BT INVESTMENT FUNDS, 485APOS, 1999-11-30

BT INVESTMENT FUNDS
485APOS, 1999-11-30

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As filed with the Commission on November 30, 1999
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

Post-Effective Amendment No. 65 ................ X

and

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X

Amendment No. 66 X

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

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

(410) 895-3433
(Registrant's Telephone Number)

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

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

[ ] Immediately upon filing pursuant to paragraph (b)
[ ] On July 31, 1999, pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[X] On January 31, 2000, 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, on behalf of BT PreservationPlus Income Portfolio,
Latin American Equity Portfolio and Pacific Basin Equity Portfolio, has also
executed this Registration Statement.
<PAGE>

PROSPECTUS: JANUARY 31, 2000

(logo)

[BT] PreservationPlus Income [Fund]

With the goal of achieving a high level of current income while seeking to
maintain a stable value per share

TRUST: BT INVESTMENT FUNDS

INVESTMENT ADVISER: BANKERS TRUST COMPANY

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

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[BT PreservationPlus Income Fund]
Overview of the BT PreservationPlus Income Fund
00 Goal
00 Core Strategy
00 Investment Policies and Strategies
00 Principal Risks of Investing in the Fund
00 Who Should Consider Investing in the Fund
00 Total Returns, After Fees and Expenses
00 Fees and Expenses of the Fund

A Detailed Look at the BT PreservationPlus Income Fund
00 Objective
00 Strategy
00 Principal Investments
00 Investment Process
00 Risks
00 Management of the Fund
00 Calculating the Fund's Share Price
00 Dividends and Distributions
00 Tax Considerations
00 Shareholder Information
00 Financial Highlights

Overview
of the BT PreservationPlus Income Fund

Goal: The Fund seeks a high level of current income while seeking to maintain a
stable value per share.

Core Strategy: The Fund invests primarily in fixed income securities. The Fund
also enters into contracts with financial institutions that are designed to
stabilize the Fund's share value.

INVESTMENT POLICIES AND STRATEGIES
The Fund invests all of its assets in a master portfolio with the same
investment goal as the Fund. The Fund, through the master portfolio, seeks to
achieve that its goal by investing in fixed income securities of varying
maturities, money market instruments and futures and options (including futures
and options traded on foreign exchanges, such as bonds and equity indices of
foreign countries). The Fund attempts to maintain a stable share value

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<PAGE>

by entering into contracts, called Wrapper Agreements, with financial
institutions, such as insurance companies or banks..

PRINCIPAL RISKS OF INVESTING IN THE FUND
Although the Fund seeks to preserve a stable share value, there are risks
associated with fixed income investing. For example, the value of fixed income
securities could fluctuate or fall if:
. There is a sharp rise in interest rates.
. An issuer's creditworthiness declines.
. Changes in interest rates or economic downturns have a negative effect on
issuers in the financial services industry.

The Fund attempts to offset these risks by purchasing Wrapper Agreements.
Wrapper Agreements may have their own risks, including:
. The possibility of default by a financial institution providing a Wrapper
Agreement ("Wrapper Provider").
. The inability of the Fund to obtain Wrapper Agreements covering the Fund's
assets.

The Fund is also subject to the risk that the Investment Adviser incorrectly
judges the potential risks and rewards of derivative investing.

WHO SHOULD CONSIDER INVESTING IN THE FUND
You should consider investing in the Fund if you are looking for an investment
that seeks to earn current income higher than money market mutual funds over
most time periods and to preserve the value of your investment. In addition,
the Fund is offered as an alternative to short-term bond funds and as a
comparable investment to stable value or guaranteed investment contract options
offered in employee benefit plans.

The BT PreservationPlus Income Fund offers shares only to individual retirement
accounts (IRAs) and to employees investing through participant-directed employee
benefit plans. IRAs include traditional IRAs, Roth IRAs, education IRAs,
simplified employee pension IRAs (SEP IRAs), savings incentive match plans for
employees (SIMPLE IRAs), and Keogh plans.

You should not consider investing in the BT PreservationPlus Income Fund if you
seek capital growth. Although it provides a convenient means of diversifying
short-term investments, the Fund by itself does not constitute a balanced
investment program.

An investment in the BT PreservationPlus Income Fund is not a bank deposit and
is not insured or guaranteed by the Federal Deposit Insurance Corporation or any
other

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government agency. Although the Fund seeks to preserve a stable share value, it
is possible to lose money by investing in the Fund.

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. The bar chart shows the Fund's actual
return for the full calendar year since it began selling shares to the public on
December 23, 1998 (its inception date). The table compares the Fund's average
annual return with the Lehman 1-3 Year Government/Corporate Total Return Index,
the IBC First Tier Retail Money Market Universe and the Wrapped Lehman
Intermediate Aggregate Income Index over the last calendar year and since the
Fund's inception. An index is a group of securities whose overall performance is
used as a standard to measure investment performance. It does not factor in the
costs of buying, selling and holding securities - costs that are reflected in
the Fund's results.

FOOTNOTE: Lehman 1-3 Year Government/Corporate Total Return Index is a widely
accepted benchmark of short-term fixed income securities. It is a total return
index consisting of all U.S. Government agency securities, U.S. Government
Treasury securities and all investment grade corporate debt securities with
maturities of one to three years. We also compare the Fund's performance to two
other indices. The IBC First Tier Retail Money Market Universe is [description].
The Wrapped Lehman Intermediate Aggregate Income Index is a custom benchmark
representing investment in a portfolio consisting of the Lehman Intermediate
Aggregate Index and a book value wrapper agreement. The benchmark returns are
calculated assuming a start date of December 23, 1998, which is the same day
that the BT PreservationPlus Income Fund commenced operations. The assumed
expense level for the book value wrapper agreement is 0.20%. This benchmark more
closely reflects the market sector in which the Fund invests.

Year-by-Year Returns
(the full calendar year since inception)
[bar chart]

-----
[ ]%
-----
1999
-----

Since inception, the Fund's highest return in any calendar quarter was [ ]% ([ ]
quarter 19[ ]) and its lowest quarterly return was [ ]% ([ ] quarter 19[ ]).
Past performance offers no indication of how the Fund will perform in the
future.

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Average Annual Returns
(as of September 30December 31, 1999)

<TABLE>
<CAPTION>
------------------------------------------------------------------
Since Inception
1 year (December 23,
1998)
------------------------------------------------------------------
<S> <C> <C>
BT PreservationPlus Income Fund [ ]% [ ]%
------------------------------------------------------------------
Lehman 1-3 Year [ ]% [ ]%
Government/Corporate Total Return
Index
------------------------------------------------------------------
IBC First Tier Retail Money Market [ ]% [ ]%
Universe
------------------------------------------------------------------
Wrapped Lehman Aggregate Income [ ]% [ ]%
Index
------------------------------------------------------------------
</TABLE>

As of December 31, 1999, the Fund's 30-day yield was [ ]%.

FOOTNOTE: The 30-day yield is a measure of the income generated by the Fund over
a thirty-day period. This amount is then annualized, which means that we assume
the Fund generates the same income every month for a year. The "total return" of
the Fund is the change in the value of an investment in the Fund over a given
period. Average annual returns are calculated by averaging the year-by-year
returns of the Fund over a given period.

FEES AND EXPENSES OF THE FUND

The Shareholder Fees and Annual Fees and Expenses tables to the right describe
the fees and expenses that you may pay if you buy and hold shares of the BT
PreservationPlus Income Fund.

Shareholder Fees
(fees paid directly from your investment)

<TABLE>
<S> <C>
-------------------------------------------------------------------
Maximum Sales Charge Imposed on Purchases None
-------------------------------------------------------------------
Maximum Sales Charge on Reinvested Dividends None
-------------------------------------------------------------------
Maximum Redemption Fee (as a percentage of 3.0%/1/
-------------------------------------------------------------------
</TABLE>

/1/ The redemption fee payable to the master portfolio is designed primarily to
offset those expenses which may be incurred by the mater portfolio in connection
with certain shareholder redemptions. Proceeds from the redemption fee will be
used by the master portfolio to offset the actual portfolio and administrative
costs associated with such redemptions, including custodian, transfer agent,
settlement, and account processing costs, as well as the adverse impact of such
redemptions on the premiums paid for Wrapper Agreements and the yield on Wrapper
Agreements. The redemption fee may also have the effect of discouraging
redemptions by shareholders attempting to take advantage of short-term interest
rate movements.

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-------------------------------------------------------------------
amount redeemed, as applicable)
-------------------------------------------------------------------
Under normal circumstances, qualified IRA redemptions and qualified Plan
redemptions that are directed by Plan participants are not subject to a
redemption fee. All other redemptions are subject to a redemption fee of 3% on
the proceeds of the redemption on any day that the "Interest Rate Trigger" is
"active," as described under "Buying and Selling Fund Shares."

Annual Fees and Expenses
(expenses paid from fund assets)

<TABLE>
<CAPTION>
------------------------------------------------------------------
Percentage of Average
Daily Net Assets/1/
------------------------------------------------------------------
<S> <C>
Management Fees 0.00%
------------------------------------------------------------------
Distribution and Service (12b-1) Fees None
------------------------------------------------------------------
Other Fund Operating Expenses [ ]%/3/
------------------------------------------------------------------
Total Fund Operating Expenses [ ]%
------------------------------------------------------------------
Less: Fee Waivers or Expense Reimbursements [ ]%/5/
------------------------------------------------------------------
Net Expenses 1.00%
------------------------------------------------------------------
</TABLE>

Expense Example. The example below illustrates the expenses you would have
incurred on a $10,000 investment in the Fund. The numbers assume that the Fund
earned an annual return of 5% over the periods shown, that the Fund's operating
expenses remained the same, and that you sold your shares at the end of the
period. The expense example does not include a redemption fee.

You may use this hypothetical example to compare the Fund's expense history with
other funds./2/ Your actual costs may be higher or lower.

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

/1/ Information on the annual operating expenses reflects the expenses of both
the Fund and the BT PreservationPlus Income Portfolio, the master portfolio in
which the BT PreservationPlus Income 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.)

/3/ "Other Expenses" include the annual premium rate the Fund paid for Wrapper
Agreements and a shareholder servicing fee of 0.25%.

/5/ Bankers Trust has agreed, for the 16-month period from the Fund's fiscal
year end of September 30, 1999, to waive its fees and reimburse expenses so that
total expenses will not exceed 1.00%.

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Expense Example/1/
--------------------------------------
1 year 3 years 5 years 10 years
--------------------------------------
$[ ] $[ ] $[ ] $[ ]
--------------------------------------

/1/ Based on expenses, after fee waivers and reimbursements for the first 16
months only.

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A detailed look
at the BT PreservationPlus Income Fund

OBJECTIVE
The BT PreservationPlus Income Fund seeks a high level of current income while
seeking to maintain a stable value per share.

While we give priority to earning income and maintaining the value of the Fund's
principal, all fixed income securities, including U.S. government obligations,
can change in value when, for example, interest rates change or an issuer's
creditworthiness changes.

STRATEGY
The Fund seeks current income that is higher than that of money market funds by
investing in fixed income securities with varying maturities and maintaining an
average portfolio duration of 2.5 to 4.5 years. In addition, the Fund enters
into Wrapper Agreements designed to stabilize the Fund's share value. Wrapper
Agreements are provided by financial institutions, such as insurance companies
and banks. In an attempt to enhance return, the Fund also employs a global asset
allocation strategy, which evaluates the equity, bond, cash and currency
opportunities across domestic and international markets.

FOOTNOTE: 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.

PRINCIPAL INVESTMENTS
Fixed Income Securities
The Fund invests at least 65% of its total assets in fixed income securities
rated, at the time of purchase, within the top four long-term rating categories
by a nationally recognized statistical rating organization (or, if unrated, are
determined to be of similar quality by the Fund's Investment Adviser). However,
the Fund may invest up to 10% of its assets in high yield debt securities (also
known as junk bonds) rated in the fifth and sixth long-term rating categories by
a nationally recognized statistical rating organization (or, if unrated, are
determined to be of similar quality by the Fund's Investment Adviser).

Fixed income securities in which the Fund may invest include the following:
. U.S. government securities that are issued or guaranteed by the U.S.
Treasury, or by agencies or instrumentalities of the U.S. Government.

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. U.S. dollar-denominated securities issued by domestic or foreign
corporations, foreign governments or supranational entities.
. U.S. dollar-denominated asset-backed securities issued by domestic or
foreign entities.
. Mortgage pass-through securities issued by governmental and non-governmental
issuers.
. Collateralized mortgage obligations and real estate mortgage investment
conduits.
. Obligations issued or guaranteed, or backed by securities issued or
guaranteed, by the U.S. government, or any of its agencies or
instrumentalities, including CATS, TIGRs, TRs and zero coupon securities,
which are securities consisting of either the principal component or the
interest component of a U.S. Treasury bond.

We employ the following policies to attempt to reduce the risks involved in
investing in fixed income securities:
. We allocate assets among a diversified group of issuers.
. We primarily invest in fixed income securities that are rated, at the time
of purchase, within the top four rating categories as rated by Moody's
Investors Service, Inc., Standard & Poor's Ratings Services or Duff & Phelps
Credit Rating Co., another nationally recognized statistical rating
organization, or, if unrated, determined by us to be of comparable quality.
. We target an average portfolio duration of 2.5 to 4.5 years by investing in
fixed income securities with short-to intermediate-term maturities.
Generally, rates of short-term investments fluctuate less than longer-term
investments.

FOOTNOTE: Maturity measures the time remaining until an issuer must repay a
bond's principal in full.

Wrapper Agreements
The Fund enters into Wrapper Agreements with insurance companies, banks and
other financial institutions. Unlike traditional fixed income portfolios, the
Fund's purchases of Wrapper Agreements should offset substantially the price
fluctuations typically associated with fixed income securities. In using Wrapper
Agreements the Fund seeks to eliminate the effect of any gains or losses on the
value per share when the Fund sells securities. Normally, these agreements
require the Wrapper Provider to maintain the book value of a portion of the
Fund's assets (Covered Assets) if certain events occur. More than one Wrapper
Provider provides coverage with respect to the same securities and, when
applicable, pays based on the pro rata portion of the Fund's assets that it
covers.

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FOOTNOTE: Book value of the Covered Assets is their purchase price, plus
interest on the Covered Assets at the Crediting Rate, less an adjustment to
reflect any defaulted securities.

The Crediting Rate:
. Is the actual interest earned on the Covered Assets based on the formula
stated in the Wrapper Agreements and is generally adjusted monthly for price
movements in the Covered Assets and amounts payable to or receivable from
the Wrapper Provider; and
. Is a significant component of the Fund's yield.

In general, if the Fund sells securities to meet shareholder redemptions and the
market value (plus accrued interest) of those securities is less than their book
value, the Wrapper Provider must pay the difference to the Fund. On the other
hand, if the Fund sells securities and the market value (plus accrued interest)
is more than the book value, the Fund must pay the difference to the Wrapper
Provider. The timing of payments between the Fund and the Wrapper Provider
vary.

We employ the following policies to attempt to reduce the risks involved in
using Wrapper Agreements:
. We purchase Wrapper Agreements from multiple issuers, each of which has
received a high quality rating from Moody's or Standard & Poor's.
. We monitor, on a continual basis, the financial well being of the issuers of
the securities in which the Fund invests and the Wrapper Providers providing
Wrapper Agreements to the Fund.

Generally, unless the Wrapper Agreement requires the sale of a security that has
been downgraded below a specified rating, the Fund is not required to dispose of
any security or Wrapper Agreement whose issuer's rating has been downgraded.

FOOTNOTE: A high quality rating means a security is rated in the top two long-
term ratings categories by a nationally recognized statistical rating
organization.

Short-Term Investments. The Fund may will also invest in short-term investments,
including money market mutual funds, to meet shareholder withdrawals and other
liquidity needs. These short-term investments, such as commercial paper and
certificates of deposit, will be rated, at the time of purchase, in one of the
top two short-term rating categories by a nationally recognized statistical
rating organization, or if unrated, are determined to be of similar quality by
the Fund's Investment Adviser.

Derivative Instruments

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The Fund may invest in various instruments commonly known as "derivatives" to
increase its exposure to certain groups of securities. The derivatives that the
Fund may use include futures contracts, options on futures contracts and forward
contracts. The Fund may use derivatives to keep cash on hand to meet
shareholder redemptions, as a hedging strategy to maintain a specific portfolio
duration, or to protect against market risk. When employing the global asset
allocation strategy, the Fund may use derivatives for leveraging, which is a way
to attempt to enhance returns.

Other Investments
The Fund may also invest in and utilize the following investments and investment
techniques and practices: Rule 144A securities, when-issued and delayed delivery
securities, repurchase agreements, reverse repurchase agreements and dollar
rolls.

FOOTNOTE: Futures contracts and options on futures contracts are commonly used
for traditional hedging purposes to attempt to protect an investor from the
risks of changing interest rates, securities prices or currency exchange rates
and for cash management purposes as a low cost method of gaining exposure to a
particular securities market without investing directly in those securities.

FOOTNOTE: Portfolio Turnover. The portfolio turnover rate measures the
frequency that the Portfolio sells and replaces the securities it holds within a
given period. Historically, this Fund has had a high portfolio turnover rate.
High turnover can increase the Fund's transaction costs, thereby lowering its
returns.

INVESTMENT PROCESS

The Fund's investment strategy emphasizes a diversified exposure to higher
yielding mortgage, corporate and asset-backed sectors of the investment grade
fixed income markets. These "spread" sectors have historically offered higher
returns than U.S. government securities. The investment process focuses on a
top-down approach, first focused on the sector allocations, then using relative
value analysis to select the best securities within each sector. To select
securities, we analyze such factors as credit quality, interest rate sensitivity
and spread relationships between individual bonds.

The Fund also purchases Wrapper Agreements, which seek to offset price
fluctuations of the fixed income securities and, as a result, provide a stable
value per share for the Fund. A primary emphasis is placed on assessing the
credit quality of financial institutions that may provide a Wrapper Agreement to
the Fund. We perform proprietary credit analysis on a large universe of
issuers. We actively manage the negotiation and maintenance of these Wrapper
Agreements.

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The global asset allocation strategy attempts to enhance long-term returns and
manage risk by responding effectively to changes in global markets using
instruments including but not limited to, futures, options and currency
forwards. This strategy employs a multi-factor global asset allocation model
that evaluates equity, bond, cash and currency opportunities across domestic and
international markets.

In implementing the global asset allocation strategy, the Fund invests in
options and futures based on any type of security or index including options and
futures traded on foreign exchanges, such as bonds and equity indices of foreign
countries. Some options and futures strategies, including selling futures,
buying puts and writing calls, hedge the Fund's investments against price
fluctuations. Other strategies, including buying futures, writing puts and
buying calls, tend to increase and will broaden the Fund's market exposure.
Options and futures may be combined with each other, or with forward contracts,
in order to adjust the risk and return characteristics of an overall strategy.

The Fund may also enter into forward currency exchange contracts (agreements to
exchange one currency for another at a future date), may buy and sell options
and futures contracts relating to foreign currencies and may purchase securities
indexed to foreign currencies. Currency management strategies allow us to shift
investment exposure from one currency to another or to attempt to profit from
anticipated declines in the value of a foreign currency relative to the U.S.
dollar.

Some of these strategies will require the Fund to segregate liquid assets in a
custodial account to cover its obligations. Successful implementation of the
global asset allocation strategy depends on the Investment Adviser's judgment as
to the potential risks and rewards of implementing the different types of
strategies.

RISKS
Below we set forth some of the prominent risks associated with fixed income
investing the use of Wrapper Agreements, and the risks of 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

Interest Rate Risk. All debt securities face 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 fall. If interest rates are falling, the Fund's
income may decline because of the investment or reinvestment of assets in fixed
income securities.

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Credit Risk. An investor purchasing a fixed income security faces the risk that
the value of the security may decline because the creditworthiness of the issuer
may fail to make timely payment of interest or principal.

Wrapper Agreement Risk. Although the Wrapper Agreements attempt to maintain a
stable value per share, there are risks associated with the Wrapper Agreements,
including:
. A Wrapper Provider could default, which could cause the Fund's share value
to fluctuate or fall and could result in losses for Plan participants who
sell their shares.
. The Wrapper Agreements may require the Fund to maintain a certain percentage
of its assets in short-term investments. This could result in a lower return
than if the Fund invested those assets in longer-term securities. The Fund
may elect not to cover a fixed income security with a remaining maturity of
60 days or less, cash or short-term investments with Wrapper Agreements.
. The Wrapper Agreements generally do not protect the Fund from loss caused by
a fixed income security issuer's default on principal or interest payments.
. The Fund may not be able to obtain Wrapper Agreements to cover all of its
assets.
. If a Wrapper Provider is unable to make timely payments, the Fund's Board
may determine the fair value of that Wrapper Agreement to be less than the
difference between the book value and the market value, which could cause
the Fund's net asset value to fluctuate.
. There is no guarantee that a Fund shareholder or Plan participant will
realize the same investment return as they might if they had invested
directly in the Fund's assets (without the use of the Wrapper Agreements).

Market Risk. Although individual securities may outperform their market, the
entire market may decline as a result of rising interest rates, regulatory
developments or deteriorating economic conditions.

Selection Risk. While the Fund invests in short-to intermediate-term securities,
which by nature are relatively stable investments, the risk remains that the
securities we have selected will not perform as expected. This could cause the
Fund's returns to lag behind those of money market funds.

Liquidity Risk. Liquidity risk is the risk that a security cannot be sold
quickly at a price that reflects our estimate of its value. Because there is no
active trading market for Wrapper Agreements, the Fund's investments in the
Wrapper Agreements are considered illiquid. In an effort to minimize this risk,
the Fund limits its investments in illiquid securities, including Wrapper
Agreements, to 15% of net assets.

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Pricing Risk. We value securities in the Fund at their stated market value if
price quotations are available and, if not, by the method that most accurately
reflects their current worth in the judgment of the Board of Trustees.

This procedure implies an inavoidable risk, the risk that our prices are higher
or lower than the prices that the securities might actually command if we sold
them. If we have valued the securities too highly, you may end up paying too
much for Fund shares when you buy. If we underestimate their price, you may not
receive the full market value for your Fund shares when you sell.

According to the procedures adopted by the Board of Trustees, the price fair
value of the Wrapper Agreements generally will equal the difference between the
book value and the market value (plus accrued interest) of the Fund's assets. In
determining fair value, the Board will consider the creditworthiness and ability
of a Wrapper Provider to pay amounts due under the Wrapper Agreements. If the
Board of Trustees determines that a Wrapper Agreement should not be valued this
way, the net asset value of the Fund could fluctuate.

Derivative Risk. Derivatives are more volatile and less liquid than traditional
fixed income securities. Risks associated with derivatives include:
. the derivative may not fully offset the underlying positions;
. the derivatives used for risk management may not have the intended effects
and may result in losses or missed opportunities; and
. the possibility the Fund cannot sell the derivative because of an illiquid
secondary market.

The use of derivatives for leveraging purposes tends to magnify the effect of an
instrument's price changes as market conditions change.

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

Foreign Investing Risk. 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

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foreign investors' access to capital markets and restricted the flow of
profits overseas. They have resorted to high taxes, 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 and, thus, the U.S. dollar amount of
income or gain received on these securities. We seek to minimize this risk by
actively managing the currency exposure of the Funds. There is no guarantee
that these currency management activities will work and they could cause losses
to the Funds.

Secondary Risk

Lower Rated Securities. The Fund may invest in debt securities rated in the
fifth and sixth long-term ratings categories. 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 lower-rated
securities 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. 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 availability of outside pricing
services to value lower-rated debt securities and the Fund's ability to dispose
of these securities. Since the risk of default is higher for lower-rated
securities, the Investment Adviser's research and credit analysis are an
especially important part of managing securities of this type.

In considering investments for the Fund, the Investment Adviser attempts 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. The Investment Adviser'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.

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
obligations with one of the top

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two investment ratings. These short-term obligations may not be covered by a
Wrapper Agreement. To the extent we might adopt such a position, the Fund may
not meet its goal of a high level of current income or a stable net asset value.

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
of the Fund's activities on their behalf.

Investment Adviser. Under the supervision of the Board of Trustees, Bankers
Trust Company (Bankers Trust) 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.

As of December 31, 1999, Bankers Trust had total assets under management of
approximately $___ billion. Bankers Trust is dedicated to servicing the needs of
corporations, governments, financial institutions, and private clients and has
invested retirement assets on behalf of the nation's largest corporations and
institutions for more than 50 years. 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.
As of December 31, 1999, BT managed approximately $___ in stable value assets.

At a Special Meeting of Shareholders held on October 8, 1999, shareholders of
the Fund approved a new investment advisory agreement with Morgan Grenfell, Inc.
As of October 6, 1999, Morgan Grenfell, Inc. has been renamed Deutsche Asset
Management Inc. ("DAMI"). The new investment advisory agreement with DAMI may
be implemented within two years of the date of the Special Meeting upon approval
of a majority of the members of the Board of Trustees who are not "interested
persons", generally referred to as Independent Trustees. Shareholders of the
Fund also approved a new sub-investment advisory agreement among the Trust, DAMI
and Bankers Trust under which Bankers Trust may perform certain of DAMI's
responsibilities, at DAMI's expense, upon approval of the Independent Trustees,
within two years of the date of the Special Meeting. Under the new investment
advisory agreement and new sub-advisory

Page 16
<PAGE>

agreement, the compensation paid and the services provided would be the same as
those under the existing advisory agreement with Bankers Trust.

DAMI is located at 885 Third Avenue, 32nd Floor, New York, New York 10022. DAMI
provides a full range of investment advisory services to institutional clients.
DAMI serves as investment adviser to ten other investment companies and as sub-
adviser to five other investment companies.

On March 11, 1999, Bankers Trust announced that it had reached an agreement with
the United States Attorney's Office in the Southern District of New York to
resolve an investigation concerning inappropriate transfers of unclaimed funds
and related record-keeping problems that occurred between 1994 and early 1996.
Bankers Trust pleaded guilty to misstating entries in the bank's books and
records and agreed to pay a $63.5 million fine to state and federal authorities.
On July 26, 1999, the federal criminal proceedings were concluded with Bankers
Trust's formal sentencing. The events leading up to the guilty pleas did not
arise out of the investment advisory or mutual fund management activities of
Bankers Trust or its affiliates.

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

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

Eric Kirsch, CFA
. Managing Director of Bankers Trust
. Portfolio Manager of the master portfolio since its inception
. Joined Bankers Trust in 1980
. Head of the Stable Value investment group
. __ years of investment industry experience

Louis R. D'Arienzo
. Principal of Bankers Trust
. Portfolio Manager of the fixed income portion of the master portfolio since
its inception
. Joined Bankers Trust in 1981
. Portfolio Manager in the Structured Fixed Income investment group

Page 17
<PAGE>

. 17 years of trading and investment experience in structured portfolios and
quantitative analysis of fixed income and derivative securities

John D. Axtell
. Principal of Bankers Trust
. Portfolio Manager of the wrapper agreements in the master portfolio since
its inception
. Joined Bankers Trust in 1990
. Portfolio Manager in the Stable Value investment group
. __ years of investment industry experience

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

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

Organizational Structure. The BT PreservationPlus Income Fund is a "feeder fund"
that invests all of its assets in a "master portfolio," the BT PreservationPlus
Income 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
shareholders' 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 18
<PAGE>

CALCULATING THE FUND'S SHARE PRICE
We calculate the daily price of a Fund's shares (also known as the "net asset
value" or "NAV") in accordance with the standard formula for valuing mutual fund
shares at the close of regular trading on the New York Stock Exchange every day
the Exchange is open for business. The formula calls for deducting all of a
Fund's liabilities from the total value of its assets--the market value of the
securities it holds, plus its cash reserves--and dividing the result by the
number of shares outstanding.

According to the procedures adopted by the Board of Trustees, the fair value of
the Wrapper Agreements generally will equal the difference between the book
value and the market value (plus accrued interest) of the Fund's assets. In
determining fair value, the Board will consider the creditworthiness and ability
of a Wrapper Provider to pay amounts due under the Wrapper Agreements.

FOOTNOTE: 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), Independence Day,
Labor Day (the first Monday in September), Thanksgiving Day (the fourth Thursday
in November) and Christmas Day.

DIVIDENDS AND DISTRIBUTIONS
The Fund declares dividends from its net income daily and pays the dividends on
a monthly basis.

The Fund reserves the right to include in the daily dividend any short-term
capital gains on securities that it sells. Also, the Fund will normally declare
and pay annually any long-term capital gains as well as any short-term capital
gains that it did not distribute during the year.

On occasion, the dividends the Fund distributes may differ from the income the
Fund earns. When the Fund's income exceeds the amount distributed to
shareholders, the Fund may make an additional distribution. When an additional
distribution is necessary, the Board of Trustees may declare a reverse
split to occur at the same time the additional distribution is
made. Making the additional distribution simultaneously with the reverse stock
split will minimize fluctuations in the net asset value of the Fund's
shares

We automatically reinvest all dividends and capital gains, if any, unless you
tell us otherwise.

Page 19
<PAGE>

FOOTNOTE: A reverse stock split reduces the number of total shares the Fund has
outstanding. The market value of the shares will be the same after the stock
split as before the split, but each share will be worth more.

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.

For IRA Owners and Plan participants utilizing the Fund as an investment option
under their Plan, dividend and capital gain distributions from the Fund
generally will not be subject to current taxation, but will accumulate on a tax-
deferred basis.

Because each participant's tax circumstances are unique and because the tax laws
governing Plans are complex and subject to change, we recommend that you consult
your Plan administrator, your plan's Summary Plan Description, and/or your tax
advisor about the tax consequences of your participation in your Plan and of any
Plan contributions or withdrawals.

Page 20
<PAGE>

BUYING AND SELLING FUND SHARES

Minimum Account Investments

To open an account $500
To add to an account $100
Minimum balance $500

IRAs

Purchasing Shares. Please contact your IRA service agent for information on
purchasing shares. If you established your IRA with BT Mutual Funds, you may
purchase additional shares by contacting the BT Service Center as follows:

By phone 1-800-677-7596
By mail [BT Service Center]
P.O. Box 219210
Kansas City, Missouri 64121-9210
By overnight mail BT Service Center
210 West 10/th/ Street, 8/th/ floor
Kansas City, Missouri 64105-1716

Redeeming Shares. All redemption requests must be made in writing and include
the reason you are selling your shares. Call the BT Service Center at 1-800-677-
7596 or your service agent to request a redemption form. When the interest rate
trigger is active, redemptions that are not qualified IRA redemptions, as
described in the next section, will be subject to the 3% redemption fee.
Therefore, it is important to consult with your IRA service agent and/or a
professional tax advisor regarding the terms, conditions and tax consequences of
withdrawal of IRAs.

Listed below are some examples of qualified IRA redemptions. For complete
information, please contact your IRA service agent.
. Distributions made on or after the date on which the IRA owner attains age 59
1/2.
. Distributions made to a beneficiary or to the IRA owner's estate on or after
the IRA owner's death.
. Distributions made as a result of the IRA owner becoming disabled.
. Direct trustee-to-trustee transfers and conversions of traditional IRAs to
Roth IRAs where the IRA owner continues the investment of the transferred
amount in the Fund.

Page 21
<PAGE>

Participant-Directed Employee Benefit Plans

Purchasing Shares. You must contact your plan administrator for information on
how to purchase shares. Your plan may have specific provisions with respect to
the timing and method of share purchases, exchanges and redemptions by its
participants. Plan administrators and fiduciaries should call 1-800-677-7596 for
information regarding a plan's account with the Fund.

Redeeming Shares. You must contact your plan administrator for information on
how to redeem shares. There will be no reduction of the NAV per share for
qualified plan redemptions, which are redemptions resulting from a plan
participant's death, disability, retirement or termination of employment or to
fund loans to, or "in service" withdrawals by, a plan participant. All other
redemptions of shares, including transfers to other plan investment options,
will be subject to the 3% redemption fee, if the interest rate trigger is
active.

The Fund reserves the right to require written verification of whether a
redemption request is for a qualified plan redemption in accordance with Plan
provisions and to establish the authenticity of this information before
processing a redemption request. Normally, the Fund will make payment for all
shares redeemed within one business day after a request is received. In no event
will payment be made more than seven days after receipt of a redemption request
in good order.

The value of shares at the time of redemption may be more or less than the plan
participant's cost at the time of purchase, depending upon the then-current
market value of the Fund's assets (its interest in the Portfolio). Plan
participants should consult with their plan administrator and/or professional
tax advisor with respect to the terms and conditions for withdrawal from, or
redemption of their interests in, their plan.

Interest Rate Trigger

Qualified IRA redemptions and qualified plan redemptions are not subject to the
redemption fee at any time. All other redemptions are subject to the redemption
fee, in the amount of 3%, on the proceeds of such redemptions of shares by
shareholders on any day that the "Interest Rate Trigger" (as described below) is
"active," and not subject to those charges on days that the Interest Rate
Trigger is "inactive." The Interest Rate Trigger is active on any day when, as
of the preceding day, the "Reference Index Yield" exceeds the sum of the "Annual
Effective Yield" of the Fund plus 2.25%. The Reference Index Yield on any
determination date is the previous day's closing "Yield to Worst" on the Lehman
Brothers Intermediate Treasury Bond Index(R). The "Annual Effective Yield"
generally represents one day's investment income expressed as an annualized
yield and compounded annually. The status of the Interest Rate Trigger will
either be

Page 22
<PAGE>

"active" or "inactive" on any day, and shall be determined on every day that an
NAV is calculated for the Fund. Once the Interest Rate Trigger is active, it
remains active every day until the Reference Index Yield is less than the sum of
the Annual Effective Yield of the Fund plus 2.0%, at which time the Interest
Rate Trigger becomes inactive on the following day and remains inactive every
day thereafter until it becomes active again. An example of when and how the
redemption fee will apply to the redemption of shares follows.

FOOTNOTE: The Annual Effective Yield of the Fund is intended to represent one
day's investment income expressed as an annualized yield and compounded
annually. The Annual Effective Yield of the Fund shall be expressed as a
percentage and calculated on each business day as follows based on the dividend
declared for the previous day:

[(1 + Previous Day's Dividend Factor) 365-1]

NAV Per Share

EXAMPLE: If on March 1st the Fund's Dividend Factor is 0.00174163 and the Fund's
NAV per share is $10, then the Fund's Annual Effective Yield for March 2/nd/
equals 6.56%.

EXAMPLE

Shareholder is considering submitting a request for a redemption other than a
Qualified IRA Redemption or Qualified Plan Redemption to the Fund on March 2nd
in the amount of $5,000. Assume that the Reference Index Yield is 9.1% as of the
close of business on March 1st and the Annual Effective Yield of the Fund is
6.65% as of that date. Since the Annual Effective Yield of the Fund plus 2.25%
(8.9%) is less than the Reference Index Yield (9.1%), the Interest Rate Trigger
is active. Thus, the net redemption proceeds to the Shareholder will be $4,850.
The redemption fee will continue to apply to all redemptions which are not
Qualified IRA Redemptions or Qualified Plan Redemptions until the day after the
Reference Index Yield is less than the sum of the Annual Effective Yield of the
Fund plus 2.0%.

(Please note that this example does not take into consideration an individual
Shareholder's tax issues or consequences including without limitation any
withholding taxes that may apply.)

Shareholders can obtain information regarding when the Interest Rate Trigger is
active, as well as the Annual Effective Yield of the Fund and the Reference
Index Yield by calling 1-800-677-7796 or the Shareholder's Service Agent. The
amount of, and method of applying, the Redemption Fee, including the operation
of the Interest Rate Trigger, may be changed in the future.

Important Information About Buying and Selling Shares

Page 23
<PAGE>

. After receiving a shareholder's order, the Fund buys or sells shares at the
next price calculated on any day the Fund is open for business.
. It is the responsibility of the plan administrator or IRA service agent to
forward purchase and redemption instructions to the Fund.
. The Fund reserves the right to reject any purchase order or to suspend or
postpone redemptions at times when both the New York Stock Exchange and the
Fund's custodian are closed.
. Redemptions are processed without charge by the Fund.
. Unless otherwise instructed, the Fund normally makes payment of the proceeds
from the sale of your shares within one day but always within seven days.
. The Fund remits proceeds from the sale of shares in U.S. dollars for
redemption requests up to $250,000 or 1% of the Fund's NAV, whichever is
less, during any 90-day period for any one IRA or Plan shareholder. The Fund
may redeem "in kind" if a redemption request is larger than the lesser of
$250,000 or 1% of the Fund's NAV. The redemption-in-kind will not include
wrapper agreements.
. Qualified plan redemptions and qualified IRA redemptions are not subject to a
3% redemption fee at any time.
. All redemption requests in connection with qualified IRA withdrawals must be
in writing.
. The Fund does not issue share certificates.
. The redemption fee does not apply to exchanges into another investment
company or other entity that invests exclusively in the Portfolio.

Page 24
<PAGE>

The table below provides a picture of the Fund's financial performance since its
inception. The information selected reflects financial results for a single Fund
share. The total returns in the table represent the rates of return that an
investor would have earned on an investment in the Fund, assuming reinvestment
of all dividends and distributions. This information has been audited by
_________________, 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 1-800-677-7596.

Financial Highlights

<TABLE>
<CAPTION>
INVESTMENT CLASS INVESTMENT CLASS
SHARES SHARES
For the year For the period
ended December 23, 1998* through
September 30, 1999 September 30, 1998
------------------ ------------------
<S> <C> <C>
Per Share Operating Performance:
Net Asset Value, Beginning of Period............ $ 10.00
-------
Income from Investment Operations
Net Investment Income.......................... 0.56

Distributions to Shareholders
Net Investment Income.......................... (0.56)
-------
Distributions to Shareholders
Net Investment Income........................... (0.56)
-------
Net Asset Value, End of Period.................. $ 10.00
-------
Total Investment Return......................... 5.76%
Supplemental Data and Ratios:
Net Assets, End of Period (000s omitted)..... $15,003
Ratios to Average Net Assets:**
Net Investment Income...................... 5.65%
Net Expenses, Including Expenses
of the PreservationPlus Portfolio......... 0.55%
Decrease Reflected in Above Expense
Ratio Due to Absorption of Expenses
by Bankers Trust 0.51%
</TABLE>

_____________________________

Page 25

<PAGE>

* Commencement of operations
** Includes Fund share of Portfolio expenses

Page 26
<PAGE>

Bankers Trust Architects of Value (logo)

Additional information about the Fund's investments is available in the Fund's
annual and semi-annual reports to shareholders.

You can find more detailed information about the Fund in the current Statement
of Additional Information, dated April 30, 1999January 31, 2000, which we have
filed electronically with the Securities and Exchange Commission (SEC) and which
is incorporated by reference. To receive your free copy of the Statement of
Additional Information, the annual or semi-annual report, or if you have
questions about investing in the Fund, write to us at:

BT Service Center
P.O. Box 219210
Kansas City, MO 64121-9210
or call our toll-free number: 1-800-677-7596

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.

BT PreservationPlus Fund CUSIP #055847842
BT Pyramid Mutual Funds PRODUCT CODE
811-6576

Distributed by:
ICC Distributors, Inc.
Two Portland Square
Portland, ME 04101

Page 27
<PAGE>

PROSPECTUS: January 31, 2000

(logo)

Latin American Equity Fund

Pacific Basin Equity Fund

Investing in stocks and other equity securities of companies in emerging
markets.

TRUST: BT INVESTMENT FUNDS

INVESTMENT ADVISER: DEUTSCHE ASSET MANAGEMENT INC.

[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

Latin American Equity Fund

Pacific Basin Equity Fund

Information Concerning the Funds
Management of the Funds
Calculating a Fund's Share Price
Performance Information
Dividends and Distributions
Tax Considerations
Buying and Selling Fund Shares
<PAGE>

LATIN AMERICAN EQUITY FUND

Overview of the Latin American Equity Fund
Goal
Core Strategy
Investment Policies and Strategies
Principal Risks of Investing in the Fund
Who Should Consider Investing in the Fund
Total Returns, After Fees and Expenses
Annual Fund Operating Expenses

A Detailed Look at the Latin American Equity Fund
Objective
The Case for Latin America
Strategy
Principal Investments
Investment Process
Risks
Portfolio Management
Financial Highlights
<PAGE>

Latin American Equity Fund

OVERVIEW

Goal: The Fund invests for long-term capital appreciation.

Core Strategy: The Fund invests primarily in the stocks and other equity
securities of companies in Latin America.

INVESTMENT POLICIES AND STRATEGIES

The Fund invests all of its assets in a master portfolio with the same
investment objective as the Fund. The Fund, through the master portfolio, seeks
to achieve that objective by investing primarily in the stock and other equity
securities of companies based in Latin America. The Fund may also invest a
portion of its assets in Latin American bonds and other debt securities. The
companies are selected by an extensive tracking system plus the input of experts
from various financial disciplines.

PRINCIPAL RISKS OF INVESTING IN THE FUND

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

. Stocks that our Investment Adviser has selected could perform poorly; or

. The stock market could perform poorly or could underperform other
investments one or more of the countries in which the Fund has invested.

Beyond the risks common to all stock investing, an investment in the Fund could
also lose money or underperform alternative investments as a result of risks in
the emerging markets in which the Fund invests:

. Economies in Latin American countries are more volatile than developed
countries' and are subject to
<PAGE>

sudden reversals;

. Adverse political, economic or social developments could undermine the value
of the Fund's investments or prevent the Fund from realizing their full value;

. Accounting and financial reporting standards differ from those in the U.S.
and could convey incomplete information when compared to information typically
provided by U.S. companies; or

. The currency of a country in which the Fund invests may decrease in value
relative to the U.S. dollar, which could affect the value of the investment to
U.S. investors.

WHO SHOULD CONSIDER INVESTING IN THE FUND

You should consider investing in the Latin American Equity Fund if you are
seeking long-term capital appreciation. There is, of course, no guarantee that
the Fund will realize its goal. You should be aware that extreme fluctuations in
short-term investment values have often accompanied this long-term capital
appreciation.

You should not consider investing in the Latin American Equity Fund if you are
pursuing a short term financial goal, if you seek regular income or if you
cannot tolerate fluctuations in the value of your investments.

The Fund by itself does not constitute a balanced investment program. It can,
however, afford you exposure to investment opportunities not otherwise available
to an investor in developed market securities.

An investment in the Latin American Equity Fund is not a bank deposit 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 on October 25, 1993 (its
inception date). The table compares the Fund's average annual return with two
indices over the last one and five years, and since inception. An index is a
group of securities whose overall performance is used as a standard to measure
investment performance. It does not factor in the costs of buying, selling and
holding securities -- costs which are reflected in the Fund's results.

FOOTNOTE: The Morgan Stanley Capital International (MSCI) Latin American
Emerging Markets Free (EMF) Index is a market capitalization-weighted index that
includes stocks with sufficient liquidity and free float (percentage of shares
freely tradable). The International Finance Corporation Investable (IFCI) Latin
American Index is developed by the IFC, a member of the World Bank Group, and
includes the returns of companies traded on stock markets in Latin America.
The indices are models; not actual portfolios. The Fund has changed benchmarks
from the IFCI index to the MSCI index because portfolio management believes that
the MSCI index has become the recognized benchmark for the Latin American region
and that the bias towards the MSCI index has a significant impact upon fund
flows into the region. By adopting the index preferred by the Fund's peer
group, portfolio management believes that the Fund is not exposed to unnecessary
benchmark volatility. Additionally, portfolio management believes that the
construction of the MSCI index is more appropriate to the Fund.

Year-by-Year Returns
(each full calendar year since inception)
[bar chart]

Since inception, the Fund's highest return in any calendar quarter was _______%
( ____ quarter 19__) and its lowest quarterly return was ______% (___ quarter
19__). Past performance offers no indication of how the Fund will
<PAGE>

perform in the future.

Average Annual Returns
(as of December 31, 1999)

1 year 5 years Since Inception
(October 23, 1993)/1/
---------------------

Latin American
Equity Fund

MSCI Latin
American EMF Index

IFCI Latin
American Index

Lipper Latin
American
Average/2/

/1/ The IFCI Latin American Index and Lipper Latin American Average are
calculated from October 31, 1993 through the end of the period.

/2/ The Lipper Latin American Average represents the average return of mutual
funds that invest in the stocks of companies in Latin America.
<PAGE>

ANNUAL FUND OPERATING EXPENSES
(expenses paid from Fund assets)

The Annual Fees and Expenses to the right describes the fees and expenses you
may pay if you buy and hold shares of the Latin American Equity Fund.

Expense Example. This example 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, the Fund's operating expenses
remained the same, and you sold your shares at the end of the period.

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

/1/ Information on the annual operating expenses reflects the expenses of both
the Fund and the Latin American Equity Portfolio, the master fund into which the
Latin American Equity Fund invests its assets. (A further discussion of the
relationship between the Fund and the master portfolio appears in the
"Organizational Structure" section of this prospectus).

/2/ The Investment Adviser and administrator have agreed, for the 16-month
period from the Fund's fiscal year end of October 31, 1999, to waive their fees
or reimburse expenses so that total expenses will not exceed 1.90%.

/3/ Based on expenses, after fee waivers and reimbursements for the first 16
months only.

Annual Fees and Expenses Percentage of Average
Daily Net Assets/1/
-------------------

Management Fees 1.00%

Distribution and Service (12b-1) None
Fees

Other Expenses _____%

<PAGE>

Total Fund Operating Expenses _____%

Less: Fee Waiver or Expense (____)/2/
Reimbursements

Net Expenses 1.90%

Expense Example/3/

1 year 3 years 5 years 10 years
- ------ ------- ------- --------

$ $ $ $

<PAGE>

Latin American Equity Fund
A detailed look

OBJECTIVE

The Fund seeks long-term capital appreciation. Under normal circumstances, the
Fund invests at least 65% of its total assets in the stocks and other securities
with equity characteristics of companies in Latin America.

The Fund invests for capital appreciation, not income; any dividend or interest
income is incidental to the pursuit of its objective. While we give priority to
capital appreciation, 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.

FOOTNOTE: The Latin American markets in which the Fund may invest include Mexico
and all countries in Central America and South America, including Argentina,
Brazil, Chile, Columbia, Peru and Venezuela.

THE CASE FOR LATIN AMERICA

Perhaps more than any other developing region, Latin America has adopted the
U.S. economic model. Deregulation and reduced rates of inflation have promoted
an environment conducive to investing. A large proportion of the populations of
Argentina, Brazil, Chile and Mexico have benefited from national economic growth
and entered the middle class. Their new affluence and aspirations have generated
a strong demand for consumer goods. Vast, formerly government-owned enterprises
in oil and gas, telecommunications, and electric power are privatizing and
selling shares to the public.

STRATEGY

The Fund invests for the long-term. We employ a strategy of growth at a
reasonable price. We seek to identify companies in Latin America that combine
strong potential for earnings growth with reasonable investment value. Such
companies typically exhibit increasing rates of profitability and cash flow, yet
their share prices compare favorably to other stocks in a given market and to
their global peers. In evaluating stocks, we consider
<PAGE>

factors such as sales, earnings, cash flow and enterprise value. Enterprise
value is a company's market capitalization plus the value of its net debt. We
further consider the relationship between these and other quantitative factors.
Together, these indicators of growth and value may identify companies with
improving prospects before the market in general has taken notice.
<PAGE>

PRINCIPAL INVESTMENTS

The Fund invests primarily in the stocks and other equity securities of
companies based in Latin America. We consider a company to be based in Latin
America if it meets one of four criteria:

. It has its headquarters in the region or is organized under the laws of
a Latin American country;

. It derives more than half its revenue from goods or services produced or
sales made in the region;

. Its stock trades on a Latin American exchange; or

. It is issued or guaranteed by the government of a Latin American country (or
its agencies).

The Fund may also invest up to 35% of its assets in Latin American bonds and
other debt securities.

On December 8, 1999, the Fund's Board of Trustees voted to recommend a proposal
to shareholders to change the Fund's concentration policy. Currently, the Fund
may not invest greater than 25% of its total assets in any single industry
sector. At an upcoming special meeting of shareholders, shareholders will be
asked to vote on a proposal to allow the Fund the flexibility to invest more
than 25% of its total assets, but no more than 35% of its total assets, in any
given industry sector to the extent that the Morgan Stanley Capital
International (MSCI) Latin American EMF index concentrates in that industry
sector. More information relating to the implications of the policy change will
be included in a proxy statement, which will be mailed to shareholders before
the special meeting.

Bonds and other debt securities must have earned a rating of C or better from
Standard & Poor's Rating Service or Moody's Investors Service, Inc. If they have
no rating, they must be at least comparable to a C-rated security in the opinion
of the Investment Adviser. As an operating policy (which may be changed by the
Fund's Board of Trustees), the Fund will not invest more than 10% of its assets
in bonds or other debt securities rated BBB or
<PAGE>

lower by S&P or Baa or lower by Moody's.

FOOTNOTE: Bonds may generate capital appreciation through decreases in interest
rates resulting from economic and market conditions or improvements in the bond
issuer's finances. There is corresponding risk in investing in bonds to seek
capital appreciation. If interest rates increase or if the bond issuer's
finances deteriorate, the price of the bond may go down.

INVESTMENT PROCESS

Company research lies at the heart of our investment process, as it does with
many stock mutual funds. We track several hundred companies to arrive at the
approximately __ stocks the Fund normally holds. But our process brings an
added dimension to this fundamental research. It draws on the insight of experts
from a range of financial disciplines __ regional stock market specialists,
global industry specialists, economists and quantitative analysts. They
challenge, refine and amplify each other's ideas. Their close collaboration is a
critical element of our investment process.

FOOTNOTE: Portfolio Turnover. The annual portfolio turnover rate measures the
frequency that the Portfolio sells and replaces the value of the securities it
holds within a given period. Historically, this Fund has had a high portfolio
turnover rate. High turnover can increase the Fund's transaction costs, thereby
lowering its returns. It may also increase your tax liability.

RISKS

Below we set forth some of the prominent risks associated with investing in
Latin America, as well as investing in general, and we detail our approaches to
containing them. 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. Although individual stocks may outperform their local markets,
deteriorating market conditions might cause an overall weakness in the stock
prices of the entire market.
<PAGE>

Stock Selection Risk. A risk that pervades all investing is the risk that the
securities an investor has selected will not perform to expectations. The Fund
seeks to limit this risk with a strict evaluation process. Before it invests in
a stock, the Fund's investment team typically establishes a target sell price,
at which point they will reevaluate the company's situation to determine whether
the deterioration in performance mirrors a fundamental deterioration in the
business, or whether, in our view, the reversal is merely temporary.

Risks Associated with Investing in Latin America. The stock markets of Latin
America have exhibited much greater volatility than those of the United States,
Western Europe and Japan. The Fund aims to reduce the risk in this volatility
while still capturing the region's inherent potential by diversifying its
investments. Just as individual investors should spread their investments so
that a setback in one need not overwhelm their entire strategy, the Fund seeks
to spread its investments among Latin America's stock markets and industries. In
this way, a reversal in one stock need not undermine the pursuit of long-term
capital appreciation.

Political Risk. Profound social change and business practices that depart from
developed stock market norms have hindered the growth of Latin American stock
markets in the past. High levels of debt have tended to make Latin American
countries overly reliant on foreign capital investment and vulnerable to capital
flight. Governments have declared moratoriums on the repayment of foreign debts,
which has had a negative impact on stocks as well as bonds. They have limited
foreign investors' access to capital markets and restricted the flow of profits
overseas. And they have resorted to high taxes, expropriation and
nationalization. All these threats remain a part of Latin American investing
today. The Fund intends to avoid them, in large part, through intensive, ongoing
economic and political research.

Information Risk. Emerging market accounting, auditing, and financial reporting
and disclosure standards generally tend to be far less stringent than those of
developed markets. And the risks of investors acting on incomplete, inaccurate
or deliberately misleading information are correspondingly greater. Compounding
the problem, local investment research often lacks the sophistication to spot
potential pitfalls. Thus, a linchpin in the Fund's investment process is
independently assessing the impact of these differences upon a company's
financial conditions and prospects.

Foreign Stock Market Risk. From time to time, foreign capital markets have
exhibited more volatility than those in the United States. Trading stocks on
some foreign exchanges is inherently more difficult than trading in the United
States for reasons including:
<PAGE>

. Liquidity Risk. Stocks that trade less can be more difficult or more costly to
buy, or to sell, than more liquid or active stocks. This liquidity risk is a
factor of the trading volume of a particular stock, as well as the size and
liquidity of the entire local market. On the whole, foreign exchanges are
smaller and less liquid than the U.S. market. This can make buying and selling
certain shares more difficult and costly. Relatively small transactions in
some instances can have a disproportionately large effect on the price and
supply of shares. In extreme situations, it may become virtually impossible to
sell a stock in an orderly fashion at a price that approaches our estimate of
its value.

. Regulatory Risk. Some foreign governments regulate their exchanges less
stringently, and the rights of shareholders may not be as firmly established.

. The management of certain foreign companies may be less focused on short-term
earnings than some U.S. companies. For example, they may pay lower dividends.

In an effort to reduce these foreign stock market risks, the Fund diversifies
its investments, just as you may spread your investments among a range of
securities so that a setback in one need not overwhelm your entire strategy. In
this way, a reversal in one market or stock need not undermine the pursuit of
long-term capital appreciation.

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. The Investment Adviser seeks to minimize
this risk by actively managing the currency exposure of the Fund.

FOOTNOTE: Currency management is used to offset investment risks ("hedging")
and, where possible, to add to investment returns. Currency management
activities include the use of forward contracts and may include the use of other
instruments. There is no guarantee that these currency management activities
will work and they could cause losses to the Fund.

Secondary Risks
<PAGE>

Small Company Risk. To the extent that the Latin American Equity Fund invests
in the stocks of smaller companies, it will encounter the risks associated with
such investing. Small company stocks tend to experience steeper price
fluctuations -- down as well as up -- than the stocks of larger companies.
Industrywide reversals have had a greater impact on small companies, since they
lack a large company's financial resources. Small company managers typically
have less experience coping with adversity or capitalizing on opportunity than
their counterparts at larger companies. Finally, small company stocks are
typically less liquid than large company stocks: when things are going poorly,
it is harder to find a buyer for a small company's shares.

Risks Associated with Debt Securities. To the extent that the Fund invests in
bonds and other debt securities, it faces the risk of rising interest rates,
which tend to reduce the value of these investments. The high levels of debt
carried by many Latin American countries and the concentration of their
economies on a few global industries also makes the investments particularly
vulnerable to local and worldwide economic slowdowns. Such slowdowns may affect
the ability of bond issuers to meet their repayment obligation and could even
result in a default that would render their bonds worthless.

Risks Associated with Lower Quality Debt Securities ("Junk Bonds"). The Fund
can invest up to 10% of its net assets in bonds or other debt securities rated
BBB or lower by S&P or Baa or lower by Moody's. These securities are riskier
than higher rated securities because their issuers are less creditworthy, and
there is an increased risk that the issuers will default on their repayments.
Junk bonds are also more sensitive to increases in interest rates, economic
downturns or adverse market conditions.

Futures and Options. Although not one of its principal investment strategies,
the Fund may invest in futures contracts and options on futures contracts.
These investments, when made, are for hedging purposes. If the Fund invests in
futures contracts and options on futures contracts for non-hedging purposes, the
margin and premiums required to make those investments will not exceed 5% of the
Fund's net asset value after taking into account unrealized profits and losses
on the contracts. Futures contracts and options on futures contracts used for
non-hedging purposes involve greater risks than stock investments.

FOOTNOTE: Futures contracts and option on futures contracts are used as a low
cost method of gaining exposure to a particular securities market without
investing directly in those securities.

<PAGE>

Pricing Risk. When price quotations for securities 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
that the securities might actually command if we sold them. If we have valued
the securities too highly, you may end up paying too much for Fund shares when
you buy. If we underestimate their price, you may not receive the full market
value for your Fund shares when you sell.

Temporary Defensive Position. We may from time to time adopt a temporary
defensive position in response to extraordinary adverse 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 have to
forego its goal of long-term capital appreciation.

Portfolio Management

The Fund is managed by a committee made up of investment professionals and
analysts employed by the Investment Adviser. This committee makes all of the
master portfolio's investment decisions.
<PAGE>

The table below provides a picture of the Fund's financial performance for the
past five years. The information selected reflects financial results for a
single Fund share. The total returns in the table represent the rate of return
that an investor would have earned on an investment in the Fund, assuming
reinvestment of all dividends and distributions. This information has been
audited by ______________________, 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.

Financial Highlights

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
For the years ended September 30,
- ------------------------------------------------------------------------------------------------------------------------
For the period 1999 1998 1997 1996 1995
October 1, 1999
to October 31,
1999/1/
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
- ------------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $ 15.74 $ 10.71 $ 8.50 $ 14.59
-------- ------- ------- --------
- ------------------------------------------------------------------------------------------------------------------------
Income From Investment Operations
- ------------------------------------------------------------------------------------------------------------------------
Net Investment Income 0.44 0.00/2/ 0.02 0.03
- ------------------------------------------------------------------------------------------------------------------------
Net Realized and Unrealized Gain
(Loss) on Investment, Foreign
Currency and Forward Foreign
Currency Contracts (7.40) 5.03 2.19 (5.92)
-------- ------- ------- --------

------------------------------------------------------------------------------------------------------------------------
Total Income (Loss) from Investment
Operations (6.96) 5.03 2.21 (5.89)
-------- ------- ------- --------
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>

<TABLE>
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
Distributions to Shareholders
- ------------------------------------------------------------------------------------------------------------------------
Net Investment Income (0.03) 0.00/2/ -- --
- ------------------------------------------------------------------------------------------------------------------------
Net Realized Gains -- -- -- (0.20)
-------- ------- ------- --------
- ------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 8.75 $ 15.74 $ 10.71 $ 8.50
======== ======= ======= ========
- ------------------------------------------------------------------------------------------------------------------------
Total Investment Return (44.28)% 47.00% 26.00% (40.68)%
- ------------------------------------------------------------------------------------------------------------------------
Supplemental Data and Ratios:
- ------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (000s
omitted) $ 6,256 $37,413 $16,997 $ 13,624

- ------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
- ------------------------------------------------------------------------------------------------------------------------
Net Investment Income 1.42% 0.16% 0.16% 0.29%
- ------------------------------------------------------------------------------------------------------------------------
Expenses, Including Expenses of
the Latin American Equity
Portfolio 2.00% 2.00% 2.00% 2.00%

- ------------------------------------------------------------------------------------------------------------------------
Decrease Reflected in Above
Expense Ratio Due to
Absorption of Expenses by 0.66% 0.44% 0.66% 1.17%
Bankers Trust
- ------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate/3/ 92% 122% 171% 161%
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>

/1/ The Fund's fiscal year end changed from September 30 to October 31.
/2/ Less than $0.01
/3/ The portfolio turnover rate is the rate for the master portfolio, into which
the Fund invests all its assets.
<PAGE>

PACIFIC BASIN EQUITY FUND

Overview of the Pacific Basin Equity Fund
Goal
Core Strategy
Investment Policies and Strategies
Principal Risks of Investing in the Fund
Who Should Consider Investing in the Fund
Total Returns, After Fees and Expenses
Annual Fund Operating Expenses

A Detailed Look at the Pacific Basin Equity Fund
Objective
The Case for the Pacific Basin
Strategy
Principal Investments
Investment Process
Risks
Portfolio Management
Financial Highlights
<PAGE>

Pacific Basin Equity Fund
OVERVIEW

Goal: The Fund invests for long-term capital appreciation.

Core Strategy: The Fund invests primarily in the stocks and other equity
securities of companies in the Pacific Basin region, excluding Japan.

INVESTMENT POLICIES AND STRATEGIES

The Fund invests all of its assets in a master portfolio with the same
investment objective as the Fund. The Fund, through the master portfolio, seeks
to achieve that objective by investing primarily in the stock and other equity
securities of companies based in the Pacific Basin. The Fund may also invest a
portion of its assets in Pacific Basin bonds and other debt securities. The
companies are selected by an extensive tracking system plus the input of experts
from various financial disciplines.

PRINCIPAL RISKS OF INVESTING IN THE FUND

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

. Stocks that our Investment Adviser has selected could perform poorly; or

. The stock market could perform poorly or could underperform other investments
in one or more of the countries in which the Fund has invested.

. Economies in emerging markets are more volatile than developed countries' and
are subject to sudden reversals;

. Adverse political, economic or social developments could undermine the value
of the Fund's investments or prevent the Fund from realizing their full value.

. Accounting and financial reporting standards differ from those in the U.S.
and could convey incomplete information when compared to information typically
provided by U.S. companies; or

. The currency of a country in which the Fund invests may decrease 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 Pacific Basin Equity Fund if you are
seeking long-term capital appreciation. There is, of course, no guarantee that
the Fund will realize its goal. You should be aware that extreme fluctuations in
short term investment values have often accompanied this long-term capital
appreciation.

You should not consider investing in the Pacific Basin Equity Fund if you are
pursuing a short term financial goal, if you seek regular income or if you
cannot tolerate fluctuations in the value of your investments.

An investment in the Pacific Basin Equity Fund is not a bank deposit 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 on November 1, 1993 (its
inception date). The table compares the Fund's average annual return with the
Morgan Stanley Capital International (MSCI) Combined Asia (ex-Japan) Index over
the last one and five years, and since inception. An index is a group of
securities whose overall performance is used as a standard to measure investment
performance. It does not factor in the costs of buying, selling and holding
securities - costs which are reflected in the Fund's results.

FOOTNOTE: The MSCI All Country Asia (ex-Japan) Free Index is a widely used
benchmark of Asia/Pacific stocks, excluding Japan. The Index is a model, not an
actual portfolio, that includes the returns of companies traded on the stock
markets in Australia, China, Hong Kong, India, Indonesia, Korea, Malaysia, New
Zealand, Pakistan, the Philippines, Singapore, Sri Lanka, Taiwan and Thailand.

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

[bar chart]

Since inception, the Fund's highest return in any calendar quarter was %
(___ quarter 19___) and its lowest quarterly return was % (___ quarter
19___). Past performance offers no indication of how the Fund will perform in
the future.

Average Annual Returns

(as of December 31, 1999)

<PAGE>

1 year 5 years Since Inception
November 1, 1993/1/
-------------------

Pacific Basin Equity % % %
Fund

MSCI All Country Asia % % %
(ex-Japan) Free Index

Lipper Pacific ex-Japan % % %
Average/2/

/1/ MSCI All Country Asia (ex-Japan) Free Index and Lipper Pacific Basin ex-
Japan Average are calculated from October 31, 1993 through the end of the
period.

/2/ The Lipper Pacific Basin ex-Japan Average represents the average return of
mutual funds that invest stocks of companies in Asia and the Far East (excluding
Japan).
<PAGE>

ANNUAL FUND OPERATING EXPENSES
(expenses paid from Fund assets)

The Annual Fees and Expenses to the right describes the fees and expenses you
may pay if you buy and hold shares of the Pacific Basin Equity Fund.

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

/1/ Information on the annual operating expenses reflects the expenses of both
the Fund and the Pacific Basin Equity Portfolio, the master fund into which the
Pacific Basin Equity Fund invests its assets. (A further discussion of the
relationship between the Fund and the master portfolio appears in the
"Organizational Structure" section of this prospectus).

/3/ Based on expenses, after fee waivers and reimbursements for the first 16
months only.
<PAGE>

Annual Fees and Expenses Percentage of Average
Daily Net Assets/1/
-------------------

Management Fees 0.75%

Distribution and Service (12b-1) Fees None

Other Expenses ____%

Total Fund Operating Expenses ____%

Less: Fee Waivers or Expense Reimbursement (____%)/2/

Net Expenses 1.75%

Expense Example/3/

1 year 3 years 5 years 10 years
- ------ ------- ------- --------

$184 $ $ $
<PAGE>

Pacific Basin Equity Fund
A detailed look

OBJECTIVE

The Fund seeks long-term capital appreciation. Under normal circumstances, the
Fund invests at least 65% of its total assets in the stock and other securities
with equity characteristics of companies in the Pacific Basin, excluding Japan.

FOOTNOTE: The Pacific Basin markets in which the Fund may invest include
Australia, India, Indonesia, Malaysia, New Zealand, Pakistan, the Philippines,
the People's Republic of China and Hong Kong, Singapore, Sri Lanka, South Korea,
Thailand, Taiwan and Vietnam.

THE CASE FOR THE PACIFIC BASIN

Until recently, the developing economies of the Pacific Basin ranked among the
world's fastest growing. And despite the turmoil that has swept the region,
enormous potential remains.

. China and India alone account for almost 40% of the world's population.

. Two decades of heavy infrastructure spending have provided the region with
the physical capital necessary to resume its development; and

. The region's nations have made education a top priority. Universal primary
education is widespread. This trend has enabled the region's businesses to tap
vast pools of skilled labor at a fraction of their cost in developed markets.
<PAGE>

STRATEGY

The Fund invests for the long-term. We employ a strategy of growth at a
reasonable price. We seek to identify companies in the Pacific Rim that combine
strong potential for earnings growth with reasonable investment value. Such
companies typically exhibit increasing rates of profitability and cash flow, yet
their share prices compare favorably to other stocks in a given market and to
their global peers. In evaluating stocks, we consider factors such as sales,
earnings, cash flow and enterprise value. Enterprise value is a company's
market capitalization plus the value of its net debt. We further consider the
relationship between these and other quantitative factors. Together, these
indicators of growth and value may identify companies with improving prospects
before the market in general has taken notice.
<PAGE>

PRINCIPAL INVESTMENTS

The Fund invests primarily in the stock and other equity securities of companies
based in the Pacific Basin. We consider a company to be based in the Pacific
Basin if it meets one of four criteria:

. It is organized under the laws of one of the countries in the region;

. It derives at least half its revenues or profits from goods or services
produced or sold or investments made in the region;

. It derives at least half its revenues or profits from assets in the region:
or

. Its stock trades on a Pacific Basin exchange.

The Fund may also invest up to 35% of its assets in Pacific Basin bonds and
other debt securities.

FOOTNOTE: Bonds may generate capital appreciation through decreases in interest
rates resulting from economic and market conditions or improvements in the bond
issuer's finances. There is a corresponding risk in investing in bonds to seek
capital appreciation. If interest rates increase or if the bond issuer's
finances deteriorate, the price of the bond may go down.

Bonds and other debt securities must have earned a rating of C or better from
Standard & Poor's Rating Service or Moody's Investors Service, Inc. If they
have no rating, they must be at least comparable to a C-rated security in the
opinion of the Investment Adviser. As an operating policy (which may be changed
by the Fund's Board of Trustees), the Fund will not invest more than 5% of its
assets in bonds or other debt securities rated BBB or lower by S&P or Baa or
lower by Moody's.
<PAGE>

INVESTMENT PROCESS

Company research lies at the heart of our investment process, as it does with
many stock mutual funds. We track several hundred companies to arrive at the
approximately __ stocks the Fund normally holds. But our process brings an
added dimension to this fundamental research. It draws on the insight of experts
from a range of financial disciplines -- regional stock market specialists,
global industry specialists, economists and quantitative analysts. They
challenge, refine and amplify each other's ideas. Their close collaboration is a
critical element of our investment process.

RISKS

Primary Risks

Market Risk. Although individual stocks may outperform their local markets,
deteriorating market conditions might cause an overall weakness in the stock
prices of the entire market.

Emerging Market Risk. Emerging market investing entails heightened risks
compared to those posed in developed market investing. We outline those risks
below. While the Fund relies on the specific strategies to deal with each of
these risks, it employs one general approach in an attempt to reduce risk across
the board -- diversification. Just as individual investors should spread their
investments so that a setback in one need not overwhelm their entire strategy,
the Fund seeks to spread its investments among Latin America's stock markets and
industries. In this way, a reversal in one stock need not undermine the pursuit
of long-term capital appreciation.

economic and political research.

. Liquidity Risk. Stocks that trade less can be more difficult or more costly
to buy, or to sell, than more liquid or active stocks. This liquidity risk is
a factor of the trading volume of a particular stock, as well as the size and
liquidity of the entire local market. On the whole, foreign exchanges are
smaller and less liquid than the U.S. market. This can make buying and
selling certain shares more difficult and costly. Relatively small
transactions in some instances can have a disproportionately large effect on
the price and supply of shares. In extreme situations, it may become
virtually impossible to sell a stock in an orderly fashion at a price that
approaches our estimate of its value.

. Regulatory Risk. Some foreign governments regulate their exchanges less
stringently, and the rights of shareholders may not be as firmly established.

The management of certain foreign companies may be less focused on short-term
earnings than some U.S. companies. For example, they may pay lower dividends.

Risks Affecting Malaysian Securities. As part of its investment strategy to
diversify its holdings in securities of companies in a number of Pacific Basin
countries, the Fund may invest in Malaysian securities. Because the Government
of Malaysia has imposed a levy on certain gains from Malaysian securities
transactions, we determine their value by the method that most accurately
reflects their current worth in the judgment of the Board of Trustees. This
procedure involves certain risks which are described under "Pricing Risks"
below.

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. The Investment Adviser seeks to minimize
this risk by actively managing the currency exposure of the Fund.

Secondary Risks

Small Company Risk. To the extent that the Pacific Basin Equity Fund invests in
the stocks of smaller companies, it will encounter the risks associated with
such investing. Small company stocks tend to experience steeper price
fluctuations--down as well as up--than the stocks of larger companies.
Industrywide reversals have had a greater impact on small companies, since they
lack a large company's financial resources. Small company managers typically
have less experience coping with adversity or capitalizing on opportunity than
their counterparts at larger companies. Finally, small company stocks are
typically less liquid than large company stocks: when things are going poorly,
it is harder to find a buyer for a small company's shares.

Risks Associated with Debt Securities. To the extent that the Fund invests in
bonds and other debt securities, it faces the risk of rising interest rates,
which tend to reduce the value of these investments. The high levels of debt
carried by many Pacific Basin countries and the concentration of their economies
on a few global industries also makes the investments particularly vulnerable to
local and worldwide economic slowdowns. Such slowdowns may affect the ability of
bond issuers to meet their repayment obligation and could even result in a
default that would render their bonds worthless.
<PAGE>

Risks Associated with Lower Quality Debt Securities ("Junk Bonds"). The Fund can
invest up to 5% of its net assets in bonds or other debt securities rated BBB or
lower by S&P or Baa or lower by Moody's. These securities are riskier than
higher rated securities because their issuers are less creditworthy, and there
is an increased risk that the issuers will default on their repayments. Junk
bonds are also more sensitive to increases in interest rates, economic downturns
or adverse market conditions.

Futures and Options. Although not one of its principal investment strategies,
the Fund may invest in futures contracts and options on futures contracts. These
investments, when made, are for hedging purposes. If the Fund invests in futures
contracts and options on futures contracts for non-hedging purposes, the margin
and premiums required to make those investments will not exceed 5% of the Fund's
net asset value after taking into account unrealized profits and losses on the
contracts. Futures contracts and options on futures contracts used for non-
hedging purposes involve greater risks than stock investments.

FOOTNOTE: Futures contracts and options on futures contracts are used as a low
cost method of gaining exposure to a particular securities market without
investing directly in those securities.

<PAGE>

Temporary Defensive Position. We may from time to time adopt a temporary
defensive position in response to extraordinary adverse 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 that we might
adopt such a position, and over the course of its duration, the Fund may not
meet its goal of long-term capital appreciation.

Portfolio Manager. Julie Wang is responsible for the day-to-day management of
the master portfolio's investments:

. [title] of Deutsche Asset Management Inc. since 1999
. Portfolio Manager for the portfolio since 1998
. Principal of Bankers Trust from 1994 to the present;
. Specializes in emerging markets.
. Ten years of investment management experience.
. Investment Manager at American International Group from 1991 to 1994.
. Bachelor's degree in economics from Yale University; MBA from The Wharton
School, University of Pennsylvania.
<PAGE>

The table below provides a picture of the Fund's financial performance for the
past five years. The information selected reflects financial results for a
single Fund share. The total returns in the table represent the rate of return
that an investor would have earned on an investment in the Fund, assuming
reinvestment of all dividends and distributions. This information has been
audited by ___________________________, 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.

Financial Highlights

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
For the years ended September 30,
- --------------------------------------------------------------------------------------------------------------------
For the period 1999 1998 1997 1996 1995
October 1, 1999 to
October 31, 1999/1/
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
- --------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $ $ 10.16 $ 11.80 $ 10.96 $ 11.82
------ -------- ------- ------- -------
- --------------------------------------------------------------------------------------------------------------------
Income From Investment Operations
- --------------------------------------------------------------------------------------------------------------------
Net Investment Income/(Expenses in Excess 0.24 (0.05) (0.03) 0.01
of Income)
- --------------------------------------------------------------------------------------------------------------------
Net Realized and Unrealized Gain (Loss) on
Investment, Futures, Foreign Currency and
Forward Foreign Currency Contracts (5.32) (1.07) 0.87 (0.49)
-------- ------- ------- -------
- --------------------------------------------------------------------------------------------------------------------
Total Income (Loss) from Investment Operations (5.08) (1.12) 0.84 (0.48)
-------- ------- ------- -------
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>

<TABLE>
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------
Distributions to Shareholders
- --------------------------------------------------------------------------------------------------------------------
Net Investment Income (0.24) -- -- --
- --------------------------------------------------------------------------------------------------------------------
Net Realized Gains (0.99) (0.52) -- (0.38)
-------- ------- ------- -------
- --------------------------------------------------------------------------------------------------------------------
Total Distributions (1.23) (0.52) -- (0.38)
-------- ------- ------- -------
- --------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 3.85 $ 10.16 $ 11.80 $ 10.96
======== ======= ======= =======
- --------------------------------------------------------------------------------------------------------------------
Total Investment Return (52.21)% (9.97)% 7.66% (3.87)%
- --------------------------------------------------------------------------------------------------------------------
Supplemental Data and Ratios:
- --------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (000s omitted) $ 4,268 $26,501 $29,389 $24,504
- --------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
- --------------------------------------------------------------------------------------------------------------------
Net Investment Income/(Expenses in
Excess of Income) 0.43% (0.42)% (0.24)% 0.12%
- --------------------------------------------------------------------------------------------------------------------
Expenses, Including Expenses of the
Pacific Basin Equity Portfolio 1.75% 1.75% 1.75% 1.75%
- --------------------------------------------------------------------------------------------------------------------
Decrease Reflected in Above Expense
Ratio Due to Absorption of Expenses by
Bankers Trust 0.70% 0.29% 0.31% 0.52%
- --------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate/2/ 125% 172% 118% 104%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>

/2/ The Fund's fiscal year end changed from September 30 to October 31.
/2/ The portfolio turnover rate is the rate for the master portfolio, into which
the Fund invests all its assets.
<PAGE>

Information
concerning the Funds

MANAGEMENT OF THE FUNDS

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

Investment Adviser. Under the supervision of the Board of Trustees, Deutsche
Asset Management Inc., located at 885 Third Avenue, New York, NY 10022, acts as
each Fund's investment adviser. The investment adviser makes the Fund's
investment decisions and assumes responsibility for the securities the Fund
owns. It buys and sells securities for the Fund and conducts the research that
leads to the purchase and sale decisions.

The Investment Adviser has vested day-to-day investment decision-making in a
sub-adviser, Deutsche Asset Management Investment Services Limited ("the "Sub-
Adviser"). The sub-investment advisory agreement with the Sub-Adviser became
effective December 8, 1999. Responsibilities and advisory fees can be
reallocated between the Investment Adviser and Sub-Adviser without obtaining
shareholder approval.

Prior to December 8, 1999, Bankers Trust Company ("Bankers Trust"), located at
130 Liberty Street, New York, New York 10022, served as each Fund's investment
adviser. Prior to May 1, 1999, BT Funds Management (International) Limited ("BT
FIML") served as each Fund's sub-investment adviser. The fees paid to Deutsche
Asset Management Inc. under the current investment advisory agreement are the
same as those paid under the prior advisory agreement with Bankers Trust
Company.

The Funds paid the following fees for investment advisory and sub-advisory
services in the last fiscal year:

Companies to which Fees Percentage of Average
Fund Were Paid Daily Net Assets
- ---- --------- ----------------

Latin American Equity Bankers Trust and BT FIML 1.00%
Fund
<PAGE>

Pacific Basin Equity Fund Bankers Trust and BT FIML 0.75%

The Investment Adviser provides a full range of investment advisory services to
institutional clients. The Investment Adviser serves as investment adviser to
ten other investment companies and as sub-adviser to five other investment
companies.

The Sub-Adviser is located at 20 Finsbury Circus, London, England. The Sub-
Adviser provides a full range of international investment advisory services to
institutional clients. The Sub-Adviser serves as investment adviser to 13 other
investment companies.

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

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

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

. processing your requests for cash dividends and distributions from the Fund;

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

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

. collecting your executed proxies.

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

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

Fund Master Portfolio
- ---- ----------------

Latin American Equity Fund Latin American Equity Portfolio

Pacific Basin Equity Fund Pacific Basin Equity Portfolio

Each Fund and its master portfolio have the same investment objective. Each
master portfolio is advised by the Investment Adviser.

A master portfolio may accept investments from other feeder funds. A feeder
bears 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 a 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 a Fund's assets, they
would then consider whether the Fund should hire its own investment adviser,
invest in a different master portfolio, or take other action.
<PAGE>

CALCULATING THE FUND'S SHARE PRICE

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

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

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

[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), Independence Day, Labor Day
(the first Monday in September), Thanksgiving Day (the fourth Thursday in
November) and Christmas Day.]

Performance Information. The Fund's performance can be used in advertisements
that appear in various publications. It may be compared to the performance of
various indexes and investments for which reliable performance data is
available. The Fund's performance may also be compared to averages, performance
rankings, or other information prepared by recognized mutual fund statistical
services.

DIVIDENDS AND DISTRIBUTIONS

Dividends and capital gains distributions, if any, are paid annually. We
automatically reinvest all dividends and any capital gains, unless you tell us
otherwise.
<PAGE>

TAX CONSIDERATIONS

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

Transaction Tax Status
- ----------- ----------

Income dividends Ordinary income

Short-term capital gains distributions Ordinary income

Long-term capital gains distributions Capital gains

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

Transaction Tax Status
- ----------- ----------

Your sale of shares owned more than one Capital gains or losses
year

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

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 a Fund by mail, wire transfer 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 of
another BT Mutual Fund up to four times a year (from the date of your first
exchange). 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. A 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 bi-weekly, monthly, quarterly, or semi-annually,
call for a minimum $1,000 opening investment and at least $100 for each
subsequent purchase of shares.

We reserve the right to reject any purchase order. 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 stocks actually held by a Fund, rather than in cash. Your broker
or financial advisor may charge transaction fees on the purchase and sale of
Fund shares.

The Funds' Shareholder Guide and the Statement of Additional Information 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 BT Service Center at 1-800-730-1313.
<PAGE>

[BACK COVER]

Bankers Trust (logo)

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

You can find more detailed information about each Fund in the current Statement
of Additional Information, dated January 31, 2000, which we have filed
electronically with the Securities and Exchange Commission (SEC) and which is
incorporated by reference. To receive your free copy of the Statement of
Additional Information, the annual or semi-annual report, or if you have
questions about investing in a Fund, write to us at:

BT Service Center
P.O. Box 219210
Kansas City, MO 64121-9210
or call our toll-free number: 1-800-730-1313

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

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

CUSIPS: 055922785
BT Investment Funds 055922769

Product Code

Distributed by:
<PAGE>

ICC Distributors, Inc.
Two Portland Square
Portland, ME 04101
<PAGE>

STATEMENT OF
ADDITIONAL INFORMATION
January 31, 2000

BT Investment Funds:
BT PreservationPlus Income Fund

BT PreservationPlus Income Fund (the "Fund") is a separate series of BT
Investment Funds (the "Trust"), an open-end, management investment company
(mutual fund) offering shares of the Fund ("shares") as described herein.

As described in the Fund's Prospectus, the Fund seeks to achieve its investment
objective by investing all its net investable assets (the "assets") in BT
PreservationPlus Income Portfolio (the "Portfolio"), a diversified open-end
management investment company having the same investment objective as the Fund.
The Portfolio is a separate subtrust of BT Investment Portfolios, a New York
master trust fund (the "Portfolio Trust").

Because the investment characteristics of the Fund correspond directly to those
of the Portfolio (in which the Fund invests all of its assets), the following is
a discussion of the various investments of and techniques employed by the
Portfolio. The Fund has been established to serve as an alternative investment
to short-term bond funds and money market funds. In addition, since to date,
there has been no comparable investment substitute for those individuals who are
"rolling" assets over from the stable value or guaranteed investment contract
("GIC") option of their employee benefit plans (such as 401(k) plans), the Fund
is designed to be that comparable alternative.

Shares of the Fund are sold by ICC Distributors, Inc., the Fund's distributor
(the "Distributor"), solely to individual retirement accounts as defined in
Section 408 of the Internal Revenue Code of 1986, as amended (the "Code")
including "SIMPLE IRAs" and "SEP IRAs", Roth IRAs as defined in Section 408A of
the Code, education individual retirement accounts as defined in Section 530 of
the Code and "Keogh Plans" (sometimes collectively referred to herein as
"IRAs"), and to employees investing through participant-directed employee
benefit plans (each a "Plan" and together "Plans"). Shares are offered to Plans
either directly, or through vehicles such as bank collective funds or insurance
company separate accounts consisting solely of such Plans. Shares are also
available to employee benefit plans which invest in the Fund through an omnibus
account or similar arrangement.

The Fund's Prospectus (the "Prospectus") is dated January 31, 2000. The
Prospectus provides the basic information investors should know before investing
and may be obtained without charge by calling the Trust at the telephone number
listed below. This Statement of Additional Information ("SAI"), which is not a
prospectus, is intended to provide additional information regarding the
activities and operations of the Fund and the Portfolio and should be read in
conjunction with the Prospectus. This SAI is not an offer by the Fund to an
investor that has not received a Prospectus. Capitalized terms not otherwise
defined in this SAI have the meanings accorded to them in the Prospectus. The
Fund's and Portfolio's financial statements for the fiscal year ended September
30, 1999, are incorporated herein by reference to the Annual Report to
shareholders dated September 30, 1999. A copy of the Fund's and Portfolio's
Annual Report may be obtained without charge by calling each Fund at the
telephone number listed below.

BANKERS TRUST COMPANY
Investment Adviser of the Portfolio and Administrator

ICC DISTRIBUTORS, INC.
Distributor

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

<PAGE>

shareholders dated September 30, 1999. A copy of the Fund's and Portfolio's
Annual Report may be obtained without charge by calling each Fund at the
telephone number listed below.

BANKERS TRUST COMPANY
Investment Adviser of the Portfolio and Administrator

ICC DISTRIBUTORS, INC.
Distributor

Two Portland Square
Portland, Maine 04101
1-(800) 730-1313
<PAGE>

TABLE OF CONTENTS

<TABLE>
<S> <C>
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS............... 1
Investment Objective..................................... 1
Investment Policies...................................... 1
Rating Services.......................................... 20
Investment Restrictions.................................. 20
Portfolio Transactions and Brokerage Commissions......... 22
PERFORMANCE INFORMATION....................................... 24
Standard Performance Information......................... 24
Comparison of Fund Performance........................... 25
Economic and Market Information.......................... 25
VALUATION OF ASSETS; REDEMPTIONS IN KIND...................... 26
OVERVIEW OF THE TYPES OF INDIVIDUAL RETIREMENT ACCOUNTS....... 28
Types of Individual Retirement Accounts.................. 28
OWNERSHIP OF SHARES THROUGH PLANS............................. 31
QUALIFIED REDEMPTIONS........................................ 32
Traditional IRAs, SEP-IRAs and SIMPLE IRAs............... 32
Roth IRAs................................................ 33
Keogh Plans.............................................. 33
Education IRAs........................................... 34
MANAGEMENT OF THE TRUSTS...................................... 34
TRUSTEES OF BT INVESTMENT FUNDS...............................
TRUSTEES OF BT INVESTMENT PORTFOLIOS..........................
OFFICERS OF THE TRUSTS AND BT INVESTMENT PORTFOLIOS...........
Trustee Compensation Table...............................
Investment Adviser....................................... 37
Administrator............................................ 38
Distributor.............................................. 39
Service Agent............................................ 39
Use of Name.............................................. 40
Banking Regulatory Matters............................... 40
Counsel and Independent Accountants...................... 40
ORGANIZATION OF THE TRUST..................................... 40
TAXATION...................................................... 41
Taxation of the Fund..................................... 41
Taxation of the Portfolio................................ 42
Other Taxation........................................... 43
Foreign Withholding Taxes................................ 44
APPENDIX...................................................... 44
</TABLE>

Page 0 of 54
<PAGE>

INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS

Investment Objective

The Fund seeks a high level of current income while seeking to maintain a stable
value per share. 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 Trust Board determines that it is in the best
interests of the Fund to do so.

The Portfolio's investment objective is a high level of current income while
seeking to maintain a stable value per Share. The Portfolio expects to invest
primarily in fixed income securities ("Fixed Income Securities") of varying
maturities rated, at the time of purchase, in one of the top four long-term
rating categories by Standard & Poor's Ratings Services ("S&P"), Moody's
Investors Service, Inc. ("Moody's"), or Duff & Phelps Credit Rating Co., or
comparably rated by another nationally recognized statistical rating
organization ("NRSRO"), or, if not rated by a NRSRO, of comparable quality as
determined by Bankers Trust in its sole discretion.

In addition, the Portfolio will enter into contracts ("Wrapper Agreements") with
insurance companies, banks or other financial institutions ("Wrapper Providers")
that are rated, at the time of purchase, in one of the top two long-term rating
categories by Moody's or S&P. There is no active trading market for Wrapper
Agreements, and none is expected to develop; therefore, they will be considered
illiquid. At the time of purchase, the value of all of the Wrapper Agreements
and any other illiquid securities will not exceed 15% of the Portfolio's net
assets.

The following is a discussion of the various investments of and techniques
employed by the Portfolio.

Short-Term Instruments. The Portfolio's assets may be invested in high quality
short-term investments with remaining maturities of 397 days or less to maintain
the Liquidity Reserve (as defined below), to meet anticipated redemptions and
expenses for day-to-day operating purposes and when, in the opinion of Bankers
Trust Company, the Portfolio's investment adviser (the "Adviser" or "Bankers
Trust"), it is advisable to adopt a temporary defensive position because of
unusual and adverse conditions affecting the respective markets. The Portfolio
may hold short-term investments consisting of foreign and domestic (i) short-
term obligations of sovereign governments, their agencies, instrumentalities,
authorities or political subdivisions; (ii) other short-term debt securities
rated in one of the top two short-term rating categories by an NRSRO 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 an outstanding long-term
debt rating of A or higher by Standard & Poor's Ratings Group ("S&P") or A-2 or
higher by Moody's Investors Service, Inc. ("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.

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

Page 1 of 54
<PAGE>

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

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

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

U.S. Dollar-Denominated Fixed Income 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.

U.S. Dollar-Denominated Foreign Securities. The Portfolio may invest a portion
of its assets in the dollar-denominated debt securities of foreign companies.
Investing in the securities of foreign companies involves more risks than
investing in securities of U.S. companies. Their value is subject to economic
and political developments in the countries where the companies operate and to
changes in foreign currency values. Values may also be affected by foreign tax
laws, changes in foreign economic or monetary policies, exchange control
regulations and regulations involving prohibitions on the repatriation of
foreign currencies.

In general, less information may be available about foreign companies than about
U.S. companies, and foreign companies are generally not subject to the same
accounting, auditing and financial reporting standards as are U.S. companies.
Foreign securities markets may be less liquid and subject to less regulation
than the U.S. securities markets. The costs of investing outside the United
States frequently are higher than those in the United States. These costs
include relatively higher brokerage commissions and foreign custody expenses.

U.S. Dollar-Denominated Sovereign and Supranational Fixed Income Securities.
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. 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

Page 2 of 54
<PAGE>

addition, prospects for repayment of principal and interest may depend on
political as well as economic factors.

Mortgage- and Asset-Backed Securities. The Portfolio may purchase mortgage-
backed securities issued by the U.S. government, its agencies or
instrumentalities and non-governmental entities such as banks, mortgage lenders
or other financial institutions. Mortgage-backed securities include mortgage
pass-through securities, mortgage-backed bonds and mortgage pay-through
securities. A mortgage pass-through security is a pro rata interest in a pool of
mortgages where the cash flow generated from the mortgage collateral is passed
through to the security holder. A mortgage-backed bond is a general obligation
of the issuer, payable out of the issuer's general funds and additionally
secured by a first lien on a pool of mortgages. Mortgage pay-through securities
exhibit characteristics of both pass-through and mortgage-backed bonds. The
mortgage pass-through securities issued by non-governmental entities such as
banks, mortgage lenders or other financial institutions in which the Portfolio
may invest include private label mortgage pass-through securities and whole
loans. Mortgage-backed securities also include other debt obligations secured by
mortgages on commercial real estate or residential properties. Other types of
mortgage-backed securities will likely be developed in the future, and the
Portfolio may invest in them if Bankers Trust determines they are consistent
with the Portfolio's investment objective and policies.

Collateralized Mortgage Obligations ("CMOs"). CMOs are mortgage-backed bonds
that separate mortgage pools into different classes, called tranches. Tranches
pay different rates of interest and can mature in a few months, or in as long as
20 years. Issued by the Federal Home Loan Mortgage Corporation (Freddie Mac) and
private issuers, CMOs are usually backed by government-guaranteed or other top
grade mortgages and have AAA ratings. In return for a lower yield, CMOs provide
investors with increased security throughout the life of their investment
compared to purchasing a whole mortgage-backed security. Even so, if mortgage
rates drop sharply, causing a flood of refinancings, prepayment rates will soar
and CMO tranches will be repaid before their expected maturity. See also REMICs
in the following section.

REMICs are pass-through vehicles created under the tax reform act of 1986 to
issue multiclass mortgage-backed securities. REMICs may be organized as
corporations, partnerships or trusts. Interests in REMICs may be senior or
junior, regular (debt instruments) or residual (equity interests). CMOs normally
have AAA bond ratings, whereas REMICs represent a range of risk levels.

Asset-backed securities have structural characteristics similar to mortgage-
backed securities. However, the underlying assets are not first lien mortgage
loans or interests therein but include assets such as motor vehicle installment
sale contracts, other installment sale contracts, home equity loans, leases of
various types of real and personal property, and receivables from revolving
credit (credit card) agreements. Such assets are securitized through the use of
trusts or special purpose corporations. Payments or distributions of principal
and interest on asset-backed securities may be guaranteed up to certain amounts
and for a certain time period by a letter of credit or a pool insurance policy
issued by a financial institution unaffiliated with the issuer, or other credit
enhancements may be present.

Page 3 of 54
<PAGE>

The yield characteristics of the mortgage- and asset-backed securities in which
the Portfolio may invest differ from those of traditional debt securities.
Among the major differences are that interest and principal payments are made
more frequently on mortgage- and asset-backed securities (usually monthly) and
that principal may be prepaid at any time because the underlying mortgage loans
or other assets generally may be prepaid at any time. As a result, if the
Portfolio purchases these securities at a premium, a prepayment rate that is
faster than expected will reduce their yield, while a prepayment rate that is
slower than expected will have the opposite effect of increasing yield.
Conversely, if the Portfolio purchases these securities at a discount, faster
than expected prepayments will increase, while slower than expected prepayments
will reduce, their yield. Amounts available for reinvestment by the Portfolio
are likely to be greater during a period of declining interest rates and, as a
result, are likely to be reinvested at lower interest rates than during a period
of rising interest rates.

Unlike ordinary Fixed Income Securities, which generally pay a fixed rate of
interest and return principal upon maturity, mortgage-backed securities repay
both interest income and principal as part of their periodic payments. Because
the mortgages underlying mortgage-backed certificates can be prepaid at any time
by homeowners or corporate borrowers, mortgage-backed securities give rise to
certain unique "pre-payment" risks. Prepayment risk or call risk is the
likelihood that, during periods of falling interest rates, securities with high
stated interest rates will be prepaid (or "called") prior to maturity, requiring
the Portfolio to invest the proceeds at generally lower interest rates.

In general, the prepayment rate for mortgage-backed securities decreases as
interest rates rise and increases as interest rates fall. However, rising
interest rates will tend to decrease the value of these securities. In
addition, an increase in interest rates may affect the volatility of these
securities by effectively changing a security that was considered a short-term
security at the time of purchase into a long-term security. Long-term
securities generally fluctuate more widely in response to changes in interest
rates than short- or intermediate-term securities.

The market for privately issued mortgage- and asset-backed securities is smaller
and less liquid than the market for U.S. government mortgage-backed securities.
CMO classes may be specially structured in a manner that provides any of a wide
variety of investment characteristics, such as yield, effective maturity and
interest rate sensitivity. As market conditions change, however, and
particularly during periods of rapid or unanticipated changes in market interest
rates, the attractiveness of the CMO classes and the ability of the structure to
provide the anticipated investment characteristics may be significantly reduced.
These changes can result in volatility in the market value, and in some
instances reduced liquidity, of the CMO class.

Asset-backed securities present certain risks that are not presented by
mortgage-backed securities. Primarily, these securities do not have the benefit
of the same type of security interest in the related collateral. Credit card
receivables are generally unsecured, and the debtors are entitled to the
protection of a number of state and federal consumer credit laws, many of which
give such debtors the right to avoid payment of certain amounts owed on the
credit cards, thereby reducing the balance due. There is the risk in connection
with automobile receivables that recoveries on repossessed collateral may not,
in some cases, be available to support payments on those securities.

Page 4 of 54
<PAGE>

Zero-Coupon Securities. The Portfolio may invest in certain zero coupon
securities that are "stripped" U.S. Treasury notes and bonds. Zero Coupon
Securities including CATS, TIGRs and TRs, are the separate income or principal
components of a debt instrument. Zero coupon securities usually trade at a
substantial discount from their face or par value. Zero coupon securities are
subject to greater fluctuations of market value in response to changing interest
rates than debt obligations of comparable maturities that make current
distributions of interest in cash. Zero coupon securities involve risks that are
similar to those of other debt securities, although they may be more volatile,
and the value of certain zero coupon securities moves in the same direction as
interest rates. Zero coupon bonds do not make regular interest payments.

Wrapper Agreements. Wrapper Agreements are structured with a number of different
features. Wrapper Agreements purchased by the Portfolio are of three basic
types: (1) non-participating, (2) participating and (3) "hybrid." In addition,
the Wrapper Agreements will either be of fixed-maturity or open-end maturity
("evergreen"). The Portfolio enters into particular types of Wrapper Agreements
depending upon their respective cost to the Portfolio and the Wrapper Provider's
creditworthiness, as well as upon other factors. Under most circumstances, it is
anticipated that the Portfolio will enter into participating Wrapper Agreements
of open-end maturity and hybrid Wrapper Agreements.

Under a non-participating Wrapper Agreement, the Wrapper Provider becomes
obligated to make a payment to the Portfolio whenever the Portfolio sells
Covered Assets at a price below Book Value to meet withdrawals of a type covered
by the Wrapper Agreement (a "Benefit Event"). Conversely, the Portfolio becomes
obligated to make a payment to the Wrapper Provider whenever the Portfolio sells
Covered Assets at a price above their Book Value in response to a Benefit Event.
In neither case is the Crediting Rate adjusted at the time of the Benefit Event.
Accordingly, under this type of Wrapper Agreement, while the Portfolio is
protected against decreases in the market value of the Covered Assets below Book
Value, it does not realize increases in the market value of the Covered Assets
above Book Value; those increases are realized by the Wrapper Providers.

Under a participating Wrapper Agreement, the obligation of the Wrapper Provider
or the Portfolio to make payments to each other typically does not arise until
all of the Covered Assets have been liquidated. Instead of payments being made
on the occurrence of each Benefit Event, these obligations are a factor in the
periodic adjustment of the Crediting Rate.

Under a hybrid Wrapper Agreement, the obligation of the Wrapper Provider or the
Portfolio to make payments does not arise until withdrawals exceed a specified
percentage of the Covered Assets, after which time payment covering the
difference between market value and Book Value will occur.

A fixed-maturity Wrapper Agreement terminates at a specified date, at which time
settlement of any difference between Book Value and market value of the Covered
Assets occurs. A fixed-maturity Wrapper Agreement tends to ensure that the
Covered Assets provide a relatively fixed rate of return over a specified period
of time through bond immunization, which targets the duration of the Covered
Assets to the remaining life of the Wrapper Agreement.

An evergreen Wrapper Agreement has no fixed maturity date on which payment must
be made, and the rate of return on the Covered Assets accordingly tends to vary.
Unlike the rate of return under a fixed-maturity Wrapper Agreement, the rate of
return on assets covered by an evergreen

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Wrapper Agreement tends to more closely track prevailing market interest rates
and thus tends to rise when interest rates rise and fall when interest rates
fall. An evergreen Wrapper Agreement may be converted into a fixed-maturity
Wrapper Agreement that will mature in the number of years equal to the duration
of the Covered Assets.

Wrapper Providers are banks, insurance companies and other financial
institutions. The number of Wrapper Providers has been increasing in recent
years. As of December 1998, there were approximately _________ Wrapper
Providers rated in one of the top two long-term rating categories by Moody's,
S&P or another NRSRO. The cost of Wrapper Agreements is typically 0.10% to
0.25% per dollar of Covered Assets per annum.

In the event of the default of a Wrapper Provider, the Portfolio could
potentially lose the Book Value protections provided by the Wrapper Agreements
with that Wrapper Provider. However, the impact of such a default on the
Portfolio as a whole may be minimal or non-existent if the market value of the
Covered Assets thereunder is greater than their Book Value at the time of the
default, because the Wrapper Provider would have no obligation to make payments
to the Portfolio under those circumstances. In addition, the Portfolio may be
able to obtain another Wrapper Agreement from another Wrapper Provider to
provide Book Value protections with respect to those Covered Assets. The cost
of the replacement Wrapper Agreement might be higher than the initial Wrapper
Agreement due to market conditions or if the market value (plus accrued interest
on the underlying securities) of those Covered Assets is less than their Book
Value at the time of entering into the replacement agreement. Such cost would
also be in addition to any premiums previously paid to the defaulting Wrapper
Provider. If the Portfolio were unable to obtain a replacement Wrapper
Agreement, participants redeeming Shares might experience losses if the market
value of the Portfolio's assets no longer covered by the Wrapper Agreement is
below Book Value. The combination of the default of a Wrapper Provider and an
inability to obtain a replacement agreement could render the Portfolio and the
Fund unable to achieve their investment objective of seeking to maintain a
stable value per Share.

With respect to payments made under the Wrapper Agreements between the Portfolio
and the Wrapper Provider, some Wrapper Agreements provide that payments may be
due upon disposition of the Covered Assets, while others provide for payment
only upon the total liquidation of the Covered Assets or upon termination of the
Wrapper Agreement. In none of these cases, however, would the terms of the
Wrapper Agreements specify which Portfolio Securities are to be disposed of or
liquidated. Moreover, because it is anticipated that each Wrapper Agreement
will cover all Covered Assets up to a specified dollar amount, if more than one
Wrapper Provider becomes obligated to pay to the Portfolio the difference
between Book Value and market value (plus accrued interest on the underlying
securities), each Wrapper Provider will pay a pro-rata amount in proportion to
the maximum dollar amount of coverage provided. Thus, the Portfolio will not
have the option of choosing which Wrapper Agreement to draw upon in any such
payment situation. Under the terms of most Wrapper Agreements, the Wrapper
Provider will have the right to terminate the Wrapper Agreement in the event
that material changes are made to the Portfolio's investment objectives or
limitations or to the nature of the Portfolio's operations. In such event, the
Portfolio may be obligated to pay the Wrapper Provider termination fees equal in
amount to the premiums that would have been due had the Wrapper Agreement
continued through the predetermined period. The Portfolio will have the right to
terminate a Wrapper Agreement for any reason. Such right, however, may also be

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subject to the payment of termination fees. In the event of termination of a
Wrapper Agreement or conversion of an evergreen Wrapper Agreement to a fixed
maturity, some Wrapper Agreements may require that the duration of some portion
of the Fund's portfolio securities be reduced to correspond to the fixed
maturity or termination date and that such securities maintain a higher credit
rating than is normally required, either of which requirements might adversely
affect the return of the Portfolio and the Fund.

Risks of Wrapper Agreements. Each Wrapper Agreement obligates the Wrapper
Provider to maintain the "Book Value" of a portion of the Portfolio's assets
("Covered Assets") up to a specified maximum dollar amount, upon the occurrence
of certain specified events. The Book Value of the Covered Assets is their
purchase price (i) plus interest on the Covered Assets at a rate specified in
the Wrapper Agreement ("Crediting Rate"), and (ii) less an adjustment to reflect
any defaulted securities. The Crediting Rate used in computing Book Value is
calculated by a formula specified in the Wrapper Agreement and is adjusted
periodically. In the case of Wrapper Agreements purchased by the Portfolio, the
Crediting Rate is the actual interest earned on the Covered Assets, or an index-
based approximation thereof, plus or minus an adjustment for an amount
receivable from or payable to the Wrapper Provider based on fluctuations in the
market value of the Covered Assets. As a result, while the Crediting Rate will
generally reflect movements in the market rates of interest, it may at any time
be more or less than these rates or the actual interest income earned on the
Covered Assets. The Crediting Rate may also be impacted by defaulted securities
and by increases and decreases of the amount of Covered Assets as a result of
contributions and withdrawals tied to the sale and redemption of Shares.
Furthermore, the premiums due Wrapper Providers in connection with the
Portfolio's investments in Wrapper Agreements are offset against and thus reduce
the Crediting Rate. These premiums are generally paid quarterly. In no event
will the Crediting Rate fall below zero percent under the Wrapper Agreements
entered into by the Portfolio.

Under the terms of a typical Wrapper Agreement, if the market value (plus
accrued interest on the underlying securities) of the Covered Assets is less
than their Book Value at the time the Covered Assets are liquidated in order to
provide proceeds for withdrawals of Portfolio interests resulting from
redemptions of Shares by Plan participants, the Wrapper Provider becomes
obligated to pay to the Portfolio the difference. Conversely, the Portfolio
becomes obligated to make a payment to the Wrapper Provider if it is necessary
for the Portfolio to liquidate Covered Assets at a price above their Book Value
in order to make withdrawal payments. (Withdrawals generally will arise when the
Fund must pay shareholders who redeem their Shares.) Because it is anticipated
that each Wrapper Agreement will cover all Covered Assets up to a specified
dollar amount, if more than one Wrapper Provider becomes obligated to pay to the
Portfolio the difference between Book Value and market value (plus accrued
interest on the underlying securities), each Wrapper Provider will be obligated
to pay a pro-rata amount in proportion to the maximum dollar amount of coverage
provided. Thus, the Portfolio will not have the option of choosing which Wrapper
Agreement to draw upon in any such payment situation.

The terms of the Wrapper Agreements vary concerning when these payments must
actually be made between the Portfolio and the Wrapper Provider. In some cases,
payments may be due upon disposition of the Covered Assets; other Wrapper
Agreements provide for settlement only upon termination of the Wrapper Agreement
or total liquidation of the Covered Assets.

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<PAGE>

The Fund expects that the use of Wrapper Agreements by the Portfolio will under
most circumstances permit the Fund to maintain a constant NAV per Share and to
pay dividends that will generally reflect over time both the interest income of,
and market gains and losses on, the Covered Assets held by the Portfolio less
the expenses of the Fund and the Portfolio. However, there can be no guarantee
that the Fund will maintain a constant NAV per Share or that any Fund
shareholder or Plan participant will realize the same investment return as might
be realized by investing directly in the Portfolio assets other than the Wrapper
Agreements. For example, a default by the issuer of a Portfolio Security or a
Wrapper Provider on its obligations might result in a decrease in the value of
the Portfolio assets and, consequently, the Shares. The Wrapper Agreements
generally do not protect the Portfolio from loss if an issuer of Portfolio
Securities defaults on payments of interest or principal. Additionally, a Fund
shareholder may realize more or less than the actual investment return on the
Portfolio Securities depending upon the timing of the shareholder's purchases
and redemption of Shares, as well as those of other shareholders. Furthermore,
there can be no assurance that the Portfolio will be able at all times to obtain
Wrapper Agreements. Although it is the current intention of the Portfolio to
obtain such agreements covering all of its assets (with the exceptions noted),
the Portfolio may elect not to cover some or all of its assets with Wrapper
Agreements should Wrapper Agreements become unavailable or should other
conditions such as cost, in Bankers Trust's sole discretion, render their
purchase inadvisable.

If, in the event of a default of a Wrapper Provider, the Portfolio were unable
to obtain a replacement Wrapper Agreement, participants redeeming Shares might
experience losses if the market value of the Portfolio's assets no longer
covered by the Wrapper Agreement is below Book Value. The combination of the
default of a Wrapper Provider and an inability to obtain a replacement agreement
could render the Portfolio and the Fund unable to achieve their investment
objective of maintaining a stable NAV per Share. If the Board of Trustees of the
Portfolio Trust (the "Portfolio Trust Board") determines that a Wrapper Provider
is unable to make payments when due, that Board may assign a fair value to the
Wrapper Agreement that is less than the difference between the Book Value and
the market value (plus accrued interest on the underlying securities) of the
applicable Covered Assets and the Portfolio might be unable to maintain NAV
stability.

Some Wrapper Agreements require that the Portfolio maintain a specified
percentage of its total assets in short-term investments ("Liquidity Reserve").
These short-term investments must be used for the payment of withdrawals from
the Portfolio and Portfolio expenses. To the extent the Liquidity Reserve falls
below the specified percentage of total assets, the Portfolio is obligated to
direct all net cash flow to the replenishment of the Liquidity Reserve. The
obligation to maintain a Liquidity Reserve may result in a lower return for the
Portfolio and the Fund than if these funds were invested in longer-term Fixed
Income Securities. The Liquidity Reserve required by all Wrapper Agreements is
not expected to exceed 20% of the Portfolio's total assets.

Wrapper Agreements also require that the Covered Assets have a specified
duration or maturity, consist of specified types of securities or be of a
specified investment quality. The Portfolio will purchase Wrapper Agreements
whose criteria in this regard are consistent with the Portfolio's (and the
Fund's) investment objective and policies as described in this Prospectus.
Wrapper Agreements may also require the disposition of securities whose ratings
are downgraded below a

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<PAGE>

certain level. This may limit the Portfolio's ability to hold such downgraded
securities. For a description of Wrapper Provider ratings, see the Appendix.

Illiquid Securities. Mutual funds do not typically hold a significant amount of
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 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 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. Rule 144A Securities are securities that are not
registered for sale under the federal securities laws but can be resold to
institutions pursuant to Rule 144A under the Securities Act of 1933.
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 under
the 1933 Act, which allows a broader institutional trading market for securities
otherwise subject to restriction on their resale to the general public. Rule
144A establishes a "safe harbor" from the registration requirements of the 1933
Act for resales of certain securities to qualified institutional buyers. The
Adviser anticipates that the market for certain restricted securities such as
institutional commercial paper will expand further as a result of this rule 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 held by the
Portfolio under the supervision of the Portfolio Trust Board. 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).

Provided that a dealer or institutional trading market in such securities
exists, these restricted securities are treated as exempt from the Portfolio's
15% limit on illiquid securities. Under the supervision of the Portfolio Trust
Board, Bankers Trust determines the liquidity of restricted securities; and
through reports from Bankers Trust, the Portfolio Trust Board monitors trading
activity in restricted securities. If institutional trading in restricted
securities were to decline, the liquidity of the Portfolio could be adversely
affected.

When-Issued and Delayed Delivery Securities. The Portfolio may purchase
securities on a when-issued or delayed delivery basis. Delivery of and payment
for these securities can take place a month or more after the date of the
purchase commitment. The purchase price and the

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

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

Lower-Rated Debt Securities ("Junk Bonds"). The Portfolio may invest in debt
securities rated in the fifth and sixth long-term rating categories by S & P,
Moody's and Duff & Phelps Credit Rating Company, or comparably rated by another
NRSRO, or if not rated by a NRSRO, of comparable quality as determined by
Bankers Trust in its sole discretion. 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.

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<PAGE>

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 availability of outside pricing services to value lower-rated
debt securities and the Portfolio's ability to dispose of these securities.

Since the risk of default is higher for lower-rated debt securities, Bankers
Trust's research and credit analysis are an especially important part of
managing securities of this type held by the Portfolio. In considering
investments for the Portfolio, Bankers Trust will attempt to identify those
issuers of high yielding debt securities whose financial conditions are adequate
to meet future obligations, have improved or are expected to improve in the
future. Bankers Trust's analysis focuses on relative values based on such
factors as interest on dividend coverage, asset coverage, earnings prospects and
the experience and managerial strength of the issuer.

The 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
interest of the Portfolio.

Hedging Strategies. The Portfolio may use certain strategies designed to adjust
the overall risk of its investment portfolio. These "hedging" strategies involve
derivative contracts, including U.S. Treasury and Eurodollar futures contracts
and exchange-traded put and call options on such futures contracts. New
financial products and risk management techniques continue to be developed and
may be used if consistent with the Portfolio's investment objective and
policies. Among other purposes, these hedging strategies may be used to
effectively maintain a desired portfolio duration or to protect against market
risk should the Portfolio change its investments among different types of Fixed
Income Securities. In this respect, these hedging strategies are designed for
different purposes than the investments in Wrapper Agreements.

The Portfolio might not use any hedging strategies, and there can be no
assurance that any strategy used will succeed. If the Adviser is incorrect in
its judgment on market values, interest rates or other economic factors in using
a hedging strategy, the Portfolio may have lower net income and a net loss on
the investment. Each of these strategies involves certain risks, which include:

. the fact that the skills needed to use hedging instruments are different
from those needed to select securities for the Portfolio;

. the possibility of imperfect correlation, or even no correlation, between
the price movements of hedging instruments and price movements of the
securities or currencies being hedged;

. possible constraints placed on the Portfolio's ability to purchase or sell
portfolio investments at advantageous times due to the need for the
Portfolio to maintain "cover" or to segregate securities; and

. the possibility that the Portfolio will be unable to close out or liquidate
its hedged position.

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Futures Contracts and Options on Futures Contracts -- General. The successful
use of these instruments draws upon the Adviser's skill and experience with
respect to such instruments and usually depends on its ability to forecast
interest rate movements correctly. If interest rates move in an unexpected
manner, the Portfolio may not achieve the anticipated benefits of futures
contracts or options thereon 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 thereon and
movements in the price of the securities hedged or used for cover will not be
perfect and could produce unanticipated losses.

Futures Contracts. The Portfolio may enter into contracts for the purchase or
sale for future delivery of fixed-income securities or 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 that have been designated "contracts markets" by the
Commodity Futures Trading Commission ("CFTC") and must be executed through a
futures commission merchant, or brokerage firm, that is a member of the relevant
contract market. Futures contracts trade on a number of exchange markets, and,
through their clearing corporations, the exchanges guarantee performance of the
contracts as between the clearing members of the exchange. The Portfolio may
enter into futures contracts 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, U.S. Treasury notes, GNMA modified pass-through mortgage-backed
securities and three-month U.S. Treasury bills. The Portfolio may also enter
into futures contracts that are based on bonds issued by entities other than the
U.S. government.

At the same time a futures contract is purchased or sold, the Portfolio must
allocate cash or securities as a deposit payment. Daily thereafter, the futures
contract is valued and "variation margin" may be required (that is, the
Portfolio may have to provide or may receive cash that reflects any decline or
increase in the contract's value).

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

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

The purpose of the Portfolio's acquisition or sale of a futures contract 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 (which thus would cause the prices of debt
securities to decline), 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

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<PAGE>

the debt securities owned by the Portfolio. If interest rates did increase, the
value of the debt securities held by the Portfolio would decline, but the value
of the futures contracts to the Portfolio would increase at approximately the
same rate, thereby keeping the Portfolio's NAV 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 (thus increasing
the value of debt securities), futures contracts for the acquisition of debt
securities 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 the underlying debt securities,
the Portfolio could take advantage of the anticipated rise in the value of debt
securities without actually buying them until the market had stabilized. At that
time, the futures contracts could be liquidated and the Portfolio could then buy
debt securities on the cash market. To the extent the Portfolio enters into
futures contracts for this purpose, the assets in the segregated asset account
maintained to cover the Portfolio's obligations with respect to such futures
contracts will consist of cash, cash equivalents or high quality liquid debt
securities from its portfolio in an amount equal to the difference between the
fluctuating market value of such futures contracts and the aggregate value of
the initial and variation margin payments made by the Portfolio with respect to
such futures contracts.

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

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market. The Portfolio may have to sell securities at a time when it may be
disadvantageous to do so.

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

The writing of a call option on a futures contract constitutes a partial hedge
against declining prices of the security that is deliverable upon exercise of
the futures contract. If the futures price at expiration of the option is below
the price specified in the option ("exercise price"), the Portfolio will retain
the full amount of the net premium (the premium received for writing the option
less any commission), which will provide a partial hedge against any decline
that may have occurred in its portfolio holdings. The writing of a put option
on a futures contract constitutes a partial hedge against increasing prices of
the security that 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 net premium, which will
provide a partial hedge against any increase in the price of securities that the
Portfolio intends to purchase. If a put or call option the Portfolio has
written is exercised, the Portfolio may incur a loss that will be reduced by the
amount of the net 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, such 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 put options on portfolio securities. For example, the
Portfolio may purchase a put option on a futures contract to hedge its portfolio
against the risk of rising interest rates. The amount of risk the Portfolio
assumes when it purchases an option on a futures contract is the premium paid
for the option plus related transaction costs. In addition to the correlation
risks discussed above, the purchase of an option also entails the risk that
changes in the value of the underlying futures contract will not be fully
reflected in the value of the option purchased.

The Portfolio Trust Board has adopted a restriction that the Portfolio will not
enter into any futures contract or option on a futures contract if immediately
thereafter the amount of margin deposits on all the futures contracts held by
the Portfolio and premiums paid on outstanding options on its futures contracts
(other than those entered into for bona fide hedging purposes) would exceed 5%
of the market value of the Portfolio's total assets.

Options on Securities. The Portfolio may write (sell) covered call and put
options on its portfolio securities ("covered options") to a limited extent 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 it writes. A call option
written by a Portfolio is "covered" if the Portfolio owns the underlying
security covered by the call or has an absolute and immediate right to acquire
that security without

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additional cash consideration (or for additional cash consideration held in a
segregated account by its custodian) upon conversion or exchange of other
securities held in its portfolio. A call option is also covered if the Portfolio
holds a call option on the same security and in the same principal amount as the
written call option where the exercise price of the call option so held (a) is
equal to or less than the exercise price of the written call option or (b) is
greater than the exercise price of the written call option if the difference is
maintained by the Portfolio in cash, U.S. government securities and other high
quality liquid securities in a segregated account with its custodian.

When the Portfolio writes a covered call option, it gives the purchaser of the
option the right to buy the underlying security at 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 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
exercise price at any time during the option period. If the option expires
unexercised, the Portfolio will realize income in the amount of the net 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, 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 on a closing purchase
transaction if the amount paid to purchase the 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 enter into 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
is included in the liability section of its 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. 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 prices. If an option expires
or if the Portfolio enters into a closing purchase transaction, the Portfolio
will realize a gain (or loss if the cost of the closing purchase transaction
exceeds the net premium received when the option was sold),

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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 benefiting from a decline in the price of securities that 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 non-fundamental policies concerning option
transactions that are discussed below.

The hours of trading for options on securities may not conform to the hours
during which the underlying securities are traded if 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 will not be
reflected in the option markets. It is impossible to predict the volume of
trading that may exist in such options, and there can be no assurance that
viable exchange markets will develop or continue.

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

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favorable price prior to expiration. Bankers Trust will monitor the
creditworthiness of dealers with whom the Portfolio enters into such options
transactions under the general supervision of the Portfolio Board.

Global Asset Allocation Strategy ("GAA Strategy"). In connection with the GAA
Strategy and in addition to the securities described above, the Portfolio may
invest in indexed securities, futures contracts on securities indices,
securities representing securities of foreign issuers (e.g. ADRs, GDRs and
EDRs), options on stocks, options on futures contracts, foreign currency
exchange transactions and options on foreign currencies. These are discussed
below, to the extent not already described above.

Indexed Securities. The indexed securities in which the Portfolio may invest
include debt securities whose value at maturity is determined by reference to
the relative prices of various currencies or to the price of a stock index. The
value of such securities depends on the price of foreign currencies, securities
indices or other financial values or statistics. These securities may be
positively or negatively indexed; that is, their value may increase or decrease
if the underlying instrument appreciates.

Futures contracts on securities indices. Futures contracts on securities
indices provide for the making and acceptance of a cash settlement based upon
changes in the value of an index of securities, and will be entered into by the
Portfolio to hedge against anticipated future change in general market prices
which otherwise might either adversely affect the value of securities held by
the Portfolio or adversely affect the prices of securities which are intended to
be purchased at a later date for the Portfolio, or as an efficient means of
managing allocations between asset classes. A futures contract may also be
entered into to close out or offset an existing futures position. The risks
attendant to futures contracts on securities indices are similar to those of
futures contracts, discussed above.

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

Foreign currency exchange transactions. 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, either on a spot (i.e., cash) basis at the spot rate prevailing in
the foreign currency exchange market, or through forward contracts to purchase
or sell foreign currencies. A forward foreign currency exchange contract
obligates the Portfolio to purchase or sell a specific currency at a future
date, which may be any fixed number of days from the date of the contract.
Forward foreign currency exchange contracts establish an exchange rate at a
future date. These contracts are transferable in the interbank market conducted
directly between currency traders (usually large commercial banks) and their
customers. A forward foreign currency exchange contract generally has no deposit
requirement and is traded at a net price without commission. Neither spot
transactions nor forward foreign currency exchange

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<PAGE>

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

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

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

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

As in the case of forward contracts, certain options on foreign currencies are
traded over the counter and involve liquidity and credit risks which may not be
present in the case of exchange traded currency options. The Portfolio's ability
to terminate OTC options will be more limited

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than with exchange traded options. It is also possible that broker dealers
participating in OTC options transactions will not fulfill their obligations.
Until such time as the staff of the SEC changes its position, the Portfolio will
treat purchased OTC options and assets used to cover written OTC options as
illiquid securities. With respect to options written with primary dealers in
U.S. Government securities pursuant to an agreement requiring a closing purchase
transaction at a formula price, the amount of illiquid securities may be
calculated with reference to the repurchase formula.

Repurchase Agreements. In a repurchase agreement, the Portfolio buys a security
at one price and simultaneously agrees to sell it back to the seller on a
specific date and at a higher price reflecting a market rate of interest
unrelated to the coupon rate or maturity of the underlying security. Delays or
losses could result if the other party to the agreement defaults or becomes
insolvent.

Reverse Repurchase Agreements and Dollar Rolls. 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 interest in the
Portfolio. In a dollar roll, the Portfolio sells mortgage-backed or other
securities for delivery in the current month and simultaneously contracts to
purchase substantially similar securities on a specified future date. Reverse
repurchase agreements and dollar rolls are forms of borrowing and will be
counted towards the Portfolio's borrowing restrictions. Wrapper Agreements would
cover the cash proceeds of such transactions but not the portfolio instruments
transferred to another party until possession of such instruments is returned to
the Portfolio.

Borrowing. The Portfolio will not borrow money (including through reverse
repurchase agreements or dollar roll transactions) for any purpose in excess of
5% of its total assets, except that it may borrow for temporary or emergency
purposes up to 1/3 of its total assets. 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 liquidation of the Portfolio's holdings
may be disadvantageous from an investment standpoint.

Leveraging by means of borrowing may exaggerate the effect of any increase or
decrease in the value of the Portfolio's securities and the Fund's NAV per
Share, 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) that may exceed the income received from the securities
purchased with the borrowed funds. It is not the intention of Bankers Trust to
use leverage as a normal practice in the investment of the Portfolio's assets.

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

Asset Coverage. To assure that the Portfolio's use of futures contracts 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 liquid securities with the Portfolio's
custodian (Bankers Trust) in an amount at all times equal to or exceeding the
Portfolio's commitment with respect to these instruments or contracts. The
Portfolio will also

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cover its use of Wrapper Agreements to the extent required to avoid the creation
of a "senior security" (as defined in the 1940 Act) in connection with its use
of such agreements.

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 Portfolio Trust Board. 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. A description of the ratings
referred to herein and in the Prospectus is set forth in the Appendix.

Investment Restrictions

The following investment restrictions are "fundamental policies" of the Fund and
the Portfolio and may not be changed without the approval of a "majority of the
outstanding voting securities" of the Fund or the Portfolio, as the case may be.
The phrase "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 (1) 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 (2) 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 them. Fund shareholders who do not vote will not
affect the Trust's votes at the Portfolio meeting. 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.

None of the fundamental and non-fundamental policies described below shall
prevent the Fund from investing all of its assets in an open-end investment
company with substantially the same investment objective. Because the Fund and
the Portfolio have the same fundamental policies and the Fund invests all of its
Assets in the Portfolio, the following discussion (though speaking only of the
Portfolio) applies to the Fund as well.

Fundamental Restrictions. As a matter of fundamental policy, the Portfolio may
not:

1 Borrow money (including through reverse repurchase or dollar roll
transactions) in excess of 5% of the Portfolio's total assets (taken at
cost), except that the Portfolio may borrow for temporary or emergency
purposes up to 1/3 of its net assets. The Portfolio may pledge, mortgage or
hypothecate not more than 1/3 of such assets to secure such borrowings
provided that collateral arrangements with respect to options and futures,
including deposits of initial 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

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<PAGE>

purpose of participating in a captive insurance company sponsored by the
Investment Company Institute;

2 Underwrite securities issued by other persons except insofar as the
Portfolio may 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 portfolio securities and provided that any such loans not
exceed 30% of its 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 may hold and sell, for its portfolio, real
estate acquired as a result of the Portfolio'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 investment objective, up to 25% of its total assets may
be invested in any one industry;

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

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

8 Invest, with respect to 75% of the Portfolio's total assets, more than 5%
of its total assets in the securities (excluding U.S. government
securities) of any one issuer.

Non-Fundamental Restrictions. In order to comply with certain statutes and
policies and for other reasons, the Portfolio will not, as a matter of operating
policy (these restrictions may be changed by a vote of the Trustees or the
Portfolio Trust or the Trust as applicable without shareholder approval):

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

ii. sell securities it does not own (short sales). (This restriction does not
preclude short sales "against the box" (that is, sales of securities (a)
the Portfolio contemporaneously owns or (b) where the Portfolio has the
right to obtain securities equivalent in kind and amount to those sold).
The Portfolio has no current intention to engage in short selling);

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iii. purchase securities issued by any investment company except to the extent
permitted by the 1940 Act (including any exemptions or exclusions
therefrom), except that this limitation does not apply to securities
received or acquired as dividends, through offers of exchange, or as a
result of reorganization, consolidation or merger; and

iv. invest more than 15% of the Portfolio'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 Portfolio Board to
be liquid).

An investment restriction will not be considered violated 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 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 thereon 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
contracts 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, the Adviser 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 that will include an
underwriting fee paid to the underwriter.

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

The Adviser is authorized, consistent with Section 28(e) of the Securities
Exchange Act of 1934, as amended, when placing portfolio transactions for the
Portfolio with a broker to pay a brokerage commission (to the extent applicable)
in excess of that which another broker might have charged for effecting the same
transaction on account of the receipt of research, market or

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statistical information. The term "research, market or statistical information"
includes (a) advice as to (i) the value of securities, (ii) the advisability of
investing in, purchasing or selling securities, and (iii) the availability of
securities or purchasers or sellers of securities and (b) furnishing analyses
and reports concerning issuers, industries, securities, economic factors and
trends, portfolio strategy and the performance of accounts. 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.

Consistent with the policy stated above, the Conduct Rules of the National
Association of Securities Dealers, Inc. and such other policies as the Portfolio
Trust Board may determine, the Adviser may consider sales of shares of the Fund
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.

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

Although certain research, market or statistical information from brokers and
dealers can be useful to the Portfolio and to the Adviser, it is the opinion of
the Portfolio's management 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 that 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 between (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.

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PERFORMANCE INFORMATION

Standard Performance Information

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

Yield. Yield refers to the income generated by an investment over a given period
of time, expressed as an annual percentage rate. Yields are calculated according
to a standard that is required for all stock and bond mutual funds. Because
this differs from other accounting methods, the quoted yield may not equal the
income actually paid to shareholders.

Per SEC regulations, the yield of the Fund (the "SEC yield") shall be calculated
on any determination date as follows:

2[((a - b)/c * d) + 1)/6/- 1] where
--------------------

a = current income measured over a 30-day period.

b = Expenses accrued during the same 30-day period.

c = Average daily number of shares outstanding during the same 30-day period.

d = Maximum offering price per share on the last day of the period.

The "annual effective yield" of the fund is intended to represent one day's
investment income expressed as an annualized yield and compounded annually. It
shall be expressed as a percentage and calculated on each business day as
follows based on the dividend declared for the previous day.

[(1 + previous day's dividend factor) 365 - 1]
------------------------------

NAV per share

Example: If on March 1, the Fund's dividend factor is 0.00174163 and the Fund's
NAV per share is $10, then the Fund's annual effective yield for March 2 equals
6.56%.

The Fund's annual effective yield is used in determining when the interest rate
trigger is active.

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

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

Page 24 of 54
<PAGE>

Total return. Total return is the change in value of an investment in the shares
over a given period, assuming reinvestment of any dividends and capital gain
distributions. 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 that
represent aggregate performance over a period or year-by-year performance.

Performance Results. Any performance information provided for the Fund should
not be considered as representative of its performance in the future, because
the NAV and public offering price of Shares will vary based not only on the
type, quality and maturities of the securities held by 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. Total return reflects the performance of both
principal and income.

Comparison of Fund Performance

Comparison of the quoted non-standardized 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 that may assume reinvestment of dividends but generally do not reflect
deductions for administrative and management costs. Evaluations of the Fund's
performance made by independent sources may also be used in advertisements
concerning the Fund. Sources for the Fund's performance information could
include the following: Asian Wall Street Journal, Barron's, Business Week,
------------------------- -------- -------------
Changing Times, The Kiplinger Magazine, Consumer Digest, Financial Times,
- --------------- ---------------------- --------------- ---------------
Financial World, Forbes, Fortune, Global Investor, Investor's Daily, Lipper
- --------------- ------ ------- --------------- ---------------- ------
Analytical Services, Inc.'s Mutual Fund Performance Analysis, Money, Morningstar
- ------------------------------------------------------------ ----- -----------
Inc., New York Times, Personal Investing News, Personal Investor, Success, U.S.
- ---- -------------- ----------------------- ----------------- ------- ----
News and World Report, ValueLine, Wall Street Journal, Weisenberger Investment
- --------------------- --------- ------------------- -----------------------
Companies Services, Working Women and Worth.
- ------------------ ------------- -----

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

Page 25 of 54
<PAGE>

literature may quote statistics and give general information about the mutual
fund industry, including the growth of the industry, from sources such as the
Investment Company Institute ("ICI"). For example, according to the ICI,
thirty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $3.5 trillion to the more than 6,000 funds available.

VALUATION OF ASSETS; REDEMPTIONS IN KIND

Debt securities (other than short-term debt obligations maturing in 60 days or
less), including listed securities and securities for which price quotations are
available, will normally be valued on the basis of market valuations furnished
by a pricing service. Such market valuations may represent the last quoted
price on the securities' major trading exchange or quotes received from dealers
or market makers in the relevant securities or may be determined through the use
of matrix pricing. In matrix pricing, pricing services may use various pricing
models, involving comparable securities, historic relative price movements,
economic factors and dealer quotations. Over-the-counter securities will
normally be valued at the bid price. Short-term debt obligations and money
market securities maturing in 60 days or less are valued at amortized cost.

Securities for which market quotations are not readily available are valued by
Bankers Trust pursuant to procedures adopted by the Portfolio's Trust Board.

The NAV per Share is calculated once on each Valuation Day as of the Valuation
Time, which is currently 4:00 p.m., Eastern time, or if the NYSE closes early,
at the time of such early closing. The NAV per Share is computed by dividing
the value of the Fund's assets (i.e., the value of its investment in the
Portfolio and other assets, if any), less all liabilities, by the total number
of its Shares outstanding. The Portfolio's securities and other assets are
valued primarily on the basis of market quotations or, if quotations are not
readily available, by a method that the Portfolio Trust Board believes
accurately reflects fair value.

Pursuant to procedures adopted by the Portfolio Trust Board, the Wrapper Value
generally will be equal to the difference between the Book Value and the market
value (plus accrued interest on the underlying securities) of the applicable
Covered Assets. If the market value (plus accrued interest on the underlying
securities) of the Covered Assets is greater than their Book Value, the Wrapper
Value will be reflected as a liability of the Portfolio in the amount of the
difference, i.e., a negative value, reflecting the potential liability of the
Portfolio to the Wrapper Provider. If the market value (plus accrued interest
on the underlying securities) of the Covered Assets is less than their Book
Value, the Wrapper Value will be reflected as an asset of the Portfolio in the
amount of the difference, i.e., a positive value, reflecting the potential
liability of the Wrapper Provider to the Portfolio. In performing its fair
value determination, the Portfolio Trust Board expects to consider the
creditworthiness and ability of a Wrapper Provider to pay amounts due under the
Wrapper Agreement. If the Portfolio Trust Board determines that a Wrapper
Provider is unable to make such payments, that Board may assign a fair value to
the Wrapper Agreement that is less than the difference between the Book Value
and the market value (plus accrued interest on the underlying securities) of the
applicable Covered Assets and the Portfolio might be unable to maintain NAV
stability.

Page 26 of 54
<PAGE>

The problems inherent in making a good faith determination of value are
recognized in the codification effected by SEC Financial Reporting Release No. 1
(formerly Accounting Series Release No. 113) ("FRR 1"), which concludes that
there is "no automatic formula" for calculating the value of restricted
securities. It recommends that the best method simply is to consider all
relevant factors before making any calculation. According to FRR 1, such
factors would include consideration of the --

type of security involved, financial statements, cost at date of
purchase, size of holding, discount from market value of unrestricted
securities of the same class at the time of purchase, special reports
prepared by analysts, information as to any transactions or offers
with respect to the security, existence of merger proposals or tender
offers affecting the security, price and extent of public trading in
similar securities of the issuer or comparable companies, and other
relevant matters.

The Adviser will value securities purchased by the Portfolio that are restricted
as to resale or for which current market quotations are not readily available,
including Wrapper Agreements, based upon all relevant factors as outlined in
FRR 1.

The Fund and the Portfolio each reserves the right, if conditions exist that
make cash payments undesirable, or for other reasons, to honor any request for
redemption or withdrawal, respectively, by making payment wholly or partly in
Portfolio Securities, as the same may be chosen by the Adviser in its sole
discretion (a "redemption in kind"). Such securities shall not include Wrapper
Agreements, and shall be valued as they are for purposes of computing the Fund's
or the Portfolio's NAV, as the case may be. If payment is made to a Fund
shareholder in securities, the shareholder may incur transaction expenses in
converting those securities into cash.

The Trust, on behalf of the Fund, and the Portfolio have elected to redeem
Shares or beneficial interests, respectively, 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 NAV 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 to a shareholder thereof, and therefore
Fund shareholders 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 the Portfolio, including the Fund, may add to or reduce its
investment in the Portfolio on each business day the Portfolio determines its
NAV. At the close of business on each such day, the value of each investor's
beneficial interest in the Portfolio will be determined by multiplying the NAV
of the Portfolio by the percentage effective for that day that represents that
investor's share of the aggregate beneficial interests in the Portfolio. Any
additions or withdrawals that 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 a fraction (a) the numerator of which is the value of the

Page 27 of 54
<PAGE>

investor's investment in the Portfolio as of the close of business on that 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 that day, and (b) the denominator of which is the aggregate NAV of
the Portfolio as of the close of business on that 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 therein. The percentage so
determined will then be applied to determine the value of the investor's
interest in the Portfolio as the close of business on the following business
day.

The Fund and the Portfolio each reserves the right to redeem all of its shares,
if the Board of Trustees votes to liquidate the Fund and/or Portfolio.

OVERVIEW OF THE TYPES OF INDIVIDUAL RETIREMENT ACCOUNTS

In general, an IRA is a trust or custodial account established in the United
States for the exclusive benefit of an individual or his or her
beneficiaries.(Keogh plans are established by self-employed persons, including
partnerships, and also cover eligible non-owner employees.) Most IRAs are
designed principally as retirement savings vehicles. Education IRAs are designed
to provide a tax-favored means of saving for a child's educational expenses.
IRAs may provide significant tax savings to individuals, but are governed by a
complex set of tax rules set out under the Internal Revenue Code of 1986, as
amended (the "Code"),and the regulations promulgated by the Department of the
Treasury thereunder. If you already have an IRA, your IRA may be able to invest
in the Fund. If you do not presently have an IRA and you meet the requirements
of the applicable tax rules, you may be able to create an IRA and invest in
Shares of the Fund through that IRA. Included below is a general discussion of
some IRA features. However, IRA Owners and other prospective investors should
consult with their IRA provider and/or professional tax and financial advisers
before establishing an IRA or investing in Shares. Certain types of the IRAs
described below may not be available through BT Mutual Funds. For more
information call 1-800-677-7596.

Types of Individual Retirement Accounts

Traditional IRAs. If you are under age 70 1/2, and you (or if you file a joint
return, your spouse) have taxable compensation, you may set up a Traditional IRA
and make annual IRA contributions of up to $2,000, or 100% of your taxable
compensation, whichever is less. Taxable income includes wages, salaries, and
other amounts reported in box 1 of Form W-2, as well as earnings from self-
employment. If you file a joint return and your taxable compensation is less
than that of your spouse, you may make annual contributions to a Traditional IRA
equal to the lesser of $2,000, or the sum of (i) your taxable compensation and
(ii) the taxable compensation of your spouse, reduced by the amount of his or
her IRA deduction for the year. Amounts contributed to a Traditional IRA
generally are deductible for federal income tax purposes. However, if you were
covered by an employer retirement plan, the amount of your contribution to a
Traditional IRA that you may deduct will be reduced or eliminated if your
modified adjusted gross income exceeds certain amounts (currently $50,000 for a
married couple filing a joint return and $30,000 for a single taxpayer). If your
spouse is covered by an employer retirement plan but you are not, you may be
able to deduct your contributions to a Traditional IRA;

Page 28 of 54
<PAGE>

however, the deduction will be reduced or eliminated if your adjusted gross
income on a joint return exceeds $150,000. Even if your ability to deduct
contributions to a Traditional IRA is limited, you may still make contributions
up to the limits described above. In general, you may also make a contribution
to a Traditional IRA by "rolling over" all or a portion of a distribution you
receive from a qualified retirement plan (such as a pension or profit-sharing
plan or a 401(k) plan) or another Traditional IRA. Amounts distributed from a
Traditional IRA and eligible rollover distributions from qualified retirement
plans will not be includible in income if they are contributed to a Traditional
IRA in a rollover transaction which meets certain conditions; however, a federal
withholding tax may be imposed on such distributions. Consult your Service Agent
and professional tax adviser for complete details on Traditional IRAs.

Roth IRAs. Regardless of your age, you may be able to establish a Roth IRA.
Contributions to Roth IRAs are not deductible for federal income tax purposes.
However, if all of the applicable requirements are met, earnings in the account
accumulate tax free, and all withdrawals are also tax free. Generally, you may
contribute up to $2,000 annually to a Roth IRA; however, your ability to
contribute to a Roth IRA will be reduced or eliminated if your adjusted gross
income exceeds certain amounts (currently $150,000 for a married couple filing a
joint return and$95,000 for a single taxpayer). In addition, if you make
contributions to both a Traditional IRA and a Roth IRA, your contribution limit
for the Roth IRA will be reduced by the amount of the contribution you make to
the Traditional IRA. If certain requirements are met, and (i) your modified
adjusted gross income is not more than $100,00, and (ii) you are not married and
filing a separate tax return, you can roll over amounts from a Traditional IRA
to a Roth IRA. The amount rolled over generally will be included in your taxable
income; however, if you roll over from a Traditional IRA to a Roth IRA before
1999, you may elect to have the taxable amount included in your income ratably
over a four-year period. You may also roll over amounts from one Roth IRA to
another Roth IRA. Consult your Service Agent and professional tax adviser for
complete details on Roth IRAs. SEP-IRASSEP-IRAs are IRAs that are created in
connection with a simplified employee pension ("SEP") established and maintained
by a self-employed individual, a partnership or a corporation. SEP-IRAs must be
created for each qualifying employee of the employer that establishes a SEP. In
general, a qualifying employee is an employee who has: (i) reached the age of
21; and (ii) worked for the employer at least three out of the past five years.
Each SEP-IRA is owned by the employee for whom it is created; assets of a SEP
are not pooled together. SEPs must provide for discretionary employer
contributions. In other words, employers are not required to make contributions
to SEP-IRAs each year, but if they do make contributions for any year, the
contributions must be based on a specific allocation formula set forth in the
SEP, and must not discriminate in favor of highly compensated employees.
Contributions to SEP-IRAs generally are deductible by the employer, subject to
certain limitations. Contributions to SEP-IRAs of self-employed individuals are
subject to certain additional limitations. SEP-IRAs generally are subject to the
same distribution and rollover rules that apply to Traditional IRAs.

SIMPLE IRAs. In general, a SIMPLE plan may be established by any employer,
including a sole proprietorship, partnership or corporation, with 100 or fewer
employees, and must be the only retirement plan maintained by the employer.
Under a SIMPLE plan using SIMPLE IRAs, a SIMPLE IRA is created for each eligible
employee which, in general, includes all employees who received at least $5,000
in compensation during any two years preceding the year for which

Page 29 of 54
<PAGE>

eligibility is being determined (i.e., the current year) and is reasonably
expected to earn at least $5,000 during the current year. As with SEP-IRAs,
SIMPLE IRAs are individual accounts owned by each eligible employee. Under a
SIMPLE IRA plan, eligible employees can elect to contribute a portion of their
salary to their SIMPLE IRA. (These contributions are referred to as "elective
deferrals.") Elective deferrals are based on a stated percentage of the
employee's compensation, and are limited to $6,000 per year (indexed for
inflation). Elective deferrals are included in employees' gross income only for
Social Security and Medicare tax purposes (i.e., they are not included in wages
for federal income tax purposes).In addition to elective deferrals by employees,
under a SIMPLE IRA plan, employers must make either: (i) matching contributions
equal to each employee' selective deferral, up to a maximum of 3% of the
employee's compensation, or (ii) nonelective contributions of 2% of compensation
for each eligible employee(subject to certain limits). Employer contributions to
SIMPLE IRAs are excluded from employees' gross income and are deductible by the
employer. SIMPLE IRAs generally are subject to the same distribution and
rollover rules that apply to Traditional IRAs. However, a rollover from a SIMPLE
IRA to a Traditional IRA can be made tax free only after the employee has
participated in the SIMPLE IRA plan for at least two years.

Keogh Plans. Keogh plans are qualified retirement plans established by sole
proprietors or partnerships. As with other qualified retirement plans, in
general, contributions to Keogh plans are deductible, and neither such
contributions nor the investment earnings thereon are subject to tax until they
are distributed by the plan. A number of different types of plans may qualify as
Keogh plans. In certain circumstances, Keogh plans may provide greater tax
advantages than other types of retirement plans. However, Keogh plans must
satisfy a number of complex rules, including minimum participation requirements,
under which certain employees must be covered by the plan, and in some cases,
minimum funding requirements. Professional assistance generally is required to
establish and maintain a Keogh plan.

Education IRAs. An education IRA is a trust or custodial account created for the
purpose of paying the qualified higher education expenses of a designated
beneficiary, i.e., a child under the age of 18 at the time of the contributions.
In general, qualified higher education expenses include expenses for tuition,
fees, books, supplies and equipment required for the designated beneficiary of
the Education IRA to attend an eligible educational institution, which includes
essentially all accredited post-secondary educational institutions. Any
individual may make contributions to an education IRA so long as his or her
modified adjusted gross income is less than $110,000 ($160,000 for married
taxpayers filing jointly). The maximum total contributions that may be made to
education IRAs for each child is $500 per year. Generally, amounts may be rolled
over from an Education IRA to another education IRA established for the same
beneficiary or for certain members of the beneficiary's family. Beneficiaries
may make tax free withdrawals from education IRAs to pay qualified higher
education expenses. Other withdrawals generally will be subject to tax. Consult
your Service Agent and or professional tax adviser for complete details on
Education IRAs.

OWNERSHIP OF SHARES THROUGH PLANS

Fund Shares owned by Plan Participants through Plans are held either directly by
the respective Plan, or beneficially through vehicles such as bank collective
funds or insurance company separate accounts consisting solely of such Plans
(collectively, "Plan Pools"), which will in turn

Page 30 of 54
<PAGE>

offer the Fund as an investment option to their participants. Investments in the
Fund may by themselves represent an investment option for a Plan or may be
combined with other investments as part of a pooled investment option for the
Plan. In the latter case, the Fund may require Plans to provide information
regarding the withdrawal order and other characteristics of any pooled
investment option in which the Shares are included prior to a Plan's initial
investment in the Fund. Thereafter, the Fund will require the Plan to provide
information regarding any changes to the withdrawal order and other
characteristics of the pooled investment option before such changes are
implemented. The Fund in its sole discretion may decline to sell Shares to Plans
if the governing withdrawal order or other characteristics of any pooled
investment option in which the Shares are included is determined at any time to
be disadvantageous to the Fund. Plan Participants should contact their Plan
administrator or the organization that provides recordkeeping services if they
have questions concerning their account. Plan administrators and fiduciaries
should call 1-800-677-7596 for information regarding a Plan's account with the
Fund.

QUALIFIED REDEMPTIONS

At any time, a redemption of Fund Shares can be effected without assessment of
the Redemption Fee described in "Fees and Expenses of the Fund" in the
Prospectus, if such redemption is a "Qualified Plan Redemption" or a "Qualified
IRA Redemption." "Qualified Plan Redemptions" are redemptions resulting from a
Plan Participant's death, disability, retirement or termination of employment or
to fund loans to, or "in service" withdrawals by, a Plan Participant.A
"Qualified IRA Redemption" is a redemption made by an IRA Owner to effect a
distribution from his or her IRA account that is not subject to the 10% penalty
tax imposed by section 72(t) or 530(d), as applicable, other than IRA rollovers,
direct trustee-to-trustee transfers and conversions of Traditional IRAs to Roth
IRAs, unless the IRA Owner continues the investment of the transferred amount in
the Fund. In general, section 72(t) of the Code imposes a 10% penalty tax on any
distribution received by a taxpayer from a Traditional IRA, SEP-IRA or SIMPLE
IRA prior to the date on which the taxpayer reaches age 59 1/2, unless the
distribution meets the requirements of a specific exception to the penalty tax.
Similar penalties apply to early withdrawals from Roth IRAs and Keogh Plans.
Section 530(d) as currently written, imposes a separate 10% penalty tax on
distributions from an education IRA not used to pay qualified higher education
expenses. In general, rollovers from one IRA to another and direct trustee-to-
trustee transfers from an IRA to another IRA (or in some cases to other types of
qualified plans) are not subject to tax. In addition, conversions of Traditional
IRAs to Roth IRAs are subject to income tax but are not subject to the early
withdrawal penalty tax. IRA Owners requesting a redemption of Fund Shares will
be required to provide a written statement as to whether the proceeds of the
redemption will be subject to a penalty tax and, if not, to identify the
specific exception upon which the IRA Owner intends to rely. The information
provided by the IRA Owner will be reflected on the Form 1099-R issued to the IRA
Owner and filed with the Internal Revenue Services in connection with the
redemption as well as forming the basis for redemption as a Qualified IRA
Redemption. The Fund may require additional evidence, such as the opinion of a
certified public accountant or tax attorney, that any particular redemption will
not be subject to any penalty tax. IRA Owners should consult their tax advisers
regarding the tax consequences of any redemption.

Page 31 of 54
<PAGE>

Some of the exceptions to the 10% penalty taxes are described below. This
description is intended to provide only a brief summary of the principal
exceptions to the additional tax imposed on early withdrawals under the current
provisions of the Code, which may change from time to time. The Fund intends to
conform the definition of Qualified IRA Redemptions to changes in applicable tax
laws; however, the Fund reserves the right to continue to define Qualified IRA
Redemptions by reference to Code provisions now in effect or otherwise to define
such phrase independently of future Code provisions.

Traditional IRAs, SEP-IRAs and SIMPLE IRAs

In general, the 10% penalty tax imposed by section 72(t) of the Code will not
apply to the following types of distributions from a Traditional IRA, SEP-IRA or
SIMPLE IRA:

1. Distributions made on or after the date on which the IRA Owner attains age
59 1/2;

2. Distributions made to a beneficiary (or to the estate of the IRA Owner) on
or after the death of the IRA Owner;

3. Distributions attributable to the IRA Owner's being disabled within the
meaning of section 72(m)(7) of the Code;

4. Distributions made to the IRA Owner to the extent such distributions do not
exceed the amount of unreimbursed medical expenses allowed as a deduction
under section 213 of the Code;

5. Distributions to unemployed individuals to the extent such distributions do
not exceed the amount paid for medical insurance as described in section
213(d)(1)(D) of the Code for the IRA Owner, and his or her spouse and
dependents;

6. Distributions to an IRA Owner to the extent such distributions do not
exceed the qualified higher education expenses, as defined in section
72(t)(7), for the IRA Owner;

7. Distributions to an IRA Owner that are used to acquire a first home, and
that meet the definition of "qualified first-time homebuyer distributions"
under section 72(t) (8) of the Code; and

8. Distributions that are part of a series of substantially equal periodic
payments made at least annually for the life (or life expectancy) of the
IRA Owner, or the joint lives (or life expectancies) of the IRA Owner and
his or her designated beneficiary.

Roth IRAs

With respect to a Roth IRA, all "qualified distributions" are excluded from
gross income and, therefore, from the 10% penalty tax imposed by section 72(t).
In general, qualified distributions from a Roth IRA include:

1. Distributions made on or after the date on which the IRA Owner attains age
59 1/2;

2. Distributions made to a beneficiary (or to the estate of the IRA Owner) on
or after the death of the IRA Owner;

3. Distributions attributable to the IRA Owner's being disabled within the
meaning of section 72(m)(7) of the Code; and

Page 32 of 54
<PAGE>

4. Distributions to an IRA Owner that are used to acquire a first home, and
that meet the definition of "qualified first-time homebuyer distributions"
under section 72(t) (8) of the Code.

However, a distribution will not be a qualified distribution, even if it
otherwise meets the definition, if it is made within the 5-year period beginning
with the first taxable year for which the IRA Owner made a contribution to the
Roth IRA (or such person's spouse made a contribution to a Roth IRA established
for the IRA Owner). Special rules apply with respect to certain types of
rollovers.

To the extent a distribution from a Roth IRA is not a qualified distribution,
either because it does not meet the definition of a qualified distribution in
the first instance, or because it is made within the five-year period described
in section 408A(d)(2)(B), the portion of the distribution that represents
earnings will be subject to tax in accordance with section 72 of the Code,
including the 10% penalty tax imposed under section 72(t). The same exceptions
to the penalty tax that apply to Traditional IRAs will apply to nonqualified
distributions from Roth IRAs.

In the event of a nonqualified distribution from a Roth IRA, only the earnings
in the account are subject to tax; contributions may be recovered tax-free
(since no deduction is permitted for such contributions). Section 408A(d)
provides that distributions from Roth IRAs are considered to come first from
contributions, to the extent that distributions do not exceed the total amount
of contributions.

Keogh Plans

In general, the 10% penalty tax imposed by section 72(t) of the Code will not
apply to the following types of distributions from a Traditional IRA:

1. Distributions made on or after the date on which the IRA Owner attains age
59 1/2;

2. Distributions made to a beneficiary (or to the estate of the IRA Owner) on
or after the death of the IRA Owner;

3. Distributions attributable to the IRA Owner's being disabled within the
meaning of section 72(m)(7) of the Code;

4. Distributions made to the IRA Owner after separation from service after age
55;

5. Distributions to unemployed individuals to the extent such distributions do
not exceed the amount of unreimbursed medical expenses allowed as a
deduction under section 213 of the Code;

6. Distributions to an alternate payee (e.g., a former spouse) pursuant to a
qualified domestic relations order; and

7. Distributions that are part of a series of substantially equal periodic
payments made at least annually for the life (or life expectancy) of the
IRA Owner, or the joint lives (or life expectancies) of the IRA Owner and
his or her designated beneficiary.

Education IRAs

Distributions from an education IRA are included in income unless the qualified
higher education expenses of the designated beneficiary are equal to or greater
than the amount of such

Page 33 of 54
<PAGE>

distributions. In addition, certain special rules are provided that permit
certain rollovers or changes in beneficiaries. Any distribution that is subject
to tax under section 530 is also subject to the 10% penalty tax imposed by
section 530(d)(4). Thus, in general, any distribution from an education IRA that
exceeds the amount of qualified higher education expenses of the designated
beneficiary will be subject to the 10% penalty tax.

MANAGEMENT OF THE TRUSTS

Each Board of Trustees is composed of persons experienced in financial matters
who meet throughout the year to oversee the activities of the Fund or the
Portfolio, as the case may be. 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 Portfolios, their birth dates, and
their principal occupations during the past five years are set forth below.
Their titles may have varied during that period.

Trustees of the Trusts and Portfolio

CHARLES P. BIGGAR (birth date: October 13, 1930) -- Trustee of the Trusts and
Portfolio; Trustee of each of the other investment companies in the BT Fund
Complex/1/; Retired; former Vice President, International Business Machines
("IBM") and President, National Services and the Field Engineering Divisions of
IBM. His address is 12 Hitching Post Lane, Chappaqua, New York 10514.

S. LELAND DILL (birth date: March 28, 1930) -- Trustee of the Trusts and
Portfolio; Trustee of each of the other investment companies in the BT Fund
Complex; Retired; Director, Coutts (U.S.A.) International; Trustee, Phoenix-
Zweig Trust/2/ and Phoenix-Euclid Market Neutral Fund/2/; former Partner, KPMG
Peat Marwick; Director, Vintners International Company Inc.; Director, Coutts
Trust Holdings Ltd., Director, Coutts Group; General Partner, Pemco/2/. His
address is 5070 North Ocean Drive, Singer Island, Florida 33404.

MARTIN J. GRUBER (birth date: July 15, 1937) -- Trustee of the Trusts and
Portfolio; Trustee of each of the other investment companies in the BT Fund
Complex; Nomura Professor of Finance, Leonard N. Stern School of Business, New
York University (since 1964); Trustee, TIAA/2/; Trustee, SG Cowen Mutual
Funds/2/; Trustee, Japan Equity Fund/2/; Trustee, Taiwan Equity Fund/2/. His
address is 229 South Irving Street, Ridgewood, New Jersey 07450.

/1/ The "BT Fund Complex" consists of BT Investment Funds, BT Institutional
Funds, BT Pyramid Mutual Funds, BT Advisor Funds, Cash Management Portfolio,
Intermediate Tax Free Portfolio, Tax Free Money Portfolio, NY Tax Free Money
Portfolio, Treasury Money Portfolio, International Equity Portfolio, Equity 500
Index Portfolio, Capital Appreciation Portfolio, Asset Management Portfolio and
BT Investment Portfolios.

/2/ An investment company registered under the Investment Company Act of 1940,
as amended (the "Act").

Page 34 of 54
<PAGE>

RICHARD HALE* (birth date: July 17, 1945) -- Trustee of the Trusts and
Portfolio; Trustee of each of the other investment companies in the BT Fund
Complex; Managing Director, Deutsche Asset Management; Director, Flag Investors
Funds/2/; Managing Director, Deutsche Banc Alex. Brown Incorporated; Director
and President, Investment Company Capital Corp. His address is 205 Woodbrook
Lane, Baltimore, Maryland 21212.

RICHARD J. HERRING (birth date: February 18, 1946) -- Trustee of the Trusts and
Portfolio; Trustee of each of the other investment companies in the BT Fund
Complex; Jacob Safra Professor of International Banking, Professor of Finance
and Vice Dean, The Wharton School, University of Pennsylvania (since 1972). His
address is 325 South Roberts Road, Bryn Mawr, Pennsylvania 19010.

BRUCE E. LANGTON (birth date: May 10, 1931) -- Trustee of the Trusts and
Portfolio; Trustee of each of the other investment companies in the BT Fund
Complex; Retired; Trustee, Allmerica Financial Mutual Funds (1992-present);
Member, Pension and Thrift Plans and Investment Committee, Unilever U.S.
Corporation (1989 to present)/3/; Director, TWA Pilots Directed Account Plan and
401(k) Plan (1988 to present)/2/. His address is 99 Jordan Lane, Stamford,
Connecticut 06903.

PHILIP SAUNDERS, JR. (birth date: October 11, 1935) -- Trustee of the Trusts and
Portfolio; Trustee of each of the other investment companies in the BT Fund
Complex; Principal, Philip Saunders Associates (Economic and Financial
Analysis); former Director, Financial Industry Consulting, Wolf & Company;
President, John Hancock Home Mortgage Corporation; Senior Vice President of
Treasury and Financial Services, John Hancock Mutual Life Insurance Company,
Inc. His address is 445 Glen Road, Weston, Massachusetts 02193.

HARRY VAN BENSCHOTEN (birth date: February 18, 1928) -- Trustee of the Trusts
and Portfolio; Trustee of each of the other investment companies in the BT Fund
Complex; Retired; Director, Canada Life Insurance Corporation of New York. His
address is 6581 Ridgewood Drive, Naples, Florida 34108.

* "Interested Person" within the meaning of Section 2(a)(19) of the Act. Mr.
Hale is a Managing Director of Deutsche Asset Management, the U.S. asset
management unit of Deutsche Bank and its affiliates.

____________________

/3/ A publicly held company with securities registered pursuant to Section 12
of the Securities Exchange Act of 1934, as amended.

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<PAGE>

The Board has an Audit Committee that meets with the Trusts' and Portfolio's
independent accountants to review the financial statements of the Trust, the
adequacy of internal controls and the accounting procedures and policies of the
Trust. Each member of the Board except Mr. Hale also is a member of the Audit
Committee.

Officers of the Trusts and Portfolio

DANIEL O. HIRSCH (birth date: March 27, 1954) -- Secretary of the Trusts and
Portfolio; Director, Deutsche Banc Alex. Brown Incorporated and Investment
Company Capital Corp. since July 1998; Assistant General Counsel, Office of the
General Counsel, United States Securities and Exchange Commission from 1993 to
1998. His address is One South Street, Baltimore, Maryland 21202.

JOHN A. KEFFER (birth date: July 14, 1942) -- President and Chief Executive
Officer of the Trusts and Portfolio; President, Forum Financial Group L.L.C. and
its affiliates; President, ICC Distributors, Inc./4/ His address is ICC
Distributors, Inc., Two Portland Square, Portland, Maine 04101.

CHARLES A. RIZZO (birth date: August 5, 1958) Treasurer of the Trusts and
Portfolio; Vice President and Department Head, Deutsche Asset Management since
1998; Senior Manager, PricewaterhouseCoopers LLP from 1993 to 1998. His address
is One South Street, Baltimore, MD 21202.

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

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

___________________

/4/ Underwriter/distributor for the Trust. Mr. Keffer owns 100% of the shares
of ICC Distributors, Inc.

Page 36 of 54
<PAGE>

Trustee Compensation Table/5/

Aggregate Aggregate Total Compensation
Name of Person, Compensation Compensation from Fund Complex
Position, from Trust*+ from Portfolio+ Paid to Trustees**
- --------- ------------ ------------------
- -------------------------------------------------------------------------
Charles P. Biggar $[ ] N/A $[ ]
Kelvin J. Lancaster $[ ] N/A $[ ]
S. Leland Dill N/A $[ ] $[ ]
Philip Saunders, Jr. N/A $[ ] $[ ]

* The aggregate compensation is provided for the BT Investment Funds which is
comprised of 16 funds.

+ Information is provided for the Trust's fiscal year ended September 30,
1999.

** Aggregated information is furnished for the BT Family of Funds which
consists of the following: BT Investment Funds, BT Institutional Funds, BT
Pyramid Mutual Funds, BT Advisor Funds, BT Investment Portfolios, Cash
Management Portfolio, Treasury Money Portfolio, Tax Free Money Portfolio, NY
Tax Free Money Portfolio, International Equity Portfolio, Short Intermediate
US Government Securities Portfolio, Intermediate Tax Free Portfolio, Asset
Management Portfolio, Equity 500 Index Portfolio, and Capital Appreciation
Portfolio. The compensation is provided for the fiscal year ended September
30, 1998.

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

As of __________, 1999, the following shareholders of record owned 5% or more of
the Fund:
[TO COME]

Code of Ethics

The Board of Trustees of the Fund has adopted a Code of Ethics pursuant to
Rule 17j-1 under the 1940 Act. The Fund's Code of Ethics permits Fund
personnel to invest in securities for their own accounts, but requires
compliance with the Code's pre-clearance requirements (with certain exceptions).
In addition, the Fund's Code of Ethics provides for trading "blackout periods"
that prohibit trading by personnel within periods of trading by the Fund in the
same security. The Fund's Code of Ethics also prohibits short term trading
profits and personal investment in initial public offerings. The Code requires
prior approval with respect to purchases of securities in private placements.

The Fund's adviser, Bankers Trust Company, has also adopted a Code of
Ethics. The Code of Ethics allows personnel to invest in securities for their
own accounts, but require compliance with the Code's pre-clearance requirements
and other restrictions including "blackout periods" and minimum holding
periods, subject to limited exceptions. The Code prohibits purchases of
securities in initial public offerings (the prohibition is limited to U.S.
public offerings) and requires prior approval for purchases of securities in
private placements.

The Fund's principal underwriter, ICC Distributors, Inc., has adopted a Code
of Ethics applicable to ICC's distribution services to registered investment
companies such as the Fund. The ICC Code of Ethics prohibits directors and
officers of ICC from executing trades on a day during which the individual knows
or should have known that a Fund in the individual's complex has a pending "buy"
or "sell" order in the same security, subject to certain exceptions. The ICC
Code of Ethics also requires pre-clearance for purchases of securities in an
initial public offering or private placement.

Investment Adviser

Bankers Trust is the Portfolio's investment adviser. Bankers Trust is a wholly
owned subsidiary of Deutsche Bank. Deutsche Bank is a banking company with
limited liability organized under the laws of the Federal Republic of Germany.
Deutsche Bank is the parent company of a group consisting of banks, capital
markets companies, fund management companies, mortgage banks, a
_______________________

/5/ Mssrs. Herring, Langton and Van Benschoten were elected to the Board of
Trustees on October 8, 1999; therefore, they did not receive any compensation
from the Trust in the last fiscal year.

Page 37 of 54
<PAGE>

property finance company, installment financing and leasing companies, insurance
companies, research and consultancy companies and other domestic and foreign
companies.

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.

For the fiscal year ended September 30, 1999, Bankers Trust earned $__________
for compensation of investment advisory services provided to the Portfolio. For
the same period, Bankers Trust reimbursed $__________ to the Portfolio to cover
expenses.

At a Special Meeting held on October 8, 1999, shareholders of the Portfolio also
approved a new investment advisory agreement with Morgan Grenfell, Inc. As of
October 5, 1999, Morgan Grenfell, Inc. has been renamed Deutsche Asset
Management Inc. ("DAMI"). The new investment advisory agreement with DAMI may be
implemented within two years of the date of the Special Meeting upon approval of
a majority of the members of the Board of Trustees who are not "interested
persons" ("Independent Trustees"). Shareholders of the Portfolio also approved a
new sub-investment advisory agreement among the Portfolio, DAMI and Bankers
Trust under which Bankers Trust may perform certain of DAMI's responsibilities,
at DAMI's expense, upon approval of the Independent Trustees, within two years
of the date of the Special Meeting. DAMI is a subsidiary of Deutsche Asset
Management Ltd., a wholly owned subsidiary of Deutsche Morgan Grenfell Group
PLC, an investment holding company which is, in turn, a wholly owned subsidiary
of Deutsche Bank.

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 the Portfolio. Bankers Trust will generally
assist in all aspects of the Fund's and Portfolio's operations; supply and
maintain office facilities (which may be in Bankers Trust's own offices),
statistical and research data, data processing services, clerical, accounting,
bookkeeping and record keeping 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

Page 38 of 54
<PAGE>

documentation for meetings of the Board of Trustees; provide monitoring reports
and assistance regarding compliance with Declarations of Trust, by-laws,
investment objectives and policies and with Federal and state securities laws;
arrange for appropriate insurance coverage; calculate net asset values, net
income and realized capital gains or losses; and negotiate arrangements with,
and supervise and coordinate the activities of, agents and others to supply
services.

For the fiscal year ended September 30, 1999, Bankers Trust earned $__________
as compensation for administrative and other services provided to the Fund.
During the same period, Bankers Trust reimbursed $__________to the Fund to cover
expenses.

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.

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 Two Portland
Square, Portland, Maine 04101.

Service Agent

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

Page 39 of 54
<PAGE>

Each Service Agent has agreed to transmit to shareholders, who are its
customers, appropriate disclosures of any fees that it may charge them directly.

Use of Name

The Trust and Bankers Trust have agreed that the Trust may use the letters "BT"
as part of its name for so long as Bankers Trust serves as investment adviser to
the Portfolio. The Trust has acknowledged that the letters "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 letters "BT" as part of its name. If this were to occur, the
Trustees would select an appropriate new name for the Trust, but there would be
no other material effect on the Trust, its shareholders or activities.

Banking Regulatory Matters

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

Counsel and Independent Accountants

Willkie Farr & Gallagher, 787 Seventh Avenue, New York, New York 10019-6099,
serves as counsel to the Trusts. Ernst & Young LLP, 787 Seventh Avenue, New
York, New York 10019, acts as independent accountants of the Fund and the
Portfolio.

ORGANIZATION OF THE TRUST

BT Investment Funds was organized on July 21, 1986, under the name BT Tax-Free
Investment Trust, and assumed its current name on May 16, 1988. The shares of
each series participate equally in the earnings, dividends and assets of the
particular series. The Trusts may create and issue additional series of shares.
Each Trust's Declaration of Trust permits the Trustees to divide or combine the
shares into a greater or lesser number of shares without thereby changing the
proportionate beneficial interest in series. Each share represents an equal
proportionate interest in a series with each other share. Shares when issued are
fully paid and non-assessable, except as set forth below. Shareholders are
entitled to one vote for each share held.

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

Page 40 of 54
<PAGE>

transferable but have no preemptive, conversion or subscription rights.
Shareholders generally vote by Fund, except with respect to the election of
Trustees.

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

Whenever a Trust is requested to vote on matters pertaining to a Portfolio, the
Trust will vote its shares without a meeting of shareholders of the respective
Fund if the proposal is one, which if made with respect to the Fund, would not
require the vote of shareholders of the Fund as long as such action is
permissible under applicable statutory and regulatory requirements. For all
other matters requiring a vote, a Trust will hold a meeting of shareholders of
its respective Fund and, at the meeting of the investors in the Portfolio, the
Trust will cast all of its votes in the same proportion as votes in all its
shares at the Portfolio meeting, other investors with a greater pro rata
ownership of the Portfolio could have effective voting control of the operations
of the Portfolio.

TAXATION

Taxation of the Fund

The Fund intends to qualify annually to be treated as a regulated investment
company under the Code. To qualify for that treatment, the Fund must, among
other things, (a) derive at least 90% of its gross income each taxable year from
dividends, interest, payments with respect to securities loans and gains from
the sale or other disposition of securities or foreign currencies, or other
income (including gains from options, futures or forward contracts) derived with
respect to its business of investing in securities or those currencies (the
"Income Requirement"), (b) diversify its holdings so that, at the end of each
quarter of its taxable year, (i) at least 50% of the value of its assets is
represented by cash and cash items (including receivables), U.S. government
securities, securities of other regulated investment companies and other
securities, with such other securities of any one issuer limited to an amount
not greater than 5% of the value of the Fund's total assets and not greater than
10% of the issuer's outstanding voting securities and (ii) not more than 25% of
the value of its total assets is invested in the securities of any one issuer
(other than U.S. government securities or the securities of other regulated
investment companies), and (c) distribute for each taxable year at least 90% of
its investment company taxable income (generally consisting of interest,
dividends and the excess of net short-term capital gain over net long-term
capital loss).

Page 41 of 54
<PAGE>

The Fund will be subject to a nondeductible 4% federal excise tax to the extent
it fails to distribute by the end of any calendar year substantially all of its
ordinary income for that year and capital gain net income for the one-year
period ending on October 31 of that year, plus any undistributed amount from the
prior year.

The Fund, as an investor in the Portfolio, will be deemed to own a proportionate
share of the Portfolio's assets, and to earn a proportionate share of the
Portfolio's income, for purposes of determining whether the Fund satisfies all
the requirements described above to qualify as a regulated investment company.
See the next section for a discussion of the tax consequences to the Fund of
hedging transactions engaged in by the Portfolio.

Taxation of the Portfolio

The Portfolio will be treated as a separate partnership for federal income tax
purposes and will not be a "publicly traded partnership." As a result, the
Portfolio will not be subject to federal income tax. Instead, the Fund and other
investors in the Portfolio will be required to take into account, in computing
their federal income tax liability, their respective shares of the Portfolio's
income, gains, losses, deductions and credits, without regard to whether they
have received any cash distributions from the Portfolio. The Portfolio also will
not be subject to state income or franchise tax.

Because, as noted above, the Fund will be deemed to own a proportionate share of
the Portfolio's assets, and to earn a proportionate share of the Portfolio's
income, for purposes of determining whether the Fund satisfies the requirements
to qualify as a regulated investment company, the Portfolio intends to conduct
its operations so that the Fund will be able to satisfy all those requirements.

Distributions received by the Fund from the Portfolio (whether pursuant to a
partial or complete withdrawal or otherwise) generally will not result in the
Fund's recognizing any gain or loss for federal income tax purposes, except that
(a) gain will be recognized to the extent any cash that is distributed exceeds
the Fund's basis for its interest in the Portfolio prior to the distribution,
(b) income or gain will be realized if the distribution is in liquidation of the
Fund's entire interest in the Portfolio and includes a disproportionate share of
any unrealized receivables held by the Portfolio, and (c) gain or loss will be
recognized if a liquidation distribution consists solely of cash and/or
unrealized receivables. The Fund's basis for its interest in the Portfolio
generally will equal the amount of cash and the basis of any property the Fund
invests in the Portfolio, increased by the Fund's share of the Portfolio's net
income and gains and decreased by (i) the amount of any cash and the basis of
any property distributed from the Portfolio to the Fund and (ii) the Fund's
share of the Portfolio's losses, if any.

The Portfolio's use of hedging strategies, such as writing (selling) and
purchasing options and futures contracts, involves complex rules that will
determine for income tax purposes the amount, character and timing of
recognition of the gains and losses it realizes in connection therewith. Gains
from options and futures contracts derived by the Portfolio with respect to its
business of investing in securities will qualify as permissible income for the
Fund under the Income Requirement.

Certain futures and foreign currency contracts in which the Portfolio may invest
may be subject to section 1256 of the Code ("section 1256 contracts"). Any
section 1256 contracts held by the

Page 42 of 54
<PAGE>

Portfolio at the end of each taxable year, other than contracts subject to a
"mixed straddle" election made by the Portfolio, must be "marked-to-market"
(that is, treated as having been sold at that time for their fair market value)
for federal income tax purposes, with the result that unrealized gains or losses
will be treated as though they were realized. Sixty percent of any net gain or
loss recognized on these deemed sales, and 60% of any net realized gain or loss
from any actual sales of section 1256 contracts, will be treated as long-term
capital gain or loss, and the balance will be treated as short-term capital gain
or loss. Section 1256 contracts also may be marked-to-market for purposes of the
4% excise tax mentioned previously.

Code section 1092 (dealing with straddles) also may affect the taxation of
options and futures contracts in which the Portfolio may invest. Section 1092
defines a "straddle" as offsetting positions with respect to personal property;
for these purposes, options and futures contracts are personal property. Under
that section, any loss from the disposition of a position in a straddle
generally may be deducted only to the extent the loss exceeds the unrealized
gain on the offsetting position(s) of the straddle; in addition, these rules may
apply to postpone the recognition of loss that otherwise would be recognized
under the mark-to-market rules discussed above. The regulations under section
1092 also provide certain "wash sale" rules, which apply to transactions where a
position is sold at a loss and a new offsetting position is acquired within a
prescribed period, and "short sale" rules applicable to straddles. If the
Portfolio makes certain elections, the amount, character and timing of
recognition of gains and losses from the affected straddle positions would be
determined under rules that vary according to the elections made. Because only a
few of the regulations implementing the straddle rules have been promulgated,
the tax consequences to the Portfolio of straddle transactions are not entirely
clear.

If the Portfolio has an "appreciated financial position" -- generally, an
interest (including an interest through an option, futures or forward contract,
or short sale) with respect to any debt instrument (other than "straight debt")
or partnership interest the fair market value of which exceeds its adjusted
basis -- and enters into a "constructive sale" of the same or substantially
similar property, the Portfolio will be treated as having made an actual sale
thereof, with the result that gain will be recognized at that time. A
constructive sale generally consists of a short sale, an offsetting notional
principal contract, or a futures or forward contract entered into by the
Portfolio or a related person with respect to the same or substantially similar
property. In addition, if the appreciated financial position is itself a short
sale or such a contract, acquisition of the underlying property or substantially
similar property will be deemed a constructive sale. The foregoing will not
apply, however, to any transaction during any taxable year that otherwise would
be treated as a constructive sale if the transaction is closed within 30 days
after the end of that year and the Portfolio holds the appreciated financial
position unhedged for 60 days after that closing (i.e., at no time during that
60-day period is the Portfolio's risk of loss regarding that position reduced by
reason of certain specified transactions with respect to substantially similar
or related property, such as having an option to sell, being contractually
obligated to sell, making a short sale or granting an option to buy
substantially identical stock or securities).

Other Taxation

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

Page 43 of 54
<PAGE>

("RIC") under Subchapter M of the Code. The investment by the Fund in the
Portfolio should 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.

If the Fund fails to qualify as a RIC for any taxable year, all of its taxable
income will be subject to tax at regular corporate income tax rates without any
deduction for distributions to shareholders and such distributions generally
will be taxable to shareholders as ordinary dividends to the extent of the
Fund's current and accumulated earnings and profits. In this event,
distributions generally will be eligible for the dividends-received deduction
for corporate shareholders.

Foreign Withholding Taxes

Income received and gains realized by the Portfolio from sources within foreign
countries may be subject to withholding and other taxes imposed by those
countries that would reduce the yield and/or total return on its securities.
Tax conventions between certain countries and the United States may reduce or
eliminate these foreign taxes, however, and many foreign countries do not impose
taxes on capital gains in respect of investments by foreign investors.

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

Page 44 of 54
<PAGE>

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'S CORPORATE BOND RATINGS:
- -------------------------------------------

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

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

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

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

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

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

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

Page 45 of 54
<PAGE>

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

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

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

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

Plus (+) or minus (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.

DUFF & PHELPS' LONG-TERM DEBT RATINGS:
- -------------------------------------

<TABLE>
<S> <C>
- --------------------------------------------------------------------------------
AAA Highest credit quality. The risk factors are negligible, being
only slightly more than for risk-free U.S. Treasury debt.
- --------------------------------------------------------------------------------
AA+, AA, AA- High credit quality. Protection factors are strong. Risk is
modest but may vary slightly from time to time because of
economic conditions.
- --------------------------------------------------------------------------------
A+, A, A- Protection factors are average but adequate. However, risk
factors are more variable and greater in periods of economic
stress.
- --------------------------------------------------------------------------------
BBB+, BBB, BBB- Below-average protection factors but still considered
sufficient for prudent investment. Considerable variability in
risk during economic cycles.
- --------------------------------------------------------------------------------
BB+, BB, BB- Below investment grade but deemed likely to meet obligation
when due. Present or prospective financial protection factors
fluctuate according to industry conditions or company fortunes.
Overall quality may move up or down frequently within this
category.
- --------------------------------------------------------------------------------
B+, B, B- Below investment grade and possessing risk that obligations
will not be met when due. Financial protection factors will
fluctuate widely according to economic cycles, industry
conditions and/or company fortunes. Potential exists for
frequent changes in the rating within this category or into a
higher or lower rating grade.
- --------------------------------------------------------------------------------
CCC Well below investment-grade securities. Considerable
uncertainty exists as to timely payment of principal, interest
or preferred dividends. Protection factors are narrow and risk
can be substantial with unfavorable economic/industry
conditions, and/or with unfavorable company developments.
- --------------------------------------------------------------------------------
DD Defaulted debt obligations. Issuer failed to meet scheduled
principal and/or interest payments.
- --------------------------------------------------------------------------------
DP Preferred stock with dividend arrearages.
================================================================================
</TABLE>

DESCRIPTION OF MOODY'S SHORT-TERM DEBT RATINGS:
- ----------------------------------------------

Page 46 of 54
<PAGE>

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 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.

DESCRIPTION OF S&P SHORT-TERM ISSUER CREDIT RATINGS:
- ---------------------------------------------------

A-1 An obligor rated 'A-1' has STRONG capacity to meet its financial
commitments. It is rated in the highest category by Standard & Poor's. Within
this category, certain obligors are designated with a plus sign (+). This
indicates that the obligor's capacity to meet its financial commitments is
EXTREMELY STRONG.

A-2 An obligor rated 'A-2' has SATISFACTORY capacity to meet its financial
commitments. However, it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than obligors in the highest
rating category.

A-3 An obligor rated 'A-3' has ADEQUATE capacity to meet its financial
obligations. However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its financial
commitments.

DESCRIPTION OF DUFF & PHELPS' COMMERCIAL PAPER RATINGS:
- ------------------------------------------------------

D-1+ Highest certainty of timely payment. Short term liquidity, including
internal operating factors and/or access to alternative sources of funds, is
outstanding, and safety is just below risk free U.S. Treasury short term
obligations.

D-1 Very high certainty of timely payment. Liquidity factors are excellent and
supported by good fundamental protection factors. Risk factors are minor.

D-1- High certainty of timely payment. Liquidity factors are strong and
supported by good fundamental protection factors. Risk factors are very small.

D-2 Good certainty of timely payment. Liquidity factors and company
fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small.

Page 47 of 54
<PAGE>

D-3 Satisfactory liquidity and other protection factors qualify issues as to
investment grade. Risk factors are larger and subject to more variation.
Nevertheless, timely payment is expected.

DESCRIPTION OF MOODY'S INSURANCE FINANCIAL STRENGTH RATINGS:
- -----------------------------------------------------------

Aaa. Insurance companies rated Aaa offer exceptional financial security. While
the financial strength of these companies is likely to change, such changes as
can be visualized are most unlikely to impair their fundamentally strong
position.

Aa. Insurance companies rated Aa offer excellent financial security. Together
with the Aaa group they constitute what are generally known as high grade
companies. They are rated lower than Aaa companies because long-term risks
appear somewhat larger.

A. Insurance companies rated A offer good financial security. However, elements
may be present which suggest a susceptibility to impairment sometime in the
future.

Baa. Insurance companies rated Baa offer adequate financial security. However,
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time.

Ba. Insurance companies rated Ba offer questionable financial security. Often
the ability of these companies to meet policyholder obligations maybe very
moderate and thereby not well safeguarded in the future.

B. Insurance companies rated B offer poor financial security. Assurance of
punctual payment of policyholder obligations over any long period of time is
small.

Caa. Insurance companies rated Caa offer very poor financial security. They may
be in default on their policyholder obligations or there may be present elements
of danger with respect to punctual payment of policyholder obligations and
claims.

Ca. Insurance companies rated Ca offer extremely poor financial security. Such
companies are often in default on their policyholder obligations or have other
marked shortcomings.

C. Insurance companies rated C are the lowest rated class of insurance company
and can be regarded as having extremely poor prospects of ever offering
financial security.

Numeric modifiers: Numeric modifiers are used to refer to the ranking within the
group -- one being the highest and three being the lowest. However, the
financial strength of companies within a generic rating symbol (Aa, for example)
is broadly the same.

DESCRIPTION OF S&P CLAIMS PAYING ABILITY RATING DEFINITIONS:
- -----------------------------------------------------------

Secure Range: AAA to BBB

"AAA" Superior financial security on an absolute and relative basis. Capacity
to meet policyholder obligations is overwhelming under a variety of economic and
underwriting conditions.

"AA" Excellent financial security. Capacity to meet policyholder obligations
is strong under a variety of economic and underwriting conditions.

"A" Good financial security, but capacity to meet policyholder obligations is
somewhat susceptible to adverse economic and underwriting conditions.

Page 48 of 54
<PAGE>

"BBB" Adequate financial security, but capacity to meet policyholder
obligations is susceptible to adverse economic and underwriting conditions.

Vulnerable Range: BB to CCC

"BB" Financial security may be adequate, but capacity to meet policyholder
obligations, particularly with respect to long-term or "long-tail" policies, is
vulnerable to adverse economic and underwriting conditions.

"B" Vulnerable financial security. Currently able to meet policyholder
obligations, but capacity to meet policyholder obligations is particularly
vulnerable to adverse economic and underwriting conditions.

"CCC" Extremely vulnerable financial security. Continued capacity to meet
policyholder obligations is highly questionable unless favorable economic and
underwriting conditions prevail.

"R" Regulatory action. As of the date indicated, the insurer is under
supervision of insurance regulators following rehabilitation, receivership,
liquidation, or any other action that reflects regulatory concern about the
insurer's financial condition. Information on this status is provided by the
National Association of Insurance Commissioners and other regulatory bodies.
Although believed to be accurate, this information is not guaranteed. The "R"
rating does not apply to insurers subject only to nonfinancial actions such as
market conduct violations.

Plus (+) or minus (-) Ratings from "AA" to "B" may be modified by the addition
of a plus or minus sign to show relative standing within the major rating
categories.

DUFF & PHELPS' CLAIMS PAYING ABILITY RATINGS:
- --------------------------------------------

<TABLE>
<S> <C>
================================================================================
AAA Highest claims paying ability. Risk factors are negligible.
- --------------------------------------------------------------------------------
AA+ Very high claims paying ability. Protection factors are strong.
Risk is modest, but may vary slightly over time due to economic
AA and/or underwriting conditions.

AA-
- --------------------------------------------------------------------------------
A+ High claims paying ability. Protection factors are average and
there is an expectation of variability in risk over time due to
A economic and/or underwriting conditions.

A-
- --------------------------------------------------------------------------------
BBB+ Adequate claims paying ability. Protection factors are adequate.
There is considerable variability in risk over time due to
BBB economic and/or underwriting conditions.

BBB-
- --------------------------------------------------------------------------------
BB+ Uncertain claims paying ability and less than investment grade
quality. However, the company is deemed likely to meet these
BB obligations when due. Protection factors will vary widely with
changes in economic and/or underwriting
BB-
</TABLE>

Page 49 of 54
<PAGE>

<TABLE>
<S> <C>
- --------------------------------------------------------------------------------
conditions.

- --------------------------------------------------------------------------------
B+ Possessing risk that policyholder and contractholder obligations
will not be paid when due. Protection factors will vary widely
B with changes in economic and underwriting conditions or company
fortunes.
B-

- --------------------------------------------------------------------------------
CCC There is substantial risk that policyholder and contractholder
obligations will not be paid when due. Company has been or is
likely to be placed under state insurance department supervision.

- --------------------------------------------------------------------------------
DD Company is under an order of liquidation.

================================================================================
</TABLE>

Page 50 of 54
<PAGE>

Investment Adviser of the Portfolio and Administrator
BANKERS TRUST COMPANY

Distributor
ICC DISTRIBUTORS, INC.

Custodian and Transfer Agent
BANKERS TRUST COMPANY

Independent Accountants
ERNST & YOUNG LLP

Counsel
WILLKIE FARR & GALLAGHER

____________________

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

____________________
CUSIP #055922660

[PRODUCT CODE] (1/2000)

Page 51 of 54
<PAGE>

STATEMENT OF ADDITIONAL INFORMATION

January 31, 2000

BT Investment Funds

. Pacific Basin Equity Fund
. Latin American Equity 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 the following funds - Pacific Basin Equity Fund and Latin American
Equity Fund (each, a "Fund" and together the "Funds") - are described herein.
Each of the Funds is a separate series of the Trust.

Unlike other mutual funds, the Trust seeks to achieve the investment objective
of each Fund by investing all the investable assets ("Assets") of the Fund in a
diversified open-end management investment company having the same investment
objectives as the Fund. These investment companies (or a series thereof) are,
respectively, Pacific Basin Equity Portfolio and Latin American Equity Portfolio
(collectively, the "Portfolios"). Pacific Basin Equity Portfolio and Latin
American Equity Portfolio are each a subtrust of BT Investment Portfolios (the
"Portfolio Trust").

Shares of each Fund are sold by ICC Distributors, Inc. ("ICC Distributors"), the
Trust's Distributor, to clients and customers (including affiliates and
correspondents) of Deutsche Asset Management Inc. ("DAMI"), the Portfolios'
investment adviser ("Adviser"), and to clients and customers of other
organizations. As appropriate, references to the Adviser herein apply to any
sub-adviser which may have day-to-day investment management responsibility for
the Portfolio.

The Trust's Prospectuses for each Fund are each dated January 31, 2000. The
Prospectuses provide the basic information investors should know before
investing. This Statement of Additional Information ("SAI"), which is not a
Prospectus, is intended to provide additional information regarding the
activities and operations of the Trust and should be read in conjunction with
that 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 Company ("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 Trust's Prospectuses. The financial statements for each Fund and
the corresponding Portfolio for the year ended September 30, 1999, as updated
through October 31, 1999, are incorporated herein by reference to the Annual
Report to shareholders for each Fund and each Portfolio dated September 30,
1999, as updated through October 31, 1999. A copy of each Fund's and the
corresponding Portfolio's Annual Report may be obtained without charge by
calling each Fund at the telephone number listed below.

DEUTSCHE ASSET MANAGEMENT INC.
Investment Adviser of the Portfolios
<PAGE>

BANKERS TRUST COMPANY
Administrator

ICC DISTRIBUTORS, INC.
Distributor
Two Portland Square
Portland, Maine 04101
(800) 730-1313

2
<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
<S> <C>
INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS............ 3
Investment Objectives..................................... 3
Investment Policies....................................... 3
Additional Risk Factors................................... 15
Investment Restrictions................................... 22
Portfolio Transactions and Brokerage Commissions.......... 24

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

VALUATION OF SECURITIES; REDEMPTIONS AND PURCHASES IN-KIND.. 28
Valuation of Securities................................... 28
Purchases of Shares....................................... 29
Minimum Investments....................................... 30
Additional Information About Buying Shares................ 31
Redemption of Shares...................................... 32
Additional Information About Selling Shares............... 33
Investor Services......................................... 33
Information Services...................................... 33
Exchange Privilege........................................ 34
Systematic Programs....................................... 34
Tax-Saving Retirement Plans............................... 35
Redemptions and Purchases in Kind......................... 35
Trading in Foreign Securities............................. 36

MANAGEMENT OF THE TRUST AND THE PORTFOLIOS.................. 36
Trustees of the Trust..................................... 37
Trustees of the Portfolios................................ 37
Officers of the Trust and Portfolios...................... 37
Trustee Compensation Table................................ 38
Investment Adviser........................................ 39
Sub-Investment Adviser.................................... 41
Administrator............................................. 41
Distributor............................................... 42
Service Agent............................................. 42
Custodian and Transfer Agent.............................. 42
Use of Name............................................... 43
Banking Regulatory Matters................................ 43
Counsel and Independent Accountants....................... 43

ORGANIZATION OF THE TRUST................................... 43

TAXATION.................................................... 45
Dividends and Distributions............................... 45
Taxation of the Funds..................................... 45
</TABLE>
<PAGE>

<TABLE>
<S> <C>
Foreign Securities........................................ 45
Taxation of the Portfolios................................ 46
Sale of Shares............................................ 46
Foreign Withholding Taxes................................. 46
Backup Withholding........................................ 47
Foreign Shareholders...................................... 47
Other Taxation............................................ 47

FINANCIAL STATEMENTS........................................ 47

APPENDIX.................................................... 48
</TABLE>

4
<PAGE>

INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS

Investment Objectives

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

Pacific Basin Equity Fund's investment objective is long-term capital
appreciation. The Fund will pursue this objective through investment primarily
in stocks and other equity securities of companies based in the Pacific Basin
region, other than Japan. It is expected under normal conditions that at least
65% of the Pacific Basin Equity Portfolio's assets will be invested in the
equity securities of issuers based in at least three countries in the Pacific
Basin.

Latin American Equity Fund's investment objective is long-term capital
appreciation. The Fund will pursue this objective through investment primarily
in stocks and other equity securities of companies based in Latin America.

Investment Policies

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

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

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.

Debt Securities. Although not a principal investment, each Portfolio may invest
in 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.
<PAGE>

Lower-quality foreign government debt securities are often considered to be
speculative and involve greater risk of default or price changes, or they may
already be in default. These risks are in addition to the general risks
associated with foreign securities. Pacific Basin Equity Portfolio expects to
invest in debt securities in one of the top four rating categories by Standard &
Poor's Ratings Service ("S&P") or Moody's Investors Service, Inc. ("Moody's"),
or comparably rated by another nationally recognized statistical rating
organization ("NRSRO"), or, if not rated by a NRSRO, of comparable quality as
determined by the Adviser at its sole discretion.

Fixed Income Investments. For purposes of seeking capital appreciation, each
Portfolio may invest up to 35% of its total assets in debt securities which are
rated at least C by S&P or Moody's or, if unrated, of comparable quality in the
opinion of DAMI. As an operating policy, which may be changed by the Board of
Trustees of BT Investment Portfolios, the Portfolio will not invest more than
10% of its total assets in debt securities rated BBB or lower by S&P or Baa or
lower by Moody's. Securities which are rated BBB by S&P or Baa by Moody's
possess speculative characteristics. Bonds rated C by S&P are of the lowest
quality and may be used when the issuer has filed a bankruptcy petition, but
debt payments are still being paid. Moody's lowest rating is C, which is applied
to bonds which have extremely poor prospects of ever attaining any real
investment standing. Certain debt securities can provide the potential for
capital appreciation based on various factors such as changes in interest rates,
economic and market conditions, improvement in an issuer's ability to repay
principal and pay interest and ratings upgrades. Additionally, convertible bonds
offer the potential for capital appreciation through the conversion feature,
which enables the holder of the bond to benefit from increases in the market
price of the securities into which they are convertible.

Lower-Rated Debt Securities ("Junk Bonds") Each 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.

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 Portfolios' ability to dispose of these securities.

Since the risk of default is higher for lower-rated debt securities, DAMI'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, DAMI 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. DAMI'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.

6
<PAGE>

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 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 a Portfolio. The Adviser expects,
however, that generally the preferred stocks in which a 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.

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

7
<PAGE>

agencies or instrumentalities are supported only by the credit of the entity
that issued them.

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. Each 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, each 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 a Portfolio experiences large cash
inflows through the sale of securities and desirable equity securities, that are
consistent with the Portfolio's investment objective, which are unavailable in
sufficient quantities or at attractive prices, each Portfolio may invest in
short-term instruments for a limited time pending availability of such portfolio
securities. Short-term instruments consist of U.S. and non-U.S.: (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 DAMI; (iii) commercial paper; (iv) bank
obligations, including negotiable certificates of deposit, time deposits and
banker's acceptances; and (v) repurchase agreements. At the time a 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 DAMI.
These instruments may be denominated in U.S. dollars or in foreign
currencies.

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

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

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

Brady Bonds. The Latin American Equity Portfolio may invest in "Brady bonds,"
which have been issued by the governments of Argentina, Brazil, Costa Rica,
Mexico, Nigeria, Philippines, Uruguay and Venezuela. Most Brady bonds are
currently rated below BBB by S&P or Baa by Moody's.

The Brady Plan was conceived by the U.S. Treasury in the 1980's in an attempt to
produce a debt restructuring program which would enable a debt country to (i)
reduce the absolute level of debt of its creditor banks, and (ii) reschedule its
external debt repayments, based upon its ability to service such debts by
persuading its creditor banks to accept a debt write-off by offering them a
selection of options, each of which represented an attractive substitute for the
nonperforming debt. Although it was envisaged that each debtor country would
agree to a unique package of options with its creditor banks, the plan was that
these options would be based upon the following: (i) a discount bond carrying a
market rate of interest (whether fixed or floating), with principal
collateralized by the debtor country with cash or securities in an amount equal
to at least one year of rolling interest; (ii) a par bond carrying a low rate of
interest (whether fixed or floating), collateralized in the same way as in (i)
above; and (iii) retention of existing debt (thereby avoiding a debt write-off)
coupled with an advance of new money or subscription of new bonds.

The Latin American Equity Portfolio 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.

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

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<PAGE>

considered speculative.

Illiquid Securities. Historically, illiquid securities have included securities
subject to contractual or legal restrictions on resale because they have not
been registered under the Securities Act of 1933, as amended (the "1933 Act"),
securities which are otherwise not readily marketable and repurchase agreements
having a 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 (the "SEC") has adopted Rule 144A,
which allows a broader institutional trading market for securities otherwise
subject to restriction on their resale to the general public. Rule 144A
establishes a "safe harbor" from the registration requirements of the 1933 Act
of resales of certain securities to qualified institutional buyers. The Adviser
anticipates that the market for certain restricted securities such as
institutional commercial paper will expand further as a result of this
regulation and the development of automated systems for the trading, clearance
and settlement of unregistered securities of domestic and foreign issuers, such
as the PORTAL System sponsored by the National Association of Securities
Dealers, Inc.

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

In reaching liquidity decisions, the Adviser will consider, among other things,
the following factors: (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).

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<PAGE>

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

Lending of Portfolio Securities. Each Portfolio has the authority to lend up to
30% of the total value of its portfolio securities to brokers, dealers and other
financial organizations. The Portfolios will not lend securities to DAMI, ICC
Distributors or their affiliates. By lending its securities, a Portfolio can
increase its income by continuing to receive interest on the loaned securities
as well as by either investing the cash collateral in short-term securities or
obtaining yield in the form of interest paid by the borrower when U.S.
government obligations are used as collateral. There may be risks of delay in
receiving additional collateral or risks of delay in recovery of the securities
or even loss of rights in the collateral should the borrower of the securities
fail financially. Each Portfolio will adhere to the following conditions
whenever its securities are loaned: (i) the Portfolio must receive at least 100
percent cash collateral or equivalent securities from the borrower; (ii) the
borrower must increase this collateral whenever the market value of the
securities including accrued interest rises above the level of the collateral;
(iii) the Portfolio must be able to terminate the loan at any time; (iv) the
Portfolio must receive reasonable interest on the loan, as well as any
dividends, interest or other distributions on the loaned securities, and any
increase in market value; (v) the Portfolio may pay only reasonable custodian
fees in connection with the loan; and (vi) voting rights on the loaned
securities may pass to the borrower; provided, however, that if a material event
adversely affecting the investment occurs, the Board of Trustees must terminate
the loan and regain the right to vote the securities. Cash collateral may be
invested in a money market fund managed by DAMI (or its affiliates) and DAMI may
serve as a Portfolio's lending agent and may share in revenue received from
securities lending transactions as compensation for this service.

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

Reverse Repurchase Agreements. In a reverse repurchase agreement, a 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 a Portfolio's borrowing restrictions.

Investment Companies. With respect to certain countries in which capital markets
are either less developed or not easily accessed, investments by a 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
above under "Short-Term Instruments," are limited in amount by the Investment
Company Act of 1940, as amended ("1940 Act") (except each 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 Latin American Equity 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.

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<PAGE>

Under the 1940 Act, a 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 a 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.

Warrants. Warrants are instruments which entitle the holder to buy underlying
equity securities at a specific price for a specific period of time. A warrant
tends to be more volatile than its underlying securities and ceases to have
value if it is not exercised prior to its expiration date. In addition, changes
in the value of a warrant do not necessarily correspond to changes in the value
of its underlying securities.

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

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<PAGE>

cannot effect a closing purchase transaction, it may be forced to incur
brokerage commissions or dealer spreads in selling securities it receives or it
may be forced to hold underlying securities until an option is exercised or
expires.

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

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

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.

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

A Portfolio may engage in over-the-counter options transactions with broker-
dealers who make markets in these options. The ability to terminate over-the-
counter option positions is more limited than with exchange-traded option
positions because the predominant market is the issuing broker rather than an
exchange, and may involve the risk that broker-dealers participating in such
transactions will not fulfill their obligations. To reduce

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<PAGE>

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 Portfolios'
Trustees. Unless the Trustees conclude otherwise, each Portfolio intends to
treat OTC options as not readily marketable and therefore subject to each
Portfolio's 15% limitation on investment in illiquid securities.

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

The Pacific Basin Equity Portfolio may, to the extent allowed by Federal and
state securities laws, invest in securities indices instead of investing
directly in individual foreign securities.

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

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

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

Options on Foreign Securities Indices. The Portfolio may purchase and write put
and call options on foreign stock indices listed on domestic and foreign stock
exchanges. The Portfolio may also purchase and write OTC Options on foreign
stock indices. These OTC Options would be subject to the same liquidity and
credit risks noted above with respect to OTC Options on foreign currencies. A
stock index fluctuates with changes in the market values of the stocks included
in the index.

OTC Options are purchased from or sold to securities dealers, financial
institutions or other parties (collectively referred to as "Counterparties" and
individually referred to as a "Counterparty") through direct bilateral agreement
with the Counterparty. In contrast to exchange listed options, which generally
have standardized terms and performance mechanics, all of the terms of an OTC
Option, including such terms as method of settlement, term, exercise price,
premium, guaranties and security, are set by negotiation of the parties.

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<PAGE>

Unless the parties provide for it, no central clearing or guaranty function is
involved in an OTC Option. As a result, if a Counterparty fails to make or take
delivery of the security, currency or other instrument underlying an OTC Option
it has entered into with the Portfolio or fails to make a cash settlement
payment due in accordance with the terms of that option, the Portfolio will lose
any premium it paid for the option as well as any anticipated benefit of the
transaction. Thus, the Adviser must assess the creditworthiness of each such
Counterparty or any guarantor or credit enhancement of the Counterparty's credit
to determine the likelihood that the terms of the OTC Option will be met.

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

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

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

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

Forward Currency Exchange Contracts. A forward currency exchange contract is an
obligation by a Portfolio to purchase or sell a specific currency at a future
date, which may be any fixed number of days from the date of the contract.
Forward currency exchange contracts establish an exchange rate at a future date.
These contracts are transferable in the interbank market conducted directly
between currency traders (usually large commercial

15
<PAGE>

banks and brokerages) and their customers. A forward currency exchange contract
may not have a deposit requirement and may be traded at a net price without
commission. Each Portfolio maintains with its custodian a segregated account of
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 a
Portfolio's securities or in foreign exchange rates, or prevent loss if the
prices of these securities should decline.

Each Portfolio may enter into currency hedging transactions in an attempt to
protect against changes in currency exchange rates between the trade and
settlement dates of specific securities transactions or changes in currency
exchange rates that would adversely affect a portfolio position or an
anticipated investment position. Since consideration of the prospect for
currency parities will be incorporated into the Adviser's long-term investment
decisions, a Portfolio will not routinely enter into currency hedging
transactions with respect to security transactions; however the Adviser believes
that it is important to have the flexibility to enter into currency hedging
transactions when it determines that the transactions would be in a 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 Commodity Futures
Trading Commission ("CFTC"), the CFTC may in the future assert authority to
regulate forward contracts. In such event a Portfolio's ability to utilize
forward contracts may be restricted. Forward contracts may reduce the potential
gain from a positive change in the relationship between the U.S. dollar and
foreign currencies. Unanticipated changes in currency prices may result in
poorer overall performance for a Portfolio than if it had not entered into such
contracts. The use of currency forward contracts may not eliminate fluctuations
in the underlying U.S. dollar equivalent value of the prices of or rates of
return on a Portfolio's foreign currency denominated portfolio securities and
the use of such techniques will subject a Portfolio to certain risks.

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

Options on Foreign Currencies. Each Portfolio may purchase and write options on
foreign currencies for hedging purposes in a manner similar to that in which
futures contracts on foreign currencies, or forward

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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, a Portfolio may purchase put options on the foreign
currency. If the value of the currency does decline, a Portfolio will have the
right to sell such currency for a fixed amount in dollars and will thereby
offset, in whole or in part, the adverse effect on its portfolio which otherwise
would have resulted.

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

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

Similarly, instead of purchasing a call option to hedge against an anticipated
increase in the dollar cost of securities to be acquired, a 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, a Portfolio also may be required to forego all
or a portion of the benefits which might otherwise have been obtained from
favorable movements in exchange rates.

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

Each Portfolio also may write call options on foreign currencies that are not
covered for cross-hedging purposes. A call option on a foreign currency is for
cross-hedging purposes if it is not covered, but is designed to provide a hedge
against a decline in the U.S. dollar value of a security which the Portfolio
owns or has the right to acquire and which is denominated in the currency
underlying the option due to an adverse change in the

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exchange rate. In such circumstances, the Portfolio collateralizes the option by
maintaining in a segregated account with its custodian, cash or liquid
securities in an amount not less than the value of the underlying foreign
currency in U.S. dollars marked to market daily.

Futures Contracts and Options on Futures Contracts.

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

Futures Contracts. Futures contracts are contracts to purchase or sell a fixed
amount of an underlying instrument, commodity or index at a fixed time and place
in the future. U.S. futures contracts have been designed by exchanges which have
been designated "contracts markets" by the CFTC, and must be executed through a
futures commission merchant, or brokerage firm, which is a member of the
relevant contract market. Futures contracts trade on a number of exchanges and
clear through their clearing corporations. A Portfolio may enter into contracts
for the purchase or sale for future delivery of fixed-income securities, foreign
currencies, or financial indices including any index of U.S. government
securities, foreign government securities or corporate debt securities. A
Portfolio may enter into futures contracts which are based on debt securities
that are backed by the full faith and credit of the U.S. Government, such as
long-term U.S. Treasury Bonds, Treasury Notes, Government National Mortgage
Association ("GNMA") modified pass-through mortgage-backed securities and three-
month U.S. Treasury Bills. A Portfolio may also enter into futures contracts
which are based on bonds issued by governments other than the U.S. government.
Futures contracts on foreign currencies may be used to hedge against securities
that are denominated in foreign currencies.

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

The 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

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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 most
participants entering into offsetting transactions rather than making or taking
delivery. To the extent that many participants decide to make or take delivery,
liquidity in the futures market could be reduced, thus producing distortion.
Third, from the point of view of speculators, the margin deposit requirements in
the futures market are less onerous than margin 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 or currency exchange
rate trends by the Adviser may still not result in a successful transaction.

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

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

The writing of a call option on a futures contract may constitute a partial
hedge against declining prices of portfolio securities which are the same as or
correlate with the security or currency which is deliverable upon exercise of
the futures contract. If the futures price at expiration of the option is below
the exercise price, a Portfolio will retain the full amount of the option
premium which provides a partial hedge against any decline that may have
occurred in the Portfolio's portfolio holdings. The writing of a put option on a
futures contract may constitute a partial hedge against increasing prices of
intended portfolio securities which are the same as or correlate with the
security or foreign currency which is deliverable upon exercise of the futures
contract. If the futures price at expiration of the option is higher than the
exercise price, the Portfolio will retain the full amount of the option premium
which provides a partial hedge against any increase in the price of securities
which the

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<PAGE>

Portfolio intends to purchase. If a put or call option a Portfolio has written
is exercised, the Portfolio will incur a loss which will be reduced by the
amount of the premium it receives. Depending on the degree of correlation
between changes in the value of its portfolio securities and changes in the
value of its futures positions, the Portfolio's losses from existing options on
futures may to some extent be reduced or increased by changes in the value of
portfolio securities.

The amount of risk a Portfolio assumes when it purchases an option on a futures
contract is the premium paid for the option plus related transaction costs. In
addition to the correlation risks discussed 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.

Futures Contracts on Domestic and Foreign Securities Indices. Each Portfolio may
enter into futures contracts providing for cash settlement based upon changes in
the value of an index of domestic or foreign securities. 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 change in general market prices which otherwise might
either adversely affect the value of securities held by the Portfolio or
adversely affect the prices of securities which are intended to be purchased at
a later date for the Portfolio.

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

Although futures contracts on securities indices would be entered into for
hedging purposes only, such transactions do involve certain risks. These risks
include a lack of correlation between the futures contract and the foreign
equity market being hedged, and incorrect assessments of market trends which may
result in poorer overall performance than if a futures contract had not been
entered into.

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

Investment Restrictions on Futures Transactions. A Portfolio will not enter into
any futures contracts or options on futures contracts if immediately thereafter
the amount of margin deposits on all the futures contracts of the Portfolio and
premiums paid on outstanding options on futures contracts owned by the Portfolio
(other than those entered into for bona fide hedging purposes) would exceed 5%
of the Portfolio's net asset value, after taking into account unrealized profits
and unrealized losses on any such contracts.

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Additional Risk Factors

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

Foreign Securities. Each portfolio will, under normal market conditions, invest
a significant portion of its assets in foreign securities. Investors should
realize that investing in securities of foreign issuers involves considerations
not typically associated with investing in securities of companies organized and
operated in the United States. Investors should realize that the value of a
Portfolio's foreign investments may be adversely affected by changes in
political or social conditions, diplomatic relations, confiscatory taxation,
expropriation, nationalization, limitation on the removal of funds or assets, or
imposition or (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 a
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 or gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency or 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 a 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 a 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, a Portfolio is also authorized to enter into
certain foreign exchange transactions. Furthermore, a 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 risks involved when investing in emerging markets are of a
nature generally not encountered when investing in securities traded on major
international 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, Singapore, Spain, Sweden, Switzerland, the United Kingdom, and
the United States; the world's emerging markets generally include but are not
limited to the following: Argentina, Bolivia, Brazil, Bulgaria, Chile, China,
Colombia, Costa Rica, the Czech Republic, Ecuador, Egypt, Greece, Hungary,
India, Indonesia, Israel, the Ivory Coast, Jordan, Malaysia, Mexico, Morocco,
Nicaragua, Nigeria, Pakistan, Peru, the Philippines, Poland, Portugal, Romania,
Russia, Slovakia, Slovenia, South Africa, South Korea, Sri Lanka, Taiwan,
Thailand, Turkey, Uruguay, Venezuela, Vietnam and Zimbabwe.

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<PAGE>

Investment in securities of issuers based in underdeveloped emerging markets
entails all of the risks of investing in securities of foreign issuers outlined
in the above section to a heightened degree. These heightened risks include: (i)
greater risks of expropriation, confiscatory taxation, nationalization, and less
social, political and economic stability; (ii) the smaller size of the market
for such securities and a low or nonexistent volume of trading, resulting in
lack of liquidity and in price volatility; (iii) certain national policies which
may restrict a Portfolio's investment opportunities including restrictions on
investing in issuers or industries deemed sensitive to relevant national
interests; (iv) accounting, auditing and financial reporting standards
applicable can be less demanding than the levels acceptable in the United States
which can result in incomplete company information; and (v) in the case of
Eastern Europe and in China and other Asian countries, the absence of developed
capital markets and legal structures governing private or foreign investment and
private property and the possibility that recent favorable economic and
political developments could be slowed or reversed by unanticipated events.

Although external debt in most emerging markets is generally falling, it remains
at high levels. This acts as a depressant on economic growth and limits access
to global savings. As a result, many emerging markets are reliant on foreign
capital inflows for fund development. During periods of uncertainty, foreign
capital may be withdrawn from these economies, causing financial market
weakness.

Investments in certain countries may require government approval which may
restrict the size and nature of investments. These restrictions may limit a
Portfolio's access to certain emerging markets. Additionally, the Adviser may be
required to obtain government consent to redeem a Portfolio's capital and
profits. Therefore, a Portfolio could encounter delays or refusals to grant
permission for money to be removed from the country. This could impact the
amount of cash available to meet shareholder redemptions.

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 a 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.

It should be noted that developments affecting emerging market investments
cannot always be foreseen. Therefore, a shareholder may find it difficult to
protect their investments against risk.

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.

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<PAGE>

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.

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

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<PAGE>

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.

The securities markets in Asia are substantially smaller, less liquid and more
volatile than the major securities markets in the United States. A high
proportion of the shares of many issuers may be held by a limited number of
persons and financial institutions, which may limit the number of shares
available for investment by a Portfolio. Similarly, volume and liquidity in the
bond markets in Asia are less than in the United States and, at times, price
volatility can be greater than in the United States. A limited number of issuers
in Asian securities markets may represent a disproportionately large percentage
of market capitalization and trading value. The limited liquidity of securities
markets in Asia may also affect a 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, a
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, a 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.

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<PAGE>

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 a
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 a 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 a Portfolio in
particular securities.

China does not have a comprehensive system of laws, although substantial changes
have occurred in this regard in recent years. The corporate form of organization
has only recently been permitted in China and national regulations governing
corporations were introduced only in May 1992. Prior to the introduction of such
regulations, Shanghai had adopted a set of corporate regulations applicable to
corporations located or listed in Shanghai, and the relationship between the two
sets of regulations is not clear. Consequently, until a firmer legal basis is
provided, even such fundamental corporate law tenets as the limited liability
status of Chinese issuers and their authority to issue shares remain open to
question. Laws regarding fiduciary duties of officers and directors and the
protection of shareholders are not well developed. China's judiciary is
relatively inexperienced in enforcing the laws that exist, leading to a higher
than usual degree of uncertainty as to the outcome of any litigation. Even where
adequate law exists in China, it may be impossible to obtain swift and equitable
enforcement of such law, or to obtain enforcement of the judgment by a court of
another jurisdiction.

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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.

Foreign Securities: Special Considerations Concerning Eastern Europe. The
Portfolios 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 a Portfolio's
investment opportunities, including restrictions on investment

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<PAGE>

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.

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

Forward Contracts and options on foreign currencies traded over-the-counter
involve liquidity and credit risks

27
<PAGE>

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

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

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

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.

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 the Adviser, 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

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<PAGE>

be harder to sell securities at an optimum time.

An economic downturn may adversely affect the value of some lower-rated long-
term bonds. Such a downturn may especially affect highly leveraged companies or
companies in cyclically sensitive industries, where deterioration in a company's
cash flow may impair its ability to meet its obligation to pay principal and
interest to bondholders in a timely fashion. From time to time, as a result of
changing conditions, issuers of lower-rated long-term bonds may seek or may be
required to restructure the terms and conditions of the securities they have
issued. As a result of these restructurings, holders of lower-rated 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, a 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 Latin American Equity
Portfolio will not invest more than 10% of its total assets (at the time of
purchase) in defaulted debt securities, which may be illiquid.

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

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

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<PAGE>

differences may result in differences in returns experienced by investors in the
different funds that invest in each Portfolio. Such differences in returns are
also present in other mutual fund structures. Information concerning other
holders of interests in each Portfolio is available from the BT Service Center
at 1-800-730-1313.

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

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

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

Each Fund's investment objective is not a fundamental policy and may be changed
upon notice to, but without the approval of, the Fund's shareholders. If there
is a change in 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 each Portfolio is also not a
fundamental policy. Shareholders of the Funds will receive 30 days prior written
notice with respect to any change in the investment objective of the Fund or the
corresponding 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 a Portfolio, an obligation may cease to be rated or its rating
may be reduced below the minimum required for purchase by the Portfolio. Neither
event would require a Portfolio to eliminate the obligation from its portfolio,
but the Adviser will consider such an event in its determination of whether a
Portfolio should continue to hold the obligation. A description of the ratings
is included in the Appendix herein.

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<PAGE>

Investment Restrictions

Fundamental Policies. The following investment restrictions are "fundamental
policies" of each Fund and each Portfolio and may not be changed with respect to
each Fund or 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, means, with respect to each Fund (or Portfolio), the lesser of (i) 67% or
more of the outstanding voting securities of the Fund (or of the total
beneficial interests of the corresponding Portfolio) present at a meeting, if
the holders of more than 50% of the outstanding voting securities of the Fund
(or of the total beneficial interests of the Portfolio) are present or
represented by proxy or (ii) more than 50% of the outstanding voting securities
of the Fund (or of the total beneficial interests of the Portfolio). Whenever
the Trust is requested to vote on a fundamental policy of a Portfolio, the Trust
will hold a meeting of the corresponding Fund's shareholders and will cast its
vote as instructed by that Fund's shareholders. Fund shareholders who do not
vote will not affect the Trust's votes at the Portfolio meeting. The percentage
of the Trust's votes representing Fund shareholders not voting will be voted by
the Trustees of the Trust in the same proportion as the Fund shareholders who
do, in fact, vote.

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

(1) borrow money or mortgage or hypothecate assets of the Portfolio (Fund),
except that in an amount not to exceed 1/3 of the current value of the
Portfolio's (Fund's) net assets, it may borrow money (but only as a
temporary measure for extraordinary or emergency purposes), 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 Portfolios may not engage in dollar-roll transactions);

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

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

(4) purchase or sell real estate (including limited partnership interests
but excluding securities secured by real estate or interests therein),
interests in oil, gas or mineral leases, commodities or commodity

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<PAGE>

contracts (except futures and option contracts) in the ordinary course of
business (except that the Portfolio (Fund) may hold and sell, for the
Portfolio's (Fund's) portfolio, real estate acquired as a result of the
Portfolio's (Fund's) ownership of securities);

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

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

(7) with respect to 75% of each Portfolio's (Fund'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. In order to comply with certain statutes and
policies, each Portfolio (or the Trust, on behalf of each Fund) will not as
a matter of operating policy (except that no operating policy shall prevent
a Fund from investing all of its Assets in an open-end investment company
with substantially the same investment objectives):

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

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

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

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

(v) 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

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<PAGE>

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;

(vi) 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 currently marketable (excluding Rule 144A securities deemed by the
Board of Trustees of the Portfolio (Trust) to be liquid).

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

(viii) 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.

Portfolio Transactions and Brokerage Commissions

Subject to the general supervision of the Board of Trustees, the Adviser makes
decisions with respect to and places orders for all purchases and sales of
portfolio securities for the Funds. In executing portfolio transactions, the
Adviser seeks to obtain the best net results for the Funds, taking into account
such factors as

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<PAGE>

price (including the applicable brokerage commission or dealer spread), size of
the order, difficulty of execution and operational facilities of the firm
involved. Commission rates, being a component of price, are considered together
with such factors. Where transactions are effected on a foreign securities
exchange, the Funds employ brokers, generally at fixed commission rates.
Commissions on transactions on U.S. securities exchanges are subject to
negotiation. Where transactions are effected in the over-the-counter market or
third market, the Funds deal with the primary market makers unless a more
favorable result is obtainable elsewhere. Fixed income securities purchased or
sold on behalf of the Funds normally will be traded in the over-the-counter
market on a net basis (i.e., without a commission) through dealers acting for
their own account and not as brokers or otherwise through transactions directly
with the issuer of the instrument. Some fixed income securities are purchased
and sold on an exchange or in over-the-counter transactions conducted on an
agency basis involving a commission.

Pursuant to the Investment Advisory Agreements, the Adviser agrees to select
broker-dealers in accordance with guidelines established by the Trust's Board of
Trustees from time to time and in accordance with Section 28(e) of the
Securities Exchange Act of 1934, as amended. In assessing the terms available
for any transaction, the Adviser shall consider all factors it deems relevant,
including the breadth of the market in the security, the price of the security,
the financial condition and execution capability of the broker-dealer, and the
reasonableness of any commission, if any, both for the specific transaction and
on a continuing basis. Consideration may also be given to the broker-dealer's
sales of shares of the Funds. In addition, the Investment Advisory Agreement
authorizes the Adviser, subject to the periodic review of the Trust's Board of
Trustees, to cause a Fund to pay a broker-dealer which furnishes brokerage and
research services a higher commission than that which might be charged by
another broker-dealer for effecting the same transaction, provided that the
Adviser determines in good faith that such commission is reasonable in relation
to the value of the brokerage and research services provided by such broker-
dealer, viewed in terms of either the particular transaction or the overall
responsibilities of the Adviser to the Fund. Such brokerage and research
services may consist of pricing information, reports and statistics on specific
companies or industries, general summaries of groups of bonds and their
comparative earnings and yields, or broad overviews of the securities markets
and the economy.

Supplemental research information utilized by the Adviser is in addition to, and
not in lieu of, services required to be performed by the Adviser and does not
reduce the advisory fees payable to the Adviser. The Trustees will periodically
review the commissions paid by the Funds to consider whether the commissions
paid over representative periods of time appear to be reasonable in relation to
the benefits inuring to the Funds. It is possible that certain of the
supplemental research or other services received will primarily benefit one or
more other investment companies or other accounts of the Adviser for which
investment discretion is exercised. Conversely, a Fund may be the primary
beneficiary of the research or services received as a result of portfolio
transactions effected for such other account or investment company.

For the period October 1, 1999 through October 31, 1999 and for the fiscal years
ended September 30, 1999, 1998 and 1997, Pacific Basin Equity Portfolio paid
brokerage commissions in the amount of $__________, $__________, $119,572 and
$398,743, respectively. For the period October 1, 1999 through October 31, 1999
and for the fiscal years ended September 30, 1999, 1998 and 1997, Latin American
Equity Portfolio paid brokerage commissions in the amount of $__________,
$__________, $183,892 and $69,625, respectively.

Investment decisions for each Fund and for other investment accounts managed by
the Adviser are made independently of each other in the light of differing
conditions. However, the same investment decision may be made for two or more of
such accounts. In such cases, simultaneous transactions are inevitable.
Purchases or

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<PAGE>

sales are then averaged as to price and allocated as to amount in a manner
deemed equitable to each such account. While in some cases this practice could
have a detrimental effect on the price value of the security as far as a Fund is
concerned, in other cases it is believed to be beneficial to a Fund. To the
extent permitted by law, the Adviser may aggregate the securities to be sold or
purchased for a Fund with those to be sold or purchased for other investment
companies or accounts in executing transactions.

Pursuant to procedures determined by the Trustees and subject to the general
policies of the Funds and Section 17(e) of the 1940 Act, the Adviser may place
securities transactions with brokers with whom it is affiliated ("Affiliated
Brokers"). These brokers may include but are not limited to Morgan Grenfell Asia
and Morgan Grenfell Debt Arbitrage Trading.

Section 17(e) of the 1940 Act limits to "the usual and customary broker's
commission" the amount which can be paid by the Funds to an Affiliated Broker
acting as broker in connection with transactions effected on a securities
exchange. The Board, including a majority of the Trustees who are not
"interested persons" of the Trust or the Adviser, has adopted procedures
designed to comply with the requirements of Section 17(e) of the 1940 Act and
Rule 17e-1 promulgated thereunder to ensure that the broker's commission is
"reasonable and fair compared to the commission, fee or other remuneration
received by other brokers in connection with comparable transactions involving
similar securities being purchased or sold on a securities exchange during a
comparable period of time...."

A transaction would not be placed with Affiliated Brokers if a Fund would have
to pay a commission rate less favorable than their contemporaneous charges for
comparable transactions for their other most favored, but unaffiliated,
customers except for accounts for which they act as a clearing broker, and any
of their customers determined, by a majority of the Trustees who are not
"interested persons" of the Fund or the Adviser, not to be comparable to the
Fund. With regard to comparable customers, in isolated situations, subject to
the approval of a majority of the Trustees who are not "interested persons" of
the Trust or the Adviser, exceptions may be made. Since the Adviser, as
investment adviser to the Funds, has the obligation to provide management, which
includes elements of research and related skills, such research and related
skills will not be used by them as a basis for negotiating commissions at a rate
higher than that determined in accordance with the above criteria. The Funds
will not engage in principal transactions with Affiliated Brokers. When
appropriate, however, orders for the account of the Funds placed by Affiliated
Brokers are combined with orders of their respective clients, in order to obtain
a more favorable commission rate. When the same security is purchased for two or
more funds or customers on the same day, each fund or customer pays the average
price and commissions paid are allocated in direct proportion to the number of
shares purchased.

Affiliated Brokers furnish to the Trust at least annually a statement setting
forth the total amount of all compensation retained by them or any associated
person of them in connection with effecting transactions for the account of the
Funds, and the Board reviews and approves all such portfolio transactions on a
quarterly basis and the compensation received by Affiliated Brokers in
connection therewith.

[add disclosure re: affiliated brokerage commissions, if applicable]

PERFORMANCE INFORMATION

Standard Performance Information

35
<PAGE>

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

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

<TABLE>
<CAPTION>
Annualized Total Cumulative Total
Annualized Total Annualized Total Return from Return from
Return for the One Return for the Five Commencement of Commencement of
Year Period ended Year Period ended Operations through Operations through
October 31, 1999 October 31, 1999 October 31, 1999 October 31, 1999
<S> <C> <C> <C> <C>
Pacific Basin % % % %
Equity Fund (1)
Latin American % % % %
Equity Fund (2)
</TABLE>

(1) Fund commenced operations on November 1, 1993.
(2) Fund commenced operations on October 25, 1993.

Performance Results: Total returns 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.

36
<PAGE>

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. A Fund's performance may be
compared to the performance of various indices and investments for which
reliable data is available. The Fund's performance may also be compared to
averages, performance rankings, or other information prepared by recognized
mutual fund statistical services. Evaluations of a Fund's performance made by
independent sources may also be used in advertisements concerning the Fund.
Sources for a Fund's performance information could include the following:

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

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

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

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

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

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

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

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

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

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

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

37
<PAGE>

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

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

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

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

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

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

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

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

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 a Fund may include discussions of economic,
financial and political developments and their effect on the securities market.
Such discussions may take the form of commentary on these developments by Fund
portfolio managers and their views and analysis on how such developments could
affect the Funds. In addition, advertising and sales literature may quote
statistics and give general information about the mutual fund industry,
including the growth of the industry, from sources such as the Investment
Company Institute ("ICI").

VALUATION OF SECURITIES; REDEMPTIONS AND PURCHASES IN KIND

Valuation of Securities

38
<PAGE>

The net asset value ("NAV") per Share is calculated once on each Valuation Day
as of the close of regular trading on the NYSE (the "Valuation Time"), which is
currently 4:00 p.m., Eastern time or in the event that the NYSE closes early, at
the time of such early closing. The NAV per Share is computed by dividing the
value of each Fund's assets (i.e., the value of its investment in the
corresponding Portfolio and other assets), less all liabilities attributable to
the Shares, by the total number of Shares outstanding as of the Valuation Time.
Each Portfolio's securities and other assets are valued primarily on the basis
of market quotations or, if quotations are not readily available, by a method
which the Portfolio's Board of Trustees believes accurately reflects fair value.

Under procedures adopted by the Board, a NAV for a Fund later determined to have
been inaccurate for any reason will be recalculated. Purchases and redemptions
made at a NAV determined to have been inaccurate will be adjusted, although in
certain circumstances, such as where the difference between the original NAV and
the recalculated NAV divided by the recalculated is 0.005 (1/2 of 1%) or less or
shareholder transactions are otherwise insubstantially affected, further action
is not required.

Equity and debt securities (other than short-term debt obligations maturing in
60 days or less), including listed securities and securities for which price
quotations are available, will normally be valued on the basis of market
valuations furnished by a pricing service. Such market valuations may represent
the last quoted price on the securities major trading exchange or may be
determined through use of matrix pricing. In matrix pricing, pricing services
may use various pricing models, involving comparable securities, historic
relative price movements, economic factors and dealer quotations. Over-the-
counter securities will normally be valued at the bid price. Short-term debt
obligations and money market securities maturing in 60 days or less are valued
at amortized cost, which approximates market.

Securities for which market quotations are not readily available are valued by
DAMI pursuant to procedures adopted by each Portfolio's Board of Trustees. It is
generally agreed that securities for which market quotations are not readily
available should not be valued at the same value as that carried by an
equivalent security which is readily marketable.

39
<PAGE>

The problems inherent in making a good faith determination of value are
recognized in the codification effected by SEC Financial Reporting Release No. 1
("FRR 1" (formerly Accounting Series Release No. 113)) which concludes that
there is "no automatic formula" for calculating the value of restricted
securities. It recommends that the best method simply is to consider all
relevant factors before making any calculation. According to FRR 1 such factors
would include consideration of the: type of security involved, financial
statements, cost at date of purchase, size of holding, discount from market
value of unrestricted securities of the same class at the time of purchase,
special reports prepared by analysts, information as to any transactions or
offers with respect to the security, existence of merger proposals or tender
offers affecting the security, price and extent of public trading in similar
securities of the issuer or comparable companies, and other relevant matters.

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

Purchases of Shares

The Trust accepts purchase orders for Shares of each 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).

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

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

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

40
<PAGE>

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.

41
<PAGE>

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

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 219210
Kansas City, MO 64121-9210

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:

. Mail an account application with a check,

. Wire money into your account,

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

. Contact your Service Agent or Investment Professional.

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

42
<PAGE>

Additional Information About Buying Shares

To Open an Account To Add to an Account
By Wire Call the BT Service Call your Investment Professional or
Center at 1-800-730-1313 wire additional investment to:
to receive wire
instructions for account Routing No.: 021001033
establishment. Attn: Bankers Trust/BT Funds
DDA No.: 00-226-296
FBO: (Account name)
(Account Number)
Credit: (Fund name and number)
Investment Pacific Basin Equity
Fund - 496
Investment Latin American
Equity Fund - 497

Please note that you must
call The BT Service
Center to place your
trade the day you wish to
buy shares to notify us
of the wire transfer and
to indicate the fund in
which you intend to
invest to receive that
day's price.

By Phone Contact your Service Contact your Service Agent,
Agent, Investment Investment Professional, or
Professional, or call BT's call BT's Service Center at
Service Center at 1-800-730-1313. If you are an
1-800-730-1313. If you existing Shareholder, you may
are an existing Shareholder, BT exchange from another BT
you may exchange from account with the same
another account with the registration, including name,
same registration, address, and taxpayer ID number.
including name, address,
and taxpayer ID number.
You may only order
exchanges over the phone
if your account is
authorized to do so.

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

43
<PAGE>

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. A Service Agent or
the Trust may on at least 30 days' notice involuntarily redeem a shareholder's
account with the Fund having a balance below the minimum, but not if an account
is below the minimum due to a change in market value.

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:

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

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

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

44
<PAGE>

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

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

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

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

45
<PAGE>

Additional Information About Selling Shares

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 219210
Kansas City, MO 64121-9210

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.

Investor Services

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

Information Services

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

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

. Account statements (monthly)

. Financial reports (every six months)

46
<PAGE>

To reduce expenses, only one copy of most financial reports will be mailed, even
if you have more than one account in the Fund. Call your Investment Professional
or the BT Service Center at 1-800-730-1313 if you need additional copies of
financial reports.

47
<PAGE>

Exchange Privilege

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:

. Call your Service Agent for information and a prospectus. Read the
prospectus before exchanging into a Fund.

. Your new account will have the identical account registration
including the same name, address and taxpayer identification number as
your existing account(s).

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

Note that exchanges out of the Fund may be limited to four per calendar year and
any exchange may have tax consequences for you. The Fund reserves the right to
terminate or modify the exchange privilege in the future.

Systematic Programs

To move money from your bank account to BT Investment Funds

<TABLE>
Minimum Minimum
Initial Subsequent Frequency Setting up or changing
- ------- ---------- --------- ----------------------
<S> <C> <C> <C>
$1,000 $100 Monthly, For a new account,
bimonthly, complete the appropriate
quarterly or section of the
semi-annually application.

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

48
<PAGE>

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

Minimum Frequency Setting up or changing
- ------- --------- ----------------------

$1,000 Monthly, To establish, call your
quarterly or Investment Professional
semi-annually or or call 1-800-730-1313.
annually The accounts from which
the withdrawals will be
processed must have a
minimum balance of
$10,000, other than
retirement accounts
subject to required
minimum distributions.

Tax-Saving Retirement Plans

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

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

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

Redemptions and Purchases "In-Kind"

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

Each Portfolio has agreed to make a redemption in kind to the corresponding Fund
whenever the Fund wishes

49
<PAGE>

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

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

Each Fund may, at its own option, accept securities in payment for shares. The
securities delivered in payment for shares are valued by the method described
under "Valuation of Securities" as of the day the Fund receives the securities.
This may be a taxable transaction to the shareholder. (Consult your tax adviser
for future tax guidance.) Securities may be accepted in payment for shares only
if they are, in the judgment of the Adviser, appropriate investments for the
Fund's corresponding Portfolio. In addition, securities accepted in payment for
shares must: (i) meet the investment objective and policies of the acquiring
Fund's corresponding Portfolio; (ii) be acquired by the applicable Fund for
investment and not for resale (other than for resale to the Fund's corresponding
Portfolio); (iii) be liquid securities which are not restricted as to transfer
either by law or liquidity of the market; and (iv) if stock, have a value which
is readily ascertainable as evidenced by a listing on a stock exchange, over-
the-counter market or by readily available market quotations from a dealer in
such securities. Each Fund reserves the right to accept or reject at its own
option any and all securities offered in payment for its shares.

Each Fund and Portfolio reserves the right to redeem all of its shares, if the
Funds' and/or Portfolios' Board of Trustees vote to liquidate and terminate the
Fund or Portfolio.

Trading in Foreign Securities

Trading in foreign cities may be completed at times which vary from the closing
of the New York Stock Exchange ("NYSE"). In computing the net asset values, the
Funds value foreign securities at the latest closing price on the exchange on
which they are traded immediately prior to the closing of the NYSE. Similarly,
foreign securities quoted in foreign currencies are translated into U.S. dollars
at the foreign exchange rates.

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

50
<PAGE>

calculation may be done by others.

MANAGEMENT OF THE TRUST AND THE PORTFOLIO TRUST

The Trust and each Portfolio are 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.

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

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

Trustees of the Trust and the Portfolio Trust

CHARLES P. BIGGAR (birth date: October 13, 1930) -- Trustee of the Trust and
Portfolio Trust; Trustee of each of the other investment companies in the BT
Fund Complex/1/; Retired; former Vice President, International Business Machines
("IBM") and President, National Services and the Field Engineering Divisions of
IBM. His address is 12 Hitching Post Lane, Chappaqua, New York 10514.

S. LELAND DILL (birth date: March 28, 1930) -- Trustee of the Trust and
Portfolio Trust; Trustee of each of the other investment companies in the BT
Fund Complex; Retired; Director, Coutts (U.S.A.) International; Trustee,
Phoenix-Zweig Trust/2/ and Phoenix-Euclid Market Neutral Fund/2/; former
Partner, KPMG Peat Marwick; Director, Vintners International Company Inc.;
Director, Coutts Trust Holdings Ltd., Director, Coutts Group; General Partner,
Pemco/2/. His address is 5070 North Ocean Drive, Singer Island, Florida 33404.

MARTIN J. GRUBER (birth date: July 15, 1937) -- Trustee of the Trust and
Portfolio Trust; Trustee of each of the other investment companies in the BT
Fund Complex; Nomura Professor of Finance, Leonard N. Stern School of Business,
New York University (since 1964); Trustee, TIAA/2/; Trustee, SG Cowen Mutual
Funds/2/; Trustee, Japan Equity Fund/2/; Trustee, Taiwan Equity Fund/2/. His
address is 229 South Irving Street, Ridgewood, New Jersey 07450

RICHARD HALE* (birth date: July 17, 1945) -- Trustee of the Trust and Portfolio
Trust; Trustee of each of the other investment companies in the BT Fund Complex;
Managing Director, Deutsche Asset Management; Director, Flag Investors Funds/2/;
Managing Director, Deutsche Banc Alex. Brown Incorporated; Director and

_________________________

/1/ The "BT Fund Complex" consists of the Trust, BT Institutional Funds, BT
Pyramid Mutual Funds, BT Advisor Funds, Cash Management Portfolio, Intermediate
Tax Free Portfolio, Tax Free Money Portfolio, NY Tax Free Money Portfolio,
Treasury Money Portfolio, International Equity Portfolio, Equity 500 Index
Portfolio, Capital Appreciation Portfolio, Asset Management Portfolio and BT
Investment Portfolios.

/2/ An investment company registered under the Investment Company Act of
1940, as amended (the "Act").

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<PAGE>

President, Investment Company Capital Corp. His address is 205 Woodbrook Lane,
Baltimore, Maryland 21212.

RICHARD J. HERRING (birth date: February 18, 1946) -- Trustee of the Trust and
Portfolio Trust; Trustee of each of the other investment companies in the BT
Fund Complex; Jacob Safra Professor of International Banking, Professor of
Finance and Vice Dean, The Wharton School, University of Pennsylvania (since
1972). His address is 325 South Roberts Road, Bryn Mawr, Pennsylvania 19010.

BRUCE E. LANGTON (birth date: May 10, 1931) -- Trustee of the Trust and
Portfolio Trust; Trustee of each of the other investment companies in the BT
Fund Complex; Retired; Trustee, Allmerica Financial Mutual Funds (1992-present);
Member, Pension and Thrift Plans and Investment Committee, Unilever U.S.
Corporation (1989 to present)/3/; Director, TWA Pilots Directed Account Plan and
401(k) Plan (1988 to present)/2/. His address is 99 Jordan Lane, Stamford,
Connecticut 06903.

PHILIP SAUNDERS, JR. (birth date: October 11, 1935) -- Trustee of the Trust and
Portfolio Trust; Trustee of each of the other investment companies in the BT
Fund Complex; Principal, Philip Saunders Associates (Economic and Financial
Analysis); former Director, Financial Industry Consulting, Wolf & Company;
President, John Hancock Home Mortgage Corporation; Senior Vice President of
Treasury and Financial Services, John Hancock Mutual Life Insurance Company,
Inc. His address is 445 Glen Road, Weston, Massachusetts 02193.

HARRY VAN BENSCHOTEN (birth date: February 18, 1928) -- Trustee of the Trust and
Portfolio Trust; Trustee or Trustee nominee of each of the other investment
companies in the BT Fund Complex; Retired; Director, Canada Life Insurance
Corporation of New York. His address is 6581 Ridgewood Drive, Naples, Florida
34108.

The Board has an Audit Committee that meets with the Trust's independent
accountants to review the financial statements of the Trust and Portfolio Trust,
the adequacy of internal controls and the accounting procedures and policies of
the Trust and Portfolio Trust. Each member of the Board except Mr. Hale also is
a member of the Audit Committee.

Officers of the Trust and Portfolio Trust

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

DANIEL O. HIRSCH (birth date: March 27, 1954) -- Secretary of the Trust and
Portfolio Trust; Principal, Deutsche Asset Management Americas; Director,
Deutsche Banc Alex. Brown Incorporated and Investment Company Capital Corp.
since July 1998; Assistant General Counsel, Office of the General Counsel,
United States Securities and Exchange Commission from 1993 to 1998. His address
is One South Street, Baltimore, Maryland 21202.

_____________________

/3/ A publicly held company with securities registered pursuant to Section 12 of
the Securities Exchange Act of 1934, as amended.

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<PAGE>

States Securities and Exchange Commission from 1993 to 1998. His address is One
South Street, Baltimore, Maryland 21202.

JOHN A. KEFFER (birth date: July 14, 1942) -- President and Chief Executive
Officer of the Trust and Portfolio Trust; President, Forum Financial Group
L.L.C. and its affiliates; President, ICC Distributors, Inc./4/ His address is
ICC Distributors, Inc., Two Portland Square, Portland, Maine 04101.

CHARLES A. RIZZO (birth date: August 5, 1958) Treasurer of the Trust and
Portfolio Trust; Vice President and Department Head, Deutsche Asset Management
Americas since 1998; Senior Manager, PricewaterhouseCoopers LLP from 1993 to
1998. His address is One South Street, Baltimore, MD 21202.

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

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

_______________________

/4/ Underwriter/distributor for the Trust. Mr. Keffer owns 100% of the shares
of ICC Distributors, Inc.

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<PAGE>

Trustee Compensation Table*

<TABLE>
<CAPTION>
Aggregate Aggregate Total Compensation
Name of Person, Compensation Compensation from Fund Complex****
Position from Trust** from Portfolios*** Paid to Trustees+
- -------- ------------ ------------------ ---------------------
<S> <C> <C> <C>
Charles P. Biggar N/A $4,363 $35,000

S. Leland Dill $ $ $

Kelvin J. Lancaster $ N/A $

Philip Saunders, Jr. $ $ $
</TABLE>

* Mssrs. Gruber, Hale, Herring, Langton and Van Benschoten were elected to
the Board of Trustees on October 8, 1999; therefore, they did not receive
any compensation from the Trust in the last fiscal year.

**The information provided is for the BT Investment Funds, which is comprised of
18 funds, for the year ended October 31, 1999.

***The information provided is for BT Investment Portfolios, which is comprised
of 23 funds, for the year ended October 31, 1999.

****Aggregated information is furnished for the BT Family of Funds which
consists of the following: BT Investment Funds, BT Institutional Funds, BT
Pyramid Mutual Funds, BT Advisor Funds, BT Investment Portfolios, Cash
Management Portfolio, Treasury Money Portfolio, Tax Free Money Portfolio, NY Tax
Free Money Portfolio, International Equity Portfolio, Intermediate Tax Free
Portfolio, Asset Management Portfolio, Equity 500 Index Portfolio and Capital
Appreciation Portfolio for the year ended December 31, 1999.

As of December 31, 1999, the Trustees and Officers of the Trust and the
Portfolio Trust owned in the aggregate less than 1% of the shares of any Fund or
the Trust (all series taken together). Update

As of December 31, 1999, the following shareholders of record owned 5% or more
of the outstanding voting shares of Pacific Basin Equity Fund: Charles Schwab &
Co., San Francisco, California, owned approximately 326,906 shares (23%); and
FTC & Co., Denver, Colorado, owned approximately 83,650 shares (6%). Update

As of December 31, 1999, the following shareholders of record owned 5% or more
of the outstanding voting shares of Latin American Equity Fund: Charles Schwab &
Co., San Francisco, California, owned approximately 246,839 shares (36%); BT
Alex.Brown Incorporated FBO 223-00282-14, Baltimore, Maryland, owned
approximately 137,541 shares (20%); INFID & Co. - Cash c/o Bankers Trust
Company, New York, New York, owned approximately 53,264 shares (8%); and
National Financial Services Corporation, New York, New York, owned approximately
34,567 shares (5%). Update

54
<PAGE>

Code of Ethics

The Board of Trustees of the Funds has adopted a Code of Ethics pursuant
to Rule 17j-1 under the 1940 Act. The Funds' Code of Ethics permits Fund
personnel to invest in securities for their own accounts, but requires
compliance with the Code's pre-clearance requirements (with certain exceptions).
In addition, the Funds' Code of Ethics provides for trading "blackout periods"
that prohibit trading by personnel within periods of trading by the Fund in the
same security. The Funds' Code of Ethics also prohibits short term trading
profits and personal investment in initial public offerings. The Code requires
prior approval with respect to purchases of securities in private placements.

The Funds' adviser, Deutsche Asset Management Inc., has also adopted a
Code of Ethics. The Code of Ethics allows personnel to invest in securities
for their own accounts, but requires compliance with the Code's pre-clearance
requirements and other restrictions including "blackout periods" and
minimum holding periods, subject to limited exceptions. The Code prohibits
purchases of securities in initial public offerings and requires prior
approval for purchases of securities in private placements. The Funds'
sub-adviser, Deutsche Asset Management Investment Services Limited has also
adopted a Code of Ethics which permits personnel to invest in securities
for their own accounts but requires prior approval for the transaction,
subject to limited exceptions. The Deutsche Asset Management Investment
Services Limited Code provides for "blackout period" restrictions on trading
by portfolio managers and prohibits personal investments in U.S. initial
public offerings.

The Funds' principal underwriter, ICC Distributors, Inc. has adopted a
Code of Ethics applicable to ICC's distribution services to registered
investment companies such as the Funds. The ICC Code of Ethics prohibits
directors and officers of ICC from executing trades on a day during which
the individual knows or should have known that a Fund in the individual's
complex has a pending "buy" or "sell" order in the same security, subject
to certain exceptions. The ICC Code of Ethics also requires pre-clearance
for purchases of securities in an initial public offering or private
placement.

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 corresponding Portfolio. Each Portfolio has
retained the services of DAMI as Adviser.

DAMI is a wholly owned subsidiary of Deutsche Bank. Deutsche Bank is a banking
corporation with limited liability organized under the laws of the Federal
Republic of Germany. Deutsche Bank is the parent company of a group consisting
of banks, capital markets companies, fund management companies, mortgage banks,
a property finance company, installment financing and leasing companies,
insurance companies, research and consultancy companies and other domestic and
foreign companies.

The Investment Advisory Agreement provides for each Portfolio to pay DAMI a fee,
accrued daily and paid monthly, equal on an annual basis to the following
percentages of the average daily net assets of the Portfolio for its then-
current fiscal year: Pacific Basin Equity Portfolio, 0.75%; and Latin American
Equity Portfolio, 1.00%. Under certain circumstances DAMI has agreed to pay fees
to certain securities brokers, dealers and other entities that facilitate the
sale of Fund shares, and in connection therewith provide administrative,
shareholder, or distribution related services to the Fund or its shareholders.
Fees paid to entities that administer mutual fund "supermarkets" may be higher
than fees paid for other types of services.

For the period October 1, 1999 through October 31, 1999 and for the fiscal years
ended September 30, 1999, 1998 and 1997, DAMI accrued $__________, $__________,
$95,400 and $240,868, respectively, in compensation for investment advisory
services provided to Pacific Basin Equity Portfolio. During the same periods,
DAMI reimbursed $ , $44,429 and $45,345 respectively, to the Portfolio
to cover expenses.

For the period October 1, 1999 through October 31, 1999 and for the fiscal years
ended September 30, 1999, 1998 and 1997, DAMI accrued $__________, $__________,
$256,724 and $275,540, respectively, in compensation for investment advisory
services provided to Latin American Equity Portfolio. During the same periods,
DAMI reimbursed $__________, $__________, $135,639 and $88,310, respectively,
to the Portfolio to cover expenses.

Sub-Investment Adviser

DAMI has entered into a sub-investment advisory agreement (the "Sub-Advisory
Agreements") with respect to each Portfolio with Deutsche Asset Management
Investment Services Limited ("DAMISL"). Under the Sub-Advisory Agreements for
the Pacific Basin Equity Portfolio and Latin American Equity Portfolio, DAMISL
receives a fee from DAMI for providing investment advice and research services,
accrued daily and paid monthly, at the annual rate of _____% of the average
daily assets of each Portfolio. VERIFY

Administrator

55
<PAGE>

Under the administration and services agreements, Bankers Trust, 130 Liberty
Street, New York, New York 10006, is obligated on a continuous basis to provide
such administrative services as the Board of Trustees of the Trust and each
Portfolio reasonably deem necessary for the proper administration of the Trust
or a Portfolio. Bankers Trust will generally assist in all aspects of the Funds'
and Portfolios' operations; supply and maintain office facilities (which may be
in Bankers Trust's own offices), statistical and research data, data processing
services, clerical, accounting, bookkeeping and recordkeeping services
(including without limitation the maintenance of such books and records as are
required under the 1940 Act and the rules thereunder, except as maintained by
other agents), executive and administrative services, and stationery and office
supplies; prepare reports to shareholders or investors; prepare and file tax
returns; supply financial information and supporting data for reports to and
filings with the SEC and various state Blue Sky authorities; supply supporting
documentation for meetings of the Board of Trustees; provide monitoring reports
and assistance regarding compliance with Declarations of Trust, by-laws,
investment objectives and policies and with Federal and state securities laws;
arrange for appropriate insurance coverage; calculate net asset values, net
income and realized capital gains or losses; and negotiate arrangements with,
and supervise and coordinate the activities of, agents and others to supply
services.

For the period October 1, 1999 through October 31, 1999 and for the fiscal years
ended September 30, 1999, 1998 and 1997, Bankers Trust accrued $__________,
$__________, $95,257 and $240,390, respectively, in compensation for
administrative and other services provided to Pacific Basin Equity Fund. During
the same periods, Bankers Trust reimbursed $__________, $__________, $44,997
and $47,069, respectively, to cover expenses. For the same periods, Bankers
Trust received $31,800, $80,289 and $70,374, respectively, in compensation for
administrative and other services provided to Pacific Basin Equity Portfolio.

For the period October 1, 1999 through October 31, 1999 and for the fiscal years
ended September 30, 1999, 1998 and 1997, Bankers Trust accrued $__________,
$__________, $243,579 and $261,394, respectively, in compensation for
administrative and other services provided to Latin American Equity Fund. During
the same periods, Bankers Trust reimbursed $__________, $__________, $33,064 and
$32,222, respectively, to cover expenses. For the same periods, Bankers Trust
received $__________, $__________, $51,345 and $55,108, respectively, in
compensation for administrative and other services provided to Latin American
Equity Portfolio.

Expense Limitations

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

Distributor

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

Service Agent

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<PAGE>

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

Custodian and Transfer Agent

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

Use of Name

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

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

Banking Regulatory Matters

Bankers Trust has been advised by its counsel that in its opinion Bankers Trust
may perform the services for the Portfolios contemplated by the Administration
Agreement and other activities for the Funds and the Portfolios described in the
Prospectuses and this SAI without violation of the Glass-Steagall Act or other
applicable banking laws or regulations. However, counsel has pointed out that
future changes in either Federal or state

57
<PAGE>

statutes and regulations concerning the permissible activities of banks or trust
companies, as well as future judicial or administrative decisions or
interpretations of present and future statutes and regulations, might prevent
Bankers Trust from continuing to perform those services for the Trust and the
Portfolios. State laws on this issue may differ from the interpretations of
relevant Federal law and banks and financial institutions may be required to
register as dealers pursuant to state securities law. If the circumstances
described above should change, the Boards of Trustees would review the
relationships with Bankers Trust and consider taking all actions necessary in
the circumstances.

Counsel and Independent Accountants

Willkie Farr & Gallagher, 787 Seventh Avenue, New York, New York 10019, serves
as Counsel to the Trust and each Portfolio. PricewaterhouseCoopers LLP, 250 West
Pratt Street, Baltimore, Maryland 21201, acts as Independent Accountants of the
Trust and each Portfolio.

ORGANIZATION OF THE TRUST

The Trust was organized on July 21, 1986 under the laws of the Commonwealth of
Massachusetts. The Trust is an entity commonly known as a "Massachusetts
business trust." Each Fund is a mutual fund: an investment that pools
shareholders' money and invests it toward a specified goal. BT Investment
Portfolios is a New York master trust fund. The Trust offers shares of
beneficial interest of separate series, par value $0.001 per share. The Trust
currently consists of 18 separate series, including the Funds, and BT Investment
Portfolios currently consist of 23 separate subtrusts, including the Portfolios.
The shares of the other series of the Trust are offered through separate
prospectuses and SAIs. No series of shares has any preference over any other
series. 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 of each Fund.

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

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

Declarations of Trust of BT Investment Portfolios provide that each Fund and
other entities investing in the Portfolio (e.g., other investment companies,
insurance company separate accounts and common and

58
<PAGE>

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
corresponding Portfolio.

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

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

Massachusetts law provides that shareholders could under certain circumstances
be held personally liable for the obligations of the Trust. However, the Trust's
Declaration of Trust disclaims shareholder liability for acts or obligations of
the Trust and requires that notice of this disclaimer be given in each
agreement, obligation or instrument entered into or executed by the Trust or a
Trustee. The Declaration of Trust provides for indemnification from the Trust's
property for all losses and expenses of any shareholder held personally liable
for the obligations of the Trust. Thus, the risk of a shareholder's incurring
financial loss on account of shareholder liability is limited to circumstances
in which both inadequate insurance existed and 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.

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<PAGE>

TAXATION

Dividends and Distributions

Each Fund distributes substantially all of its net income and capital gains to
shareholders each year. Each Fund distributes capital gains annually. 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.

Each Fund intends to qualify as a regulated investment company, as defined in
the Code. Provided each Fund meets the requirements imposed by the Code and
distributes all of its income and gains, a Fund will not pay any federal income
or excise taxes.

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

On the ex-date for a distribution from capital gains, each 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 Funds

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

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

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

60
<PAGE>

and 40% of such net gain or loss will be treated as short-term capital gain or
loss, regardless of the period of time the positions were actually held by the
Fund.

Each Fund shareholder will also receive, if appropriate, various written notices
after the close of the Fund's prior taxable year as to the Federal income status
of his dividends and distributions which were received from the Fund during the
Fund's prior taxable year. Shareholders should consult their tax advisers as to
any state and local taxes that may apply to these dividends and distributions.

Foreign Securities

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

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

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

Taxation of the Portfolios

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

Distributions received by a Fund from the corresponding Portfolio generally will
not result in the Fund recognizing any gain or loss for Federal income tax
purposes, except that: (1) gain will be recognized to the extent that any cash
distributed exceeds the Fund's basis in its interest in the Portfolio prior to
the distribution; (2) income or gain may be realized if the distribution is made
in liquidation of the Fund's entire interest in the Portfolio and includes a
disproportionate share of any unrealized receivables held by the Portfolio; and
(3) loss may be recognized if the distribution is made in liquidation of the
Fund's entire interest in the Portfolio and

61
<PAGE>

consists solely of cash and/or unrealized receivables. A Fund's basis in its
interest in the corresponding Portfolio generally will equal the amount of cash
and the basis of any property which the Fund invests in the Portfolio, increased
by the Fund's share of income from the Portfolio, and decreased by the amount of
any cash distributions and the basis of any property distributed from the
Portfolio.

Sale of Shares

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

Because the tax treatment also depends on your purchase price and your personal
tax position, you should keep your regular account statements to use in
determining your tax.

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.

Foreign Withholding Taxes

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

Backup Withholding

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

Foreign Shareholders

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

Other Taxation

62
<PAGE>

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

Each Portfolio is a subtrust of BT Investment Portfolios, which is organized as
a New York master trust fund. No Portfolio is subject to any income or franchise
tax in the State of New York or the Commonwealth of Massachusetts.

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

FINANCIAL STATEMENTS

The financial statements for each Fund or Portfolio for the fiscal period ended
September 30, 1999, as updated through October 31, 1999, are incorporated herein
by reference to the Annual Report to shareholders for each Fund dated September
30, 1999, as updated through October 31, 1999. A copy of a Fund's and
corresponding Portfolio's Annual Report may be obtained without charge by
contacting the respective Fund.

63
<PAGE>

APPENDIX

Description of Moody's Corporate Bond Ratings:

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.

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.

Description of S&P Corporate Bond Ratings:

64
<PAGE>

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.

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

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

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

65
<PAGE>

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.

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.

66
<PAGE>

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.

67
<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-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.

68
<PAGE>

Investment Adviser and Administrator of each Portfolio

DEUTSCHE ASSET MANAGEMENT INC.

Distributor

ICC DISTRIBUTORS, INC.

Custodian and Transfer Agent
BANKERS TRUST COMPANY

Independent Accountants

PRICEWATERHOUSECOOPERS LLP

Counsel
WILLKIE FARR & GALLAGHER

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

CUSIPS 055922736
055922785
[Product Code]

69
<PAGE>

PART C - OTHER INFORMATION

ITEM 23. Exhibits.

(a) Declaration of Trust dated July 21, 1986; 1

(i) Supplement to Declaration of Trust dated October 20, 1986; 1

(ii) Second Supplement to Declaration of Trust dated May 16, 1988; 1

(b) By-Laws; 1

(d) Investment Advisory Contract dated December 31, 1998; 9

(i) Distribution Agreement dated August 11, 1998; 5

(ii) Appendix A dated December 9, 1998 to Distribution Agreement; 7

(f) Bonus or Profit Sharing Contracts - Not applicable;

(g) Custodian Agreement dated July 1, 1996; 2

(i) Amendment No. 2 to Exhibit A of the Custodian Agreement dated October
8, 1997; 3

(ii) Amendment No. 3 to Exhibit A of the Custodian Agreement dated June
10, 1998; 7

(iii) Amendment No. 4 to Exhibit A of the Custodian Agreement dated
December 9, 1998; 7

(iv) Cash Services Addendum to Custodian Agreement dated December 18,
1997; 4

(h) Administration and Services Agreement dated Oct. 28, 1992; 8

(i) Exhibit D to the Administration and Services Agreement as of October
28, 1992, as revised December 9, 1998; 7

(ii) Agreement to Provide Shareholder Services for BT PreservationPlus
Income Fund as of June 10, 1998; 5

(iii) Shareholder Services Plan for BT PreservationPlus Income Fund as of
June 10, 1998; 5

(iv) Expense Limitation Agreement dated September 30, 1998 on behalf of
Intermediate Tax Free Fund, International Equity Fund, Capital
Appreciation Fund, Pacific Basin Equity Fund, Latin American Equity
Fund, Small Cap Fund, International Small Company Equity Fund and
Global Emerging Markets Equity Fund; 6

(v) Expense Limitation Agreement dated December 31, 1998 on behalf of
Cash Management Fund, Tax Free Money Fund, NY Tax Free Money Fund,
Treasury Money Fund and Quantitative Equity Fund; 9.

(vi) Expense Limitation Agreement dated March 31, 1999, on behalf of BT
Investment Lifecycle Long Range Fund, BT Investment Lifecycle Mid
Range Fund, and BT Investment Lifecycle Short Range Fund; 10.
<PAGE>

(i) Legal Opinion - Not applicable;

(j) Consent of Independent Accountants- Not applicable;

(k) Omitted Financial Statements - Not applicable;

(l) Initial Capital Agreements - Not applicable;

(m) Rule 12b-1 Plans - Not applicable;

(n) Financial Data Schedules - Not applicable;

(o) Rule 18f-3 Plan - Not applicable

___________________________________

1. Incorporated by reference to Post-Effective Amendment No. 34 to
Registrant's Registration Statement on Form N-1A ("Registration Statement")
as filed with the Securities and Exchange Commission ("Commission") on July
31, 1995.

2. Incorporated by reference to Post-Effective Amendment No. 44 to
Registrant's Registration Statement as filed with the Commission on July 1,
1997.

3. Incorporated by reference to Post-Effective Amendment No. 46 to
Registrant's Registration Statement as filed with the Commission on January
28, 1998.

4. Incorporated by reference to Post-Effective Amendment No. 50 to
Registrant's Registration Statement as filed with the Commission on June
30, 1998.

5. Incorporated by reference to Post-Effective Amendment No. 55 to
Registrant's Registration Statement as filed with the Commission on
November 25, 1998.

6. Incorporated by reference to Post-Effective Amendment No. 56 to
Registrant's Registration Statement as filed with the Commission on January
28, 1999.

7. Incorporated by reference to Post-Effective Amendment No. 57 to
Registrant's Registration Statement as filed with the Commission on
February 8, 1999.

8. Incorporated by reference to Post-Effective Amendment No. 29 to
Registrant's Registration Statement as filed with the Commission on
November 8, 1993.

9. Incorporated by reference to Post-Effective Amendment No. 60 to
Registrant's Registration Statement as filed with the Commission on March
15, 1999.

10. Incorporated by reference to Post-Effective Amendment No. 63 to
Registrant's Registration Statement as filed with the Commission on July
29, 1999.

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

Not applicable.

ITEM 25. Indemnification.
<PAGE>

Incorporated by reference to Post-Effective Amendment No. 38 to Registrant's
Registration Statement as filed with the Commission on April 29, 1996.

ITEM 26. Business and Other Connections of Investment Adviser.

Bankers Trust Company serves as investment adviser to each Portfolio except
Latin American Equity Portfolio and Pacific Basin Equity Portfolio. Bankers
Trust, a New York banking corporation, is a wholly owned subsidiary of Deutsche
Bank A.G. Bankers Trust conducts a variety of commercial banking and trust
activities and is a major wholesale supplier of financial services to the
international institutional market.

To the knowledge of the Trust, none of the directors or officers of Bankers
Trust, except those set forth below, is engaged in any other business,
profession, vocation or employment of a substantial nature, except that certain
directors and officers also hold various positions with and engage in business
for Deutsche Bank A.G. Set forth below are the names and principal businesses of
the directors and officers of Bankers Trust who to our knowledge as of November
30, 1999, are engaged in any other business, profession, vocation or employment
of a substantial nature.

Josef Ackermann
Chairman of the Board, Chief Executive Officer and President, Bankers Trust;
Member, Board of Managing Directors, Deutsche Bank AG. Address: Deutsche Bank
AG, Taunusanlage 12, D-60262 Frankfurt am Main, Federal Republic of Germany.

Hans Angermueller
Director, Bankers Trust; Director of various corporations; Shearman and
Sterling, of counsel. Address: Shearman & Sterling, 599 Lexington Avenue, New
York, New York 10022

George B. Beitzel
Director, Bankers Trust and Bankers Trust Corporation since 1977; Director of
various corporations. Address: 29 King Street, Chappaqua, New York 10514-3432.

William R. Howell
Director, Bankers Trust; Chairman Emeritus, J.C. Penney Company, Inc.; Director
of various corporations. Address: J.C. Penney Company, Inc., P.O. Box 10001,
Dallas, Texas 74301-1109.

Hermann-Josef Lamberti
<PAGE>

Director, Bankers Trust; Member, Board of Managing Directors, Deutsche Bank AG.
Address: Deutsche Bank AG, Taunusanlage 12, D-60262 Frankfurt am Main, Federal
Republic of Germany.

John A. Ross
Director, Bankers Trust; Regional Chief Executive Officer, Deutsche Bank
Americas Holding Corp. Address: Deutsche Bank, 31 West 52/nd/ Street, New York,
New York 10019.

Ronaldo H. Schmitz
Director, Bankers Trust; Member, Board of Managing Directors, Deutsche Bank AG.
Address: Deutsche Bank AG, Taunusanlage 12, D-60262 Frankfurt am Main, Federal
Republic of Germany.

Deutsche Asset Management Inc. and Deutsche Asset Management Investment Services
Limited serve as investment adviser and sub-investment adviser, respectively, to
the Latin American Equity Portfolio and Pacific Basin Equity Portfolio. All of
the information required by this item is set forth in the Form ADV, as amended,
of Deutsche Asset Management Investment Services Limited (formerly Morgan
Grenfell Investment Services Limited) (File No. 801-12880) and in the Form ADV,
as amended, of Deutsche Asset Management Inc. (formerly Morgan Grenfell Inc.)
(File No. 801-27291).

The following sections of each such Form ADV are incorporated herein by
reference:
(a) Items 1 and 2 of Part II;
(b) Section 6, Business Background, of each Schedule D.

Item 27. Principal Underwriters.

(a) ICC Distributors, Inc., the Distributor for shares of the Registrant, also
acts as principal underwriter for the following open-end investment companies:
BT Advisor Funds, BT Institutional Funds, BT Pyramid Mutual Funds, Cash
Management Portfolio, Intermediate Tax Free Portfolio, NY Tax Free Money
Portfolio, Treasury Money Portfolio, International Equity Portfolio, Equity 500
Index Portfolio, Capital Appreciation Portfolio, Asset Management Portfolio, BT
Investment Portfolios, Deutsche Banc Alex. Brown Cash Reserve Fund, Inc., Flag
Investors Communications Fund, Inc., Flag Investors International Fund, Inc.,
Flag Investors Emerging Growth Fund, Inc., Total Return U.S. Treasury Fund,
Inc., Managed Municipal Fund, Inc., Flag Investors Short-Intermediate Income
Fund, Inc., Flag Investors Value Builder Fund, Inc., Flag Investors Real Estate
Securities Fund, Inc. Flag
<PAGE>

Investors Equity Partners Fund, Inc., Morgan Grenfell Investment Trust, The
Glenmede Funds, Inc. and The Glenmede Portfolios.

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

Name and Positions and Positions and
Principal Business Offices with Offices with
Address Distributor Registrant

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

ITEM 28. Location of Accounts and Records.

BT Investment Funds: Deutsche Asset Management
(Registrant) One South Street
Baltimore, MD 21202

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

Deutsche Asset Management Inc.: 885 Third Avenue
(Investment Adviser) New York, NY 10022

Deutsche Asset Management
Investment Management Limited: 20 Finsbury Circus
(Investment Sub-Adviser) London, England

Investors Fiduciary 127 West 10th Street,
Trust Company: Kansas City, MO 64105.

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

ITEM 29. Management Services.

Not Applicable
<PAGE>

ITEM 30. Undertakings.

Not Applicable
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, and
the Investment Company Act of 1940, as amended, the Registrant, BT INVESTMENT
FUNDS has duly caused this Post-Effective Amendment No. 65 to its Registration
Statement to be signed on its behalf by the undersigned, duly authorized, in the
City of Baltimore and the State of Maryland on this 30th day of November, 1999.

BT INVESTMENT FUNDS

By: /s/ Daniel O. Hirsch
Daniel O. Hirsch, Secretary
November 30, 1999

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

NAME TITLE DATE

By: /s/ DANIEL O. HIRSCH Secretary November 30, 1999
Daniel O. Hirsch (Attorney in Fact
For the Persons Listed Below)

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

/s/ CHARLES A. RIZZO* Treasurer (Principal
Charles A. Rizzo Financial and Accounting Officer)

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

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

/s/ MARTIN J. GRUBER* Trustee
Martin J. Gruber

/s/ RICHARD T. HALE* Trustee
Richard T. Hale

/s/ RICHARD R. HERRING* Trustee
Richard R. Herring
<PAGE>

/s/ BRUCE E. LANGTON* Trustee
Bruce E. Langton

/s/ PHILIP SAUNDERS, JR.* Trustee
Kelvin J. Lancaster

/s/ HARRY VAN BENSCHOTEN* Trustee
Harry Van Benschoten

*By Power of Attorney - Incorporated by reference to Post-Effective Amendment
No. 64 to Registrant's Registration Statement as filed with the Commission on
October 22, 1999.
<PAGE>

SIGNATURES

BT INVESTMENT PORTFOLIOS has duly caused this Post-Effective Amendment No.
65 to the Registration Statement on Form N-1A of BT Investment Funds to be
signed on its behalf by the undersigned, thereto duly authorized, in the City of
Baltimore and the State of Maryland on the 30th day of November, 1999.

BT INVESTMENT PORTFOLIOS

By: /s/ Daniel O. Hirsch
Daniel O. Hirsch, Secretary
November 30, 1999

This Post-Effective Amendment No. 65 to the Registration Statement of BT
Investment Funds has been signed below by the following persons in the
capacities indicated with respect to BT INVESTMENT PORTFOLIOS.

NAME TITLE DATE

By: /s/ DANIEL O. HIRSCH Secretary November 30, 1999
Daniel O. Hirsch (Attorney in Fact
For the Persons Listed Below)

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

/s/ CHARLES A. RIZZO* Treasurer (Principal
Charles A. Rizzo Financial and Accounting Officer)

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

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

/s/ MARTIN J. GRUBER* Trustee
Martin J. Gruber

/s/ RICHARD T. HALE* Trustee
Richard T. Hale

/s/ RICHARD R. HERRING* Trustee
Richard R. Herring

/s/ BRUCE E. LANGTON* Trustee
<PAGE>

Bruce E. Langton

/s/ PHILIP SAUNDERS, JR.* Trustee
Kelvin J. Lancaster

/s/ HARRY VAN BENSCHOTEN* Trustee
Harry Van Benschoten

*By Power of Attorney - Incorporated by reference to Post-Effective Amendment
No. 64 to Registrant's Registration Statement as filed with the Commission on
October 22, 1999.
<PAGE>

RESOLUTION RELATING TO
RATIFICATION OF REGISTRATION STATEMENTS

(Approved by the Boards of
BT Investment Funds,
BT Pyramid Mutual Funds,
BT Institutional Funds, (the "Trust" or "Trusts")
Quantitative Equity Portfolio,
Capital Appreciation Portfolio,
Pacific Basin Equity Portfolio,
Latin American Equity Portfolio,
Small Cap Portfolio,
BT PreservationPlus Portfolio, and
BT PreservationPlus Income Portfolio
(the "Portfolio Trust "or "Portfolio Trusts"))

RESOLVED, That the proper officers of the Trusts be, and they hereby are,
authorized and directed to execute, in the name and on behalf of the Trust,
a Post-Effective Amendment under the Securities Act of 1933 (the "1933
Act") and an Amendment under the Investment Company Act of 1940, as
amended, (the "1940 Act") to the Trust's Registration Statement on Form
N-1A, and all necessary exhibits and other instruments relating thereto
(collectively, the "Registration Statement"), to procure all other
necessary signatures thereon, and to file the appropriate exhibits thereto,
with the Securities and Exchange Commission (the "Commission"), under the
1933 Act and the 1940 Act and to appear, together with legal counsel, on
behalf of the Trust before the Commission in connection with any matter
relating to the Registration Statement; and further

RESOLVED, That any officer of the Trusts be, and he or she hereby is, authorized
and directed in the name and on behalf of the Trust to take any and all
action which the officer so acting may deem necessary or advisable in order
to obtain a permit to register or qualify shares of common stock of the
Trust for issuance and sale or to request an exemption from registration of
shares of common stock of the Trust under the securities laws of such of
the states of the United States of America or other jurisdictions,
including Canada, as such officer may deem advisable, and in connection
with such registration, permits, licenses, qualifications and exemptions to
execute,
<PAGE>

acknowledge, verify, deliver, file and publish all such applications,
reports, issuer's covenants, resolutions, irrevocable consents to service
of process, powers of attorney and other papers and instruments as may be
required under such laws or may be deemed by such officer to be useful or
advisable to be filed thereunder, and that the form of any and all
resolutions required by any such state authority in connection with such
registration, licensing, permitting, qualification or exemption is hereby
adopted if (1) in the opinion of the officer of the Trust so acting the
adoption of such resolutions is necessary or advisable, and (2) the
Secretary of the Trust evidences such adoption by filing herewith copies of
such resolutions which shall thereupon be deemed to be adopted by the Board
of Directors and incorporated in the minutes as a part of this resolution
and with the same force and effect as if attached hereto and that the
proper officers of the Trust are hereby authorized to take any and all
action that they may deem necessary or advisable in order to maintain such
registration in effect for as long as they may deem to be in the best
interests of the Trust; and further

RESOLVED, That any and all actions heretofore or hereafter taken by such officer
or officers within the terms of the foregoing resolutions be, and they
hereby are, ratified and confirmed as the authorized act and deed of the
Trust; and further

RESOLVED, That the proper officers of the Portfolio Trusts be, and they hereby
are, authorized and directed to execute, in the name and on behalf of the
Portfolio Trust, an Amendment under the 1940 Act to the Portfolio Trust's
Registration Statement, to procure all other necessary signatures thereon,
and to file the appropriate exhibits thereto, with the Commission, the 1940
Act and to appear, together with legal counsel, on behalf of the Portfolio
Trust before the Commission in connection with any matter relating to the
Registration Statement; and further

RESOLVED, That any officer of the Portfolio Trusts be, and he or she hereby is,
authorized and directed in the name and on behalf of the Portfolio Trust to
<PAGE>

take any and all action which the officer so acting may deem necessary or
advisable in order to obtain a permit to register or qualify shares of
common stock of the Portfolio Trust for issuance and sale or to request an
exemption from registration of shares of common stock of the Portfolio
Trust under the securities laws of such of the states of the United States
of America or other jurisdictions, including Canada, as such officer may
deem advisable, and in connection with such registration, permits,
licenses, qualifications and exemptions to execute, acknowledge, verify,
deliver, file and publish all such applications, reports, issuer's
covenants, resolutions, irrevocable consents to service of process, powers
of attorney and other papers and instruments as may be required under such
laws or may be deemed by such officer to be useful or advisable to be filed
thereunder, and that the form of any and all resolutions required by any
such state authority in connection with such registration, licensing,
permitting, qualification or exemption is hereby adopted if (1) in the
opinion of the officer of the Portfolio Trust so acting the adoption of
such resolutions is necessary or advisable, and (2) the Secretary of the
Portfolio Trust evidences such adoption by filing herewith copies of such
resolutions which shall thereupon be deemed to be adopted by the Board of
Directors and incorporated in the minutes as a part of this resolution and
with the same force and effect as if attached hereto and that the proper
officers of the Portfolio Trust are hereby authorized to take any and all
action that they may deem necessary or advisable in order to maintain such
registration in effect for as long as they may deem to be in the best
interests of the Portfolio Trust; and further