BT INVESTMENT FUNDS, 485APOS, 1998-11-25

BT INVESTMENT FUNDS
485APOS, 1998-11-25

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1933 Act File No. 33-07404
1940 Act File No. 811-4760

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
---

Pre-Effective Amendment No. ....................

Post-Effective Amendment No. 55 ........................ X
--- ---

and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X

Amendment No. 55 .................................... X
------ ---

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

5800 Corporate Drive
Pittsburgh, Pennsylvania 15237-7010
(Address of Principal Executive Offices)

(412) 288-1900
(Registrant's Telephone Number)

Copies to:

Jay S. Neuman, Esquire Burton M. Leibert, Esq.
Federated Investors Tower Willkie Farr & Gallagher
Pittsburgh, Pennsylvania 15222-3779 787 Seventh Avenue
(Name and Address of Agent for Service) New York, New York 10019

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

[ ] immediately upon filing pursuant to paragraph (b) [ ] on (date) pursuant to
paragraph (b) [X] 60 days after filing pursuant to paragraph (a)(1) [ ] on ____
pursuant to paragraph (a)(1) [ ] 75 days after filing pursuant to paragraph
(a)(2) [ ] on (date) pursuant to paragraph (a)(2) of rule 485.

If appropriate, check the following box:

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

BT Investment Portfolios, Intermediate Tax Free Portfolio, International Equity
Portfolio, and Capital Appreciation Portfolio have also executed this Amendment
to the Registration Statement.

BT Investment Funds

Information About Investing in the
Intermediate Tax Free Fund

With the goal of achieving a high level of current income exempt from Federal
income tax consistent with moderate risk of capital

Prospectus
January 31, 1999

Bankers Trust Company
Investment Adviser

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

<PAGE>

TABLE OF CONTENTS

INTERMEDIATE TAX FREE FUND OVERVIEW
Goal...........................................................3
Core Strategy..................................................4
Principal Risks of Investing in the Fund.......................5
Who Should Consider Investing in the Fund......................6
Total Returns, After Fees and Expenses.........................7
Annual Fund Operating Expenses.................................8

INTERMEDIATE TAX FREE FUND IN DETAIL
Objective......................................................9
Strategy.......................................................10
Principal Investments..........................................12
Risks..........................................................14

Management of the Fund...............................................17
Board of Trustees..............................................17
Investment Adviser.............................................17
Portfolio Manager..............................................18
Administrator..................................................19
Organizational Structure.......................................20
Calculating the Fund's Share Price...................................21
Dividends and Distributions..........................................22
Tax Considerations...................................................23
Buying and Selling Fund Shares.......................................24
Financial Highlights.................................................25

<PAGE>

INTERMEDIATE TAX FREE FUND OVERVIEW

Goal
The Fund invests for a high level of current income exempt from Federal income
tax consistent with moderate risk of capital.

<PAGE>

Core Strategy
The Fund invests primarily in high-quality tax-exempt municipal bonds. The Fund
seeks to hold a portfolio with an intermediate-term duration.

<PAGE>

Principal Risks of Investing in the Fund
An investment in the Fund could lose money, or the Fund's performance could
trail that of other investments. For example,

o A municipal bond held by the Fund could perform poorly;
o A bond issuer's creditworthiness could decline, which causes the value of the
securities it has issued to decline;
o A bond issuer could pay off a high-yielding bond before it comes due and the
Fund could not advantageously re-invest the proceeds; or
o The municipal bond market could decline in value as a result of a rise in
interest rates.

<PAGE>

Who Should Consider Investing in the Fund
You should consider investing in the Intermediate Tax Free Fund if you are
seeking the intermediate or long-term goal of high current income that is exempt
from Federal income tax and has a moderate level of risk.

[SIDEBAR: Tax-free bonds generally pay a lower level of interest than similar
bonds on which the income is taxed. You can determine if an investment in the
Intermediate Tax Free Fund pays out more to you after taxes than a taxable
investment by obtaining the Fund's tax-exempt yield and comparing it to the
Fund's taxable equivalent yield. To calculate the taxable equivalent yield,
divide the tax-exempt yield by the difference between 100% and your tax bracket
percentage. For example, if you are in the 28% federal tax bracket and can earn
a tax-exempt yield of 5%, the taxable equivalent yield would be 6.94% (5% /
72%). To obtain current yield information, call the BT Service Center at
1-800-730-1313.]

There is, of course, no guarantee that the Fund will realize its goal. In
addition, you must be willing to accept the possibility of short-term price
fluctuations, which though typically less than those associated with long-term
bonds or stocks, do occur from time to time.

You should not consider investing in the Intermediate Tax Free Fund if you are
pursuing a short-term financial goal or are investing to achieve capital
appreciation.

The Fund by itself does not constitute a balanced investment program. Although
past performance is not indicative of future results, diversifying with other
types of long-term investments (such as long-term bond and stock mutual funds)
has in the past delivered higher returns. However, long-term bond and stock
mutual funds typically incur more short-term volatility.

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

<PAGE>

Total Returns, After Fees and Expenses
The bar chart and table on this page can help you evaluate the potential risks
and rewards of investing in the Fund by showing changes in the Fund's
performance year to year. The bar chart shows the Fund's actual return for each
full calendar year since it began selling shares to the public on July 20, 1992
(its inception date). The table compares the Fund's average annual return with
the Lehman Brothers 7-Year General Obligation Municipal Bond Index over the last
one and five years, and since inception. The Index is a passive measure of
municipal bond returns. It does not factor in the costs of buying, selling and
holding securities--costs which are reflected in the Fund's results.

[SIDEBAR: The Lehman Brothers General Obligation Municipal Bond Index is a
widely accepted benchmark of municipal bond performance. It covers more than
46,000 municipal securities. The 7-Year Index is a model, not an actual
portfolio, that tracks the returns of general obligation municipal bonds
scheduled to mature in six to eight years, a subset of some 1,700 securities.
Their maturity range corresponds to the maturity range of the bonds in the
Fund.]

Fund Performance For Each Calendar Year Since Inception
[bar chart]

- ---------------------------------------------------------------
- ---------------------------------------------------------------
1993 1994 1995 1996 1997 1998
- ---------------------------------------------------------------

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

Average Annual Returns as of December 31, 1998

- -------------------------------------------------------------------
Since
Inception
1 year 5 years (7/20/92)*
- -------------------------------------------------------------------
Intermediate Tax Free Fund
- -------------------------------------------------------------------
Lehman Brothers 7-Year
General Obligation Municipal
Bond Index
- -------------------------------------------------------------------

*The Lehman Brothers 7-Year General Obligation Municipal Bond Index is
calculated from July 31, 1992.

<PAGE>

Annual Fund Operating Expenses (expenses paid from Fund assets) This table
describes the fees and expenses you may pay if you buy and hold shares of the
Intermediate Tax Free Fund.

--------------------------------------------------------------
percentage of average
daily net assets*
--------------------------------------------------------------
Management Fees 0.40%
--------------------------------------------------------------
Distribution and Service (12b-1) Fees None
--------------------------------------------------------------
Other Expenses 0.82%
--------------------------------------------------------------
Total Fund Operating Expense 1.22%
--------------------------------------------------------------
Less Fee Waivers or Expense
Reimbursement (0.37%)+
--------------------------------------------------------------
Net Expenses 0.85%
--------------------------------------------------------------

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

Expense Example
- -------------------------------------------------
1 Year 3 Years 5 years 10 Years
- -------------------------------------------------
$87 $271 $471 $1,049
- -------------------------------------------------

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

*Information on the annual operating expenses reflects the expenses of both the
Fund and the Intermediate Tax Free Portfolio, the master fund in which the
Intermediate Tax Free Fund invests its assets. (A further discussion of the
relationship between the Fund and the Portfolio appears in the "Organizational
Structure" section of this prospectus).

+Bankers Trust has agreed for the 16-month period from the Fund's fiscal year
end of September 30, 1998, to waive its fees and reimburse expenses so that
total expenses will not exceed 0.85%.

<PAGE>

INTERMEDIATE TAX FREE FUND IN DETAIL

Objective
The Intermediate Tax Free Fund seeks a high level of current income exempt from
Federal income tax consistent with moderate risk of capital.

The Fund invests for income from interest payments; capital appreciation is not
an objective of the Fund. While we give priority to earning income, we cannot
offer any assurance of achieving this objective. The Fund's objective is not a
fundamental policy. We must notify shareholders before we change it, but we do
not require their approval to do so.

<PAGE>

Strategy
The Fund seeks a current yield from interest income that is greater than
generally obtainable from short-term tax-exempt bonds with the highest
investment ratings.

[SIDEBAR: A bond's current yield is not necessarily the same as its coupon, the
interest rate a borrower contracts to pay when issuing the bond. For example, a
$1,000 bond with a 5% coupon requires the borrower to make annual interest
payments of $50. If buyers can purchase the bond on the open market for $950,
their yield will be 5.3% ($50/$950). If they purchase the bond for $1050, their
yield will be 4.8% ($50/$1050).]

We do this by adjusting the average duration of the bonds held by the Fund
according to current market and credit conditions and the Bankers Trust interest
rate forecast.

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

o If our analysis indicates that yields are not likely to change, we attempt
to align the Fund's average duration to that of the intermediate-duration
municipal market as a whole.
o If we expect yields to rise, we will shorten the Fund's duration by buying
shorter maturity and selling longer maturity bonds, a tactic that should
insulate the value of its shares from falling bond prices.

[SIDEBAR: Maturity measures the time remaining until an issuer must repay
a bond's principal (and the issuer's debt) in full.]

o If we expect yields to fall, we will lengthen the Fund's duration by
selling shorter bonds and buying bonds with maturities up to 20 years to
capture the gain in prices.

<PAGE>

The Fund's duration can vary approximately 12 months in either direction from
the duration of the whole intermediate-term market.

The Fund also attempts to increase current income by capturing temporary
variations in the "spread" among different kinds of municipal bonds. The
difference, or spread, in the yield from different kinds of bonds normally
remains fairly constant. If yields change on, say, the highest rated general
obligation bonds, they should change by a predictable amount on less highly
rated bonds secured only by revenues from licensing fees. But outside economic
influences, political considerations or the marketplace law of supply and demand
may alter the normal spread. This deviation from the expected pattern may offer
the Fund the opportunity to earn more than usual from bonds at a given level of
risk.

<PAGE>

Principal Investments
The Fund attempts to invest all of its assets in tax-exempt municipal
securities.

[SIDEBAR: Interest income from notes and bonds issued by a state or local
government entity is exempt from Federal income tax.]

The Fund only invests in securities that receive investment grade ratings from a
major rating service.

[SIDEBAR: Municipal bonds must be rated Aaa, Aa, A, MIG-1 or Prime-1 by Moody's
Investors Service, Inc. or AAA, AA, A, SP-1 or A-1 by Standard & Poor's Ratings
Service at the time the Fund purchases them.]

The Fund may purchase a particular bond even if the rating agencies have not
reviewed it, if our analysis concludes that its credit quality compares to the
top ratings, and it may continue to hold a bond if its rating declines after
purchase.

The Fund may invest up to 20% of its total assets in taxable securities to
maintain liquidity, manage cash flow, or respond to adverse market conditions.
It can invest in U.S. Treasury bonds or bonds guaranteed by Federal agencies or
corporate debt that meets the Fund's quality requirements. The interest income
on these securities is subject to Federal income tax.

Portfolio Turnover

<PAGE>

have a target portfolio turnover rate. Its turnover will depend on the
Investment Adviser's assessment of how often to trade, in light of market
conditions and the Fund's investment objective.

<PAGE>

Risks
Below we set forth some of the prominent risks associated with municipal bond
investing, as well as investing in general. We also detail our methods for
dealing with these risks. Although we attempt to assess the likelihood that
these risks may actually occur and to limit them, we make no guarantee that we
will succeed in every case.

Primary risks

Market Risk
The Fund faces the risk that the overall market for municipal bonds may decline.
National and global economic events may prompt this decline, as may economic
events in locales in which the Fund has invested. Developments in other bond
markets or the stock market could also adversely affect the Fund by reducing the
relative attractiveness of municipal bonds as an investment.

Interest Rate Risk
A significant risk for the Fund is interest rate risk, the risk that
fixed-income securities will decline in value because of changes in interest
rates. Generally, investments subject to interest rate risk will decrease in
value when interest rates rise (and increase in value when interest rates
decline). To address movements in interest rates, the Investment Adviser
attempts to adjust the Fund's holdings of long-and short-term securities to
reflect our expectations of changes in interest rates.

Credit Risk
An investor purchasing a municipal bond faces the risk that the creditworthiness
of the issuer may decline, causing the value of the bond itself to decline. In
addition, issuers may not be able to pay the interest on the bonds they have
issued. As a way of reducing these risks, the Fund invests only in the highest
investment-grade securities to provide an

<PAGE>

added level of protection when economic conditions deteriorate. In addition, we
continuously monitor the financial well-being of the issuers of the bonds that
the Fund owns. We may sell those that show the signs of weakness that may lead
to a ratings downgrade or even to default.

Prepayment Risk
When a bond issuer retains the right to pay off a high yielding bond before it
comes due, the Fund may have no choice but to reinvest the proceeds at lower
interest rates. Thus, prepayment may reduce the Fund's income. In addition, it
may create a capital-gains-tax liability, because bond issuers usually pay a
premium for the right to pay off bonds early. The Fund protects itself against
this type of risk through a combination of approaches: o It may purchase
"callable" bonds early in the life of the loan, when the
issuer is least likely to call them in for prepayment;
o It may purchase callable bonds that offer extra yield income as an incentive
for assuming prepayment risk; or
o It may purchase non-callable bonds that offer yield income comparable to
callables.

Secondary risks

Information Risk
Unlike Treasury bonds and stocks, municipal bonds do not trade on highly
centralized exchanges. Specialized dealers make the markets for municipal bonds.
This means that prices on bonds of comparable safety and maturity may vary
widely. It poses the risk the Fund may buy or sell a bond on unfavorable terms.
We try to minimize this risk by investing only in high quality, readily
marketable bonds and cultivating business relationships with established,
reputable dealers.

<PAGE>

Liquidity Risk
A decentralized market, like that for municipal bonds, faces a greater liquidity
risk than a centralized market consisting of many more buyers and sellers.
Investors in municipal bonds may not be able to sell a bond quickly or receive a
price that reflects its intrinsic value. The Fund attempts to minimize this risk
by buying only investment-grade municipal bonds from large, well-known bond
issuers.

Year 2000 Risk
As with most businesses, the Fund faces the risk that the computer systems of
its Investment Adviser and other companies on which it relies for services or in
which it invests will not accommodate the changeovers necessary from dates in
the year 1999 to dates in the year 2000. We are working both internally and with
our business partners and service providers to address this problem. If we - or
our business partners, service providers, government agencies or other market
participants - do not succeed, it could materially affect shareholder services
or it could affect the value of the Fund's shares.

Temporary Defensive Position
We may from time to time adopt a temporary defensive position in response to
extraordinary adverse political, economic or market events. We could place up to
100% of the Fund's assets in short-term municipal obligations and taxable
securities with the highest investment ratings. To the extent we might adopt
such a position, the Fund may not meet its goal of a high level of current
tax-free income.

<PAGE>

Management of the Fund

Board of Trustees
The Fund's shareholders, voting in proportion to the amount of shares each owns,
elect a Board of Trustees, and the Trustees supervise all the Fund's activities
on their behalf.

Investment Adviser
Under the supervision of the Board of Trustees, Bankers Trust Company, with
headquarters at 130 Liberty Street, New York, New York 1006, acts as the Fund's
investment adviser, exercises day-to-day oversight and assumes responsibility
for the securities the Fund owns. Bankers Trust received a fee of [___]% of the
Fund's average daily net assets for its services in the last fiscal year.

As of September 30, 1998, Bankers Trust was the seventh largest bank holding
company in the United States with total assets of approximately $150 billion.
Bankers Trust is a worldwide merchant bank dedicated to servicing the needs of
corporations, governments, financial institutions and private clients through a
global network of over 90 offices in more than 50 countries.

Bankers Trust's officers bring wide experience to managing both the Fund and its
Portfolio. And the firm's own record dates back to its founding as a trust
company in 1903. It has invested retirement assets on behalf of the nation's
largest corporations and institutions for more than 50 years. Today, the assets
under its global management exceed $350 billion. The scope of the firm's
capability is broad: It is a leader in both the active and passive quantitative
investment disciplines and maintains a major presence in stock and bond markets
worldwide.

<PAGE>

Portfolio Manager
Gary Pollack is responsible for the day-today management of the Fund:
o Principal of Bankers Trust and Portfolio Manager of Intermediate Tax Free
Fund.
o Joined Bankers Trust in 1978.
o Portfolio Manager of the Fund since its inception.
o 20 years of investment research experience.
o Bachelors degree in economics and mathematics, masters degree in economics
from the State University of New York at Albany.

<PAGE>

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

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

<PAGE>

Organizational Structure: Master-Feeder Fund
The Intermediate Tax Free Fund is a "feeder fund" that invests all of its assets
in a "master portfolio," the Intermediate Tax Free Portfolio. The Fund and the
Master Portfolio have the same investment objective. The Master Portfolio is
advised by Bankers Trust.

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

<PAGE>

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

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

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

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

<PAGE>

Dividends and Distributions
Income dividends, if any, for the Fund are declared daily and paid monthly. You
may elect to receive your distributions in cash or to reinvest them in
additional shares of the Fund.

<PAGE>

Tax Considerations

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

- --------------------------------------------------------------------------------
Transaction Tax Status
- --------------------------------------------------------------------------------
Income dividends Ordinary income
- --------------------------------------------------------------------------------
Short-term capital gains distributions Ordinary income
- --------------------------------------------------------------------------------
Long-term capital gains distributions Capital gains
- --------------------------------------------------------------------------------

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

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
Transaction Tax Status
- -------------------------------------------------------------------------------------
<S><C>
Your sale of shares owned more than one year Capital gains or losses
- -------------------------------------------------------------------------------------

Your sale of shares owned for one
year or less Gains treated
as ordinary income; losses
subject to special rules.
- -------------------------------------------------------------------------------------
</TABLE>

The tax considerations for tax deferred accounts or non-taxable entities will be
different. Because each investor's tax circumstances are unique and because the
tax laws are subject to change, we recommend that you consult your tax advisor
about your investment.

<PAGE>

Buying and Selling Fund Shares
You can purchase or redeem shares in the Fund by mail, phone, wire or through an
authorized broker or financial advisor. Contact your broker or financial advisor
for details. You may also call the BT Service Center at 1-800-730-1313.

We may close your Fund account on 30 days' notice if it fails to meet minimum
balance requirements for any reason other than a change in market value. In
addition, if your sell order exceeds $250,000, we reserve the right to redeem it
"in kind" with a pro-rata distribution of securities actually held by the Fund,
rather than in cash.

Exchange Privileges
You can exchange all or part of your shares for shares in another BT Mutual Fund
up to four times a year without paying a sales charge. Before buying shares
through an exchange you should be sure to get a copy of that Fund's prospectus
and read it carefully. Please note also that you may have to pay taxes on the
shares you sell in the exchange.

Account minimums
The Fund requires a minimum investment of $2,500 to open accounts, $250 for
subsequent investments and a minimum balance of $1,000 to maintain them. It
requires a $500 minimum investment to open a retirement account, $100 for
subsequent investments, but imposes no minimum balance. Automatic investment
accounts, which credit money from your checking account to the purchase of Fund
shares monthly, bi-monthly, quarterly, or every six months, call for a minimum
$1,000 opening investment and at least $100 for each succeeding purchase of
shares.

The Fund's Shareholder Guide and the Statement of Additional Information both
contain complete information on buying and selling Fund shares and maintaining a
Fund account. If you have not already received a copy of the Shareholder Guide
or wish to obtain a free copy of the Statement of Additional Information, please
call the

<PAGE>

BT Service Center at 1-800-730-1313.

<PAGE>

Financial Highlights
The table below provides a picture of the Fund's financial performance for the
past five years. The information selected reflects financial results for a
single Fund share. The total returns in the table represent the rate of return
that an investor would have earned on an investment in the Fund, assuming
reinvestment of all interest income and distributions. This information has been
audited by ______________________, whose report, along with the Fund's financial
statements, is included in the Fund's annual report. The annual report is
available free of charge by calling the BT Service Center at 1-800-730-1313.

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
Per Share Operating 10/1/97 10/1/96 10/1/95- 1/1/95 - 1/1/94 -
Performance: -9/30/98 -9/30/97 9/30/96 9/30/95* 12/31/94
- ------------------------------------------------------------------------------------
<S><C>
Net Asset Value, Beginning of
Period
Income from Investment
Operations $ 10.34 $ 10.56 $ 9.72 $ 10.54
- ------------------------------------------------------------------------------------
Net Investment Income 0.44 0.33 0.47 0.42
- ------------------------------------------------------------------------------------
Net Realized and Unrealized
Gain (Loss) on Investments 0.31 (0.22) 0.84 (0.82)
- ------------------------------------------------------------------------------------
Total Income (Loss) from
Investment Operations 0.75 0.11 1.31 (0.40)
------- ------- ------- -------
- ------------------------------------------------------------------------------------
Distributions to Shareholders
- ------------------------------------------------------------------------------------
Net Investment Income (0.44) (0.33) (0.47) (0.42)
- ------------------------------------------------------------------------------------
Net Realized Gains -- -- -- --
- ------------------------------------------------------------------------------------
Total Distributions (0.44) (0.33) (0.47) (0.42)
- ------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 10.65 $ 10.34 $ 10.56 $ 9.72
------- ------- ------- -------
- ------------------------------------------------------------------------------------
Total Investment Return 7.43% 4.09%** 13.71% (3.81)%
- ------------------------------------------------------------------------------------
Supplemental Data and Ratios:
- ------------------------------------------------------------------------------------
Net Assets, End of Period
(000s omitted) $18,732 $22,008 $22,213 $25,303
- ------------------------------------------------------------------------------------
Ratios to Average Net Assets:
- ------------------------------------------------------------------------------------
Net Investment Income 4.23% 4.25%** 4.58% 4.20%
- ------------------------------------------------------------------------------------
Expenses, including Expenses of
the Intermediate Tax Free
Portfolio 0.85% 0.85%** 0.85% 0.85%
- ------------------------------------------------------------------------------------
Decrease Reflected in above
Expense Ration Due to absorption
of Expenses by Bankers Trust 0.30% 0.38%** 0.28% 0.36%
- ------------------------------------------------------------------------------------
Portfolio Turnover Rate*** 171% 130% 95% 118%
- ------------------------------------------------------------------------------------
</TABLE>

*The Fund changed its fiscal year end from December 31 to September 30 in 1996
**Annualized
***The portfolio turnover rate is the rate for the Master Portfolio into which
the Fund invests all its assets

<PAGE>

[BACK COVER]

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

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

BT Service Center
P.O. Box 419210
Kansas City, MO 64141-6210
or call our toll-free number: 1-800-730-1313

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

You can get information about buying and selling shares in the Fund in the
Shareholder Guide. If you have not received a copy of the Guide, call the BT
Service Center to obtain one free of charge.

<PAGE>

Intermediate Tax Free Fund

BT Investment Funds

811-4760

Subject to Completion, Dated November __, 1998

STATEMENT OF ADDITIONAL INFORMATION

January __, 1999

BT Investment Funds

o Intermediate Tax Free Fund

BT Investment Funds (the "Trust") is comprised of a number of separate
investment funds. The shares of the following fund - Intermediate Tax Free Fund
(the "Fund") - are described herein.

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

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

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

BANKERS TRUST COMPANY
Investment Adviser and Administrator of the Portfolio ICC
DISTRIBUTORS, INC.
Distributor

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

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TABLE OF CONTENTS
-----------------

PAGE
----

INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS............................1
Investment Objective.................................................1
Investment Policies..................................................1
Additional Risk Factors..............................................8
Investment Restrictions.............................................10
Portfolio Transactions and Brokerage Commissions....................13

PERFORMANCE INFORMATION...................................................14
Standard Performance Information....................................14
Expenses............................................................15
Comparison of Fund Performance......................................15
Economic and Market Information.....................................16
Purchase of Shares..................................................16
Redemption of Shares................................................18
Redemptions and Purchases in Kind...................................20

MANAGEMENT OF THE TRUST AND THE PORTFOLIO.................................20
Trustees of the Trust...............................................21
Trustees of the Portfolio...........................................21
Officers of the Trust and Portfolio.................................21
Investment Adviser..................................................22
Administrator.......................................................23
Distributor.........................................................24
Service Agent.......................................................24
Custodian and Transfer Agent........................................24
Use of Name.........................................................24
Banking Regulatory Matters..........................................24
Counsel and Independent Accountants.................................25

ORGANIZATION OF THE TRUST.................................................25

TAXATION..................................................................26
Taxation of the Fund................................................26
Distributions.......................................................26
Taxation of the Portfolio...........................................27
Other Taxation......................................................27

FINANCIAL STATEMENTS......................................................27

APPENDIX..................................................................28

(i)

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INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS

Investment Objective

The investment objective of the Fund is a high level of current income exempt
from federal income tax consistent with moderate risk of capital. There can, of
course, be no assurance that the Fund will achieve its investment objective.

Investment Policies

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

Since the investment characteristics of the Fund will correspond directly to
those of the Portfolio, the following is a discussion of the various investments
of and techniques employed by the Portfolio. The Portfolio's investment
objective is a high level of current income exempt from Federal income tax
consistent with moderate risk of capital. The Portfolio invests primarily in
high-quality tax-exempt municipal bonds. The Portfolio seeks to hold a portfolio
of securities with an intermediate-term duration. The Portfolio intends to
manage its holdings actively. Portfolio transactions are undertaken principally
to accomplish the Portfolio's investment objective in relation to expected
movements in the general level of interest rates, but the Portfolio may also
engage in short-term trading consistent with its objective.

The Portfolio seeks to maintain a current yield that is greater than that
generally obtainable from a portfolio of short-term tax-exempt obligations,
subject to applicable quality restrictions. The Portfolio seeks to increase
yields by adjusting the average maturity of its portfolio in light of prevailing
market conditions and credit considerations. The Portfolio will normally consist
of a portfolio of securities with a weighted average maturity of three to ten
years. The remaining maturity of securities generally will not exceed 20 years
at the time of investment. The Portfolio adjusts its holdings of long-term and
short-term debt securities to reflect its assessment of prospective changes in
interest rates, which may adversely affect current income.

The value of securities held by the Portfolio will generally fluctuate inversely
with changes in prevailing interest rates and will also be affected by changes
in the creditworthiness of issuers and other market factors. The quality
criteria applied in the selection of Portfolio securities are intended to
minimize adverse price changes due to credit considerations. The value of
municipal securities in the Portfolio can also be affected by market reaction to
legislative consideration of various tax reform proposals. Although the value of
the assets of the Portfolio and the net asset value of the Fund will fluctuate,
the Portfolio attempts to conserve the value of its assets to the extent
consistent with its objective.

Quality Information. The Portfolio will not purchase any municipal obligation
unless it is rated at least A, MIG-1 or Prime-1 by Moody's Investors Service,
Inc. ("Moody's") or A, SP-1 or A-1 by Standard & Poor's Ratings Group ("S&P") or
if unrated, in the Adviser's opinion it is of comparable quality. These
standards must be satisfied at the time an investment is made. If the quality of
the investment later declines, the Portfolio may continue to hold the
investment.

Taxable Investments. The Portfolio attempts to invest 100% of its assets in
tax-exempt municipal securities; however the Portfolio is permitted to invest up
to 20% (or greater while maintaining a temporary defensive position) of the
value of its total assets in securities, the interest income on which is subject
to federal income or alternative minimum tax. The Portfolio may make taxable
investments pending investment of proceeds of tax-exempt securities, pending
settlement of purchases of portfolio securities, to maintain liquidity to meet
redemptions or when it is advisable in Bankers Trust's opinion because of
adverse market conditions. The taxable investments permitted for the Portfolio
include obligations of the U.S. and its agencies and instrumentalities, bank
obligations, commercial paper and repurchase agreements and other debt
securities which meet the Portfolio's quality requirements.

Municipal Securities. The Portfolio may invest in notes and bonds issued by or
on behalf of states, territories and possessions of the United States and the
District of Columbia and their political subdivisions, agencies, authorities and
instrumentalities. These obligations may be general obligation instruments
secured by the issuer's pledge of its full faith, credit and taxing power for
the payment of principal and interest, or they may be revenue instruments
payable from specific revenue sources, but not generally backed by the issuer's
taxing power. These include industrial development bonds where payment is the
responsibility of the private industrial user of the facility financed by the
instruments.

Short-Term Municipal Investments. For temporary defensive purposes or for
purposes of liquidity, the assets of the Portfolio may be invested in short-term
municipal obligations. These short-term obligations include municipal notes of
various types, including notes issued in anticipation of receipt of taxes, the
proceeds of the sale of bonds, other revenues or grant proceeds and project
notes, as well as municipal commercial paper and municipal demand obligations
such as variable rate demand notes and master demand obligations. The interest
rate on variable rate demand notes is adjustable at periodic intervals as
specified in the notes. Master demand obligations permit the investment of
fluctuating amounts at periodically adjusted interest rates. Although master
demand obligations are not marketable to third parties, the Portfolio considers
them to be liquid because they

<PAGE>

are payable on demand. There is no specific percentage limitation on these
investments. The credit quality of variable rate demand notes and other
municipal obligations is frequently enhanced by various arrangements with
domestic or foreign financial institutions, such as letters of credit,
guarantees and insurance, and these arrangements are considered when investment
quality is evaluated. These obligations will be of comparable quality to
municipal bonds and will be purchased in anticipation of a declining market and
rising interest rates, pending purchase of longer term investments or to
maintain liquidity to meet redemptions. The amortized cost method is used by the
Portfolio to value municipal securities with maturities of less than 60 days;
when these securities are subject to puts separate from the underlying
securities, no value is assigned to the puts. The cost of any such put is
carried as an unrealized loss from the time of purchase until it is exercised or
expires.

Municipal Bonds. Municipal bonds generally fund longer-term capital needs than
municipal notes and have maturities exceeding one year when issued. The
Portfolio may invest in municipal bonds. Municipal bonds include:

General Obligation Bonds. Issuers of general obligation bonds include states,
counties, cities, towns and regional districts. The proceeds of these
obligations are used to fund a wide range of public projects, including
construction or improvement of schools, highways and roads, and water and sewer
systems. The basic security behind general obligation bonds is the issuer's
pledge of its full faith and credit and taxing power for the payment of
principal and interest. The taxes that can be levied for the payment of debt
service may be limited or unlimited as to the rate or amount of special
assessments.

Revenue Bonds. The principal security for a revenue bond is generally the net
revenues derived from a particular facility, group of facilities or, in some
cases, the proceeds of a special excise tax or other specific revenue source.
Revenue bonds are issued to finance a wide variety of capital projects,
including electric, gas, water and sewer systems; highways, bridges, and
tunnels; port and airport facilities; colleges and universities; and hospitals.
Although the principal security behind these bonds may vary, many provide
additional security in the form of a debt service reserve fund that may be used
to make principal and interest payments on the issuer's obligations. Housing
finance authorities have a wide range of security, including partially or fully
insured mortgages, rent subsidized and/or collateralized mortgages, certificates
of deposit and/or the net revenues from housing or other public projects. Some
authorities provide further security in the form of a state's ability (without
obligation) to make up deficiencies in the debt service reserve fund.

Private Activity Bonds. Private activity bonds, which are considered municipal
obligations if the interest paid thereon is excluded from gross income for
Federal income tax purposes but is a specific tax preference item for Federal
individual and corporate alternative minimum tax purposes, are issued by or on
behalf of public authorities to raise money to finance various
privately-operated facilities such as manufacturing facilities, certain hospital
and university facilities and housing projects. These bonds are also used to
finance public facilities such as airports, mass transit systems and ports. The
payment of the principal and interest on these bonds is dependent solely on the
ability of the facility's user to meet its financial obligations and generally
the pledge, if any, of real and personal property so financed as security for
payment.

Municipal Notes. Municipal notes generally fund short-term capital needs. The
Portfolio may invest in municipal notes, which include:

Tax Anticipation Notes. Tax anticipation notes are issued to finance working
capital needs of municipalities. Generally, they are issued in anticipation of
various seasonal tax revenue, such as income, sales, use and business taxes, and
are payable from these specific future taxes.

Revenue Anticipation Notes. Revenue anticipation notes are issued in expectation
of receipt of other types of revenue, such as Federal revenues available under
Federal revenue sharing programs.

Bond Anticipation Notes. Bond anticipation notes are issued to provide interim
financing until long-term financing can be arranged. In most cases, the
long-term bonds provide funds for the repayment of these notes.

Miscellaneous, Temporary and Anticipatory Instruments. These instruments may
include notes issued to obtain interim financing pending entering into alternate
financial arrangements, such as receipt of anticipated Federal, state or other
grants or aid, passage of increased legislative authority to issue longer-term
instruments or obtaining other refinancing.

Construction Loan Notes. Construction loan notes are sold to provide
construction financing. Permanent financing, the proceeds of which are applied
to the payment of construction loan notes, is sometimes provided by a commitment
of the Government National Mortgage Association ("GNMA") to purchase the loan,
accompanied by a commitment by the Federal Housing Administration to insure
mortgage advances thereunder. In other instances, permanent financing is
provided by commitments of banks to purchase the loan. The Portfolio will only
purchase construction loan notes that are subject to permanent GNMA or bank
purchase commitments.

<PAGE>

Tax-Exempt Commercial Paper. The Portfolio may invest in tax-exempt commercial
paper. Tax-exempt commercial paper is a short-term obligation with a stated
maturity of 365 days or less. It is issued by agencies of state and local
governments to finance seasonal working capital needs or as short-term financing
in anticipation of longer-term financing.

Standby Commitments. The Portfolio may acquire standby commitments or "puts"
solely to facilitate portfolio liquidity; the Portfolio intends to exercise its
rights thereunder for trading purposes. The maturity of a municipal obligation
is not to be considered shortened by any standby commitment to which the
obligation is subject. Thus, standby commitments do not affect the
dollar-weighted average maturity of the Portfolio.

When municipal obligations are subject to puts separate from the underlying
securities, no value is assigned to the put. Because of the difficulty of
evaluating the likelihood of exercise or the potential benefit of a put, the
Board of Trustees has determined that puts shall have a fair market value of
zero, regardless of whether any direct or indirect consideration was paid.

Since the value of the put is partly dependent on the ability of the put writer
to meet its obligation to repurchase, the Portfolio's policy is to enter into
put transactions only with put writers who are approved by Bankers Trust. It is
the Portfolio's general policy to enter into put transactions only with those
put writers which are determined to present minimal credit risks. In connection
with this determination, the Board of Trustees will review regularly Bankers
Trust's list of approved put writers, taking into consideration, among other
things, the ratings, if available, of their equity and debt securities, their
reputation in the municipal securities markets, their net worth, their
efficiency in consummating transactions and any collateral arrangements, such as
letters of credit securing the puts written by them. Commercial banks normally
will be members of the Federal Reserve System, and other dealers will be members
of the National Association of Securities Dealers, Inc. or members of a national
securities exchange. Other put writers will have outstanding debt rated Aa or
better by Moody's or AA or better by S&P, or will be of comparable quality in
Bankers Trust's opinion, or such put writers' obligations will be collateralized
and of comparable quality in Bankers Trust's opinion. The Board of Trustees has
directed Bankers Trust not to enter into put transactions with any put writer
that, in the judgment of Bankers Trust using the above-described criteria, is or
becomes a recognizable credit risk. The Trust is unable to predict whether all
or any portion of any loss sustained could subsequently be recovered from a put
writer in the event that a put writer should default on its obligation to
repurchase an underlying security.

Other Investments and Investment Techniques. The Portfolio may also utilize the
following investments and investment techniques and practices: puts, zero coupon
municipal securities, repurchase agreements, Rule 144A securities, when-issued
and delayed delivery securities, and options and futures contracts.

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

Puts. The Portfolio may purchase municipal bonds or notes together with the
right to resell them at an agreed price or yield within a specified period prior
to maturity. This right to resell is known as a put. The aggregate price paid
for securities with puts may be higher than the price which otherwise would be
paid. Consistent with the investment objectives of the Portfolio and subject to
the supervision of the Trustees of the Portfolio, the purpose of this practice
is to permit the portfolio to be fully invested in tax-exempt securities while
maintaining the necessary liquidity to purchase securities on a when-issued
basis, to meet unusually large redemptions, to purchase at a later date
securities other than those subject to the put and to facilitate Bankers Trust's
ability to manage the Portfolio actively. The principal risk of puts is that the
put writer may default on its obligation to repurchase. Bankers Trust will
monitor each writer's ability to meet its obligations under puts.

The amortized cost method is used by the Portfolio to value municipal securities
with maturities of less than 60 days; when these securities are subject to puts
separate from the underlying securities, no value is assigned to the puts. The
cost of any such put is carried as an unrealized loss from the time of purchase
until it is exercised or expires.

Zero Coupon Bonds. Zero coupon bonds 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 bonds move in the same direction as interest rates.

Zero Coupon Municipal Securities. The Intermediate Tax Free Portfolio may invest
in zero coupon municipal securities which are debt securities issued or sold at
a discount from their face value which do not entitle the holder to any periodic
payment of interest prior to maturity or a specified redemption date (or cash
payment date). The amount of the discount varies depending on the time remaining
until maturity or cash payment date, prevailing interest rates, liquidity of the
security and perceived credit quality of the issuer. Zero coupon securities also
may take the form of debt securities that have been stripped of their unmatured
interest coupons, the coupons themselves and receipts or certificates
representing interests in such stripped debt obligations and coupons. The market
prices of zero coupon securities generally are more volatile than the

<PAGE>

market prices of interest-bearing securities and are likely to respond to a
greater degree to changes in interest rates than interest-bearing securities
having similar maturities and credit qualities.

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

U.S. Government Securities. U.S. government securities are high-quality debt
securities issued or guaranteed by the U.S. Treasury or by an agency or
instrumentality of the U.S. government. Not all U.S. government securities are
backed by the full faith and credit of the United States. For example,
securities issued by the Farm Credit Banks or by the Federal National Mortgage
Association are supported by the instrumentality's right to borrow money from
the U.S. Treasury under certain circumstances. However, securities issued by
other agencies or instrumentalities are supported only by the credit of the
entity that issued them.

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.

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

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

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

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).

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
fluctuations during this period and no income accrues to the Portfolio until
settlement takes place. The Portfolio maintains with the Custodian a segregated
account containing cash or liquid securities in an amount at least equal to
these commitments.

Repurchase Agreements. In a repurchase agreement, the Portfolio buys a security
at one price and simultaneously agrees to sell it back at a higher price at a
future date. Delays or losses could result if the other party to the agreement
defaults or becomes insolvent.

<PAGE>

Reverse Repurchase Agreements. In a reverse repurchase agreement, the Portfolio
temporarily transfers possession of a portfolio instrument to another party in
return for cash. This could increase the risk of fluctuation in the Fund's yield
or in the market value of its assets. A reverse repurchase agreement is a form
of borrowing and will be counted toward the Portfolio's borrowing restrictions.

Short-Term Instruments. The Portfolio intends to stay invested in the securities
described herein to the extent practical in light of its objective and long-term
investment perspective. However, the Portfolio may invest up to 35% of its total
assets in high quality short-term investments with remaining maturities of 397
days or less, or in money market mutual funds, to meet anticipated redemptions
and expenses for day-to-day operating purposes and up to 100% of its total
assets when, in the Adviser's opinion, it is advisable to adopt a temporary
defensive position because of unusual and adverse conditions affecting the
respective markets. 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 invest in short-term
instruments for a limited time pending availability of such portfolio
securities. Short-term instruments consist of foreign or domestic: (i)
short-term obligations of sovereign governments, their agencies,
instrumentalities, authorities or political subdivisions; (ii) other short-term
debt securities rated AA or higher by S&P or Aa or higher by Moody's or, if
unrated, of comparable quality in the opinion of the Adviser; (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 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 the Adviser. These instruments may be denominated in U.S. dollars or
in foreign currencies.

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 as a low cost method of gaining exposure to a particular
securities market without investing directly in those securities. However, some
derivatives are used for leverage, which tends to magnify the effects of an
instrument's price changes as market conditions change. Leverage involves the
use of a small amount of money to control a large amount of financial assets,
and can in some circumstances lead to significant losses. The Adviser will use
derivatives only in circumstances where they offer the most efficient means of
improving the risk/reward profile of the Portfolio and when consistent with the
Portfolio's investment objective and policies. The use of derivatives for
non-hedging purposes may be considered speculative.

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.

For a description of commercial paper ratings, see Appendix.

Futures Contracts and Options on Futures Contracts.

General. The successful use of such instruments draws upon the Adviser's skill
and experience with respect to such instruments and usually depends on the
Adviser's ability to forecast interest rate and currency exchange rate movements
correctly. Should interest or exchange rates move in an unexpected manner, the
Portfolio may not achieve the anticipated benefits of futures contracts or
options on futures contracts or may realize losses and thus will be in a worse
position than if such strategies had not been used. In addition, the correlation
between movements in the price of futures contracts or options on futures
contracts and movements in the price of the securities and currencies hedged or
used for cover will not be perfect and could produce unanticipated losses.

<PAGE>

Futures Contracts. The Portfolio may enter into contracts for the purchase or
sale for future delivery of fixed-income securities, or contracts based on
financial indices including any index of U.S. government 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 clear through their clearing corporations. The Portfolio
may enter into futures contracts which are based on debt securities that are
backed by the full faith and credit of the U.S. government, such as long-term
U.S. Treasury Bonds, Treasury Notes, Government National Mortgage Association
("GNMA") modified pass-through mortgage-backed securities and three-month U.S.
Treasury Bills. The Portfolio may also enter into futures contracts which are
based on bonds issued by entities other than the U.S. government.

At the same time a futures contract is entered into, the Portfolio must allocate
cash or securities as a deposit payment ("initial margin"). It is expected that
the initial margin deposit would be approximately 1 1/2% to 10% of a contract's
face value. Daily thereafter, the futures contract is valued and the payment of
"variation margin" may be required, since each day the Portfolio would provide
or receive cash that reflects any decline or increase in the contract's value.

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

The purpose of entering into 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 rates without actually
buying or selling fixed-income securities. For example, if interest rates were
expected to increase, the Portfolio might enter into futures contracts for the
sale of debt securities. Such a sale would have much the same effect as selling
an equivalent value of the debt securities owned by the Portfolio. If interest
rates did increase, the value of the debt security in the Portfolio would
decline, but the value of the futures contracts to the Portfolio would increase
at approximately the same rate, thereby keeping the net asset value of the
Portfolio from declining as much as it otherwise would have. The Portfolio could
accomplish similar results by selling debt securities and investing in bonds
with short maturities when interest rates are expected to increase. However,
since the futures market is more liquid than the cash market, the use of futures
contracts as an investment technique allows the Portfolio to maintain a
defensive position without having to sell its portfolio securities.

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

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 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 lending requirements in the securities
market. Therefore, increased participation by speculators in the futures market
may cause temporary price distortions. Due to the possibility of distortion, a
correct forecast of general interest rate trends by the Adviser may still not
result in a successful transaction.

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

<PAGE>

against the possibility of an increase in interest rates which would adversely
affect the price of debt securities held in its portfolio and interest rates
decrease instead, the Portfolio will lose part or all of the benefit of the
increased value of its debt securities which it has hedged because it will have
offsetting losses in its futures positions. In addition, in such situations, if
the Portfolio has insufficient cash, it may have to sell debt securities from
its portfolio to meet daily variation margin requirements. Such sales of bonds
may be, but will not necessarily be, at increased prices which reflect the
rising market. The Portfolio may have to sell securities at a time when it may
be disadvantageous to do so.

Options on Futures Contracts. 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 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 Portfolio's net asset value, after
taking into account unrealized profits and unrealized losses on any such
contracts.

Futures Contracts on Stock and Bond Indices. Each 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 domestic or foreign securities
("Futures Contracts"). This investment technique may be used as a low-cost
method of gaining exposure to a particular securities market without investing
directly in those securities or to hedge against anticipated future changes 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.

When used for hedging purposes, 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.

The risks of Futures Contracts also include a potential lack of liquidity in the
secondary market and incorrect assessments of market.

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 a Portfolio. A Portfolio may not purchase or sell
a Futures Contract if immediately thereafter its margin deposits on its
outstanding Futures Contracts, other than Futures Contracts used for hedging
purposes, would exceed 5% of the Portfolio's net asset value, after taking into
account unrealized profits and unrealized losses on any such contracts.

<PAGE>

Asset Coverage. To assure that the Portfolio's use of futures and related
options, as well as when-issued and delayed-delivery securities 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 segregating with the Portfolio's Custodian or
futures commission merchant liquid securities in an amount at all times equal to
or exceeding the Portfolio's commitment with respect to these instruments or
contracts.

Additional Risk Factors

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

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

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

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

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

When a Portfolio writes an option, an amount equal to the net premium received
by the Portfolio is included in the liability section of the Portfolio's
Statement of Assets and Liabilities as a deferred credit. The amount of the
deferred credit will be subsequently marked to market to reflect the current
market value of the option written. The current market value of a traded option
is the last sale price or, in the absence of a sale, the mean between the
closing bid and asked price. If an option expires on its 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>

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.

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

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

<PAGE>

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 objective as the Fund or the retaining of an
investment adviser to manage the Fund's assets in accordance with the investment
policies described herein with respect to the Portfolio.

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

Rating Services. The ratings of 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, the Adviser also makes its own
evaluation of these securities, subject to review by the Board of Trustees.
After purchase by the Portfolio, an obligation may cease to be rated or its
rating may be reduced below the minimum required for purchase by the Portfolio.
Neither event would require the Portfolio to eliminate the obligation from its
portfolio, but the Adviser will consider such an event in its determination of
whether the Portfolio should continue to hold the obligation.

Investment Restrictions

The following investment restrictions are "fundamental policies" of the Fund and
the Portfolio and may not be changed with respect to the Fund or the Portfolio
without the approval of a "majority of the outstanding voting securities" of the
Fund or the Portfolio, as the case may be. "Majority of the outstanding voting
securities" under the Investment Company Act of 1940, as amended (the "1940
Act"), and as used in this SAI and the Prospectus, means, with respect to the
Fund (or the Portfolio), the lesser of (i) 67% or more of the outstanding voting
securities of the Fund (or of the total beneficial interests of the Portfolio)
present at a meeting, if the holders of more than 50% of the outstanding voting
securities of the Fund (or of the total beneficial interests of the Portfolio)
are present or represented by proxy or (ii) more than 50% of the outstanding
voting securities of the Fund (or of the total beneficial interests of the
Portfolio). Whenever the Trust is requested to vote on a fundamental policy of a
Portfolio, the Trust will hold a meeting of the 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.

Fundamental Policies. As a matter of fundamental policy, the Portfolio (or the
Fund) may not (except that no investment restriction of the Fund shall prevent
the Fund from investing all of its Assets in an open-end investment company with
substantially the same investment 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 and enter
into reverse repurchase agreements or dollar roll transactions, and
except that it may pledge, mortgage or hypothecate not more than 1/3 of
such assets to secure such borrowings (it is intended that money would
be borrowed only from banks and only either to accommodate requests for
the withdrawal of beneficial interests (redemption of shares) while
effecting an orderly liquidation of portfolio securities or to maintain
liquidity in the event of an unanticipated failure to complete a
portfolio security transaction or other similar situations) or reverse
repurchase agreements, provided that collateral arrangements with
respect to options and futures, including deposits of initial deposit
and variation margin, are not considered a pledge of assets for
purposes of this restriction and except that assets may be pledged to
secure letters of credit solely for the purpose of participating in a
captive insurance company sponsored by the Investment Company
Institute; for additional related restrictions, see clause (i) under
the caption "Additional Restrictions" below (as an operating policy,
the Portfolio may not engage in dollar-roll transactions);

10
<PAGE>

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

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

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

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

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

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

Additional Restrictions. The following are nonfundamental policies of the Fund
and the Portfolio. In order to comply with certain statutes and policies, the
Portfolio (or the Trust, on behalf of the Fund) will not as a matter of
operating policy (except that no operating policy shall prevent 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 10% of the Portfolio's
(Fund's) total assets (taken at cost), except that the Portfolio
(Fund) may borrow for temporary or emergency purposes up to 1/3 of
its total assets;

(ii) pledge, mortgage or hypothecate for any purpose in excess of 10% of
the Portfolio's (Fund's) total assets (taken at market value),
provided that collateral arrangements with respect to options and
futures, including deposits of initial deposit and variation margin,
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) (a) sell any security which it does not own unless by virtue of its
ownership of other securities it has at the time of sale a right to
obtain securities, without payment of further consideration,
equivalent in kind and amount to the securities sold and provided
that if such right is conditional the sale is made upon the same
conditions; and (b) make short sales of securities or maintain a
short position, unless at all times when a short position is open it
owns an equal amount of such securities or securities convertible
into or exchangeable, without payment of any further consideration,
for securities of the same issue and equal in amount to, the
securities sold short, and unless not more than 10% of the
Portfolio's (Fund's) net assets (taken at market value) is
represented by such securities, or securities convertible into or
exchangeable for such securities, at any one time (the Portfolio
(Fund) has no current intention to engage in short selling);

(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

<PAGE>

customary broker's commission, or except when such purchase, though
not made in the open market, is part of a plan of merger or
consolidation; provided, however, that securities of any investment
company will not be purchased for the Portfolio (Fund) if such
purchase at the time thereof would cause: (a) more than 10% of the
Portfolio's (Fund's) total assets (taken at the greater of cost or
market value) to be invested in the securities of such issuers; (b)
more than 5% of the Portfolio's (Fund's) total assets (taken at the
greater of cost or market value) to be invested in any one
investment company; or (c) more than 3% of the outstanding voting
securities of any such issuer to be held for the Portfolio (Fund),
unless permitted to exceed these limitations by an exemptive order
of the SEC; provided further that, except in the case of 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;

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

(viii) invest more than 10% of the Portfolio's (Fund's) total assets (taken
at the greater of cost or market value) in securities that are
restricted as to resale under the 1933 Act (other than Rule 144A
securities deemed liquid by the Portfolio's (Fund's) Board of
Trustees), and (b) no more than 5% of the Portfolio's (Fund's) total
assets will be invested in securities issued by issuers which
(including predecessors) have been in operation less than three
years;

(ix) 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;

(x) 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 the New York or American Stock Exchange, to the extent
permitted by applicable state securities laws;

(xi) 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 50% of the
Portfolio's (Fund's) net assets; (c) the securities subject to the
exercise of the call written by the Portfolio (Fund) must be owned
by the Portfolio (Fund) at the time the call is sold and must
continue to be owned by the Portfolio (Fund) until the call has
been exercised, has lapsed, or the Portfolio (Fund) has
purchased a closing call, and such purchase has been confirmed,
thereby extinguishing the Portfolio's (Fund's) obligation to
deliver securities pursuant to the call it has sold; and (d) at
the time a put is written, the Portfolio (Fund) establishes a
segregated account with its custodian consisting of cash or
securities acceptable to the broker 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

<PAGE>

(xii) 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 (except with respect to
fundamental investment restriction (1) above) if that restriction is complied
with at the time the relevant action is taken, notwithstanding a later change in
the market value of an investment, in net or total assets or in the change of
securities rating of the investment, or any other later change.

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

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

Consistent with the policy stated above, the Conduct Rules of the National
Association of Securities Dealers, 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 the Adviser as a factor in the
selection of broker-dealers to execute portfolio transactions. The Adviser 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. The Adviser 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.

<PAGE>

be useful to the Adviser in providing services to clients other than the
Portfolios, and not all such information is used by the Adviser in connection
with the Portfolios. Conversely, such information provided to the Adviser by
brokers and dealers through whom other clients of the Adviser effect securities
transactions may be useful to the Adviser in providing services to the
Portfolios.

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

For the fiscal years ended September 30, 1998 and 1997 and the period from
January 1, 1996 to September 30, 1996, and the fiscal year ended December 31,
1995, the Portfolio paid no brokerage commissions.

PERFORMANCE INFORMATION

Standard Performance Information

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

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

Income calculated for the purposes of calculating the Fund's yield differs
from income as determined for other accounting purposes. Because of the
different accounting methods used, and because of the compounding assumed
in yield calculations, the yield quoted for the Fund may differ from the
rate of distributions of the Fund paid over the same period or the rate of
income reported in the Fund's financial statements.

Unlike some bank deposits or other investments which pay a fixed yield for
a stated period of time, the total return (see "Total Return" below) of
the Fund will vary depending upon interest rates, the current market value
of the securities held by the Portfolio and changes in the expenses of the
Fund or Portfolio.

Tax-Equivalent Yield: The Fund's tax-equivalent yield is equal to the
Fund's yield divided by (1-Tax Rate).

As of September 30, 1998, the Fund's tax equivalent 30-day SEC yield was
____%, assuming a maximum Federal tax rate of 31%. The Fund's 30-day SEC
yield for the period ended September 30, 1998 was ____%.

14
<PAGE>

compounded rates of return over those periods that would cause an
investment of $1,000 (made at the maximum public offering price with all
distributions reinvested) to reach the value of that investment at the end
of the periods. The Fund may also calculate total return figures which
represent aggregate performance over a period or year-by-year performance.

<TABLE>
<CAPTION>
Cumulative Total Return Annualized Total Return
For the Period From From the Period From
July 20, 1992 July 20, 1992
Total Return for the Total Return for the (Commencement of (Commencement of
One Year Ended Five Years Ended Operations) Operations)
September 30, 1998 September 30, 1998 Through September 30, 1998 Through September 30, 1998
<S> <C> <C> <C> <C>
Intermediate Tax Free Fund 7.43% 32.53% 32.56% 5.57%
</TABLE>

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

Expenses

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

Comparison of Fund Performance

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

In connection with communicating its performance to current or prospective
shareholders, a Fund also may compare these figures to the performance of other
mutual funds tracked by mutual fund rating services or to unmanaged indices
which may assume reinvestment of dividends but generally do not reflect
deductions for administrative and management costs. Evaluations of a Fund's
performance made by independent sources may also be used in advertisements
concerning the Fund. Sources for a Fund's performance information could include
the following:

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

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

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

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

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

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

<PAGE>

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Economic and Market Information

Advertising and sales literature of the Fund may include discussions of
economic, financial and political developments and their effect on the
securities market. Such discussions may take the form of commentary on these
developments by Fund portfolio managers and their views and analysis on how such
developments could affect the Fund. In addition, advertising and sales
literature may quote statistics and give general information about the mutual
fund industry, including the growth of the industry, from sources such as the
Investment Company Institute ("ICI"). For example, according to the ICI,
thirty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as business and institutions,
have entrusted over $3.5 trillion to the more than 6,000 funds available.

Purchase of Shares

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

<PAGE>

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

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

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

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

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

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

[The Fund and its service providers reserve the right to, from time to time in
their discretion, waive or reduce the investment minimums.]

If you are new to BT Investment Funds, complete and sign an account application
and mail it along with your check to the address listed below. For an account
application, call the BT Service Center at 1-800-730-1313.

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

Overnight mailings:

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

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

o Mail an account application with a check,

o Wire money into your account,

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

o Contact your Service Agent or Investment Professional.

<PAGE>

If you are investing through a tax-sheltered retirement plan, such as an IRA,
for the first time, you will need a special application. Contact your Investment
Professional or BT Retirement Services Center at 1-800-677-7596 for more
information and a retirement account application.

Additional Information About Buying Shares

To Open an Account To Add to an Account

By Wire Call the BT Service Center at Call your Investment 1-800-730-1313
to receive wire Professional or wire instructions for account
additional investment to:
establishment.
Routing No.: 021001033
Attn: Bankers Trust/IFTC
Deposit
DDA No.: 00-226-296
FBO: (Account name)
(Account Number)
Credit: Fund Number
Investment Intermediate
Tax-Free Fund--467
Specify the complete
name of the Fund,
including your account
number and your name.

By Phone Contact your Service Agent, Contact your Service Agent,
Investment Professional, or call Investment Professional, or call
BT's Service Center at BT's Service Center at
1-800-730-1313. If you are an 1-800-730-1313. If you are an
existing shareholder, you may existing Shareholder, you may
exchange from another BT account exchange from another BT account
with the same registration, with the same registration,
including name, address, and including name, address, and
taxpayer ID number. taxpayer ID number.

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

Redemption of Shares

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

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

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

<PAGE>

To sell Shares in a retirement account, your request must be made in writing,
except for exchanges to other eligible funds in the BT Family of Funds, which
can be requested by phone or in writing. For information on retirement
distributions, contact your Service Agent or call the BT Service Center at
1-800-730-1313.

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

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

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

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

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

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

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

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

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

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

Additional Information About Selling Shares

By Wire - You must sign up for the wire feature before using it. To verify that
it is in place, call 1-800-730-1313. Minimum wire: $1,000. Your wire redemption
request must be received by the Transfer Agent before 4:00 p.m. Eastern time for
money to be wired on the next business day.

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

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

Overnight mailings:

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

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

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

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

Exchange Privilege

<PAGE>

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

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

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

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

o Exchanges out of the Fund may be limited to four per calendar year and any
exchange may have tax consequences for you.

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

Redemptions and Purchases in Kind

The Trust, on behalf of the Fund, and the Portfolio reserves 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, the
shareholder may incur transaction expenses in converting these securities into
cash. The Trust, on behalf of the Fund, and the Portfolio have elected, however,
to be governed by Rule 18f-1 under the 1940 Act as a result of which the Fund
and the Portfolio are obligated to redeem shares or beneficial interests, as the
case may be, with respect to any one investor during any 90-day period, solely
in cash up to the lesser of $250,000 or 1% of the net asset value of the Fund or
the Portfolio, as the case may be, at the beginning of the period.

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

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

MANAGEMENT OF THE TRUST AND THE PORTFOLIO

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

The Board of Trustees is composed of persons experienced in financial matters
who meet throughout the year to oversee the activities of the Fund or Portfolio.
In addition, the Trustees review contractual arrangements with companies that
provide services to the Fund/Portfolio and review the Fund's performance.

The Trustees and officers of the Trust and Portfolio, their birthdate and their
principal occupations during the past five years are set forth below. Their
titles may have varied during that period. Unless otherwise indicated, the
address of each officer is Clearing Operations, P.O. Box 897, Pittsburgh,
Pennsylvania 05230-0897.

<PAGE>

Trustees of the Trust

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

KELVIN J. LANCASTER (birthdate: December 10, 1924) -- Trustee; Professor,
Department of Economics, Columbia University. His address is 35 Claremont
Avenue, New York, New York 10027.

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

Trustees of the Portfolio

CHARLES P. BIGGAR (birthdate: October 14, 1930) -- 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.

Officers of the Trust and Portfolio

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

RONALD M. PETNUCH (birthdate: February 27, 1960) -- President and Treasurer;
Senior Vice President, Federated Services Company ("FSC"); formerly, Director of
Proprietary Client Services, Federated Administrative Services ("FAS"), and
Associate Corporate Counsel, Federated Investors ("FI").

CHARLES L. DAVIS, JR. (birthdate: March 23, 1960) -- Vice President and
Assistant Treasurer; Vice President, FAS.

JAY S. NEUMAN (birthdate: April 22, 1950) -- Secretary; Corporate Counsel, FI.

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

Trustee Compensation Table

<TABLE>
<CAPTION>
Aggregate Total Compensation
Name of Person, Compensation Compensation from Fund Complex***
Position from Trust* from Portfolio** Paid to Trustees+
- ----------------------- ------------ ---------------- --------------------
<S> <C> <C> <C>
S. Leland Dill,
Trustee of the Trust
and Portfolio $______ $______ $______

Kelvin J. Lancaster,
Trustee of the Trust $______ N/A $______

Philip Saunders, Jr.,
Trustee of the Trust
and Portfolio $______ $______ $______
</TABLE>

<PAGE>

Charles P. Biggar,
Trustee of Portfolio N/A $______ $______
- -------------------------------------------------------------------------------

*The aggregate compensation is provided for the BT Investment Funds which is
comprised of 17 funds. Information is furnished for the Trust's most recent
fiscal year ended December 31, 1998.

**The compensation is provided for Intermediate Tax Free Portfolio. Information
is furnished for the Trust's most recent fiscal year ended December 31, 1998.

***Aggregated information is furnished for the BT Family of Funds which consists
of the following: BT Investment Funds, BT Institutional Funds, BT Pyramid Funds,
BT Advisor Funds, BT Investment Portfolios, Cash Management Portfolio, Treasury
Money Portfolio, Tax Free Money Portfolio, NY Tax Free Money Portfolio,
International Equity Portfolio, Short Intermediate US Government Securities
Portfolio, Intermediate Tax Free Portfolio, Asset Management Portfolio, Equity
500 Index Portfolio and Capital Appreciation Portfolio.

+ The compensation is provided for the calendar year ended December 31, 1998.

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

As of December 31, 1998, the Trustees and Officers of the Trust and the
Portfolio owned in the aggregate less than 1% of the shares of any Fund or the
Trust (all series taken together).

As of December 31, 1998, the following shareholders of record owned 5% or
more of the outstanding voting shares of the Fund: [TO BE PROVIDED].

Investment Adviser

The Trust has not retained the services of an investment adviser since the Trust
seeks to achieve the investment objective of each of its Funds by investing all
the Assets of the Fund in the Portfolio. The Portfolio has retained the services
of Bankers Trust as Adviser.

Bankers Trust Company, a New York banking corporation with principal offices at
130 Liberty Street, (One Bankers Trust Plaza), New York, New York 10006, is a
wholly owned subsidiary of Bankers Trust New York Corporation. Bankers Trust
conducts a variety of general banking and trust activities and is a major
wholesale supplier of financial services to the international and domestic
institutional market. [As of March 31, 1998, Bankers Trust New York Corporation
was the seventh largest bank holding company in the United States with total
assets of over $150 billion.] [The scope of Bankers Trust's investment
management capability is unique due to its leadership positions in both active
and passive quantitative management and its presence in major equity and fixed
income markets around the world. Bankers Trust is one of the nation's largest
and most experienced investment managers with over $300 billion in assets under
management globally.]

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

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
Portfolios described in the Prospectus and this SAI without violation of the
Glass-Steagall Act or other applicable banking laws or regulations.

Bankers Trust bears all expenses in connection with the performance of services
under the Advisory Agreement. The Trust and the Portfolio bears certain other
expenses incurred in its operation, including: taxes, interest, brokerage fees
and

<PAGE>

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

For the fiscal years ended September 30, 1998 and 1997, the period from January
1, 1996 to September 30, 1996, and the year ended December 31, 1995, Bankers
Trust earned $_________, $85,925 and $67,313, respectively, in compensation for
investment advisory services provided to the Portfolio. During the same periods,
Bankers Trust reimbursed $__________, $22,599 and $23,842, respectively, to the
Portfolio to cover expenses.

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

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

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

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

For the fiscal years ended September 30, 1998 and 1997, the period from January
1, 1996 to September 30, 1996, and the year ended December 31, 1995, Bankers
Trust earned $_____________, $85,690 and $67,185, respectively, in compensation
for administrative and other services provided to the Fund. During the same
periods, Bankers Trust reimbursed $________, $41,571 and $40,323, respectively,
to cover expenses. For the same periods, Bankers Trust earned $_______, $10,741
and $8,414, respectively, in compensation for administrative and other services
provided to the Portfolio.

<PAGE>

Distributor

ICC Distributors is the principal distributor for shares of the Fund. ICC
Distributors is a registered broker/dealer and is unaffiliated with Bankers
Trust. The principal business address of ICC Distributors is P.O. Box 7558,
Portland, Maine 04101.

Service Agent

All shareholders must be represented by a Service Agent. The Adviser acts as a
Service Agent pursuant to its Administration and Services Agreement with the
Trust and receives no additional compensation from the Fund for such shareholder
services. The service fees of any other Service Agents, including
broker-dealers, will be paid by the Adviser from its fees. The services provided
by a Service Agent may include establishing and maintaining shareholder
accounts, processing purchase and redemption transactions, 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 the Adviser, or of the type or scope not generally
offered by a mutual fund, such as cash management services or enhanced
retirement or trust reporting. In addition, investors may be charged a
transaction fee if they effect transactions in Fund shares through a broker or
agent. Each Service Agent has agreed to transmit to shareholders, who are its
customers, appropriate disclosures of any fees that it may charge them directly.

Custodian and Transfer Agent

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

Use of Name

The Trust and Bankers Trust have agreed that the Trust may use "BT" as part of
its name for so long as Bankers Trust serves as investment adviser to the
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 Fund and the Portfolio described in the
Prospectus and this SAI without violation of the Glass-Steagall Act or other
applicable banking laws or regulations. However, counsel has pointed out that
future changes in either Federal or state statutes and regulations concerning
the permissible activities of banks or trust companies, as well as future
judicial or administrative decisions or interpretations of present and future
statutes and regulations, might prevent Bankers Trust from continuing to perform
those services for the Trust and the Portfolio. State laws on this issue may
differ from the interpretations of relevant Federal law and banks and financial
institutions may be required to register as dealers pursuant to state securities
law. If the circumstances described above should change, the Board of Trustees
would review the relationships with Bankers Trust and consider taking all
actions necessary in the circumstances.

<PAGE>

Counsel and Independent Accountants

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

ORGANIZATION OF THE TRUST

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

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. 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 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.

The Portfolio is a subtrust (or "series") of the BT Investment Portfolios, an
open-end management investment company. BT Investment Portfolios was organized
as a master trust fund under the laws of the State of New York. BT Investment
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 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.

The series of the 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.

<PAGE>

The Trust and BT Investment Portfolios reserve the right to add additional
series in the future. The Trust also reserves the right to issue more than one
class of Shares in the Fund.

TAXATION

Taxation of the Fund

The Trust intends to qualify annually and to elect for the Fund to be treated as
a regulated investment company under the Code. Provided the Fund meets the
requirements imposed by the Code and distributes all of its income and gains,
the Fund will not pay any federal income or excise taxes.

As a regulated investment company, the Fund will not be subject to U.S. federal
income tax on its investment company taxable income and net capital gains (the
excess of net long-term capital gains over net short-term capital losses), if
any, that it distributes to shareholders. The Fund intends to distribute to its
shareholders, at least annually, substantially all of its investment company
taxable income and net capital gains, and therefore does not anticipate
incurring federal income tax liability.

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

Each Fund shareholder will 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. These statements will also designate the amount of
exempt-interest dividends that is a specific preference item for purposes of the
Federal individual and corporate alternative minimum taxes.

Investment in the Fund would not be suitable for tax-exempt institutions,
qualified retirement plans, H.R. 10 plans and individual retirement accounts
since such investors would not gain any additional tax benefit from the receipt
of tax-exempt income.

Because the Fund will distribute exempt-interest dividends, all or a portion of
any interest on indebtedness incurred by a shareholder to purchase or carry
shares of the Fund will not be deductible for Federal personal income tax
purposes. In addition, the Code may require a shareholder of the Fund, if he
receives exempt-interest dividends, to treat as taxable income a portion of
certain otherwise nontaxable social security and railroad retirement benefit
payments. Furthermore, that portion of any exempt-interest dividend paid by the
Fund which represents income from private activity bonds held by the Fund may
not retain its tax-exempt status in the hands of a shareholder who is a
"substantial user" of a facility financed by such bonds, or a "related person"
thereof. Moreover, as noted in the Prospectus of the Fund, some or all of the
Fund's dividends and distributions may be specific preference items, or a
component of an adjustment item, for purposes of the Federal individual and
corporate alternative minimum taxes. In addition, the receipt of Fund dividends
and distributions may affect a foreign corporate shareholder's Federal "branch
profits" tax liability and a Subchapter S corporate shareholder's Federal
"excess net passive income" tax liability. Shareholders should consult their own
tax advisers as to whether they are (i) "substantial users" with respect to a
facility or "related" to such users within the meaning of the Code and (ii)
subject to a Federal alternative minimum tax the Federal "branch profits" tax or
the Federal "excess net passive income" tax.

Distributions

The Fund distributes substantially all of its net investment income and capital
gains to shareholders each year. The Fund distributes capital gains annually.
Income dividends for the Fund are declared daily and paid monthly. 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.

The Fund intends to qualify to pay exempt-interest dividends to its shareholders
by having, at the close of each quarter of its taxable year, at least 50% of the
value of its total assets invested in tax-exempt securities. An exempt-interest
dividend is that part of dividend distributions made by the Fund which consists
of interest received by the Fund derived from tax-exempt securities held by the
Portfolio. Exempt-interest dividends received from the Fund will be treated for
federal income tax

<PAGE>

purposes as tax-exempt interest income. In view of the Portfolio's investment
policies, it is expected that substantially all the Fund's dividends will be
exempt-interest dividends, although the Fund may from time to time distribute
net short-term capital gains or other minor amounts of taxable income.

Interest on certain tax-exempt municipal obligations issued after August 7, 1986
is a preference item for purposes of the federal alternative minimum tax
applicable to individuals and corporations. Under tax regulations to be used,
the portion of an exempt-interest dividend of a regulated investment company
that is allocable to these obligations will be treated as a preference item for
purposes of the alternative minimum tax. The Portfolio has limited its
investment to those securities the interest on which will not be treated as
preference items for purposes of the alternative minimum tax in the opinion of
bond counsel for the issuer. The Portfolio currently has no intention of
investing in obligations subject to the alternative minimum tax under normal
market conditions.

Corporations should, however, be aware that interest on all municipal securities
will be included in calculating: (i) adjusted current earning for purposes of
the alternative minimum tax applicable to them; (ii) the additional tax imposed
on certain corporations by the Superfund Revenue Act of 1986; and (iii) the
foreign branch profits tax imposed on effectively connected earnings and profits
of United States branches of foreign corporations. Furthermore, special tax
provisions may apply to certain financial institutions and property and casualty
insurance companies, and they should consult their tax advisors before
purchasing Shares of the Fund.

Certain provisions in the Tax Reform Act of 1986, as amended, relating to
issuance of municipal obligations, have reduced the volume of municipal
obligations, qualifying for federal tax exemption and may continue to do so.

On the ex-date for a distribution from 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.

Taxation of the Portfolio

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

Other Taxation

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

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

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 the Fund.

FINANCIAL STATEMENTS

The financial statements for the Fund or Portfolio for the year ended September
30, 1998, are incorporated herein by reference to the Annual Report to
shareholders for the Fund dated September 30, 1998. A copy of the Fund's and
Portfolio's Annual Report may be obtained without charge by contacting the Fund.

<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&P 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.

<PAGE>

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.

Description of S&P commercial paper ratings:

Commercial paper rated A-1 by S&P indicates that the degree of safety regarding
timely payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted A-1+.

Description of Moody's commercial paper ratings:

The rating Prime-1 is the highest commercial paper rating assigned by Moody's.
Issuers rated Prime-1 (or related supporting institutions) are considered to
have a superior capacity for repayment of short-term promissory obligations.

Description of S&P Municipal Bond Ratings:

AAA - Prime - These are obligations of the highest quality. They have the
strongest capacity for timely payment of debt service.

General Obligations Bonds - In a period of economic stress, the issuers will
suffer the smallest declines in income and will be least susceptible to
autonomous decline. Debt burden is moderate. A strong revenue structure appears
more than adequate to meet future expenditure requirements. Quality of
management appears superior.

Revenue Bonds - Debt service coverage has been, and is expected to remain,
substantial, stability of the pledged revenues is also exceptionally strong due
to the competitive position of the municipal enterprise or to the nature of the
revenues. Basic security provisions (including rate covenant, earnings test for
issuance of additional bonds and debt service reserve requirements) are
rigorous. There is evidence of superior management.

AA - High Grade - The investment characteristics of bonds in this group are only
slightly less marked than those of the prime quality issues. Bonds rated AA have
the second strongest capacity for payment of debt service.

<PAGE>

A - Good Grade - Principal and interest payments on bonds in this category are
regarded as safe although the bonds are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than bonds in higher
rated categories. This rating describes the third strongest capacity for payment
of debt service. Regarding municipal bonds, the rating differs from the two
higher ratings because:

General Obligation Bonds - There is some weakness, either in the local economic
base, in debt burden, in the balance between revenues and expenditures, or in
quality of management. Under certain adverse circumstances, any one such
weakness might impair the ability of the issuer to meet debt obligations at some
future date.

Revenue Bonds - Debt service coverage is good, but not exceptional. Stability of
the pledged revenues could show some variations because of increased competition
or economic influences on revenues. Basic security provisions, while
satisfactory, are less stringent. Management performance appearance appears
adequate.

S&P's letter ratings may be modified by the addition of a plus or a minus sign,
which is used to show relative standing within the major rating categories,
except in the AAA rating category.

Description of Moody's Municipal Bond Ratings:

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

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

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

Moody's may apply the numerical modifier in each generic rating classification
from Aa through B. The modifier 1 indicates that the security within its generic
rating classification possesses the strongest investment attributes.

Description of S&P Municipal Note Ratings:

Municipal notes with maturities of three years or less are usually given note
ratings (designated SP-1, or -2) to distinguish more clearly the credit quality
of notes as compared to bonds. Notes rated SP-1 have a very strong or strong
capacity to pay principal and interest. Those issues determined to possess
overwhelming safety characteristics are given the designation of SP-1. Notes
rates SP-2 have a satisfactory capacity to pay principal and interest.

Description of Moody's Municipal Note Ratings:

Moody's ratings for state and municipal notes and other short-term loans are
designated Moody's Investment Grade (MIG) and for variable rate demand
obligations are designated Variable Moody's Investment Grade (VMIG). This
distinction recognizes the differences between short-term credit risk and
long-term risk. Loans bearing the designation MIG 1/VMIG 1 are of the best
quality, enjoying strong protection from established cash flows of funds for
their servicing or from established cash flows of funds for their servicing or
from established and broad-based access to the market for refinancing, or both.
Loans bearing the designation MIG2/VMIG2 are of high quality, with ample margins
of protection, although not as large as the preceding group.

<PAGE>

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 ratings 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 tread.
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: leasing
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 rates 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.

<PAGE>

STATEMENT OF
ADDITIONAL INFORMATION

Investment Adviser and Administrator of each Portfolio
BANKERS TRUST COMPANY

Distributor
ICC DISTRIBUTORS, INC.

Custodian and Transfer Agent
BANKERS TRUST COMPANY

Independent Accountants PRICEWATERHOUSECOOPERS
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 Prospectus, its
Statement of Additional Information or the Trust's official sales literature in
connection with the offering of the Trust's shares and, if given or made, such
other information or representations must not be relied on as having been
authorized by the Trust. Neither the Prospectus nor this Statement of Additional
Information constitutes an offer in any state in which, or to any person to
whom, such offer may not lawfully be made.

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

CUSIP # 055922801 CUSIP # 055922777 CUSIP # 055922819 CUSIP # 055922769 CUSIP #
055922868 CUSIP # 055922736 CUSIP # 055922785 COMBINV400 (1/98)

<PAGE>

BT Investment Funds

Information About Investing in the
Global High Yield Securities Fund

With the goal of achieving high current income by investing in high-yielding,
non-investment grade bonds in securities markets around the world

Prospectus
January 31, 1999

Bankers Trust Company
Investment Adviser

<PAGE>

TABLE OF CONTENTS

GLOBAL HIGH YIELD SECURITIES FUND OVERVIEW
Goal...........................................................3
Core Strategy..................................................4
Principal Risks of Investing in the Fund.......................5
Who Should Consider Investing in the Fund......................6
Total Returns, After Fees and Expenses.........................7
Annual Fund Operating Expenses.................................9

GLOBAL HIGH YIELD SECURITIES FUND IN DETAIL
Objective......................................................10
Strategy.......................................................11
Principal Investments..........................................12
Investment Process.............................................13
Risks..........................................................15

Management of the Fund...............................................19
Board of Trustees..............................................19
Investment Adviser.............................................19
Portfolio Manager..............................................20
Administrator..................................................21
Organizational Structure.......................................22

Calculating the Fund's Share Price...................................23
Dividends and Distributions..........................................24
Tax Considerations...................................................25
Buying and Selling Fund Shares.......................................26
Financial Highlights.................................................27

<PAGE>

GLOBAL HIGH YIELD SECURITIES FUND OVERVIEW

Goal

The Fund seeks high current income. Secondarily, when consistent with seeking
high current income, the Fund chooses investments for their capital appreciation
potential.

<PAGE>

Core Strategy

The Fund is non-diversified. It invests primarily in high yield, non-investment
grade bonds and other debt securities in both developed and emerging markets.

<PAGE>

Principal Risks of Investing in the Fund

An investment in the Fund could lose money, or the Fund's performance could
trail that of other investments. For example,

o The high yield bonds the Investment Adviser has selected could perform
poorly;
o Issuers of the bonds held by the Fund could default on principal and
interest payments, which would cause the value of the bonds to decline or
even become worthless; or
o Bond markets could decline in value or could under perform other
investments as a result of a rise in interest rates.

As a non-diversified mutual fund, the Global High Yield Securities Fund carries
added risks. It may invest a higher percentage of assets in one or a small
number of bond issuers. Thus a single negative economic, political or regulatory
event affecting these issues could undermine the Fund's performance.

An investment in the Fund could also lose money, or under perform alternative
investments as a result of risks in the foreign countries in which the Fund
invests:

o Adverse political, economic or social developments could undermine the
value of the Fund's investments or prevent the Fund from realizing its full
value;
o Different accounting and financial reporting standards, or less stringent
enforcement of these standards, could convey incomplete or inaccurate
information about a Fund investment; or
o The currency of a country in which the Fund invests may fluctuate in value
relative to the U.S. dollar, which could affect the value of the investment
itself to U.S. investors.

<PAGE>

Who Should Consider Investing in the Fund

You should consider investing in the Global High Yield Securities Fund if you
seek high current income and are willing to tolerate a high level of risk. You
should be willing to invest in highly speculative securities, including debt
securities outside the United States. In addition, you must be willing to accept
significant share price fluctuation and the possibility that the Fund may not
follow the direction of the overall bond market and interest rate trends. There
is, of course, no guarantee that the Fund will realize its goal.

You should not consider investing in the Global High Yield Securities Fund if
you are pursuing a short-term financial goal looking to invest only in
investment grade securities, seeking preservation of investment principal or
investing funds intended to provide capital appreciation over time.

The Fund by itself does not constitute a balanced investment program. Because
the Fund invests primarily in speculative securities, you should consider it a
small part of your total investment program.

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

<PAGE>

Total Returns, After Fees and Expenses

The bar chart and table below can help you evaluate the potential risks and
rewards of investing in the Fund by showing changes in the Fund's performance
year to year. The bar chart shows the Fund's actual return for each full
calendar year since it began selling shares to the public on December 14, 1993
(its inception date). The table compares the Fund's average annual return with
the Lehman Brothers High Yield Index over the last one and five years, and since
inception. The Index is a passive measure of bond market returns. It does not
factor in the costs of buying, selling and holding securities--costs which are
reflected in the Fund's results.

[SIDEBAR: The Lehman Brothers High Yield Index is a widely accepted benchmark of
high yielding bonds. It is a model, not an actual portfolio, that tracks the
performance of all U.S. domestic fixed income securities having a maximum
quality rating of Ba1 by Moody's Investors Service, Inc. (including defaulted
issues) and a minimum principal amount outstanding of $100 million. Most
securities in the Index have a remaining term to maturity of at least one year.]

Fund Performance For Each Calendar Year Since Inception
[bar chart]

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

- ----------------------------------------------------------
1994 1995 1996 1997 1998
- ----------------------------------------------------------

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

<PAGE>

Average Annual Returns as of December 31, 1998

- ----------------------------------------------------------------
1 year 5 years Since
Inception
(12/14/93)*
- ----------------------------------------------------------------
Global High Yield
Securities Fund N/A
- ----------------------------------------------------------------
Lehman Brothers High Yield
Index N/A
- ----------------------------------------------------------------

*The Lehman Brothers High Yield Index is calculated as of November 30, 1993.

<PAGE>

Annual Fund Operating Expenses (expenses paid from Fund assets)

This table describes the fees and expenses you may pay if you buy and hold
shares of the Global High Yield Securities Fund.

----------------------------------------------------------------
percentage of average
daily net assets*
----------------------------------------------------------------
Management Fees 0.80%
----------------------------------------------------------------
Distribution and Service (12b-1) Fees none
----------------------------------------------------------------
Other Expenses 1.43%
----------------------------------------------------------------
Total Fund Operating Expenses 2.23%
----------------------------------------------------------------
Less: Fee Waivers or Expense
Reimbursements (0.73%)**
----------------------------------------------------------------
Net Expenses 1.50%
----------------------------------------------------------------

Expense Example

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

Expense Example

- -------------------------------------------------
1 Year 3 Years 5 years 10 Years
- -------------------------------------------------
$153 $474 $818 $1,791
- -------------------------------------------------

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

* Information on the annual operating expenses reflects the expenses of both
the Fund and the Global High Yield Portfolio, the Master Fund in which the
Global High Yield Securities Fund invests its assets. (A further discussion
of the relationship between the Fund and the Portfolio appears in the
"Organizational Structure" section of this prospectus).
** Bankers Trust has agreed for the 16-month period from the Fund's fiscal
year end of September 30, 1998, to waive its fees and reimburse expenses so
that total expenses will not exceed 1.50%.

<PAGE>

GLOBAL HIGH YIELD SECURITIES FUND IN DETAIL

Objective

Under normal circumstances, the Global High Yield Securities Fund seeks high
current income by investing at least 65% of its total assets in high yield,
non-investment grade debt securities of governmental and corporate issuers in
both developed and emerging markets.

We also take capital appreciation into account, but only when it is consistent
with the Fund's main objective of providing high current income. While we give
priority to high current income, we cannot offer any assurance of achieving this
objective. The Fund's objective is not a fundamental policy. We must notify
shareholders before we change it, but we do not require their approval to do so.

<PAGE>

Strategy

The Fund pursues a strategy of investing in high yielding, non-investment grade
bonds --commonly referred to as "junk bonds"--around the world.

[SIDEBAR: We invest in high yield bonds that are rated BBB or lower by Standard
& Poor's Rating Group or Baa or lower by Moody's Investors Service, Inc. To
compensate for the lower rating (and the associated greater risk of default),
the bonds pay a higher interest income than investment grade bonds.
Investment-grade bonds are rated A, Aa and Aaa by Moody's and A, AA and AAA by
Standard & Poor's.]

<PAGE>

Principal Investments

The Fund invests in high yielding, non-investment grade bonds in industrialized
nations and throughout the emerging markets of Asia, Latin America, Eastern
Europe, Africa and the Middle East. The Fund's investments may include
emerging-market corporate debt, Brady bonds and debt guaranteed by the
governments of developing countries.

[SIDEBAR: Brady bonds are bonds issued as part of a country's debt
restructuring. These bonds have been issued only recently by a number of
countries and therefore do not have a long payment history.]

Elsewhere, the Fund generally invests in corporate and government bonds. The
Fund may purchase securities issued in one country but denominated in the
another country's currency.

The Fund may purchase a particular bond, even if the rating agencies have not
reviewed it. There is no lower limit on the rated securities in which the Fund
may invest. Securities in low rated categories possess some speculative
characteristics. The Fund may continue to hold a bond if the rating of the bond
declines after the Fund has purchased it. But no more than 25% of the Fund's
assets can be invested in any one time in securities rated as highly
speculative.

[SIDEBAR: Highly speculative securities are rated below CCC by S&P or below Caa
by Moody's. S&P assigns its lowest ratings to income bonds that are not paying
interest and to debt in default. Moody's assigns its lowest ratings to bonds
that have extremely poor prospects of ever attaining an investment grade rating
of A or above.]

In addition, the Fund may invest up to 10% of its assets in bonds that have
actually defaulted if the possibility exists that the bond issuer may resume
interest payments in the near future, according to our research. Such defaulted
debt securities may be illiquid.

<PAGE>

Investment Process

A team of analysts studies each prospective investment in depth. They research
its payment history, its current credit risk and the general health of the
securities market in which it trades. They conduct their research through
on-site visits, intensive analysis of financial data, and interviews with senior
officials.

Their inquiry reaches beyond business and market trends to take political and
cultural forces into account.

<PAGE>

Turnover

The annual portfolio turnover rate measures the frequency that the Portfolio
sells and replaces the value of its securities within one year. An annual
portfolio turnover rate of 100% means that the Portfolio sold and purchased
investments equal to the average value of the Portfolio for a given year. High
turnover can increase the Fund's transaction costs, thereby lowering its
returns. It may also increase your tax liability. The Fund does not have a
target portfolio turnover rate. Its turnover will depend on the Investment
Adviser's assessment of how often to trade, in light of market conditions and
the Fund's investment objective.

<PAGE>

Risks

Below we set forth some of the prominent risks associated with investing in high
yield securities, as well as investing in general. Although we attempt to assess
the likelihood that these risks may actually occur and to limit them, we make no
guarantee that we will succeed.

Primary risks

Market Risk

A risk that pervades all investing is the risk that securities an investor has
selected will not perform to expectations.

Credit Risk

A key risk associated with an investment in high yield bonds is the issuer's
credit quality. Lower-rated long-term securities generally tend to reflect the
short-term corporate or market developments of the bond issuer to a greater
extent than investment grade bonds, which react primarily to changes in interest
rates. High yield bond issuers, which usually carry high amounts of debt
relative to their net worth, are more sensitive to an economic downturn, since a
downturn may significantly affect their ability to repay their debts. High yield
bonds also run a greater risk of default because they are often unsecured by
collateral. If the Fund holds a security that has defaulted, it may incur
additional expenses in recovering its loan from the bond issuer.

Interest Rate Risk

High yield bonds, like all debt securities, face interest rate risk, the risk
that the securities will decline in value because of changes in interest rates.
Generally, investments subject to interest rate risk will decrease in value when
interest rates rise and increase when interest rates decline. This effect may be
offset or exaggerated by other risks.

<PAGE>

Non-Diversification Risk

While the Fund may not invest more than 25% of its assets in the securities of
any one bond issuer, it may invest a greater proportion of its assets in the
securities of a smaller number of issuers than a fully diversified mutual fund.
The possibility of such concentration creates the possibility of outsize gains
if a particular investment appreciates, but it also raises the prospect that a
single reversal will undermine the Fund's entire performance.

Liquidity Risk

Even under normal conditions, the market for high yield bonds may be less liquid
than the market for investment grade bonds. The high yield market has fewer
dealers and fewer buyers than markets for stocks and other bonds. As a result,
high yield investors face the risk that they will not be able to sell a bond
quickly. Moreover, in a small market like that for high yield securities, prices
quoted by different dealers can vary significantly. Investors may not receive
the best price for a bond when they buy or sell, or even a price that fairly
reflects the bond's value or the issuer's solvency. Finally, prices in the high
yield market tend to be highly volatile, creating the possibility that the Fund
may undergo sudden and substantial price declines.

Risks of Investing Outside the United States

The Fund faces the risks detailed below in the portion of its investments it
devotes to foreign securities.

Political Risk

Profound social changes and business practices that depart from developed-market
norms have hindered the growth of capital markets in developing nations in the
past. High levels of debt have tended to make them overly reliant on foreign
capital investment and vulnerable to capital flight. Governments have limited
foreign investors' access to capital markets and restricted the flow of profits
overseas. They have resorted to high taxes,

<PAGE>

expropriation and nationalization. All these threats remain a part of
emerging-market investing in particular today.

Information Risk

Foreign accounting, auditing, and financial reporting and disclosure standards
tend to be less stringent than those in the United States. And the risks of
investors acting on incomplete or inaccurate information are correspondingly
greater. Compounding the problem, local investment research often lacks the
sophistication to spot potential pitfalls.

Currency Risk

The Fund invests in foreign securities denominated in foreign currencies. This
creates the possibility that changes in foreign exchange rates will affect the
value of foreign securities or the U.S. dollar amount of income or gain received
on these securities. Bankers Trust's currency management team seeks to minimize
this risk by hedging currencies that are likely to decline.

[SIDEBAR: Hedging is a strategy designed to offset investment risks. Hedging
activities include the use of forward contracts and may include the use of other
instruments. The Fund uses hedging activities to reduce risk and in no case will
it acquire securities for hedging that would increase risk above the level
associated with conventional investments.]

<PAGE>

Secondary Risks

Euro Conversion Risk

The planned conversion by several major European nations to a single, uniform
monetary system, known by its new currency--the euro--and scheduled to begin
January 1, 1999, could conceivably cause disruptions in the smooth functioning
of the world's stock markets. With our service providers, we are jointly
addressing this problem.

Year 2000 Risk

As with most businesses, the Fund faces the risk that the computer systems of
its Investment Adviser and other companies on which it relies for services or in
which it invests will not accommodate the changeovers necessary from dates in
the year 1999 to dates in the year 2000. We are working both internally and with
our business partners and service providers to address this problem. If we - or
our business partners, service providers, government agencies or other market
participants - do not succeed, it could materially affect shareholder services
or it could affect the value of the Fund's shares.

Temporary Defensive Position

We may from time to time adopt a temporary defensive position in response to
extraordinary political, economic or stock market events. We could place up to
100% of the Fund's assets in U.S. or foreign government money market
investments, or other short-term bonds that offer comparable safety, if the
situation warranted. To the extent we might adopt such a position and over the
course of its duration, the Fund may not meet its goal of high current income.

<PAGE>

Management of the Fund

Board of Trustees

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

Investment Adviser

Under the supervision of the Board of Trustees, the Bankers Trust Company, with
headquarters at 130 Liberty Street, New York, NY 10006, acts as the Fund's
investment adviser. As investment adviser, Bankers Trust makes the Fund's
investment decisions and assumes responsibility for the securities the Fund
owns. It buys and sells securities for the Fund and conducts the research that
leads to the purchase and sale decisions. Bankers Trust received a fee of [___]%
of the Fund's average daily net assets for its services in the last fiscal year.

Bankers Trust's officers bring wide experience to managing both the Fund and its
Portfolio. The firm's own record dates back to its founding as a trust company
in 1903. It has invested retirement assets on behalf of the nation's largest
corporations and institutions for more than 50 years. Today, the assets under
its global management exceed $350 billion. The scope of the firm's capability is
broad: It is a leader in both the active and passive quantitative investment
disciplines and maintains a major presence in stock and bond markets worldwide.

<PAGE>

Portfolio Manager

Greg Hopper is responsible for day-to-day management of the Fund's investments:

Principal of Bankers Trust and Portfolio Manager of the Fund.

o Joined Bankers Trust and the Fund in 1993.
o 10 years of investment management experience.
o Bachelors degree from Beloit College, MBA from Columbia University.

<PAGE>

Other Services

Bankers Trust provides administrative services--such as portfolio accounting,
legal services and others--for the Fund. In addition, Bankers Trust--your broker
or financial adviser--performs the functions necessary to establish and maintain
your account. In addition to setting up the account and processing your purchase
and sale orders, these functions include:

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

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

o processing your request for interest income and distributions from the
Fund;

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

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

o collecting your executed proxies and forwarding them to the Fund's
trustees.

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

<PAGE>

Organizational Structure

The Global High Yield Securities Fund is a "feeder fund" that invests all of its
assets in a "master portfolio," the Global High Yield Securities Portfolio. The
Fund and the Master Portfolio have the same investment objective. The Master
Portfolio is advised by Bankers Trust.

<PAGE>

Calculating the Fund's Share Price

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

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

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

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

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

<PAGE>

Dividends and Distributions

If the Fund earns investment income, it is the Fund's policy to distribute to
shareholders substantially all of that taxable income quarterly and to
distribute any taxable net capital gains on an annual basis. You may elect to
receive your distributions in cash or to reinvest them in additional shares of
the Fund.

<PAGE>

Tax Considerations

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

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

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

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

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

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

<PAGE>

Buying and Selling Fund Shares

You can purchase or redeem shares in the Fund by mail, phone, wire or through an
authorized broker or financial advisor. Contact your broker or financial advisor
for details. You may also call the BT Service Center at 1-800-730-1313.

Exchange Privileges

You can exchange all or part of your shares for shares in another BT Mutual Fund
up to four times a year without paying a sales charge. Before buying shares
through an exchange you should be sure to get a copy of that Fund's prospectus
and read it carefully. Please note also that you may have to pay taxes on the
shares you sell in the exchange.

Account minimums

The Fund requires a minimum investment of $2,500 to open accounts, $250 for
subsequent investments and a minimum balance of $1,000 to maintain them. It
requires a $500 minimum investment to open a retirement account, $100 for
subsequent investments, but imposes no minimum balance. Automatic investment
accounts, which credit money from your checking account to the purchase of Fund
shares monthly, bi-monthly, quarterly, or every six months, call for a minimum
$1,000 opening investment and at least $100 for each succeeding purchase of
shares.

<PAGE>

BT Service Center at 1-800-730-1313.

<PAGE>

Financial Highlights

The table below provides a picture of the Fund's financial performance for the
past five years. The information selected reflects financial results for a
single Fund share. The total returns in the table represent the rate of return
that an investor would have earned on an investment in the Fund (assuming
reinvestment of all interest income and distributions). This information has
been audited by ________________, whose report, along with the Fund's financial
statements, is included in the Fund's annual report. The annual report is
available free of charge by calling the BT Service Center at 1-800-730-1313.

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Per Share Operating Performance: 10/1/97- 10/1/96- 10/1/95- 10/1/94- 12/14/93*-
9/30/98 9/30/97 9/30/96 9/30/95 9/30/94
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of $ 11.20 $ 9.78 $ 10.29 $ 10.00
Period
- -------------------------------------------------------------------------------------------------
Income from Investment
Operations
- -------------------------------------------------------------------------------------------------
Net Investment Income 0.75 0.87 0.77 0.31
- -------------------------------------------------------------------------------------------------
Net Realized and Unrealized 1.37 1.30 (0.41) (0.02)
Gain (Loss) on Investments and
Foreign Currency Transactions
- -------------------------------------------------------------------------------------------------
Total Income (Loss) from 2.12 2.17 0.36 (0.29)
Investment Operations ---- ---- ---- ------

- -------------------------------------------------------------------------------------------------
Distributions to Shareholders
- -------------------------------------------------------------------------------------------------
Net Investment Income (1.06) (0.75) (0.87) --
- -------------------------------------------------------------------------------------------------
Net Realized Gain from
Investment Transactions (0.25) -- -- --
- -------------------------------------------------------------------------------------------------
Total Distributions (1.31) (0.75) (0.87) --
- -------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 12.01 $ 11.20 $ 9.78 $ 10.29
------- ------- ------- -------
- -------------------------------------------------------------------------------------------------
Total Investment Return 20.40% 23.31% 4.28% 3.66%**
- -------------------------------------------------------------------------------------------------
Supplemental Data and Ratios:
Net Assets, End of Period $24,446 $19,541 $22,913 $14,738
(000s omitted)
- -------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
- -------------------------------------------------------------------------------------------------
Net Investment Income 6.60% 8.04% 8.68% 5.44%**
- -------------------------------------------------------------------------------------------------
Expenses, including Expenses of 1.50% 1.50% 1.74% 1.75%**
the Global High Yield Securities
Portfolio
- -------------------------------------------------------------------------------------------------
Decrease Reflected in Above 0.68% 1.00% 0.87% 1.08%**
Expense Ratio Due to
Absorption of Expenses by
Bankers Trust
- -------------------------------------------------------------------------------------------------
Portfolio Turnover Rate*** 139% 207% 169% 347%
- -------------------------------------------------------------------------------------------------
</TABLE>

* Inception date
** Annualized
*** The portfolio turnover rate is the rate for the Master Portfolio into which
the Fund invests all its assets.

<PAGE>

[BACK COVER]

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

BT Service Center
P.O. Box 419210
Kansas City, MO 64141-6210
or call our toll-free number: 1-800-730-1313

You can get information about buying and selling shares in the Fund in the
Shareholder Guide. If you have not received a copy of the Guide, call the BT
Service Center to obtain one free of charge.

<PAGE>

Global High Yield Securities Fund
BT Investment Funds
811-4760

Subject to Completion, Dated November __, 1998
----------------------------------------------

STATEMENT OF ADDITIONAL INFORMATION

January , 1999

BT Investment Funds

o Global High Yield Securities Fund

BT Investment Funds (the "Trust") is an open-end, management investment company
(mutual fund) which consists of a number of separate investment funds. The
shares of Global High Yield Securities Fund (the "Fund") are described herein.
The Fund is a separate series of the Trust.

The Trust seeks to achieve the investment objective of the Fund by investing all
the investable assets ("Assets") of the Fund in Global High Yield Securities
Portfolio (the "Portfolio"), a non-diversified open-end management investment
company . The Portfolio is a series of BT Investment Portfolios.

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

BANKERS TRUST COMPANY

Investment Adviser of the Portfolio and Administrator

ICC DISTRIBUTORS, INC.
Distributor

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

<PAGE>

Table of Contents

INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS............................1

Investment Objective..................................................1

Investment Policies...................................................1
Additional Risk Factors..............................................14
Investment Restrictions..............................................22
Portfolio Transactions and Brokerage Commissions.....................25

PERFORMANCE INFORMATION....................................................26
Standard Performance Information.....................................26
Comparison of Fund Performance.......................................28
Economic and Market Information......................................30

VALUATION OF SECURITIES; REDEMPTIONS AND PURCHASES.........................30
Trading in Foreign Securities........................................36

MANAGEMENT OF THE TRUST AND THE PORTFOLIO..................................36
Trustees of the Trust................................................37
Trustees of the Portfolio............................................37
Officers of the Trust and Portfolio..................................37
Investment Adviser...................................................38
Administrator........................................................39
Custodian and Transfer Agent.........................................40
Use of Name..........................................................40
Banking Regulatory Matters...........................................40
Counsel and Independent Accountants..................................40

ORGANIZATION OF THE TRUST..................................................41

TAXATION...................................................................42
Dividends and Distributions..........................................42
Taxation of the Fund.................................................42
Taxation of the Portfolio............................................43
Other Taxation.......................................................43

FINANCIAL STATEMENTS.......................................................44

APPENDIX...................................................................45

<PAGE>

INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS

Investment Objective

The investment objective of the Fund is high current income. Secondarily, when
consistent with seeking high current income, the Fund chooses investments for
their capital appreciation potential.

Investment Policies

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

Although Bankers Trust considers both industrialized and emerging countries
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 emerging 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 rules, the lack of
organized and liquid securities markets, and unacceptable political risks. Under
normal circumstances, the Portfolio will invest in at least three emerging
markets countries.

The Portfolio generally invests in securities which are rated BBB or lower by
Standard & Poor's Ratings Service ("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 in the SAI. There is no lower limit with respect to
the rating categories for securities in which the Portfolio may invest.

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. 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 Portfolio will not invest more than
10% of its total assets (at the time of purchase) in defaulted debt securities,
which may be illiquid. 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.

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. 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.

<PAGE>

** 1 Lower-Rated Debt Securities ("Junk Bonds"). The Portfolio may invest in
lower-rated debt securities. 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.

** 2 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. Judgment 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 Portfolio's ability to dispose of
these securities.

** 3 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.

** 4 The 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 Fund.

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

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. 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
2
<PAGE>

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 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 a 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. The Adviser 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 the Adviser. 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.

ADRs, GDRs and 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.

Short-Term Instruments. Up to 35% of the Portfolio's assets may be invested in
short-term instruments with remaining maturities of 397 days or less or in money
market mutual funds: to meet anticipated redemptions and expenses; for
day-to-day operating purposes; and 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 invest in
short-term instruments for a limited time pending availability of such portfolio
securities. In addition, 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, up to 100% of the Portfolio's assets may be
invested in such short-term instruments. Short-term instruments consist of
foreign or domestic: (i) short-term obligations of sovereign governments, their
agencies, instrumentalities, authorities or political subdivisions; (ii) other
short-term debt securities rated AA or higher by S&P or Aa or higher by Moody's
or, if unrated, of comparable quality in the opinion of Bankers Trust; (iii)
commercial paper; (iv) bank obligations, including negotiable certificates of
deposit, time deposits and banker's acceptances; and (v) repurchase agreements.
At the time the Portfolio invests in commercial paper, bank obligations or
repurchase agreements, the issuer or 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.

<PAGE>

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. Zero Coupon Bonds. Zero coupon
bonds 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 bonds move in the same
direction as interest rates.

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

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. "Brady bonds" are bonds issued as a result of a restructuring of a
country's debt obligations to commercial banks under the "Brady plan." The
Portfolio may invest in "Brady bonds," which have been issued by the governments
of Argentina, Brazil, Costa Rica, Mexico, Nigeria, Philippines, Uruguay and
Venezuela as well as other emerging markets 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 collaterized
of uncollaterized, are issued in various currencies (primarily the U.S. dollar)
and are actively traded in the secondary market for Latin American debt.

** 5 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.

** 6 The 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.
4

<PAGE>

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's
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 net assets.

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 as a low cost method of gaining exposure to a particular
securities market without investing directly in those securities. However, some
derivatives are used for leverage, which tends to magnify the effects of an
instrument's price changes as market conditions change. Leverage involves the
use of a small amount of money to control a large amount of financial assets,
and can in some circumstances, lead to significant losses. The Adviser will use
derivatives only in circumstances where they offer the most efficient means of
improving the risk/reward profile of the Portfolio and when consistent with the
Portfolio's investment objective and policies. The use of derivatives for
non-hedging purposes may be considered speculative.

<PAGE>
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. The Adviser will monitor the liquidity of Rule 144A securities
in the 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 Portfolio is permitted to lend up to 30% of
the total value of its securities. The Portfolio will not lend securities to
Bankers Trust, ICC Distributors or their affiliates. 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 may increase its income by continuing to
receive income on the loaned securities as well as by the opportunity to receive
interest on the collateral. During the term of the loan, the Portfolio continues
to bear the risk of fluctuations in the price of the loaned securities. In
lending securities to brokers, dealers and other financial 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.
6

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Investment Companies. 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 registered investment companies that in
turn are authorized to invest in the securities of such countries. Investments
in other investment companies may also be made for other purposes, such as noted
below under "Short-Term Instruments," are limited in amount by the Investment
Company Act of 1940, as amended ("1940 Act") (except the Portfolio may exceed
the applicable percentage limits to the extent permitted by an exemptive order
of the SEC), and 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.

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 a Portfolio's holdings
may be disadvantageous from an investment standpoint.

Leveraging by means of borrowing may exaggerate the effect of any increase of
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.

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

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

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

The Portfolio may terminate its obligation as the writer of a call or put option
by purchasing an option with the same exercise price and expiration date as the
option previously written. This transaction is called a "closing purchase
transaction." 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 the Portfolio writes an option, an amount equal to the net premium received
by the Portfolio is included in the liability section of the Portfolio's
Statement of Assets and Liabilities as a deferred credit. The amount of the
deferred credit will be subsequently marked to market to reflect the current
market value of the option written. The current market value of a traded option
is the last sale price or, in the absence of a sale, the mean between the
closing bid and asked price. If an option expires on its stipulated expiration
date or if the Portfolio enters into a closing purchase transaction, the
Portfolio will realize a gain (or loss if the cost of a

<PAGE>

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

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

The Portfolio would normally purchase put options in anticipation of a decline
in the market value of securities in its portfolio ("protective puts") or
securities of the type in which it is permitted to invest. The purchase of a put
option would entitle the Portfolio, in exchange for the premium paid, to sell a
security, which may or may not be held in the Portfolio's 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.

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

The 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 which the Portfolio enters into such
options transactions under the general supervision of the Portfolio's Trustees.

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

Options on securities indices entail risks in addition to the risks of options
on securities. The absence of a liquid secondary market to close out options
positions on securities indices is more likely to occur, although the Portfolio
generally will only purchase or write such an option if the Adviser believes the
option can be closed out.

<PAGE>

unless the Adviser believes the market is sufficiently developed such that the
risk of trading in such options is no greater than the risk of trading in
options on securities.

Price movements in the Portfolio's 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.

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.

Forward Currency Exchange Contracts. A forward 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 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 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 cash or liquid securities in an amount at
least equal to its obligations under each forward currency exchange contract.
Neither spot transactions nor forward currency exchange contracts eliminate
fluctuations in the prices of the Portfolio's securities or in foreign exchange
rates, or prevent loss if the prices of these securities should decline.

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

While these contracts are not presently regulated by the CFTC, the CFTC may in
the future assert authority to regulate forward contracts. In such event the
Portfolio's ability to utilize forward contracts 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 currency forward contracts may not eliminate fluctuations
in the underlying U.S. dollar equivalent value of the prices of or rates of
return on the Portfolio's foreign currency denominated portfolio securities and
the use of such techniques will subject the Portfolio to certain risks.

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

<PAGE>

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

** 8 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.

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

** 10 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.

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

** 12 The 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 securities acceptable to the
broker in an amount not less than the value of the underlying foreign currency
in U.S. dollars marked to market daily.

Futures Contracts and Options on Futures Contracts.

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** 13 General. The successful use of such instruments draws upon the Adviser's
skill and experience with respect to such instruments and usually depends on the
Adviser's ability to forecast interest rate and currency exchange rate movements
correctly. Should interest or exchange rates move in an unexpected manner, the
Portfolio may not achieve the anticipated benefits of futures contracts or
options on futures contracts or may realize losses and thus will be in a worse
position than if such strategies had not been used. In addition, the correlation
between movements in the price of futures contracts or options on futures
contracts and movements in the price of the securities and currencies hedged or
used for cover will not be perfect and could produce unanticipated losses.

** 14 Futures Contracts. The 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 exchanges and clear through their clearing corporations. The Portfolio may
enter into futures contracts which are based on debt securities that are backed
by the full faith and credit of the U.S. Government, such as long-term U.S.
Treasury Bonds, Treasury Notes, Government National Mortgage Association
("GNMA") modified pass-through mortgage-backed securities and three-month U.S.
Treasury Bills. The Portfolio may also enter into futures contracts which are
based on bonds issued by entities other than the U.S. government.

** 15 At the same time a futures contract is entered into, the Portfolio must
allocate cash or securities as a deposit payment ("initial margin"). It is
expected that the initial margin deposit would be approximately 1 1/2% to 10% of
a contract's face value. Daily thereafter, the futures contract is valued and
the payment of "variation margin" may be required, since each day the Portfolio
would provide or receive cash that reflects any decline or increase in the
contract's value.

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

** 17 The purpose of entering into a futures contract, in the case of the
Portfolio which holds or intends to acquire fixed-income securities, is to
attempt to protect the Portfolio from fluctuations in interest rates without
actually buying or selling fixed-income securities . 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>

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

** 19 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 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 lending 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.

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

Futures Contracts on Bond Indices. The Portfolio may enter into contracts
providing for cash settlement based upon changes in the value of an index of
domestic or foreign securities ("Futures Contracts"). This investment technique
may be used as a low-cost method of gaining exposure to a particular securities
market without investing directly in those securities or to hedge against
anticipated future changes 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.

The risks of Futures Contracts also include a potential lack of liquidity in the
secondary market and incorrect assessments of market.

<PAGE>

exceed 5% of the Portfolio's net asset value, after taking into account
unrealized profits and unrealized losses on any such contracts.

Options on Futures Contracts. The Portfolio may purchase and write options on
futures contracts for hedging purposes. The purchase of a call option on a
futures contract is similar in some respects to the purchase of a call option on
an individual security. As with the purchase of futures contracts, when the
Portfolio is not fully invested it may purchase a call option on a futures
contract to hedge against a market advance due to declining interest rates.

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

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

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

** 24 The Board of Trustees of the Portfolio has adopted a further restriction
that the Portfolio will not enter into any futures contracts or options on
futures contracts if immediately thereafter the amount of margin deposits on all
the futures contracts of the Portfolio and premiums paid on outstanding options
on futures contracts owned by the Portfolio (other than those entered into for
bona fide hedging purposes) would exceed 5% of the market value of the net
assets of the Portfolio.

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, a
Portfolio will cover such transactions, as required under applicable
interpretations, of the SEC, either by owning the underlying securities,
entering into an off-setting transaction, or by segregating with the Portfolio's
custodian or futures commission merchant liquid securities in an amount at all
times equal to or exceeding the Portfolio's commitment with respect to these
instruments or contracts.

Equity Securities. As used herein, "equity securities" are defined as common
stock, preferred stock, trust or limited partnership interests, rights and
warrants to subscribe to or purchase such securities, sponsored or unsponsored
ADRs, EDRs, GDRs, and convertible securities, consisting of debt securities or
preferred stock that may be converted into common stock or that carry the right
to purchase common stock. Common stocks, the most familiar type, represent an
equity (ownership) interest in a corporation. Although equity securities have a
history of long-term growth in value, their prices fluctuate based on changes in
a company's financial condition and on overall market and economic conditions.
Smaller companies are especially sensitive to these factors.

Additional Risk Factors

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

<PAGE>

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 foreign investments
may be adversely affected by changes in political or social conditions,
diplomatic relations, confiscatory taxation, expropriation, nationalization,
limitation on the removal of funds of 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, the value of the net assets of the Portfolio as
measured in U.S. dollars will be affected favorably or unfavorably by changes in
exchange rates. In order to protect against uncertainty in the level of future
foreign currency exchange rates, the Portfolio is also authorized to enter into
certain foreign currency exchange transactions. Furthermore, the Portfolio's
foreign investments may be less liquid and their prices may be more volatile
than comparable investments in securities of U.S. companies. The settlement
periods for foreign securities, which are often longer than those for securities
of U.S. issuers, may affect portfolio liquidity. Finally, there may be less
government supervision and regulation of securities exchanges, brokers and
issuers in foreign countries than in the United States.

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, Luxembourg, the
Netherlands, New Zealand, Norway, Portugal, 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,
Botswana, Bolivia, Brazil, Bulgaria, Chile, China, Colombia, Costa Rica, the
Czech Republic, Ecuador, Egypt, Greece, Hungary, India, Indonesia, Israel, the
Ivory Coast, Jordan, Korea, Malaysia, Mexico, Morocco, Nicaragua, Nigeria,
Pakistan, Peru, the Philippines, Poland, Romania, Russia, Slovakia, Slovenia,
South Africa, South Korea, Sri Lanka, Taiwan, Thailand, Turkey, Uruguay,
Venezuela, Vietnam and Zimbabwe.

Investment in securities of issuers based in underdeveloped emerging markets
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; and (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.

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.
15

<PAGE>

Foreign Securities: Special Considerations Concerning Eastern Europe. The
Portfolio may invest in foreign securities issued by Eastern 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 Portfolio's 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.

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 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
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.

<PAGE>

The 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
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.

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.

<PAGE>

limited liquidity of securities markets in Asia may also affect the Portfolio's
ability to acquire or dispose of securities at the price and time it wishes to
do so. Accordingly, during periods of rising securities prices in the more
illiquid Asian 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 Asian
securities markets are susceptible to being influenced by large investors
trading significant blocks of securities.

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

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

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.

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.

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.

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.

<PAGE>

equitable enforcement of such law, or to obtain enforcement of the judgment 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.

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.

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.

Risks of Investing in High Yield Securities ("Junk Bonds"). Lower-rated
long-term securities, including securities rated from BB to D by S&P or Baa to C
by Moody's or, if unrated, of comparable quality in the opinion of Bankers
Trust, 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 long-term 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. Lower rated long-term securities also involve greater
sensitivity to significant increases in interest rates. Short-term corporate and
market developments affecting the prices and liquidity of lower-rated long-term
securities could include adverse news impacting major issues or underwriters or
dealers in lower-rated long-term or unrated securities. In addition, since there
are fewer investors in lower-rated long-term securities, it may be harder to
sell securities at an optimum time.

restructurings, holders of lower-rated long-term 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 long-term bonds is generally less
liquid than the secondary trading market for higher-rated bonds.

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 Portfolio
securities will adversely affect the corresponding Fund's net asset value. 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 or interest
on its portfolio holdings. As a matter of 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.

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

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

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

** 28 As in the case of forward contracts, certain options on foreign currencies
are traded over-the-counter and involve liquidity and credit risks which may not
be present in the case of exchange-traded currency options. The Portfolio's
ability to terminate over-the-counter options will be more limited than with
exchange-traded options. It is also possible that broker-dealers participating
in over-the-counter options transactions will not
20
<PAGE>

fulfill their obligations. Until such time as the staff of the SEC changes its
position, the Portfolio will treat purchased over-the-counter options and assets
used to cover written over-the-counter options as illiquid securities. With
respect to options written with primary dealers in U.S. government securities
pursuant to an agreement requiring a closing purchase transaction at a formula
price, the amount of illiquid securities may be calculated with reference to the
repurchase formula.

** 29 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.

Non-Diversified Investment Company. The Portfolio and 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
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.

<PAGE>

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 distrubution 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.

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

Investment Restrictions

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

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

<PAGE>

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

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

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

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

(5) concentrate its investments in any particular industry (excluding
U.S. government securities), but if it is deemed appropriate for the
achievement of the Portfolio's (Fund's) investment objective(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.

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

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

(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

<PAGE>

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),
unless permitted to exceed these limitations by an exemptive order
of the SEC; provided further that, except in the case of a merger or
consolidation, the Portfolio (Fund) shall not purchase any
securities of any open-end investment company unless (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;

(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 50% of the Portfolio's (Fund's) total assets, invest
more than 25% of its total assets in the securities (excluding U.S.
government securities) of any one issuer;

(xi) invest in securities issued by an issuer any of whose officers,
directors, trustees or security holders is an officer or Trustee of
the Portfolio (Trust), or is an officer or 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 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

<PAGE>

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 securities acceptable to the broker 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.

Portfolio Transactions and Brokerage Commissions

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

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

The Adviser is authorized, consistent with Section 28(e) of the Securities
Exchange Act of 1934, when placing portfolio transactions for the Portfolio with
a broker to pay a brokerage commission (to the extent applicable) in excess of
that which another broker might have charged for effecting the same transaction
on account of the receipt of research, market or statistical information. The
term "research, market or statistical information" includes advice as to the
value of securities; the advisability of investing in, purchasing or selling
securities; the availability of securities or purchasers or sellers of
securities; and furnishing analyses and
25

<PAGE>

reports concerning issuers, industries, securities, economic factors and trends,
portfolio strategy and the performance of accounts.

Consistent with the policy stated above, the Conduct Rules of the National
Association of Securities Dealers, 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.

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

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

For the fiscal year ended September 30, 1998, the Portfolio paid no brokerage
commissions.

PERFORMANCE INFORMATION

Standard Performance Information

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

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

<PAGE>

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.

For the 30 day period ended September 30, 1998, Global High Yield Fund's
yield was ___ %.

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

<PAGE>

<TABLE>
<CAPTION>
Cumulative Total
Return For the Period Annualized Total Return
Total Return for the From Commencement For the Period From
One Year Ended of Operations Through Commencement of Operations Through
September 30, 1998 September 30, 1998 September 30, 1998
-------------------- --------------------- ----------------------------------
<S> <C> <C> <C>
Global High Yield
Securities Fund(1) ______% ______% ______%
</TABLE>

(1) Fund commenced operations on December 14, 1993.

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

Comparison of Fund Performance

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

In connection with communicating its performance to current or prospective
shareholders, the Fund also may compare these figures to the performance of
other mutual funds tracked by mutual fund rating services or to unmanaged
indices which may assume reinvestment of dividends but generally do not reflect
deductions for administrative and management costs. Evaluations of the Fund's
performance made by independent sources may also be used in advertisements
concerning the Fund. Sources for the Fund's performance information could
include the following: