BT INVESTMENT FUNDS, 485APOS, 1999-05-28

BT INVESTMENT FUNDS
485APOS, 1999-05-28

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As filed with the Commission on May 28, 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. 62..................................... X

and

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X

Amendment No. 62.................................................... 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 (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[X] On July 31, 1999, 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.

Asset Management Portfolio II and Asset Management Portfolio III (each a series
of BT Investment Portfolios) have also executed this Amendment to the
Registration Statement.

<PAGE>

PROSPECTUS: JULY 31, 1999

BT Mutual Funds (logo)

BT INVESTMENT LIFECYCLE SHORT RANGE FUND

BT INVESTMENT LIFECYCLE MID RANGE FUND

BT INVESTMENT LIFECYCLE LONG RANGE FUND

A SERIES OF MUTUAL FUNDS, EACH INVESTING IN STOCKS, BONDS AND SHORT-TERM
INSTRUMENTS TO SEEK A DISTINCT GOAL

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.]

<PAGE>

BT INVESTMENT LIFECYCLE FUNDS

OVERVIEW OF THE BT INVESTMENT LIFECYCLE FUNDS
Goals
Core Strategies
Investment Policies and Strategies
Principal Risks of Investing in the Funds
Who Should Consider Investing in the Funds

BT INVESTMENT LIFECYCLE SHORT RANGE FUND
Total Returns, After Fees and Expenses

BT INVESTMENT LIFECYCLE MID RANGE FUND
Total Returns, After Fees and Expenses

BT INVESTMENT LIFECYCLE LONG RANGE FUND
Total Returns, After Fees and Expenses

A DETAILED LOOK AT THE BT INVESTMENT LIFECYCLE FUNDS
Annual Fund Operating Expenses
Objectives
Strategies
Principal Investments
Investment Process
Risks
Management of the Funds
Calculating a Fund's Share Price
Performance Information
Dividends and Distributions
Tax Considerations
Buying and Selling Fund Shares
Financial Highlights

<PAGE>

Overview
OF THE BT INVESTMENT LIFECYCLE FUNDS

GOALS:

The Short Range Fund seeks high income over the long term consistent with
conservation of capital.

The Mid Range Fund seeks long-term capital growth, current income and growth of
income, consistent with reasonable investment risk.

The Long Range Fund seeks high total return with reduced risk over the long
term.

CORE STRATEGIES: Each Fund allocates its investments among three asset classes:
stocks, bonds and short-term instruments.

INVESTMENT POLICIES AND STRATEGIES
Each Fund is a feeder fund that invests all of its assets in a master portfolio
with the same investment objective. Each Fund, through its master portfolio,
seeks that objective by investing in three principal asset classes - stocks,
bonds and short-term instruments. Each Fund's investment in each asset class
fluctuates depending on the Investment Adviser's judgment of how to provide the
most favorable return consistent with the Fund's goal.

FOOTNOTE: Asset allocation funds offer investors professional management and a
convenient means of diversifying their holdings in various asset classes within
a single fund while relieving them of the administrative burdens typically
associated with purchasing and holding these instruments.

<PAGE>

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

o The asset allocation strategy chosen by the Investment Adviser could
perform poorly.
o The individual stocks, bonds and short-term instruments chosen by the
Investment Adviser could decline in value.
o Stock prices could decline generally.
o A rise in interest rates could cause the fixed-income markets and
individual securities in the Fund's portfolio to decline in value.
o An issuer's creditworthiness could decline, which in turn may cause the
value of a security in the Fund's portfolio to decline.

<PAGE>

WHO SHOULD CONSIDER INVESTING IN THE FUNDS

The Funds are designed to combine the benefits and risks of investing in stocks,
bonds and short-term instruments. With the Funds, the decision of how much of
your portfolio to invest in stocks, bonds and short-term instruments is left to
professionals. All you decide is how long it will be until you need to access
your investment.

SHORT RANGE FUND: You should consider investing in the Short Range Fund if you
are seeking current income and have less than five years until you need your
investment.

MID RANGE FUND: You should consider investing in the Mid Range Fund if you are
seeking long-term capital growth, current income and growth of income and have
at least five years until you need your investment.

LONG RANGE FUND: You should consider investing in the Long Range Fund if you are
seeking high total return over the long term and have more than ten years until
you need your investment.

There is, of course, no guarantee that the Funds will realize their goals.

The Funds by themselves do not constitute a balanced investment program.
Diversifying your investments may improve your long-run investment return and
lower the volatility of your overall investment portfolio.

AN INVESTMENT IN A FUND IS NOT A DEPOSIT OF BANKERS TRUST COMPANY OR ANY OTHER
BANK AND IS NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY.

<PAGE>

BT INVESTMENT LIFECYCLE SHORT RANGE 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 by showing changes in the Fund's
performance year to year. The bar chart shows the Fund's actual return for each
full calendar year since the Fund began selling shares on October 15, 1993 (its
inception date). The table compares the Fund's average annual return with the
Standard & Poor's 500 Composite Stock Price Index ("S&P 500 Index") over the
last calendar year, the last five calendar years and since the Fund's inception.
The S&P 500 Index is a model, not an actual portfolio. An index is a group of
securities whose overall performance is used as a standard to measure investment
performance. It does not factor in the costs of buying, selling and holding
securities -- costs which are reflected in the Fund's results.

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

[bar chart]

------------- ----------- ---------- ----------- ----------
-2.83% 14.42% 7.8% 13.74% 13.53%
------------- ----------- ---------- ----------- ----------
1994 1995 1996 1997 1998
------------- ----------- ---------- ----------- ----------

The Fund's return for the period January 1, 1999 to June 30, 1999 was -[ ]%.
During the period shown in the bar chart, the Fund's highest return in any
calendar quarter was 6.39% (second quarter 1997) and its lowest quarterly return
was -2.44% (first quarter 1994). Past performance offers no indication of how
the Fund will perform in the future.

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

<PAGE>

BT INVESTMENT LIFECYCLE SHORT RANGE FUND

Average Annual Returns

(AS OF DECEMBER 31, 1998)

Since
Inception
1 YEAR 5 YEARS (OCTOBER 15,
------ ------- ------------
1993)

BT INVESTMENT LIFECYCLE SHORT RANGE FUND 13.53% 9.13% 8.53%

S&P 500 Index 28.58% 24.06% 23.26%(1)

Asset Allocation Index - Short Range(2) 10.75% 9.16% 8.86%(1)

- ----------

(1) The Indexes' returns are calculated from October 31, 1993.

(2) The Asset Allocation Index - Short Range is a blend of several indexes: 15%
S&P 500 Index, 55% Salomon Broad Investment Grade Bond Index, and 30% U.S.
Treasury Bill 30-Month Index.

<PAGE>

BT INVESTMENT LIFECYCLE MID RANGE 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 by showing changes in the Fund's
performance year to year. The bar chart shows the Fund's actual return for each
full calendar year since the Fund began selling shares on October 14, 1993 (its
inception date). The table compares the Fund's average annual return with the
S&P 500 Index over the last calendar year, the last five calendar years and
since the Fund's inception. The S&P 500 Index is a model, not an actual
portfolio. An index is a group of securities whose overall performance is used
as a standard to measure investment performance. It does not factor in the costs
of buying, selling and holding securities -- costs which are reflected in the
Fund's results.

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

[bar chart]

------------- ----------- ---------- ----------- ----------
-3.36% 18.54% 11.7% 18.53% 17.05%
------------- ----------- ---------- ----------- ----------
1994 1995 1996 1997 1998
------------- ----------- ---------- ----------- ----------

The Fund's return for the period January 1, 1999 to March 31, 1999 was 1.13%.
During the period shown in the bar chart, the Fund's highest return in any
calendar quarter was 9.05% (second quarter 1997) and its lowest quarterly return
was -3.77% (first quarter 1994). Past performance offers no indication of how
the Fund will perform in the future.

<PAGE>

BT INVESTMENT LIFECYCLE MID RANGE FUND

Average Annual Returns

(AS OF DECEMBER 31, 1998)

Since
Inception
1 YEAR 5 YEARS (OCTOBER 14,
------ ------- ------------
1993)

BT INVESTMENT LIFECYCLE MID RANGE FUND 17.05% 12.16% 11.37%

S&P 500 Index 28.58% 24.06% 23.26%(3)

Asset Allocation Index - Mid Range(4) 15.21% 12.69% 12.28%(3)

- ---------
(3) The Indexes' return is calculated from October 31, 1993.

(4) The Asset Allocation Index - Mid Range is a blend of several indexes: 35%
S&P 500 Index, 45% Salomon Broad Investment Grade Bond Index, and 20% U.S.
Treasury Bill 30-Month Index.

<PAGE>

BT INVESTMENT LIFECYCLE LONG RANGE 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 by showing changes in the Fund's
performance year to year. The bar chart shows the Fund's actual return for each
full calendar year since the Fund began selling shares on November 16, 1993 (its
inception date). The table compares the Fund's average annual return with the
S&P 500 Index over the last calendar year, the last five calendar years and
since the Fund's inception. The S&P 500 Index is a model, not an actual
portfolio. An index is a group of securities whose overall performance is used
as a standard to measure investment performance. It does not factor in the costs
of buying, selling and holding securities -- costs which are reflected in the
Fund's results.

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

[bar chart]

------------- ----------- ---------- ----------- ----------
-2.94% 22.99% 15.82% 23.04% 21.08%
------------- ----------- ---------- ----------- ----------
1994 1995 1996 1997 1998
------------- ----------- ---------- ----------- ----------

The Fund's return for the period January 1, 1999 to March 31, 1999 was 2.09%.
During the period shown in the bar chart, the Fund's highest return in any
calendar quarter was 11.72% (fourth quarter 1998) and its lowest quarterly
return was -4.55% (third quarter 1998). Past performance offers no indication of
how the Fund will perform in the future.

<PAGE>

BT INVESTMENT LIFECYCLE LONG RANGE FUND

Average Annual Returns

(AS OF DECEMBER 31, 1998)

Since
Inception
1 YEAR 5 YEARS (NOVEMBER
------ ------- ---------
16, 1993)
---------

BT INVESTMENT LIFECYCLE LONG RANGE FUND 21.08% 15.55% 15.22%

S&P 500 Index 28.58% 24.06% 23.92%(5)

Asset Allocation Index - Long Range(6) 19.60% 16.26% 16.18%(5)

- ---------
(5) The Indexes' return is calculated from November 30, 1993.

(6) The Asset Allocation Index - Long Range is a blend of several indexes: 55%
S&P 500 Index, 35% Salomon Broad Investment Grade Bond Index, and 10% U.S.
Treasury Bill 30-Month Index.

<PAGE>

A detailed look
AT THE BT INVESTMENT LIFECYCLE FUNDS

ANNUAL FUND OPERATING EXPENSES
(EXPENSES PAID FROM FUND ASSETS)

The Annual Fees and Expenses table to the right describes the fees and expenses
that you may pay if you buy and hold shares of the Funds.

ANNUAL FEES AND EXPENSES

<TABLE>
<CAPTION>
PERCENTAGE OF AVERAGE DAILY NET ASSETS(7)
Lifecycle Short Lifecycle Mid Lifecycle Long
Range Fund Range Fund Range Fund
<S><C>
Management Fees 0.65% 0.65% 0.65%

Distribution and Service (12b-1) Fees None None None

Other Fund Operating Expenses TK% TK% TK%

Total Fund Operating Expenses TK% TK% TK%

Less: Fee Waiver and Expense Reimbursement(8) (TK%) (TK%) (TK%)

NET EXPENSES 1.00% 1.00% 1.00%
</TABLE>

- ---------
(7) Information on the annual operating expenses for each Fund reflects the
expenses of both the Fund and the master portfolio in which it invests its
assets. (A further discussion of the relationship between each Fund and its
Portfolio appears in the "Organizational Structure" section of this
prospectus.)

(8) Bankers Trust has agreed, for the 16-month period from the end of each
Fund's fiscal year end of March 31, 1999, to waive its fees and reimburse
expenses so that total expenses will not exceed 1.00%.

<PAGE>

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

You may use this hypothetical example to compare each Fund's expense history
with other funds.(7) The example does not represent an estimate of future
returns or expenses. Actual costs may be higher or lower.

Expense Examples(9)

- ----------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- ----------------------------------------------------------------------------
Lifecycle Short Range Fund $TK $TK $TK $TK
- ----------------------------------------------------------------------------
Lifecycle Mid Range Fund $TK $TK $TK $TK
- ----------------------------------------------------------------------------
Lifecycle Long Range Fund $TK $TK $TK $TK
- ----------------------------------------------------------------------------

- ---------
(9) Based on expenses, after fee waivers and reimbursements for the first 16
months only.

<PAGE>

OBJECTIVES

o The Short Range Fund seeks high income over the long term consistent with
conservation of capital.

o The Mid Range Fund seeks long-term capital growth, current income, and growth
of income, consistent with reasonable investment risk.

o The Long Range Fund seeks high total return with reduced risk over the long
term.

While we give priority to seeking each Fund's goal, we cannot offer any
assurance of achieving their objective. Each 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.

STRATEGIES
In seeking each Fund's goal, the Investment Adviser allocates the Fund's assets
among three principal assets classes: stocks, bonds and short-term instruments.

The Funds' assets will be allocated to the three asset classes based on the
following guidelines:

Short-Term Instruments Bonds Stocks
Short Range Fund 30% 55% 15%
Mid Range Fund 20% 45% 35%
Long Range Fund 10% 35% 55%

The Funds' assets will rarely be exactly in line with these guidelines. Rather,
each Fund's investment in each asset class fluctuates depending on the
Investment Adviser's perception of the opportunities available among the three
asset classes and the relative risks associated with such opportunities,
consistent with each Fund's goal.

The Investment Adviser will generally allocate the Funds' assets within the
following ranges:

<PAGE>

Short-Term Instruments Bonds Stocks
Short Range Fund 0-65% 35-70% 0-30%
Mid Range Fund 0-50% 30-60% 20-50%
Long Range Fund 0-25% 25-55% 40-70%

For example, as of March 31, 1999, the Funds' allocation to each asset class was
as follows:

Short-Term Instruments Bonds Stocks
Short Range Fund TK% TK% TK%
Mid Range Fund TK% TK% TK%
Long Range Fund TK% TK% TK%

Each Fund's allocation to a particular asset class will not match the percentage
of its assets invested directly in that asset class. The Fund uses derivatives
to increase or decrease the Fund's exposure to the various asset classes.

FOOTNOTE: Generally, a derivative is a financial arrangement that derives its
value from a traditional security (like a stock or bond), asset or index.

PRINCIPAL INVESTMENTS

Short-Term Instruments. The short-term instruments in which the Funds invest
include domestic and foreign securities and money market instruments with
remaining maturities of thirteen months or less, as well as money market mutual
funds. The Investment Adviser seeks to maximize total return within this asset
class by investing in securities that take advantage of differences in yields
among instruments or issuers of currencies.

<PAGE>

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

FOOTNOTE: Yield is determined by dividing the coupon rate (the interest rate a
borrower agrees to pay when issuing a security) by the purchase price. The yield
of a security will rise as the security's price falls and vice versa.

The Funds may invest in:

o Short-term obligations of the U.S. or foreign governments, their agencies and
instrumentalities;

o Other short-term debt securities rated within the top two 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);

o Commercial paper;

o Bank obligations, including negotiable certificates of deposit, time deposits
and bankers' acceptances;

o Repurchase agreements, which are agreements to buy securities at one price,
with a simultaneous agreement to sell back the securities at a future date at
an agreed-upon price; and

o Money market mutual funds.

At the time of a Fund's investment in commercial paper, bank obligations or
repurchase agreements, the issuer (or the issuer's parent) must have outstanding
debt rated within the top two 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).

Bonds. These securities include investment-grade domestic and foreign fixed
income securities with remaining maturities or durations greater than thirteen
months. The Investment Adviser seeks to maximize total returns within the bond
class by adjusting each Fund's investments in

<PAGE>

securities with different credit qualities, maturities and coupon or dividend
rates, as well as seeking securities that take advantage of differences in
yields among instruments or issuers of currencies. Securities in the bond asset
class include bonds, notes, adjustable rate preferred stocks, convertible bonds,
mortgage-related and asset-backed securities, domestic and foreign government
agency securities, zero coupon bonds, Rule 144A securities (securities whose
resale is restricted), and other intermediate and long-term securities.

FOOTNOTE: Investment-grade securities are rated within the top four rating
categories by a nationally recognized statistical rating organization.

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.

Stocks. These securities include domestic and foreign equity securities of all
types. The Funds' Investment Adviser seeks to maximize total return within this
asset class by actively allocating assets to industry sectors that we expect
will benefit from major trends, and to individual stocks that we believe have
superior potential. Securities in the stock asset class include common stocks,
fixed rate preferred stocks (including convertible preferred stock), warrants,
rights, depositary receipts, TBA (to be announced) purchase commitments and
other equity securities issued by companies of any size, located anywhere in the
world.

Derivatives. Each Fund invests in various instruments that are commonly known as
"derivatives" to increase its exposure to an asset class. The Funds primarily
use futures and options, forward currency transactions and swaps. The Investment
Adviser will use derivatives only in circumstances where the Adviser believes
they offer the most economical means of improving the risk/reward profile of a
Fund. Each Fund may also invest in derivatives to keep cash on hand to meet
shareholder redemptions or other needs while maintaining exposure to the

<PAGE>

market.

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

FOOTNOTE: Forward currency transactions are the purchase or sale of foreign
currency at an exchange rate established now, but with payment and delivery at a
specified future time. Forward Currency Transactions are used as hedges and,
where possible, to add to investment returns.

FOOTNOTE: A swap is a transaction where one security or characteristic of a
security is swapped for another.

<PAGE>

INVESTMENT PROCESS
The Investment Adviser regularly reviews each Fund's investment allocations and
will vary them to favor asset classes that, in our judgment, provide the most
favorable total return outlook consistent with each Fund's investment objective.
In deciding how to allocate each Fund's assets, the Investment Adviser will
evaluate projections of risk, market and economic conditions, volatility, yields
and expected return.

In managing the Funds, the Investment Adviser uses:
o statistical processes, including a database system to help analyze past
situations and trends;
o portfolio management professionals to determine asset allocation and to select
individual securities; and
o its own credit analysis as well as credit analysis provided by rating services
to determine the quality of debt securities and short-term instruments.

<PAGE>

FOOTNOTE: [Portfolio Turnover.] The portfolio turnover rate measures the
frequency that the Fund sells and replaces the value of its securities within a
given period. Historically, each Fund has had a high portfolio turnover rate.
High turnover can increase a 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
GENERAL, AS WELL AS THE RISKS ASSOCIATED WITH ASSET ALLOCATION FUNDS AND EACH
ASSET CLASS. EACH FUND'S EXPOSURE TO THE RISKS ASSOCIATED WITH EACH ASSET CLASS
WILL DEPEND ON THEIR CURRENT INVESTMENT ALLOCATION TO THAT CLASS.

PRIMARY RISKS

Asset Allocation Risk. Although asset allocation among different asset classes
generally limits risk and exposure to any one class, the risk remains that the
Investment Adviser favors an asset class that performs poorly relative to the
other asset classes. For example, deteriorating stock market conditions might
cause an overall weakness in the market that reduces the absolute level of stock
prices in that market. If a Fund was invested primarily in stocks, it would
perform poorly relative to a Fund invested primarily in bonds.

Security Selection Risk. A risk that pervades all investing is the risk that
the securities in a Fund's portfolio will decline in value.

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

Credit Risk. Credit risk is the risk that an issuer or counterparty declines in
creditworthiness or

<PAGE>

defaults, which would cause the value of the issuer's security to decline. Also,
issuers may not be able to pay the interest on the securities they have issued.
As a way of reducing these risks, each Fund invests only in investment-grade
debt securities to provide an added level of protection when economic conditions
deteriorate. In addition, we continuously monitor the financial well-being of
the issuers of the securities that a Fund owns. We may sell those that show the
signs of weakness that may lead to a ratings downgrade or even to default.

Futures and Options. Because futures and options are used as a way to gain
exposure to a particular asset class, the risks associated with that asset class
effect the successful use of futures and options. Futures and options can be
volatile investments, and may not perform as expected. For futures contracts and
options on futures contracts used 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.

Foreign Investments. To the extent that a Fund holds securities based outside
the United States, political, economic or social developments in foreign
countries could undermine the value of a Fund's investments or prevent a Fund
from realizing their full value. Different accounting and financial reporting
standards, or less stringent enforcement of these standards, could convey
incomplete, inaccurate or misleading information about a Fund investment. The
use of derivatives in foreign markets also involves additional risks.

Currency Risk. Each 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. The Investment Adviser seeks 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.

<PAGE>

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

Year 2000 Risk. As with most businesses, each Fund faces the risk that the
computer systems of its Investment Adviser and other companies on which it
relies for service or in which it invests will not accommodate the changeovers
necessary from dates in the year 1999 to dates in the year 2000. These risks
could adversely affect:

o The issuers in which the Fund invests, which could impact the value of the
Fund's investments;
o Our ability to service your Fund account, including our ability to meet your
requests to buy and sell Fund shares; and
o Our ability to trade securities held by the Fund or to accurately price
securities held by the Fund.

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

Temporary Defensive Position. We may from time to time adopt a temporary
defensive position in response to extraordinary adverse political, economic or
stock market events. For temporary

<PAGE>

defensive purposes, we may invest a substantial portion of each Fund's assets in
cash and money market instruments. To the extent we find it necessary to invest
in such securities, the Fund will not be invested to meet its investment
objective.

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 the Fund's activities on their behalf.

[Investment Adviser.] Under the supervision of the Board of Trustees, Bankers
Trust Company, with headquarters at 130 Liberty Street, New York, NY 10006, acts
as each Fund's investment adviser. As investment adviser, Bankers Trust makes
the Fund's investment decisions and assumes responsibility for the securities
the Fund owns. It buys and sells securities for the Fund and conducts the
research that leads to the purchase and sale decisions. Bankers Trust received a
fee of 0.65% of each Fund's average daily net assets for its services in the
last fiscal year.

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

Bankers Trust's officers bring wide experience to managing both the Funds and
their portfolios. The firm's own record dates back to its founding as a trust
company in 1903. It has invested retirement assets on behalf of the nation's
largest corporations and institutions for more than 50 years. As of December 31,
1998, the assets under its global management total $338 billion. The scope of
the firm's capability is broad: It is a leader in both the active and passive
quantitative investment disciplines and maintains a major presence in stock and
bond markets worldwide.

<PAGE>

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

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

Bankers Trust is a wholly-owned subsidiary of Bankers Trust Corporation. On
[date], Bankers Trust Corporation merged with and into a subsidiary of Deutsche
Bank AG. Deutsche Bank AG is a major global banking institution that is engaged
in a wide range of financial services, including investment management, mutual
funds, retail and commercial banking, investment banking and insurance. Because
Deutsche Bank AG, as Bankers Trust's new parent company, controls its operations
as investment adviser, the Funds' shareholders will be asked to approve a new
investment advisory agreement. A Special Meeting of Shareholders will be held
for this purpose. Bankers Trust believes that, under this new agreement, the
services provided to the Funds will be maintained at their current level.

<PAGE>

PORTFOLIO MANAGER.

PHILIP J. GREEN is responsible for the day-to-day management of the master
portfolios' investments.

o Managing Director of Bankers Trust and Portfolio Manager in the quantitative
investments group.
o Joined Bankers Trust in 1985.
o Managed the master portfolios from January 1995 to July 1996, and since March
1997.
o 15 years of investment experience.
o B.S.E., The Wharton School, University of Pennsylvania; MBA, New York
University.

<PAGE>

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:

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

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

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

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

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

o collecting your executed proxies.

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

Short Range Fund Asset Management Portfolio III

Mid Range Fund Asset Management Portfolio II

Long Range Fund Asset Management Portfolio

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

<PAGE>

CALCULATING A 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.

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.

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.

<PAGE>

PERFORMANCE INFORMATION

Each 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. Each 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, if any, are paid quarterly. Capital gains will be distributed at
least annually. We automatically reinvest all dividends and any capital gains,
unless you tell us otherwise.

TAX CONSIDERATIONS

A Fund does not ordinarily pay income taxes. You and other shareholders pay
taxes on the income or capital gains from a 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 year Capital gains or losses

<PAGE>

Your sale of shares owned for one year or less Gains treated as ordinary
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. Each 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 a transaction fee for the purchase
and sale of Fund shares.

THE FUNDS' SHAREHOLDER GUIDE AND 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>

The tables below provide a picture of each 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 tables 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

LIFECYCLE SHORT RANGE FUND

[insert highlights table]

<PAGE>

LIFECYCLE MID RANGE FUND

[insert highlights table]

<PAGE>

LIFECYCLE LONG RANGE FUND

[insert highlights table]

<PAGE>

(Bankers Trust logo)

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

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

BT SERVICE CENTER
P.O. BOX 419210
KANSAS CITY, MO 64141-6210
or call our toll-free number: 1-800-730-1313

You can find reports and other information about the Funds 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 Funds, including their
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 Investment Lifecycle Short Range Fund CUSIP# 055922827
BT Investment Lifecycle Mid Range Fund 055922835
BT Investment Lifecycle Long Range Fund 055922843
BT INVESTMENT FUNDS 811-4760
[PRODUCT CODE]

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

<PAGE>

STATEMENT OF ADDITIONAL INFORMATION

JULY 31, 1999

BT INVESTMENT FUNDS
o BT Investment Lifecycle Short Range Fund
o BT Investment Lifecycle Mid Range Fund
o BT Investment Lifecycle Long Range Fund

BT Investment Funds (the "Trust") is an open-end management investment company
that offers investors a selection of investment portfolios, each having distinct
investment objectives and policies. This Statement of Additional Information
relates only to the BT Investment Lifecycle Short Range Fund, BT Investment
Lifecycle Mid Range Fund and BT Investment Lifecycle Long Range Fund (each, a
"Fund" and together the "Funds"). Each Fund seeks to achieve its investment
objective by allocating investments among three asset classes: stocks, bonds,
and short-term instruments.

As described in the Prospectus, the Trust seeks 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
objective as such Fund. These investment companies are, respectively, Asset
Management Portfolio III, Asset Management Portfolio II, and Asset Management
Portfolio (each a "Portfolio" and collectively, the "Portfolios"). Asset
Management Portfolio II and Asset Management Portfolio III are each a series of
BT Investment Portfolios.

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

The Funds' Prospectus is dated July 31, 1999, and provides the basic information
investors should know before investing. This Statement of Additional Information
("SAI"), which is not a Prospectus, is intended to provide additional
information regarding the activities and operations of the Trust and should be
read in conjunction with the 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 bank or dealer or other institution that has a sub-shareholder
servicing agreement with Bankers Trust (along with Bankers Trust, a "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 Funds' Prospectus. The financial statements
for the Fund and the Portfolio for the fiscal year ended March 31, 1999, are
incorporated herein by reference to the Annual Report to shareholders for the
Fund and Portfolio dated March 31, 1999. A copy of the Fund's and the
Portfolio's Annual Report may be obtained without charge by calling the Fund at
the telephone number listed below.

BANKERS TRUST COMPANY
ADVISER OF EACH PORTFOLIO AND ADMINISTRATOR

ICC DISTRIBUTORS, INC.
DISTRIBUTOR
TWO PORTLAND SQUARE
PORTLAND, MAINE 04101

1-800-730-1313

<PAGE>

TABLE OF CONTENTS

PAGE

<PAGE>

INVESTMENT OBJECTIVES AND POLICIES

INVESTMENT OBJECTIVES

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

INVESTMENT POLICIES

Each Fund seeks its investment objective by investing all of its Assets in the
corresponding Portfolio. The Trust may withdraw a Fund's investment from the
corresponding Portfolio at any time if the Board of Trustees of the Trust
determines that it is in the best interests of the Fund to do so. Since the
investment characteristics of each Fund will correspond directly to those of the
corresponding Portfolio, the following is a discussion of the various
investments of and techniques employed by each Portfolio.

HIGH YIELD BONDS. No more than 5% of each Portfolio's net assets (at the time of
investment) may be invested in lower rated (BB/Ba or lower), high yield bonds.
Each Portfolio may retain any bond whose rating drops below investment grade if
it is in the best interest of the respective Fund's shareholders. Securities
rated BB/Ba by a Nationally Recognized Statistical Rating Organization ("NRSRO")
are considered to have speculative characteristics. See the Appendix for further
information on these securities.

FOREIGN INVESTMENTS. Each Portfolio focuses on U.S. investment opportunities,
but may invest a portion of its assets in foreign securities. Each Portfolio
will not invest more than 25% of its total assets in equity securities of
foreign issuers under normal conditions. Each Portfolio also will not invest
more than 25% of its total assets in each of the bond and short-term classes in
foreign currencies. Foreign securities of all types will normally constitute
less than 50% of each Portfolio's assets.

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

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

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

<PAGE>

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.

TBA PURCHASE COMMITMENTS. The Funds may enter into TBA purchase commitments to
purchase securities for a fixed price at a future date, typically not exceeding
45 days. TBA purchase commitments may be considered securities in themselves,
and involve a risk of loss if the value of the security to be purchased declines
prior to settlement date, which risk is in addition to the risk of decline in
the value of a Portfolio's other assets. Unsettled TBA purchase commitments are
valued at the current market value of the underlying securities.

ILLIQUID SECURITIES. Historically, illiquid securities have included securities
subject to contractual or legal restrictions on resale because they have not
been registered under the Securities Act of 1933, as amended (the "1933 Act"),
securities which are otherwise not readily marketable and repurchase agreements
having a maturity of longer than seven calendar 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 calendar days. A mutual fund might also have to
register such restricted securities in order to dispose of them resulting in
additional expenses and delay. Adverse market conditions could impede such a
public offering of securities.

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

The Securities and Exchange Commission (the "SEC") has adopted Rule 144A, which
allows a broader institutional trading market for securities otherwise subject
to restriction on their resale to the general public. Rule 144A establishes a
"safe harbor" from the registration requirements of the 1933 Act 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 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.

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 each
Portfolio, The Adviser determines the liquidity of restricted securities and,
through reports from the Adviser, the Board will monitor trading activity in
restricted securities. 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 wishing to purchase or sell 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). Because Rule 144A is
relatively new, it is not possible to predict how these markets will develop. If
institutional trading in restricted securities were to decline, the liquidity of
each Portfolio could be adversely affected.

LENDING OF PORTFOLIO SECURITIES. Each Portfolio has the authority to lend up to
30% of its total assets (taken at market value) to brokers, dealers and other
financial organizations. The Portfolios will not lend securities to the Adviser,
ICC Distributors or their affiliates. By lending its securities, a Portfolio can
increase its income by

<PAGE>

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
securities issued or guaranteed by the U.S. government, its agencies or
instrumentalities or by letter of credit at least equal to the market value of
the securities loaned plus accrued interest 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 the Adviser (or its affiliates) and the Adviser may serve as a
Portfolio's lending agent and may share in revenue received from securities
lending transactions as compensation for this service.

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 on its books cash or liquid
securities in an amount at least equal to these commitments.

SHORT SALES. Each Portfolio may engage in short sales with respect to securities
that it owns or has the right to obtain (for example, through conversion of a
convertible bond). These transactions, known as short sales "against the box,"
allow the Portfolio to hedge against price fluctuations by locking in a sale
price for securities it does not wish to sell immediately.

INDEXED SECURITIES. Each Portfolio may invest in indexed securities whose value
depends on the price of foreign currencies, securities indices or other
financial values or statistics. Examples 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. These securities may be positively or
negatively indexed; that is, their value may increase or decrease if the
underlying instrument appreciates.

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

ZERO COUPON DEBT SECURITIES. Zero coupon debt securities do not make regular
interest payments. Instead they are sold at a deep discount from their face
value. Because a zero coupon bond does not pay current income, its price can be
volatile when interest rates change. In calculating its dividends, each Fund
takes into account as income a portion of the difference between a zero coupon
bond's purchase price and its face value.

GOVERNMENT SECURITIES. Government securities may or may not be backed by the
full faith and credit of the U.S. government. U.S. Treasury bonds, notes and
bills and certain agency securities, such as those issued by the Federal Housing
Administration, are backed by the full faith and credit of the U.S. government
and are the highest quality government securities. Each Portfolio may also
invest a substantial portion of its portfolio in securities issued by government
agencies or instrumentalities (such as executive departments of the U.S.
government or independent Federal organizations supervised by Congress), which
may have different degrees of government backing but which are not backed by the
full faith and credit of the U.S. government. There is no guarantee that the
government will

<PAGE>

support these types of securities, and therefore they involve more risk than
other government obligations.

MORTGAGE-BACKED SECURITIES. Mortgage-backed securities are securities
representing interests in a pool of mortgages. Principal and interest payments
made on the mortgages in the underlying mortgage pool are passed through to the
investor. Unscheduled prepayments of principal shorten the securities' weighted
average life and may lower their total return. When a mortgage in the underlying
pool is prepaid, an unscheduled principal prepayment is passed through to the
investor. This principal is returned to the investor at par. As a result, if a
mortgage security were trading at a premium, its total return would be lowered
by prepayments, and if a mortgage security were trading at a discount, its total
return would be increased by prepayments. The value of these securities also may
change because of changes in the market's perception of the creditworthiness of
the Federal agency that issued them. In addition, the mortgage securities market
in general may be adversely affected by changes in governmental regulation or
tax policies.

COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS"). CMOs are pass-through securities
collateralized by mortgages or mortgage backed securities. CMOs are issued in
classes and series that have different maturities and often are retired in
sequence. CMOs may be issued by governmental or non-governmental entities such
as banks and other mortgage lenders. Non-government securities may offer a
higher yield but also may be subject to greater price fluctuation than
government securities.

ASSET-BACKED SECURITIES. Asset-backed securities consist of undivided fractional
interests in pools of consumer loans (unrelated to mortgage loans) held in a
trust. Payments of principal and interest are passed through to
certificateholders and are typically supported by some form of credit
enhancement, such as a letter of credit, surety bond, limited guarantee or
senior/subordination. The degree of credit enhancement varies, but generally
amounts to only a fraction of the asset-backed security's par value until
exhausted. If the credit enhancement is exhausted, certificateholders may
experience losses or delays in payment if the required payments of principal and
interest are not made to the trust with respect to the underlying loans. The
value of the securities also may change because of changes in the market's
perception of creditworthiness of the servicing agent for the loan pool, the
originator of the loans or the financial institution providing the credit
enhancement. Asset-backed securities are ultimately dependent upon payment of
consumer loans by individuals, and the certificateholder generally has no
recourse to the entity that originated the loans. The underlying loans are
subject to prepayments which shorten the securities' weighted average life and
may lower their return. As prepayments flow through at par, total returns would
be affected by the prepayments: if a security were trading at a discount, its
total return would be increased by prepayments.

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

Whether the use of swap agreements will be successful in furthering the
Portfolio's investment objective will depend on the Adviser's ability to
correctly predict whether certain types of investments are likely to produce
greater returns than other investments. Swap agreements may be considered
illiquid because they are two party contracts and because they may have terms of
greater than seven days. Moreover, a Portfolio bears the risk of loss of the
amount expected to be received under a swap agreement in the event of the
default or bankruptcy of a swap agreement counter-party. A Portfolio will
minimize this risk by entering into agreements that mark to market no less
frequently

<PAGE>

than quarterly. In addition, a Portfolio will enter into swap agreements only
with counter-parties that would be eligible for consideration as repurchase
agreement counter-parties under the Portfolio's repurchase agreement guidelines.
Certain restrictions imposed on the Portfolios by the Internal Revenue Code of
1986, as amended (the "Code") may limit the Portfolios' ability to use swap
agreements. The swaps market is a relatively new market and is largely
unregulated. It is possible that developments in the swaps market, including
potential government regulation, could adversely affect a Portfolio's ability to
terminate existing swap agreements or to realize amounts to be received under
such agreements. Swap agreements also bear the risk that a Portfolio will not be
able to meet its obligation to the counter-party. This risk will be mitigated by
investing the Portfolio in the specific asset for which it is obligated to pay a
return.

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

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

OPTIONS ON SECURITIES. Each Portfolio may write and purchase put and call
options on stocks. A call option gives the purchaser of the option the right to
buy, and obligates the writer to sell, the underlying stock at the exercise
price at any time during the option period. Similarly, a put option gives the
purchaser of the option the right to sell, and obligates the writer to buy, the
underlying stock at the exercise price at any time during the option period.

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

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

When a Portfolio writes a covered put option, it gives the purchaser of the
option the right to sell the underlying security to the Portfolio at the
specified exercise price at any time during the option period. If the option
expires

<PAGE>

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

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

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

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

Each Portfolio has adopted certain other non-fundamental policies concerning
option transactions which are discussed below.

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.

Each Portfolio may engage in over-the-counter ("OTC") 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 OTC option
positions is more limited than with exchange-traded option positions because the
predominant market is the issuing broker rather than an exchange,

<PAGE>

and may involve the risk that broker-dealers participating in such transactions
will not fulfill their obligations. To reduce this risk, the Portfolio will
purchase such options only from broker-dealers who are primary government
securities dealers recognized by the Federal Reserve Bank of New York and who
agree to (and are expected to be capable of) entering into closing transactions,
although there can be no guarantee that any such option will be liquidated at a
favorable price prior to expiration. The Adviser will monitor the
creditworthiness of dealers with whom the Portfolio enters into such options
transactions under the general supervision of the Portfolios' Trustees.

Each Portfolio intends to treat OTC options purchased and the assets used to
"cover" OTC options written as not readily marketable and therefore subject to
the limitations described in "Investment Restrictions" in the SAI.

OPTIONS ON SECURITIES INDICES. Each Portfolio may purchase and write put and
call options on stock indices listed on stock exchanges. A stock index
fluctuates with changes in the market values of the stocks included in the
index. Options on stock indices are generally similar to options on stock except
that the delivery requirements are different. Instead of giving the right to
take or make delivery of stock at a specified price, an option on a stock index
gives the holder the right to receive a cash "exercise settlement amount" equal
to (a) the amount, if any, by which the fixed exercise price of the option
exceeds the closing value of the underlying index on the date of exercise,
multiplied by (b) a fixed "index multiplier." Receipt of this cash amount will
depend upon the closing level of the stock index upon which the option is based
being greater than, in the case of a call, or less than, in the case of a put,
the exercise price of the option. The amount of cash received will be equal to
such difference between the closing price of the index and the exercise price of
the option expressed in dollars times a specified multiple. The writer of the
option is obligated, in return for the premium received, to make delivery of
this amount. The writer may offset its position in stock index options prior to
expiration by entering into a closing transaction on an exchange or the option
may expire unexercised. Such options will be used for the purposes described
above under "Options on Securities."

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 a 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 a 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.

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 a 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. Each Portfolio will not purchase such options unless the
Adviser believes the market is sufficiently developed such that the risk of
trading in such options is no greater than the risk of trading in options on
securities.

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

CURRENCY MANAGEMENT

GENERAL. In connection with each Portfolio's investments denominated in foreign
currencies, the Adviser may choose to utilize a variety of currency management
strategies. The Adviser seeks to take advantage of different yield, risk, and
return characteristics that different currencies, currency denominations, and
countries can provide to U.S. investors. In doing so, the Adviser will consider
such factors as the outlook for currency relationships, current and anticipated
interest rates, levels of inflation within various countries, prospects for
relative economic growth, and government policies influencing currency exchange
rates and business conditions.

FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. Because each Portfolio buys and
sells securities denominated in

<PAGE>

currencies other than the U.S. dollar and receives interest, dividends and sales
proceeds in currencies other than the U.S. dollar, the Portfolios from time to
time may enter into foreign currency exchange transactions to convert foreign
currencies to and from the U.S. dollar. Each Portfolio either enters into these
transactions on a spot (i.e. cash) basis at the spot rate prevailing in the
foreign currency exchange market or uses forward contracts to purchase or sell
foreign currencies.

A forward foreign currency exchange contract is an obligation by a Portfolio to
purchase or sell a specific currency at a future date, which may be any fixed
number of days from the date of the contract. Forward foreign currency exchange
contracts establish an exchange rate at a future date. These contracts are
transferable in the interbank market conducted directly between currency traders
(usually large commercial banks) and their customers. A forward foreign currency
exchange contact generally has no deposit requirement and is traded at a net
price without commission. Neither spot transactions nor forward foreign 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 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 or an anticipated investment position.
Since consideration of the prospect for currency parties will be incorporated
into the Adviser's long-term investment decisions, each Portfolio will not
routinely enter into foreign currency hedging transactions with respect to
security transactions; however, the Adviser believes that it is important to
have flexibility to enter into foreign currency hedging transactions when it
determines that the transactions would be in each 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 each Portfolio's ability to utilize
forward contracts in the manner set forth in the Prospectus may be restricted.
Forward contracts may reduce the potential gain from a positive change in the
relationship between the U.S. dollar and foreign currencies. Unanticipated
changes in currency prices may result in poorer overall performance for a
Portfolio than if it had not entered into such contracts. The use of foreign
currency forward contracts may not eliminate fluctuations in the underlying U.S.
dollar equivalent value of the prices of or rates of return on a Portfolio's
foreign currency denominated portfolio securities and the use of such techniques
will subject a Portfolio to certain risks.

The matching of the increase in value of a forward contract and the decline in
the U.S. dollar equivalent value of the foreign currency denominated asset that
is the subject of the hedge generally will not be precise. In addition, a
Portfolio may not always be able to enter into foreign currency forward
contracts at attractive prices and this will limit the Portfolio's ability to
use such contract to hedge or cross-hedge its assets. Also, with regard to a
Portfolio's use of cross-hedges, there can be no assurance that historical
correlation's 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 write covered put and call
options and purchase put 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. Each
Portfolio may use options on currencies to cross-hedge, which involves writing
or purchasing options on one currency to hedge against changes in exchange

<PAGE>

rates for a different, but related currency. As with other types of options,
however, the writing of an option on foreign currency may be used to hedge
against fluctuations in exchange rates although, in the even of exchange rate
movements adverse to a Portfolio's position, it may forfeit the entire amount of
the premium plus related transaction costs. In addition each 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 a 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 identified on the Portfolio's books until the options
expire or are exercised. Similarly, if a 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. Each Portfolio pays
brokerage commissions or spreads in connection with its options transactions.

As in the case with 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. Each Portfolio's
ability to terminate OTC options will be more limited than with exchange traded
options. It is also possible that broker dealers participating in OTC options
transactions will not fulfill their obligations. Until such time as the staff of
the SEC changes its position, each 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.

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

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

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

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

<PAGE>

been obtained from favorable movements in exchange rates.

Each Portfolio intends to write covered call options on foreign currencies. A
call option written on a foreign currency by a Portfolio is "covered" if the
Portfolio owns the underlying foreign currency covered by the call or has an
absolute and immediate right to acquire that foreign currency without additional
cash consideration (or for additional cash consideration identified on the
Portfolio's books) upon conversion or exchange of other foreign currency held in
its portfolio. A call option is also covered if the Portfolio has a call on the
same foreign currency and in the same principal amount as the call written where
the exercise price of the call held (a) is equal to or less than the exercise
price of the call written or (b) is greater than the exercise price of the call
written if the difference is maintained by the Portfolio in cash, U.S.
government securities and other high quality liquid debt securities and
identified on the Portfolio's books.

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

FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS

GENERAL. Each Portfolio may buy and sell options and futures to manage its
exposure to changing interest rates, security prices and currency exchange
rates, and as an efficient means of managing allocations between asset classes.
Each Portfolio may invest in options and futures, based on any type of security
or index related to the Portfolio's investments, including options and futures
traded on foreign exchanges.

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

Each Portfolio may not purchase or sell a futures contract or option thereon if,
immediately thereafter, its margin deposits on its outstanding futures contracts
(other than futures contracts entered into for bona fide hedging purposes) and
premiums paid for options thereon would exceed 5% of the market value of the
Portfolio's total assets.

FUTURES CONTRACTS. Each Portfolio may enter into contracts for the purchase or
sale for future delivery of fixed-income securities or foreign currencies, or
contracts based on financial indices including any index of U.S. government
securities, foreign government securities or corporate debt securities. U.S.
futures contracts have been designed by exchanges which have been designated
"contracts markets" by the CFTC, and must be executed through a futures
commission merchant, or brokerage firm, which is a member of the relevant
contract market. Futures contracts trade on a number of exchange markets, and,
through their clearing corporations, the exchanges guarantee performance of the
contracts as between the clearing members of the exchange. Each Portfolio may
enter into futures contracts which are based on debt securities that are backed
by the full faith and credit of the U.S. government, such as long-term U.S.
Treasury Bonds, Treasury Notes, Government National Mortgage Association
modified pass-through mortgage-backed securities and three-month U.S. Treasury
Bills. Each Portfolio may also

<PAGE>

enter into futures contracts which are based on bonds issued by entities other
than the U.S. government.

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

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

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

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

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

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

<PAGE>

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.

FUTURES CONTRACTS ON SECURITIES INDICES. Each Portfolio may enter into contracts
providing for the marketing and acceptance of a cash settlement based upon
changes in the value of an index of securities ("futures contacts"). This
investment technique may be used 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 allocation between asset classes. A futures contract
may also be entered into to close out or offset an existing futures position.

When used for hedging purposes, a futures contracts involves the establishment
of a position which will move in a direction opposite to that of the investment
being hedged. If these hedging transactions are successful, the futures
positions taken for a 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.

Futures contracts do involve certain risks. These risks could include a lack of
correlation between the futures contract and the corresponding securities
market, a potential lack of liquidity in the secondary market and incorrect
assessments of market trends which may result in poorer overall performance than
if a futures contact had not been entered into.

Brokerage costs will be incurred and "margin" will be required to be posted and
maintained as a good faith deposit against performance of obligations under
futures contracts written for a Portfolio.

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

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

<PAGE>

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

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

ASSET COVERAGE. To reduce the leverage created by each of the Portfolio's use of
futures and related options, as well as when-issued and delayed delivery
securities and foreign currency exchange transactions, each Portfolio will cover
such transactions, as required under applicable interpretations of the SEC,
either by owning the underlying securities or by identifying on the Portfolio's
books liquid securities in an amount at all times equal to or exceeding the
Portfolio's commitment with respect to these instruments or contracts.

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

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

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

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

<PAGE>

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

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

ADDITIONAL INVESTMENT TECHNIQUES AND RISKS

INVESTMENT COMPANY SECURITIES. Securities of other investment companies may be
acquired by each Portfolio to the extent permitted under the 1940 Act, that is,
a Portfolio may invest a maximum of up to 10% of its total assets in securities
of other investment companies so long as not more than 3% of the total
outstanding voting stock of any one investment company is held by the Portfolio.
In addition, not more than 5% of a portfolio's total assets may be invested in
the securities of any one investment company. Each Portfolio may be permitted to
exceed these limitations by an exemptive order of the SEC. It should be noted
that investment companies incur certain expenses such as management, custodian,
and transfer agency fees, and therefore any investment by a Portfolio in shares
of other investment companies would be subject to such duplicate expenses.

OTHER INVESTMENT TECHNIQUES. Each Portfolio may also utilize the following
investments and investment practices: repurchase agreements, zero coupon debt
securities, government securities, mortgage backed securities, collateralized
mortgage obligations, asset backed securities and foreign investments. See
"Additional Information" herein for further information.

RISKS OF INVESTING IN FOREIGN SECURITIES. The investment in foreign securities
may involve additional risks. Foreign securities usually are denominated in
foreign currencies, which means their value will be affected by changes in the
strength of foreign currencies relative to the U.S. dollar as well as the other
factors that affect security prices. Foreign companies may not be subject to
accounting standards or governmental supervision comparable to U.S. companies,
and there often is less publicly available information about their operations.
Generally, there is less governmental regulation of foreign securities markets,
and securities trading practices abroad may offer less protection to investors
such as a Portfolio. The value of such instruments may be adversely affected by
changes in political or social conditions, diplomatic relations, confiscatory
taxation, expropriation, nationalization, limitation on the removal of funds or
assets, or imposition of (or change in) exchange control or tax regulations in
those foreign countries. Foreign securities may be less liquid or more volatile
than domestic investments. The Adviser considers these factors in making
investments for each Portfolio and limits the amount of each Portfolio's assets
that may be invested in foreign securities to 25% of its total assets for each
asset class and to less than 50% for all classes under normal conditions.
However, within each Portfolio's limitations, investments in any one country or
currency are not restricted.

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. The Portfolio may
use futures and options as a low cost method of gaining exposure to a particular
securities market without investing directly in those securities and for
traditional hedging purposes to attempt to protect the Portfolio from exposure
to changing interest rates, securities prices or currency

<PAGE>

exchange rates and for cash management or other investment purposes. The use of
derivatives may result in some leverage. The Portfolio will limit the leverage
created by its use of derivative for investment purposes by "covering" such
positions as required by the SEC. The Adviser will use derivatives only in
circumstances where the Adviser believes they offer the most economical means of
improving the risk/reward profile of the Portfolio. Derivatives will not be used
to increase portfolio risk above the level that could be achieved using only
traditional investment securities or to acquire exposure to changes in the value
of assets or indexes that by themselves would not be purchased for a Portfolio.
The use of derivatives for non-hedging purposes may be considered speculative.

Each Portfolio's investment in options, futures or forward contracts, and
similar strategies depend on the Adviser's judgment as to the potential risks
and rewards of different types of strategies. Options and futures can be
volatile investments, and may not perform as expected. If the Adviser applies a
hedge at an inappropriate time or judges price trends incorrectly, options and
futures strategies may lower a Portfolio's return. Options and futures traded on
foreign exchanges generally are not regulated by U.S. authorities, and may offer
less liquidity and less protection to a Portfolio in the event of default by the
other party to the contract. Each Portfolio could also experience losses if the
prices of its options and futures positions were poorly correlated with its
other investments, or if it could not close out its positions because of an
illiquid secondary market.

Further descriptions of a number of investment and investment techniques
available to the Portfolios, including foreign investments and the use of option
and futures and other investment techniques which may be considered
"derivatives", and certain risks associated with these investments and
techniques are included under "Additional Information" herein.

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

The master-feeder structure is relatively complex, so shareholders should
carefully consider this investment approach.

Small funds investing in the Portfolios may be materially affected by the
actions of larger funds investing in the Portfolios. 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 with large
institutional investors). Additionally, the Portfolio may become less diverse,
resulting in increased portfolio risk. Also, funds with a greater pro-rata
ownership in the Portfolios could have effective voting control of the operation
of the Portfolios. Whenever the Trust is requested to vote in matters pertaining
to the Portfolio, the Trust will, except as permitted by the SEC, hold a meeting
of shareholders of the corresponding Fund and will cast all of its votes in the
same proportion as the votes of the Fund's shareholders. Fund shareholders who
do not vote will not affect the Trust's votes at the Portfolio meeting. The
percentage of the Trust's votes representing Fund shareholders not voting will
be voted by the Trustees or officers of the Trust in the same proportion as the
Fund shareholders who do, in fact, vote. Certain changes in a Portfolio's
investment objectives, policies or restrictions may require the corresponding
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, a Fund could
incur brokerage, tax and 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 a Fund. Notwithstanding the
above, there are some other means for meeting redemption requests, such as
borrowing.

A Fund may withdraw its investments from the corresponding Portfolio at any
time, if the Board of Trustees of the

<PAGE>

Trust determines that it is in the best interests if 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 a Fund in another pooled investment entity having the same investment
objectives as the Fund or the retaining of an investment adviser to manage the
Fund's assets in accordance with the investment policies described below with
respect to the Portfolio.

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
current needs. The investment objective of each portfolio is also not a
fundamental policy. Shareholders of the Fund will receive 30 days prior written
notice with respect to any change in the investment objective of the Funds or
the Portfolios. See "Investment Objective and Policies" herein for a description
of the fundamental policies of the Portfolios that cannot be changed without
approval by the holders of "a majority if the outstanding voting securities" (as
defined in the 1940 Act) of each 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 Fund to eliminate the obligation from its portfolio, but
the Adviser will consider such an event in its determination of whether a Fund
should continue to hold the obligation. A description of the ratings used herein
and in the Funds' Prospectus is set forth in the Appendix to this SAI.

INVESTMENT RESTRICTIONS

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

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

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

<PAGE>

sponsored by the Investment Company Institute; for additional related
restrictions, see clause (i) under the caption "Additional Restrictions";

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

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

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

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

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

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

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

(i) borrow money (including through reverse repurchase) for any purpose in
excess of 5% of the Portfolio's (Fund's) net assets (taken at market),
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;

(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 3% of the
outstanding voting securities of any such issuer to be held by the
Portfolio (Fund) unless permitted to exceed these limitations

<PAGE>

by an exemptive order of the SEC; provided further that, except in the
case of a merger or consolidation, the Portfolio (Fund) shall not
purchase any securities of any open-end investment company unless the
Portfolio (Fund) (1) waives the investment advisory fee with respect to
assets invested in other open-end investment companies and (2) incurs
no sales charge in connection with the investment;

(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 readily marketable excluding (a) Rule 144A securities that have
been determined to be liquid by the Board of Trustees; and (b)
commercial paper that is sold under section 4(2) of the 1933 Act which:
(i) is not traded flat or in default as to interest or principal; and
(ii) is rated in one of the two highest categories by at least two
nationally recognized statistical rating organizations and the
Portfolio's (Fund's) Board of Trustees have determined the commercial
paper to be liquid; or (iii) is rated in one of the two highest
categories by one nationally recognized statistical rating agency and
the Portfolio's (Fund's) Board of Trustees has determined that the
commercial paper is of equivalent quality and is liquid;

There will be no violation of any investment restriction if that restriction is
complied with at the time the relevant action is taken notwithstanding a later
change in market value of an investment, in net or total assets, in the
securities rating of the investment, or any other later change.

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

PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS

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

<PAGE>

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

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

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

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

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

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

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

For the fiscal years ended March 31, 1999, 1998, and 1997, the Asset Management
Portfolio III paid brokerage commissions in the amount of $___________, $6,485,
and $7,279, respectively.

For the fiscal years ended March 31 1999, 1998, and 1997, the Asset Management
Portfolio II paid brokerage

<PAGE>

commissions in the amount of $__________, $28,818, and $23,627, respectively.

For the fiscal years ended March 31, 1999, 1998, and 1997, the Asset Management
Portfolio paid brokerage commissions in the amount of $___________, $205,989,
and $193,354, respectively.

PERFORMANCE INFORMATION

STANDARD PERFORMANCE INFORMATION

The Funds' performance may be used from time to time in advertisements,
shareholder reports or other communications to shareholders or prospective
shareholders. Performance information may include each Fund's investment results
and/or comparisons of its investment results to the Lipper Flexible Funds
Average, S&P 500 Index, Salomon Broad Investment Grade Bond Index, Salomon U.S.
Dollar T Bill Index and various unmanaged indices (or a blended rate of several
of such indices) or results of other mutual funds or investment or savings
vehicles. Each Fund's investment results as used in such communications will be
calculated on a yield or total rate of return basis in the manner set forth
below. From time to time, fund rankings may be quoted from various sources such
as Lipper Analytical Services, Inc., Value Line and Morningstar, Inc.

The Trust may provide period and average annualized "total return" quotations
for the Funds. The "total return" refers to the change in the value of an
investment in each Fund over a stated period based on any change in net asset
value per share and including the value of any shares purchasable with any
dividends or capital gains distributed during such period. 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 Trust may provide annualized "yield" quotations for the Funds. The "yield"
of a Fund refers to the income generated by an investment in the Fund over a 30
day or one month period (which period shall be stated in any such advertisement
or communications). This income is then annualized; that is, the amount
generated by the investment over the period is assumed to be generated over a
one year period and is shown as a percentage of the investment.

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

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

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

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

<PAGE>

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

The Funds' 30-day SEC yields for the period ended March 31, 1999, were as
follows:

BT Investment Lifecycle Short Range Fund -- 3.44%

BT Investment Lifecycle Mid Range Fund -- 2.30%

BT Investment Lifecycle Long Range Fund - 2.08%

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

Average Annual Average Annual Total
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Return for the Period from
Total Return for the One Total Return for the One Commencement of
Year Period Ended Year Period Ended Operations to
Fund MARCH 31, 1999 MARCH 31, 1999 MARCH 31, 1999
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
<S><C>
BT Investment Lifecycle 7.76% 9.58% 8.05%
Short Range Fund(1)
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
BT Investment Lifecycle 10.12% 13.28% 11.06%
Mid Range Fund(2)
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
BT Investment Lifecycle 12.44% 16.58% 14.91%
Long Range Fund(3)
- ------------------------------- ---------------------------- ---------------------------- ----------------------------

</TABLE>

(1) Fund commenced operations October 15, 1993
(2) Fund commenced operations October 14, 1993
(3) Fund commenced operations November 16, 1993

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

<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. 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 BUSINESS DAILY, a daily newspaper that features financial, economic
and business news.

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

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

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

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

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

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

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

U.S. NEWS AND WORLD REPORT, a national business weekly that periodically reports
mutual fund performance data.

<PAGE>

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

WALL STREET JOURNAL, a Dow Jones and Company, Inc. newspaper which regularly
covers financial news.

WEISENBERGER INVESTMENT COMPANIES SERVICES, an annual compendium of information
about mutual funds and other investment companies, including comparative data on
funds' backgrounds, management policies, salient features, management results,
income and dividend records, and price ranges.

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

ECONOMIC AND MARKET INFORMATION

Advertising and sales literature for the Funds may include discussions of
economic, financial and political developments and their effect on the
securities market. Such discussions may take 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. The net asset value ("NAV") per share of each Fund is
calculated on each day on which the New York Stock Exchange Inc. (the "NYSE") is
open (each such day being a "Valuation Day"). The NYSE is currently open on each
day, Monday through Friday, except: (a) January 1st, 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 last Thursday in
November) and December 25th; and (b) the preceding Friday or the subsequent
Monday when one of the calendar determined holidays falls on a Saturday or
Sunday, respectively.

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

Equity and debt securities (other than short-term debt obligations maturing in
60 days or less), including listed securities and securities for which price
quotations are available, will normally be valued on the basis of market
valuations furnished by a pricing service. Short-term debt obligations and money
market securities maturing in 60 days or less are valued at amortized cost,
which approximates market.

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

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

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

<PAGE>

in similar securities of the issuer or comparable companies, and other
relevant matters.

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

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

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

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

Each Fund may, at its own option, accept securities in payment for shares. The
securities delivered in payment for shares are valued by the method described
under "Net Asset Value" as of the day the Fund receives the securities. This is
a taxable transaction to the shareholder. Securities may be accepted in payment
for shares only if they are, in the judgment of 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 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.

PURCHASE AND REDEMPTION OF SHARES

HOW TO BUY SHARES

The Trust accepts purchase orders for shares of each Fund at the NAV per share
(and, if applicable, of the respective class of shares) next determined after
the order is received on each Valuation Day. See "Net Asset Value" herein.

<PAGE>

Shares of each Fund may be available through Investment Professionals, such as
broker/dealers and investment advisers (including Service Agents).

Purchase orders for shares of each Fund (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
appropriate 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 of each class to the Transfer Agent before the Valuation Time.

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

MINIMUM INVESTMENTS

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

TO ADD TO AN ACCOUNT $ 250
For Retirement Accounts 100
Through Automatic Investment Plan 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. If there is no
account application accompanying this Prospectus, call the BT Service Center at
1-800-730-1313.

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

<PAGE>

OVERNIGHT MAILINGS:

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

IF YOU ALREADY HAVE MONEY INVESTED IN A FUND IN THE BT FAMILY OF FUNDS, you can:

| | Mail an account application with a check, or 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 for more information and a retirement account application.

ADDITIONAL INFORMATION ABOUT BUYING SHARES

<TABLE>
<CAPTION>
TO OPEN AN ACCOUNT TO ADD TO AN ACCOUNT
<S><C>
BY WIRE Call the BT Service Center at 1-800-730-1313 to Call your Investment Professional or wire
receive wire instructions for account additional investment to:
establishment. Routing No.: 021001033
Attn: Bankers Trust/IFTC Deposit
DDA No.: 00-226-296
FBO: (Account name)
(Account number)
Credit: Fund Number (see below)
BT Investment Lifecycle Short Range
Fund -- 474
BT Investment Lifecycle Mid Range
Fund -- 475
BT Investment Lifecycle Long Range
Fund -- 476

Specify the complete name of
the Fund of your choice, and
include your account and your name.
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
TO OPEN AN ACCOUNT TO ADD TO AN ACCOUNT
<S><C>
BY PHONE Contact your Service Agent, Investment Contact your Service Agent, Investment
Professional, or call BT's Service Center at Professional, or call BT's Service Center
1-800-730-1313. If you are an existing at 1-800-730-1313. If you are an existing
shareholder, you may exchange from another shareholder, you may exchange from another
BT account with the same registration, BT account with the same registration,
including, name, address, and taxpayer ID including nane, address, and taxpayer ID
number. number.

BY MAIL Complete and sign the account application. Make your check payable to the complete
Make your check payable to the complete name name of the Fund of your choice. Indicate
of the Fund of your choice. Mail to the your Fund account number on your check and
appropriate address indicated on the mail to the address printed on your
application. account statement.
</TABLE>

HOW TO SELL SHARES

You can arrange to take money out of your Fund account at any time by selling
(redeeming) some or all of your shares. Your shares shall be sold at the next
NAV calculated after an order is received by the Transfer Agent. Redemption
requests should be transmitted by customers in accordance with procedures
established by the Transfer Agent and the Shareholder's Service Agent.
Redemption requests for shares of the Fund received by the Service Agent and
transmitted to the Transfer Agent prior to the Valuation Time 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 Shareholder Servicing Agent does not do so, it may
be liable for any losses due to unauthorized or fraudulent instructions. Such
procedures may include, among others, requiring some form of personal
identification prior to acting upon instructions received by telephone,
providing written confirmation of such transactions and/or tape recording of
telephone instructions.

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

TO SELL SHARES IN A RETIREMENT ACCOUNT, your request must be made in writing,
except for exchanges to other eligible funds in the BT Family of Funds, which
can be requested by phone or in writing. For information on retirement
distributions, contact your Service Agent or call the BT Service Center at
1-800-730-1313.

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:

<PAGE>

| | Your account registration has changed within the last 30 days,
| | The check is being mailed to a different address than the one on your
account (record address),
| | The check is being made payable to someone other than the account owner,
| | The redemption proceeds are being transferred to a BT account with a
different registration, or
| | You wish to have redemption proceeds wired to a non-pre-designated bank
account.

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

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

ADDITIONAL INFORMATION ABOUT SELLING SHARES

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

IN WRITING -- Write a signed "letter of instruction" with your name, the fund's
name and fund's number, your fund account number, the dollar amount or number of
shares to be redeemed, and mail to one of the following addresses:

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

OVERNIGHT MAILINGS:

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

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

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

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

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:

<PAGE>

| | Confirmation statements (after every transaction that affects your account
balance, including distributions or your account registration)
| | Account statements (monthly)
| | Financial reports (every six months)

To reduce expenses, only one copy of most financial reports will be mailed, even
if you have more than one account in a Fund. Call your Investment Professional
or the BT Service Center at 1-800-730-1313 if you need additional copies of
financial reports.

EXCHANGE PRIVILEGE

Shareholders may exchange their shares for shares of certain other funds in the
BT Family of Funds registered in their state. Each Fund reserves the right to
terminate or modify the exchange privilege in the future. To make an exchange,
follow the procedures indicated in "How to Buy Shares" and "How to Sell Shares"
herein. Before making an exchange, please note the following:

Call your Service Agent for information and a prospectus. Read the prospectus
for relevant information. Complete and sign an application, taking care to
register your new account in the same name, address and taxpayer identification
number as your existing account(s).

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

SYSTEMATIC PROGRAMS

To move money from your bank account to BT Investment Funds

<TABLE>
<CAPTION>
MINIMUM MINIMUM FREQUENCY SETTING UP OR CHANGING
INITIAL SUBSEQUENT
<S><C>
$1,000 $100 Monthly, bimonthly, For a new account, complete on quarterly
or semi-annually. the appropriate section 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>

SYSTEMATIC WITHDRAWAL PROGRAM lets you set up periodic redemptions from your
account.

<TABLE>
<CAPTION>
Minimum Frequency Setting Up Or Changing
<S><C>
$100 Monthly, quarterly, semi-annually To establish, call your Investment Professional or
or annually call 1-800-730-1313 after your account is open.
The accounts from which the withdrawals are
processed must have a minimum balance of
$10,000, other than retirement accounts subject to
required minimum distributions.
</TABLE>

<PAGE>

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 Bankers Trust for further information. Bankers Trust can
set up your new account in a Fund under a number of several tax-savings or
tax-deferred plans. Minimums may differ from those listed elsewhere in this
Prospectus.

| | INDIVIDUAL RETIREMENT ACCOUNTS (IRAs): personal savings plans that offer
tax advantages for individuals to set aside money for retirement and allow
new contributions of $2,000 per tax year.

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

TRADING IN FOREIGN SECURITIES

Trading in foreign markets may be completed at times which vary from the closing
of the New York Stock Exchange ("NYSE"). In computing the net asset value, 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 an 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 the portfolio securities, these securities may be
valued at their fair value as determined in good faith by the Trustees, although
the actual calculation may be done by others.

MANAGEMENT OF THE TRUST AND PORTFOLIOS

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 TRUST

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

KELVIN J. LANCASTER (birthdate: December 10, 1924) -- Trustee; John Bates Clark
Professor of Economics, Columbia University; Distinguished Fellow, American
Economics Association; Fellow, American Academy of Arts and Sciences; Fellow,
Econometric Society; Former Chairman, Columbia University Department of
Economics; Former Director, National Bureau of Economic Research. His address is
35 Claremont Avenue, New York, New York 10027.

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

<PAGE>

TRUSTEES OF THE PORTFOLIOS

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

S. LELAND DILL -- Trustee.

PHILIP SAUNDERS, JR. -- Trustee.

OFFICERS OF THE TRUST AND THE PORTFOLIOS

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

JOHN Y. KEFFER (birthdate: July 14, 1942) -- President and Chief Executive
Officer; President, Forum Financial Group. His address is 2 Portland Square,
Portland, Maine 04101.

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

DANIEL O. HIRSCH (birthdate: March 27, 1954) -- Secretary; Principal, BT Alex.
Brown since July 1998; Assistant General Counsel in the Office of the General
Counsel at the United States Securities and Exchange Commission from 1993 to
1998. His address is 2901 Dorset Avenue, Chevy Chase, Maryland 20815.

Messrs. Keffer, Finelli and Hirsch also hold similar positions for other
investment companies for which ICC Distributors, or an affiliate serves as the
principal underwriter. No person who is an officer or director of Bankers Trust
is an officer or Trustee of the Trust or the Portfolios. No director, officer or
employee of Edgewood or any of its affiliates will receive any compensation from
the Trust or any Portfolio for serving as an officer or Trustee of the Trust or
the Portfolios.

<PAGE>

TRUSTEE COMPENSATION TABLE

AGGREGATE AGGREGATE TOTAL COMPENSATION
NAME OF PERSON, COMPENSATION COMPENSATION FROM FUND COMPLEX
POSITION FROM TRUST* FROM PORTFOLIOS* PAID TO TRUSTEES**
- ---------------------------------------------------------------------------------------------------------

<S><C>
Kelvin Lancaster,

Trustee of Trust $TK N/A $35,000

Philip Saunders, Jr.,
Trustee of Trust and

Portfolios $TK $TK $35,000

Charles Biggar,

Trustee of Portfolios N/A $TK $35,000

S. Leland Dill,
Trustee of Trust

and Portfolios $TK $TK $35,000

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

* Information is furnished for the fiscal year ended March 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. Information is provided for the last
calendar year.

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

As of July 1, 1999, the following shareholders of record owned 5% or more of the
BT Investment Lifecycle Short Range Fund: [TO COME]

As of July 1, 1999, the following shareholders of record owned 5% or more of the
BT Investment Lifecycle Mid Range Fund: [TO COME]

As of July 1, 1999, the following shareholders of record owned 5% or more of the
BT Investment Lifecycle Long Range Fund: [TO COME]

<PAGE>

INVESTMENT ADVISER

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

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

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

For the fiscal years ended March 31, 1999, 1998 and 1997, Bankers Trust earned
$_________, $3,056,313 and $1,882,677, respectively, for compensation of
investment advisory services provided to Asset Management Portfolio. For the
same periods, Bankers Trust reimbursed $_________, $731,870 and $462,108,
respectively to the Portfolio to cover expenses.

For the fiscal years ended March 31, 1999, 1998 and 1997, Bankers Trust earned
$_________, $515,908 and $371,709, respectively, for compensation of investment
advisory services provided to Asset Management Portfolio II. For the same
periods, Bankers Trust reimbursed $_________, $140,978 and $111,591 respectively
to the Portfolio to cover expenses.

<PAGE>

For the fiscal years ended March 31, 1999, 1998 and 1997, Bankers Trust earned
$_________, $255,498, $201,330, and $166,563, respectively, for compensation of
investment advisory services provided to Asset Management Portfolio III. For the
same periods, Bankers Trust reimbursed $_________, $83,225 and $69,831,
respectively to the Portfolio to cover expenses.

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

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

BANKERS TRUST COMPANY AND ITS AFFILIATES

Bankers Trust, a New York banking corporation with principal offices 130 Liberty
Street, New York, New York 10006, is a wholly owned subsidiary of Bankers Trust
Corporation. Bankers Trust conducts a variety of general banking and trust
activities and is a major wholesale supplier of financial services to the
international and domestic institutional markets. As of December 31, 1998,
Bankers Trust Corporation was the seventh largest bank holding company in the
United States with total assets of over $150 billion. Bankers Trust is dedicate
to servicing the needs of corporations, governments, financial institutions and
private clients through a network of over 90 offices in more than 50 countries.
Investment management is a core business of Bankers Trust, built on a tradition
of excellence from its roots as a trust bank founded in 1903. The scope of
Bankers Trust's investment management capability is unique due to its leadership
positions in both active and passive quantitative management and its presence in
major equity and fixed income markets around the world. Bankers Trust is one of
the nation's largest and most experienced investment managers, with
approximately $277 billion in assets under management globally. Of that total,
approximately $1.2 billion are in tactical asset allocation funds. This makes
Bankers Trust one of the nation's leading managers of tactical asset allocation
funds.

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

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

<PAGE>

of its affiliates is the ultimate obligor or accepting bank. Each Portfolio may,
however, invest in the obligations of correspondents or customers of Bankers
Trust.

Under its Investment Advisory Agreement, Bankers Trust receives a fee from each
Portfolio computed daily and paid monthly at the annual rate of 0.65% of the
average daily net assets of the Portfolio. Under certain circumstances Bankers
Trust 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
Funds or their shareholders. Fees paid to entities that administer mutual fund
"supermarkets" may be higher than fees paid for other types of services.

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

ADMINISTRATOR

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

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

For the fiscal year of each Fund ended March 31, 1999, the Funds and their
respective Portfolios, after a partial waiver by Bankers Trust, paid Bankers
Trust total administrative and services fees equal to 0.35%, 0.43% and 0.44%,
respectively, of the average daily net assets of the BT Investment Lifecycle
Short Range Fund, BT Investment Lifecycle Mid Range Fund and BT Investment
Lifecycle Long Range Fund.

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

For the fiscal years ended March 31, 1999, 1998 and 1997, Bankers Trust earned
$_________, $255,093 and $201,123, respectively, as compensation for
administrative and other services provided to the BT Investment Lifecycle Short
Range Fund. During the same periods, Bankers Trust reimbursed $_________,
$142,675 and $132,588, respectively, to the Fund to cover expenses.

For the fiscal years ended March 31, 1999, 1998 and 1997, Bankers Trust earned
$_________, $515,229

<PAGE>

and $371,327, respectively, as compensation for administrative and other
services provided to the BT Investment Lifecycle Mid Range Fund. During the same
periods, Bankers Trust reimbursed $_________, $243,184 and $200,884,
respectively, to the Fund to cover expenses.

For the fiscal years ended March 31, 1999, 1998 and 1997, Bankers Trust earned
$_________, $699,739 and $436,826, respectively, as compensation for
administrative and other services provided to the BT Investment Lifecycle Long
Range Fund. During the same periods, Bankers Trust reimbursed $_________,
$314,048 and $218,456, respectively, to the Fund to cover expenses.

For the fiscal years ended March 31, 1999, 1998 and 1997, Bankers Trust earned
$_________, $470,202 and $289,643, respectively, as compensation for
administrative and other services provided to Asset Management Portfolio.

For the fiscal years ended March 31, 1999, 1998 and 1997, Bankers Trust earned
$_________, $79,370 and $57,186, respectively, as compensation for
administrative and other services provided to Asset Management Portfolio II.

For the fiscal years ended March 31, 1999, 1998 and 1997, Bankers Trust earned
$_________, $39,307 and $30,974, respectively, as compensation for
administrative and other services provided to Asset Management Portfolio III.

CUSTODIAN AND TRANSFER AGENT

Bankers Trust, 130 Liberty Street, New York, New York 10006, 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.

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

<PAGE>

clients may reasonably request and agree upon with the Service Agent. Service
Agents may separately charge their clients additional fees only to cover
provision of additional or more comprehensive services not already provided
under the Administration and Services Agreements with the Adviser, or of the
type or scope not generally offered by a mutual fund, such as cash management
services or enhanced retirement or trust reporting. In addition, investors may
be charged a transaction fee if they effect transactions in Fund shares through
a broker or agent. Each Service Agent has agreed to transmit to shareholders,
who are its customers, appropriate disclosures of any fees that it may charge
them directly.

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 investment
advisory agreement and other activities for the Funds and the Portfolios
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 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 7th Avenue, New York, New York 10019, serves as
Counsel to the Trust and each Portfolio. PricewaterhouseCoopers, 250 West Pratt
Street, Suite 21, Baltimore, Maryland 21201 have been selected as Independent
Accountants for 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. Each Fund is a separate series of the Trust and was established
and designated on August 12, 1992. The Trust offers shares of beneficial
interest of separate series, par value $0.001 per share. The shares of the other
series of the Trust are offered through separate prospectuses. No series of
shares has any preference over any other series.

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

When matters are submitted for shareholder vote, shareholders of each Fund will
have one vote for each full share held and proportionate, fractional votes for
fractional shares held. A separate vote of a Fund is required on any matter
affecting that Fund on which shareholders are entitled to vote. Shareholders of
a Fund are not entitled to vote on Trust matters that do not affect the Fund.
There normally will be no meetings of shareholders for the purpose of

<PAGE>

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.

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

Each series of the Trust will not be involved in any vote involving a Portfolio
in which it does not invest its Assets. Shareholders of all 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.

As of July 1, 1999, [add info on any 25% or more owners], and therefore, may for
certain purposes, be deemed to control these Funds and be able to affect the
outcome of certain matters presented for a vote of each Fund's shareholders.

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

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.

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

The Trust was organized under the name BT Tax-Free Investment Trust and assumed
its current name of BT Investment Funds on May 16, 1988.

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

<PAGE>

TAXATION

TAXATION OF THE FUNDS

FEDERAL TAXES. Each Fund intends to qualify as a regulated investment company,
as defined in the Internal Revenue Code of 1986, as amended (the "Code").
Provided the Fund meets the requirements imposed by the Code and distributes all
of its income and gains, the Fund will not pay any Federal income or excise
taxes. The Portfolio will also not be required to pay any Federal income or
excise taxes.

Distributions from the Funds' income and short-term capital gains are taxed as
dividends, and long term capital gain distributions are taxed as long term
capital gains. The Funds' 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 and December and paid in
January are taxable as if paid on December 31. Each Fund will send each
shareholder a tax statement by January 31 showing the tax status of the
distributions received in the past year.

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

"BUYING A DIVIDEND." On the ex-date for a distribution from income and/or
capital gains, 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.

OTHER TAX INFORMATION. In addition to Federal taxes, you may be subject to state
or local taxes on your investment, depending on the laws in your area. Income
received by the Portfolios from sources within foreign countries may be subject
to withholding and other taxes imposed by such countries. You should consult
with your own tax adviser concerning the application of Federal, state and local
taxes to your distributions from the Fund.

The Trust intends to qualify annually and to elect for each Fund to be treated
as a regulated investment company under the Code.

As a regulated investment company, each Fund will not be subject to U.S. Federal
income tax on its investment company taxable income and net capital gains (the
excess of net long-term capital gains over net short-term capital losses), if
any, that it distributes to shareholders. The Fund intends to distribute to its
shareholders, at least annually, substantially all of its investment company
taxable income and net capital gains and therefore does not anticipate incurring
a 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, including amounts derived from net capital gains, would be
taxable to shareholders to the extent of current and accumulated earnings and
profits, and would be eligible for the dividends received deduction for
corporations in the case of corporate shareholders.

DISTRIBUTIONS

Each Fund distributes substantially all of its net investment income and capital
gains to shareholders each year. Income dividends are distributed quarterly. In
addition, the Fund will distribute net capital gains, if any, at least annually
and potentially semi-annually, if required, to remain in compliance with the
applicable tax regulations. Unless a shareholder instructs the Trust to pay such
dividends and distributions in cash, they will be automatically reinvested in
additional shares of the Fund.

Dividends paid out of a Fund's investment company taxable income will be taxable
to a U.S. shareholder as ordinary income. Distributions of net capital gains, if
any, designated as capital gain dividends are taxable as long-term capital
gains, regardless of how long the shareholder has held the Fund's shares, and
are not eligible for the dividends-received deduction. Shareholders receiving
distributions in the form of additional shares, rather than cash, generally will
have a cost basis in each such share equal to the net asset value of a share of
the Fund on the

<PAGE>

reinvestment date. Shareholders will be notified annually as to the U.S. Federal
tax status of distributions. Shareholders should consult their own tax adviser
concerning the application of federal, state and local taxes to the
distributions they receive from the Fund.

TAXATION OF THE PORTFOLIOS

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

FOREIGN WITHHOLDING TAXES

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

BACKUP WITHHOLDING

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

FOREIGN SHAREHOLDERS

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

OTHER TAXATION

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

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

FINANCIAL STATEMENTS

The financial statements for the Funds and the Portfolios for the fiscal year
ended March 31, 1999, are incorporated herein by reference to the Annual Report
to shareholders of the Fund dated March 31, 1999 (File Nos. 33-07404 and
811-4760). A copy of the Annual Report may be obtained without charge by
contacting the Funds.

<PAGE>

APPENDIX

BOND AND COMMERCIAL PAPER RATINGS

Set forth below are descriptions of ratings which represent opinions as to the
quality of the securities. It should be emphasized, however, that ratings are
relative and subjective and are not absolute standards of quality.

MOODY'S INVESTORS SERVICE, INC.'S CORPORATE 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-edged". 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 fluctuations of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risk 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.

Baa: Bonds which are 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 which are 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 safe-guarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.

B: Bonds which are rated B generally lack characteristics of the 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 which are 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 which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.

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

NOTE: Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond rating 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.

<PAGE>

MOODY'S INVESTORS SERVICE, INC.'S SHORT-TERM DEBT RATINGS

Moody's short-term debt ratings are opinions of the ability of issuers to repay
punctually promissory obligations not having an original maturity in excess of
one year.

Issuers rated Prime-1 or P-1 (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1 or P-1
repayment ability will often be evidenced by many of the following
characteristics:

o Leading market positions in well established industries.

o High rates of return on funds employed.

o Conservative capitalization structure with moderate reliance on debt
and ample asset protection.

o Broad margins in earnings coverage of fixed financial charges and
high internal cash generation.

o Well established access to a range of financial markets and assured
sources of alternate liquidity.

Issuers rated Prime-2 or P-2 (or supporting institutions) have a strong ability
for repayment of senior short-term debt 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, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.

STANDARD & POOR'S RATINGS GROUP'S CORPORATE BOND RATINGS

INVESTMENT GRADE

AAA: Debt rated AAA has the highest rating assigned by S&P'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 than bonds in higher rated categories.

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 a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.

SPECULATIVE GRADE

Debt rated BB, B, CCC, CC, and C is regarded as having predominantly speculative
characteristics with respect to capacity to pay interest and repay principal. BB
indicates the least degree of speculation and C the highest. While such debt
will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major exposures to adverse conditions.

BB: Debt rated 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. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating.

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 or 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

<PAGE>

adverse business, financial, or economic conditions, it is not likely to have
the capacity to pay interest and repay principal.

The CCC rating category is also used for debt subordinated to senior debt that
is assigned an actual or implied B or B- rating.

CC: The rating 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.

C1: The Rating C1 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 Standard & Poor's believes that
such payments will be made during such grace period. The D rating also will 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.

NR: Bonds may lack a S&P's rating because no public rating has been requested,
because there is insufficient information on which to base a rating, or because
S&P's does not rate a particular type of obligation as a matter of policy.

STANDARD & POOR'S RATINGS GROUP'S COMMERCIAL PAPER RATINGS

A: S&P's commercial paper rating is a current assessment of the likelihood of
timely payment of debt considered short-term in the relevant market.

A-1: This highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus (+) sign designation.

A-2: Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1 ".

A-3: Issues carrying this designation have adequate capacity for timely payment.
They are, however, more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations.

FITCH INVESTORS SERVICE, INC. BOND RATINGS

INVESTMENT GRADE

AAA: Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.

AA: Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated "AAA". Because bonds rated in the "AAA" and
"AA" categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated "F-1+".

A: Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.

BBB: Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have adverse impact on these bonds, and therefore, impair timely
payment. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds

<PAGE>

with higher ratings.

HIGH YIELD GRADE

BB: Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements.

B: Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.

CCC: Bonds have certain identifiable characteristics which, if not remedied, may
lead to default. The ability to meet obligations requires an advantageous
business and economic environment.

CC: Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.

C: Bonds are in imminent default in payment of interest or principal.

DDD, DD, AND D: Bonds are in default of interest and/or principal payments. Such
bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. "DDD"
represents the highest potential for recovery on these bonds, and "D" represents
the lowest potential for recovery.

PLUS (+) OR MINUS (-): The ratings from AA to C may be modified by the addition
of a plus or minus sign to indicate the relative position of a credit within the
rating category.

NR: Indicates that Fitch does not rate the specific issue.

CONDITIONAL: A conditional rating is premised on the successful completion of a
project or the occurrence of a specific event.

FITCH INVESTORS SERVICE, INC. SHORT-TERM RATINGS

Fitch's short-term ratings apply to debt obligations that are payable on demand
or have original maturities of generally up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and investment
notes.

F-1+: Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.

F-1: Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated
"F-1+".

F-2: Good Credit Quality. Issues assigned this rating have a satisfactory
degree of assurance for timely payment, but the margin of safety is not as great
as the "F-1+" and "F-1 " categories.

F-3: Fair Credit Quality. Issues assigned this rating have characteristics
suggesting that the degree of assurance for timely payment is adequate, however,
near-term adverse changes could cause these securities to be rated below
investment grade.

DUFF & PHELPS BOND RATINGS

INVESTMENT GRADE

AAA: Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.

AA+, AA, AND 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, AND A-: Protection factors are average but adequate. However, risk
factors are more variable and greater in

<PAGE>

periods of economic stress.

BBB+, BBB, AND BBB-: Below average protection factors but still considered
sufficient for prudent investment. Considerable variability in risk during
economic cycles.

HIGH YIELD GRADE

BB+, BB, AND BB-: Below investment grade but deemed likely to meet obligations
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, AND 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.

Preferred stocks are rated on the same scale as bonds but the preferred rating
gives weight to its more junior position in the capital structure. Structured
financings are also rated on this scale.

DUFF & PHELPS PAPER/CERTIFICATES OF DEPOSIT RATINGS

CATEGORY 1: TOP GRADE

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

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

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

CATEGORY 2: GOOD GRADE

DUFF 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.

CATEGORY 3: SATISFACTORY GRADE

DUFF 3: Satisfactory liquidity and other protection factors qualify issue as to
investment grade. Risk factors are larger and subject to more variation.
Nevertheless timely payment is expected.

No ratings are issued for companies whose paper is not deemed to be of
investment grade.

* * * * *

Bonds which are unrated expose the investor to risks with respect to capacity to
pay interest or repay principal which are similar to the risks of lower-rated
bonds. The Fund is dependent on the investment adviser's or investment
sub-adviser's judgment, analysis and experience in the evaluation of such bonds.

Investors should note that the assignment of a rating to a bond by a rating
service may not reflect the effect of recent developments on the issuer's
ability to make interest and principal payments.

<PAGE>

NOTE:

1 The ratings indicated herein are believed to be the most recent ratings
available at the date of this SAI for the securities listed. Ratings
are generally given to securities at the time of issuance. While the
rating agencies may from time to time revise such ratings, they
undertake no obligation to do so, and the ratings indicated do not
necessarily represent ratings which would be given to these securities
on the date of the Fund's fiscal year end.

<PAGE>

INVESTMENT ADVISER OF THE PORTFOLIO AND ADMINISTRATOR
BANKERS TRUST COMPANY

DISTRIBUTOR
ICC DISTRIBUTORS, INC.

CUSTODIAN AND TRANSFER AGENT
BANKERS TRUST COMPANY

INDEPENDENT ACCOUNTANTS
PRICEWATERHOUSECOOPERS LLP

COUNSEL
WILLKIE FARR & GALLAGHER

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

No person has been authorized to give any information or to make any
representations other than those contained in the Trust's 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.

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

Cusips #055922827
#055922835
#055922843

COMBLIFE400 (6/99)

<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
(c) Incorporated by reference to Exhibit (b) above;
(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.
(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;

<PAGE>

(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.

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

Not applicable.

ITEM 25. Indemnification.

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 serves as investment adviser to the Portfolio. Bankers Trust, a
New York banking corporation, is a wholly owned subsidiary of Bankers Trust New
York Corporation. Bankers Trust conducts a variety of commercial banking and
trust activities and

<PAGE>

is a major wholesale supplier of financial services to the international
institutional market.

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

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

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

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

Mark Bieler, 53
Executive Vice President, Bankers Trust Corporation since 1987; Managing
Director, Bankers Trust since 1992; Executive Vice President, Bankers Trust
1987-1992; and Senior Vice President and head of the Human Resources Department
since 1985.

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

Richard H. Daniel, 52

<PAGE>

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

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

Robert A. Ferguson, 53
Executive Vice President, Bankers Trust Corporation since April 1997; Senior
Vice President, Bankers Trust Corporation from 1995 to 1997; Managing Director,
Bankers Trust since 1985 and Bankers Trust Australia Limited since 1986.

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

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

William R. Howell, 63
Director, Bankers Trust and Bankers Trust Corporation since 1986; Chairman
Emeritus, J.C. Penney Company, Inc.; Director, Exxon Corporation, Halliburton
Company, Warner-Lambert Company,

<PAGE>

Williams, Inc., Central & South West Corp., and the National Retail Federation;
and Chairman, Southern Methodist University Board of Trustees.

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

Eugene A. Ludwig, 52
Vice Chairman, Bankers Trust Corporation and Bankers Trust since May 1998. Mr.
Ludwig formerly held the positions of Comptroller of the Currency of the United
States from 1993 to April 1998, Chairman of the Federal Financial Institutions
Examination Council, Chairman of Neighborhood Housing Services, and director of
the Federal Deposit Insurance Corporation. Mr. Ludwig is head of the Control
Committee and Capital Commitment Committee and responsible for risk and control,
legal, regulatory and other governmental issues central to implementing global
strategies in securities underwriting, lending and related businesses. In
addition, Mr. Ludwig is responsible for the Firm's corporate responsibility
area.

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

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

<PAGE>

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

Rodney A. McLauchlan, 45
Executive Vice President, Bankers Trust Corporation since April 1997; Senior
Vice President, Bankers Trust Corporation from 1992 to April 1997; Managing
Director, BT Alex. Brown since September 1997; Managing Director, BT Securities
Corporation from 1995 to 1997; Managing Director, Bankers Trust from 1987 to
1995. As of 1998, he is Chairman of the Global Banking Group and is head of
Bankers Trust's Latin American Investment Banking business. Mr. McLauchlan also
chairs the Latin American and Asian Advisory Boards and the Client Committee.

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

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

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

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

<PAGE>

He is Co-Chairman and Co-Chief Executive Officer of BT Alex. Brown Incorporated.

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

Patricia Carry Stewart, 70
Director, Bankers Trust and Bankers Trust Corporation since 1977; Former Vice
President, The Edna McConnell Clark Foundation (a charitable foundation); Chair,
Community Foundation for Palm Beach and Martin Counties; Trustee Emerita,
Cornell University; and a life member, Board of Overseers, Joan & Sanford I
Weill Medical College and Joan & Sanford I. Weill Graduate School of Medical
Sciences of Cornell University.

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

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

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

Melvin A. Yellin, 56

<PAGE>

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

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

Item 27. Principal Underwriters.

(a) ICC Distributors, Inc., the Distributor for shares of the Registrant,
also acts as principal underwriter for the following open-end
investment companies: BT 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
Portfolio, BT Alex. Brown Cash Reserve Fund, 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. and Flag
Investors Equity Partners Fund, Inc.

(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
Margaret J. Fenderson Assistant Treasurer None
Dana L. Lukens Assistant Secretary None
Nanette K. Chern Chief Compliance Officer None

<PAGE>

ITEM 28. Location of Accounts and Records.

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

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

Investors Fiduciary 127 West 10th Street,
Trust Company: Kansas City, MO 64105.

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

ITEM 29. Management Services.

Not Applicable

ITEM 30. Undertakings.

Not Applicable

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, BT INVESTMENT FUNDS has duly
caused this Amendment 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 the 28th day of May, 1999.

BT INVESTMENT FUNDS

By: /s/ Daniel O. Hirsch
___________________________
Daniel O. Hirsch, Secretary
May 28, 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 May 28, 1999
____________________ (Attorney in Fact
Daniel O. Hirsch For the Persons Listed Below)

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

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

/s/ S. Leland Dill** Trustee
________________________
S. Leland Dill

/s/ Kelvin J. Lancaster** Trustee
________________________
Kelvin J. Lancaster

/s/ Philip Saunders, Jr.** Trustee
________________________
Philip Saunders, Jr.

* By Power of Attorney - Incorporated by reference to Post-Effective
Amendment No. 57 to Registrant's Registration Statement as filed with the
Commission on February 8, 1999.
** By Power of Attorney - Incorporated by reference to Post-Effective Amendment
No. 45 to Registrant's Registration Statement as filed with the Commission on
September 10, 1997.

<PAGE>

SIGNATURES

BT INVESTMENT PORTFOLIOS has duly caused this Post-Effective Amendment No.
62 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 28th day of May, 1999.

BT INVESTMENT PORTFOLIOS

By: /s/ Daniel O. Hirsch
___________________________
Daniel O. Hirsch, Secretary
May 28, 1999

This Post-Effective Amendment No. 62 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 May 28, 1999
____________________ (Attorney in Fact
Daniel O. Hirsch For the Persons Listed Below)

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

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

/s/ S. Leland Dill** Trustee
________________________
S. Leland Dill

/s/ Kelvin J. Lancaster** Trustee
________________________
Kelvin J. Lancaster

/s/ Philip Saunders, Jr.** Trustee
________________________
Philip Saunders, Jr.

<PAGE>
BT INVESTMENT FUNDS
One South Street
Baltimore, Maryland 21202

May 28, 1999

EDGAR Operations Branch
Securities and Exchange Commission
Division of Investment Management
450 Fifth Street, NW
Washington, DC 20549

Re: BT INVESTMENT FUNDS (the "Trust")
1933 Act File No. 33-07404
1940 Act File No. 811-4760

Dear Sir or Madam:

Post-Effective No. 62 under the Securities Act of 1933, as amended (the
"1933 Act") and Amendment No. 62 under the Investment Company Act of 1940 to the
Registration Statement of the above-referenced Trust is hereby electronically
transmitted. This filing is being made pursuant to paragraph (a) of Rule 485
under the 1933 Act.

Pursuant to Securities Act release No. 6510 and Investment Company
Release No. 13768 (February 15, 1984), we request selective review of the
above-referenced Post-Effective Amendment.

The disclosure contained in this Post-Effective Amendment are
substantially similar to disclosure provided pursuant to new Form N-1A for
Institutional International Equity Fund in the BT Mutual Funds family previously
reviewed by the Staff (BT Institutional Funds (File no. 33-34079) filed on
November 24, 1998).

The following sections of the Funds' prospectuses and statement of
additional information differ from those of the Institutional International
Equity Fund only so far as necessary to include fund-specific disclosure:

1. Cover page
2. Overview
3. Who Should Consider Investing in the Fund
4. Annual Fund Operating Expenses
5. Objective
6. Strategy
7. Principal Investments
8. Investment Process
9. Portfolio Managers

If you have any questions regarding this filing, please call me at
(410) 895-3776.

<PAGE>

Very truly yours,
/s/Daniel O. Hirsch
___________________
Daniel O. Hirsch
Secretary

Enclosures