or director of the Adviser, if after the purchase of the
securities of such issuer for the Portfolio (Fund) one or more
of such persons owns beneficially more than 1/2 of 1% of the
shares or securities, or both, all taken at market value, of
such issuer, and such persons owning more than 1/2 of 1% of
such shares or securities together own beneficially more than
5% of such shares or securities, or both, all taken at market
value;

<PAGE>

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

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

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

There will be no violation of any investment restriction if that
restriction is complied with at the time the relevant action is taken,
notwithstanding a later change in 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.

<PAGE>

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

PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS

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

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

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

<PAGE>

Consistent with the policy stated above, the Rules of Fair Practice of
the National Association of Securities Dealers, Inc. and such other policies as
the Trustees of the Portfolio may determine, the Adviser may consider sales of
shares of the Trust and of other investment company clients of Bankers Trust as
a factor in the selection of broker-dealers to execute portfolio transactions.
Bankers Trust will make such allocations if commissions are comparable to those
charged by nonaffiliated, qualified broker-dealers for similar services.

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

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

Although certain research, market and statistical information from
brokers and dealers can be useful to 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.

Latin American Equity Portfolio paid brokerage commissions in the
amount of $202,130 for the fiscal year ended September 30, 1995, and $188,008
for the period from October 25, 1993 (commencement of operations) through
September 30, 1994.

<PAGE>

Global High Yield Securities Portfolio paid brokerage commissions in
the amount of $5,653 for the fiscal year ended September 30, 1995 and paid no
brokerage commissions for the period from December 14, 1993 (commencement of
operations) through September 30, 1994.

Small Cap Portfolio paid brokerage commissions in the amount of $70,603
for the fiscal year ended September 30, 1995 and $20,835 for the period from
October 21, 1993 (commencement of operations) through September 30, 1994.

Pacific Basin Equity Portfolio paid brokerage commissions in the amount
of $192,123 for the fiscal year ended September 30, 1995 and $139,363 for the
period from November 1, 1993 (commencement of operations) through September 30,
1994.

European Equity Portfolio and International Bond Portfolio have not
commenced operations as of the fiscal year ended September 30, 1995 and have not
paid 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. These performance
figures are calculated in the following manner:

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

Income calculated for the purposes of calculating a Fund's yield
differs from income as determined for other accounting purposes.
Because of the different accounting methods used, 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. For the 30-day period ended September 30, 1995, Global High
Yield Fund's yield was 7.44%.

<PAGE>

Global
High Yield Pacific
Latin America Securities Small Cap Basin Equity
Equity Fund1 Fund2 Fund3 Fund4
<S> <C> <C> <C> <C>

Total Return for the
One Year Ended
September 30, 1995 (40.68)% 4.28% 59.48% (3.87)%

Cumulative Total
Return for the Period
From Commencement of
Operations Through
September 30, 1995 (13.57)% 7.31% 85.00% 13.63%

Annualized Total
Return for the Period
From Commencement of
Operations Through
September 30, 1995 (7.27)% 4.01% 37.26% 6.91%

</TABLE>

1Fund commenced operations on October 25, 1993
2Fund commenced operations on December 14, 1993.
3Fund commenced operations on October 21, 1993.
4Fund commenced operations on November 1, 1993.

COMPARISON OF FUND PERFORMANCE

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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: