BT PYRAMID MUTUAL FUNDS
BT Investment
Equity Appreciation Fund
ANNUAL REPORT
SEPTEMBERo1996
BT Investment Equity Appreciation Fund
Table of Contents
Letter to Shareholders 3
BT Investment Equity Appreciation Fund
Schedule of Portfolio Investments 5
Statement of Assets and Liabilities 7
Statement of Operations 7
Statement of Changes in Net Assets 8
Financial Highlights 8
Notes to Financial Statements 9
Report of Independent Accountants 11
Capital Appreciation Portfolio
Schedule of Portfolio Investments 12
Statement of Assets and Liabilities 14
Statement of Operations 14
Statement of Changes in Net Assets 15
Financial Highlights 15
Notes to Financial Statements 16
Report of Independent Accountants 18
BT Investment Equity Appreciation Fund
Letter to Shareholders
We are pleased to present you with this annual report for the BT
Investment Equity Appreciation Fund, providing a review of the market,
the portfolio, and our outlook as well as a complete financial summary
of the Fund's operations and a listing of the portfolio's holdings.
The Equity Appreciation Fund (the "Fund") had a total return of 12.45%
for the twelve months ended September 30, 1996, as compared to 14.00%
for the S&P Midcap 400 Index and 16.72% for the Lipper Midcap Growth
Average. Since its inception on October 12, 1993, the Fund has returned
59.01%, cumulatively.
MARKET ACTIVITY
In general, the last twelve months were a time of very good overall
market performance. It was also a time of changing expectations and
massive shifts in investor psychology. During the first six months, the
market was primarily focused on fears of a slowing economy and the
possibility that earnings growth would decelerate or even decline in the
near future. Investors moved to companies expected to do relatively
better in such an environment. As a result, the health care, energy,
and financial services sectors performed well, while capital spending
and technology companies underperformed.
As we moved through the year's first quarter, it became apparent the
economy was not growing too slowly, but might even have been growing too
fast. As often happens, investor expectations reversed, and worries
about higher inflation and a possible interest rate hike dominated.
With this, consumer services, consumer cyclical and energy stocks took
the lead for most of the last six months, with the technology and
financial services sectors kicking in toward the end of the period.
Laggards included the health care, utilities and basic industry sectors.
All of these shifting worries tended to move investors toward larger
capitalization stocks, which are often perceived as safer in times of
uncertainty. Thus, the S&P 500 Index outperformed the S&P Midcap 400
Index for the twelve months ending September 30, 1996.
INVESTMENT REVIEW
The Fund's underperformance is primarily due to its relative
overweighting in technology stocks during the first six months of the
period. The Fund began to perform much better in the most recent six
months, when it outperformed not only the S&P Midcap 400 Index but also
the broader S&P 500 Index.
Our disciplined investment process has allowed us to use this period's
volatility to take profits in expensive stocks, and make opportune
additions to the portfolio.
After benefitting greatly from its exposure to Telecommunications, we
de-emphasized this investing theme recently, as the realities of a
competitive market are impacting growth assumptions. We also scaled
back the Ubiquitous Semiconductor theme, believing that supply too far
outweighed demand. We increased our presence in the New Consumer,
America's Changing Leisure Time and Stores of Value themes when it
became apparent the consumer was beginning to spend again. And finally,
we have renewed interest in the Outsourcing theme, as corporations seek
to cut costs and move much of their non-strategic operations to third
party providers. Corporate America has embraced this way of doing
business, and many companies have benefitted from the shift.
MANAGER OUTLOOK
Our outlook for the economy remains fairly positive--moderate growth,
only slightly higher inflation, and benign interest rates. In the near
term, the main factors to pay attention to include the Presidential
election, a return to more realistic expectations of technology growth,
continued inflows into the financial markets, corporate consolidations,
and ongoing market volatility. We also believe the bumper crop of
initial public offerings in the last two years makes midcap investing
increasingly interesting going forward, as these companies will begin to
hit the acceleration points in their growth curves and enter the midcap
universe.
We anticipate that stock selection will become increasingly important,
as this has become a market of stocks and much less a stock market. Our
thematic approach keeps us focused on what we need to own, and our in-
depth fundamental research enables us to take advantage of stock price
volatility. We continue to believe that, over time, the mid cap market
is an area of strong investment opportunities, given its small cap
growth dynamics combined with liquidity and stability usually associated
with large cap stocks.
To greater take advantage of these opportunities, changes were made to
the Fund, effective September 30, 1996, as outlined to you in a recent
letter. As a reminder, these changes include the ability to directly
acquire its own securities portfolio separate from the master-fund level
Capital Appreciation Portfolio, as well as an adjustment widening the
investment range, which allows the Fund to grow as the S&P Midcap 400
Index grows and maintain a midcap strategy as markets appreciate over
time. This Fund report reflects these changes.
BT Investment Equity Appreciation Fund
Letter to Shareholders
We will, of course, continue monitoring economic conditions and how they
affect the financial markets, as we seek capital growth over the long
term, with current income as a secondary objective.
We value your ongoing support of the BT Investment Equity Appreciation
Fund and look forward to continuing to serve your investment needs in
the years ahead.
Anthony Takazawa
Portfolio Manager of the
BT Investment Equity Appreciation Fund
September 30, 1996
GRAPHIC-see Appendix
Comparison of Change in Value of a $10,000 Investment in the BT
Investment Equity Appreciation Fund and the S&P MidCap 400 Index since
October 31, 1993.
Total Return
Ended September 30, 1996
One Year Since 10/12/93*
12.45% 59.01%
* The Fund's inception date.
Investment return and principal value may fluctuate so that shares, when
redeemed, may be worth more or less than their original cost.
Past performance is not indicative of future performance.
<TABLE>
<CAPTION>
BT Investment Equity Appreciation Fund
Schedule of Portfolio Investments September 30, 1996
<C> <S> <C> <C>
Shares Description Value
COMMON STOCKS - 91.94%
America's Changing Leisure Time - 7.78%
46,936 Applebees International, Inc. (a) $ 1,243,804
20,435 Callaway Golf Co. 697,344
37,453 Circus Circus Enterprises, Inc. (a) 1,324,900
8,858 Gemstar International Group Ltd. (a) 261,311
81,251 GT Interactive Software Corp. (a) 1,848,460
25,875 HFS, Inc. (a) 1,730,391
88,645 International Game Technology 1,817,222
61,445 Mirage Resorts, Inc. (a) 1,574,528
53,425 Starbucks Corp. (a) 1,763,025
12,260,985
America's Industrial Renaissance - 5.75%
65,072 Agco Corp 1,659,336
24,550 Harman International Industries, Inc. 1,196,812
44,009 Input/Output, Inc. (a) 1,309,268
21,133 Potash Corporation of Saskatchewan, Inc. 1,545,351
23,713 Raychem Corp. 1,778,475
25,317 Western Atlas, Inc. (a) 1,575,983
9,065,225
Client-Server Computing - 5.02%
35,850 Adaptec, Inc. (a) 2,151,000
47,775 Cadence Design System, Inc. (a) 1,707,956
69,396 Cognos, Inc. (a) 2,264,044
21,550 Peoplesoft, Inc. (a) 1,794,038
7,917,038
Environmental Crisis - 1.33%
61,445 U.S. Filter Corp. (a) 2,096,811
Flourishing In the Managed Care
Environment - 2.30%
38,639 Oxford Health Plans, Inc. (a) 1,922,290
111,450 Physician Reliance Network, Inc. (a) 1,699,612
3,621,902
Interactive Media - 5.22%
23,850 Clear Channel Communications, Inc. (a) 2,110,725
37,801 CUC International, Inc. (a) 1,507,315
34,385 Intuit, Inc. (a) 1,083,127
38,778 Outdoor Systems, Inc. (a) 1,822,566
39,615 The Providence Journal Co. -Cl. A (a) 1,163,691
16,111 Univision Communications, Inc. (a) 539,719
8,227,143
Life On the Net - 4.05%
24,061 America Online, Inc. (a) 857,173
10,670 McAfee Associates, Inc. (a) 736,230
17,992 Netscape Communications Corp. (a) 834,379
104,757 Network General Corp. (a) 2,396,316
34,732 VeriFone, Inc. (a) 1,554,257
6,378,355
Life Sciences Revolution - 6.20%
41,010 BioChem Pharma, Inc. (a) 1,645,526
48,402 Centocor, Inc. (a) 1,718,271
52,518 Elan Corp., ADR (a) 1,568,975
23,853 Genetics Institute, Inc. (a) 1,657,784
56,145 Genzyme Corp. (a) 1,431,697
41,150 U.S. Surgical Corp. 1,748,875
9,771,128
Shares Description Value
Managing the Information Age - 3.72%
79,369 Cheyenne Software, Inc. (a) $ 1,706,434
23,433 Electronics for Imaging, Inc. (a) 1,681,318
45,403 Pure Atria Corp. (a) 1,713,963
26,015 Sterling Commerce, Inc. (a) 767,442
5,869,157
Move to Outsourcing - 8.97%
58,725 AccuStaff, Inc. (a) 1,519,509
43,102 APAC Teleservices, Inc. (a) 2,208,978
25,072 CoreStaff, Inc. (a) 670,675
49,518 Corporate Express, Inc. (a) 1,925,012
26,712 Danka Business Systems, ADR 1,061,802
40,522 Global DirectMail Corp. (a) 1,934,926
41,601 Paychex, Inc. 2,412,858
10,323 Quintiles Transnational Corp. (a) 756,160
52,378 USA Waste Services, Inc. (a) 1,649,907
14,139,827
New Consumer - 8.71%
23,156 Abercrombie & Fitch Co. (a) 567,322
23,643 Blyth Industries, Inc. (a) 1,146,685
15,693 Fila Holdings, ADR 1,508,490
27,758 Gucci Group NV 2,012,455
29,014 Jones Apparel Group, Inc. (a) 1,849,643
45,124 Saks Holdings, Inc. (a) 1,579,340
79,231 Staples, Inc. (a) 1,757,938
26,086 Tommy Hilfiger Corp. (a) 1,545,595
61,653 Williams-Sonoma, Inc. (a) 1,749,404
13,716,872
New Health Care Paradigm - 4.28%
21,830 Cardinal Health, Inc. (a) 1,803,704
39,127 Healthsouth Corp. (a) 1,501,499
53,983 Omnicare, Inc. (a) 1,646,482
46,937 PhyCor, Inc. (a) 1,786,540
6,738,225
Other - 1.47%
38,010 IMC Global, Inc. 1,487,141
35,848 Sunbeam Corporation, Inc 828,985
2,316,126
Productivity Enhancement - 4.05%
36,824 Catalina Marketing Corp. (a) 1,960,878
30,199 Checkpoint Systems, Inc. (a) 800,274
36,686 Compuware Corp. (a) 1,678,384
39,197 Parametric Technology Co. 1,935,352
6,374,888
Redistribution of Debt - 0.88%
52,099 The Money Store, Inc. 1,380,624
Re-Energizing America - 4.57%
47,566 BJ Services Co. (a) 1,724,267
30,688 Cooper Cameron Corp. (a) 1,760,724
98,967 Global Marine, Inc. (a) 1,558,730
57,609 Tidewater, Inc. 2,153,136
7,196,857
Special Situations - 0.38%
30,967 Softkey International, Inc. (a) 599,986
See Notes to Financial Statements on Pages 9 and 10
BT Investment Equity Appreciation Fund
Schedule of Portfolio Investments September 30, 1996
Shares Description Value
Stores of Value - 7.65%
45,892 Borders Group, Inc. (a) 1,709,477
51,472 Consolidated Stores Corp. (a) 2,058,880
29,641 Nine West Group, Inc. (a) $ 1,608,024
39,824 Oakley, Inc. (a) 1,692,520
65,699 PETsMART, Inc. (a) 1,699,962
69,187 Price/Costco, Inc. (a) 1,418,334
52,169 U.S. Office Products Co. (a) 1,871,563
12,058,760
Telecommunications - 6.96%
31,455 Andrew Corp. (a) 1,568,818
25,387 Aspect Telecommunication Corp. (a) 1,580,341
27,899 Excel Communications, Inc. (a) 882,306
63,677 McLeod, Inc.-Cl. A (a) 2,101,341
17,716 Omnipoint Corp. (a) 515,978
32,709 QUALCOMM, Inc. (a) 1,390,133
79,299 Teleport Communications Group Inc. (a) 1,873,439
49,380 WorldCom, Inc. (a) 1,055,497
10,967,853
The Greying of America - 2.22%
25,735 Guidant Corp. 1,421,859
18,970 Loewen Group, Inc. (a) 794,369
58,166 Nellcor Puritan Bennett, Inc. (a) 1,279,652
3,495,880
Shares Description Value
The Ubiquitous Semiconductor - 0.43%
20,017 Xilinx, Inc. $680,578
Total Common Stocks (Cost $120,707,038) $144,874,220
Principal
Amount
SHORT TERM INVESTMENTS - 7.90%
U.S. Treasury Bills - 7.90%
$ 7,159,260 5.00%, 10/24/96 $ 7,136,267
5,359,855 5.12%, 12/5/96 5,312,243
Total Short-Term Investments (Cost $12,448,635) $ 12,448,510
Total Investments (Cost $133,155,673) - 99.84% $157,322,730
Other Assets in Excess of Liabilities - 0.16% 245,597
Net Assets - 100.00% $ 157,568,327
(a) Non-Income Producing Security
See Notes to Financial Statements on Pages 9 and 10
</TABLE>
BT Investment Equity Appreciation Fund
Statement of Assets and Liabilities September 30, 1996
Assets
<TABLE>
<CAPTION>
<S> <C> <C>
Investments, at Value (Cost of $133,155,673) $ 157,322,730
Receivable for Shares of Beneficial Interest Subscribed 34,000
Receivable from Capital Appreciation Portfolio 317,783
Prepaid Expenses and Other 5,149
Total Assets 157,679,662
Liabilities
Due to Bankers Trust 55,499
Accrued Expenses 55,836
Total Liabilities 111,335
Net Assets ($0.001 Par Value Per Share, Unlimited Number of Shares
of Beneficial Interest Authorized) $ 157,568,327
Composition of Net Assets
Paid-in Capital $ 122,685,247
Accumulated Net Realized Gain on Investment Transactions 10,716,023
Net Unrealized Appreciation on Investments 24,167,057
Net Assets, September 30, 1996 $ 157,568,327
Net Asset Value, Offering and Redemption Price Per Share
(net assets divided by shares outstanding) $ 15.23
Shares Outstanding 10,343,971
Statement of Operations For the year ended September 30, 1996
Investment Loss
Loss Allocated from Capital Appreciation Portfolio, net $ (17,911)
Expenses
Advisory 2,784
Administration and Services 502,895
Shareholder Reports 15,653
Registration 54,228
Professional 13,555
Trustees 7,716
Miscellaneous 2,257
Total Expenses 599,088
Less: Expenses Absorbed by Bankers Trust (94,051)
Net Expenses 505,037
Net Investment Loss (522,948)
Realized and Unrealized Gain on Investments
Net Realized Gain from Investment Transactions 12,547,154
Net Change in Unrealized Appreciation on Investments 4,988,588
Net Realized and Unrealized Gain on Investments 17,535,742
Net Increase in Net Assets from Operations $ 17,012,794
See Notes to Financial Statements on Pages 9 and 10
</TABLE>
<TABLE>
<CAPTION>
BT Investment Equity Appreciation Fund
Statement of Changes in Net Assets
For the For the period
year ended January 1, 1995 to
September 30, 1996 September 30, 1995**
<S> <C> <C>
Increase (Decrease) in Net Assets from Operations
Net Investment Loss $ (522,948) $ (146,267)
Net Realized Gain from Investment Transactions 12,547,154 6,369,448
Net Change in Unrealized Appreciation on Investments 4,988,588 12,995,476
Net Increase in Net Assets from Operations 17,012,794 19,218,657
Distributions to Shareholders
Net Realized Gain from Investment Transactions (4,998,705) -
Total Distributions (4,998,705) -
Capital Transactions in Shares of Beneficial Interest
Proceeds from Sales of Shares 76,035,829 51,174,959
Dividend Reinvestments 4,998,705 -
Cost of Shares Redeemed (27,513,098) (8,333,769)
Net Increase from Capital Transactions
in Shares of Beneficial Interest 53,521,436 42,841,190
Total Increase in Net Assets 65,535,525 62,059,847
Net Assets
Beginning of Period 92,032,802 29,972,955
End of Period $ 157,568,327 $ 92,032,802
</TABLE>
Financial Highlights
Contained below are selected data for a share outstanding, total investment
return, ratios to average net assets and other supplemental data for each
of the periods indicated for the BT Investment Equity Appreciation Fund.
<TABLE>
<CAPTION>
For the period
October 12, 1993
For the For the period For the (Commencement
year ended January 1, 1995 to year ended of Operations) to
September 30,1996 September 30, 1995** December 31, 1994 December 31, 1993
<S> <C> <C> <C> <C>
Per Share Operating Performance:
Net Asset Value, Beginning of Period $ 14.14 $ 10.14 $ 9.80 $ 10.00
Income (Loss) from Investment Operations
Net Investment Loss (0.05) (0.02) (0.03) (0.00)
Net Realized and Unrealized Gain (Loss) on
Investments 1.72 4.02 0.37 (0.20)
Total from Investment Operations 1.67 4.00 0.34 (0.20)
Distributions to Shareholders
Net Realized Gain from Investment Transactions (0.58) - - -
Total Distributions (0.58) - - -
Net Asset Value, End of Period $ 15.23 $ 14.14 $ 10.14 $ 9.80
Total Investment Return 12.45% 39.45% 3.47% (8.81)%*
Supplemental Data and Ratios:
Net Assets, End of Period (000's omitted) $ 157,568 $ 92,033 $ 29,973 $ 19,465
Ratios to Average Net Assets:
Net Investment Loss (0.42)% (0.38)%* (0.32)% (0.11)%*
Expenses, including Expenses of the Capital
Appreciation Portfolio 1.00% 1.00%* 1.00% 1.00%*
Decrease Reflected in Above Expense Ratio Due
to Absorption of Expenses by Bankers Trust 0.24% 0.33%* 0.46% 0.60%*
</TABLE>
* Annualized
** Board of Trustees approved the change of the BT Investment Equity
Appreciation Fund's year end from December 31 to September 30.
See Notes to Financial Statements on Pages 9 and 10
BT Investment Equity Appreciation Fund
Notes to Financial Statements
Note 1-Organization and Significant Accounting Policies
A. Organization
BT Pyramid Mutual Funds (the "Trust") is registered under the Investment
Company Act of 1940 (the "Act"), as amended, as an open-end management
investment company. The Trust was organized on February 28, 1992, as a
business trust under the laws of the Commonwealth of Massachusetts. The BT
Investment Equity Appreciation Fund (the "Fund") is one of the funds
offered to investors by the Trust. The Fund commenced operations and began
offering shares of beneficial interest on October 12, 1993.
Effective September 30, 1996, the BT Investment Equity Appreciation Fund
(the `Fund'') no longer achieves its investment objective by investing all
of its assets in the Capital Appreciation Portfolio (`the Portfolio'').
The Fund withdrew its investment in the Portfolio and has engaged Bankers
Trust as investment adviser to manage the Fund. As of September 30, 1996,
$157,534,375 in net assets was withdrawn from the Capital Appreciation
Portfolio and withdrawn to the BT Investment Equity Appreciation Fund.
The financial statements of the Capital Appreciation Portfolio, including
the Schedule of Portfolio Investments, are contained elsewhere in this
report.
B. Security Valuation
The Fund's investments listed or traded on National Stock Exchanges or
other domestic or foreign exchanges are valued based on the closing price
of a security traded on that exchange prior to the time when the Fund
assets are valued. Short-term obligations with remaining maturities of 60
days or less are valued at amortized cost. Other short-term debt securities
are valued on a mark-to-market basis until such time as they reach a
remaining maturity of 60 days, whereupon they will be valued at amortized
cost using their value on the 61st day. All other securities and other
assets are valued at their fair value as determined in good faith under
procedures established by and under the general supervision of the
Trustees.
C. Security Transactions and Interest Income
Security transactions are accounted for on a trade date basis. Dividend
income is recorded on the ex-dividend date. Interest income is recorded on
the accrual basis and includes amortization of premium and discount on
investments. Realized gains and losses from securities transactions are
recorded on the identified cost basis.
D. Repurchase Agreements
The Fund may enter into repurchase agreements with financial institutions
deemed to be creditworthy by the Fund's investment adviser, subject to the
seller's agreement to repurchase such securities at a mutually agreed upon
price. Securities purchased subject to repurchase agreements are deposited
with the Fund's custodian and pursuant to the terms of the repurchase
agreement must have an aggregate market value greater than or equal to the
repurchase price plus accrued interest at all times. If the value of the
underlying securities fall below the value of the repurchase price plus
accrued interest, the Fund will require the seller to deposit additional
collateral by the next business day. If the request for additional
collateral is not met, or the seller defaults on its repurchase obligation,
the Fund maintains the right to sell the underlying securities at market
value and may claim any resulting loss against the seller.
E. Option Contracts
The Fund may enter into option contracts. Upon the purchase of a put option
or a call option by the Fund, the premium paid is recorded as an
investment, the value of which is marked-to-market daily to reflect the
current market value. When a purchased option expires, the Fund will
realize a gain or loss in the amount of the cost of the option. When the
Fund enters into a closing sale transaction, the Fund will realize a gain
or loss depending on whether the sale proceeds from the closing sale
transaction are greater or less than the cost of the option. When the Fund
exercises a put option, it realizes a gain or loss from the sale of the
underlying security and the proceeds from such sale will be decreased by
the premium originally paid. When the Fund exercises a call option, the
cost of the security which the Fund purchases upon exercise will be
increased by the premium originally paid.
F. Dividends
It is the Fund's policy to declare and distribute dividends quarterly to
shareholders from net investment income, if any. Dividends and
distributions payable to shareholders are recorded by the Fund on the ex-
dividend date. Distributions of net realized short-term and long-term
capital gains, if any, earned by the Fund will be made annually to the
extent they are not offset by any capital loss carryforwards.
G. Federal Income Taxes
It is the Fund's policy to comply with the requirements of the Internal
Revenue Code. Therefore, no federal income tax provision is required.
The Fund may periodically make reclassifications among certain of its
capital accounts as a result of the timing and characterization of certain
income and capital gains distributions determined annually in accordance
with federal tax regulations which may differ from generally accepted
accounting principles. For the year ended September 30, 1996, $522,948 of
net investment loss was reclassified to accumulated net realized gain.
9
BT Investment Equity Appreciation Fund
Notes to Financial Statements (continued)
H. Other
The Trust accounts separately for the assets, liabilities, and operations
of the Fund. Expenses directly attributable to the Fund are charged to that
Fund, while expenses which are attributable to all of the Trust's funds are
allocated among them.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts in the financial statements.
Note 2-Fees and Transactions with Affiliates
The Fund has entered into an Administration and Services Agreement with
Bankers Trust Company ("Bankers Trust"). Under this Administration and
Services Agreement, Bankers Trust provides administrative, custody,
transfer agency and shareholder services to the Fund in return for a fee
computed daily and paid monthly at an annual rate of 0.50 of 1% of the
Fund's average daily net assets. For the year ended September 30, 1996,
this fee aggregated $502,895.
On September 30, 1996, the Fund entered into an Advisory Agreement in which
the Fund pays Bankers Trust an advisory fee computed daily and paid monthly
at an annual rate 0.65 of 1% of the Fund's average daily net assets. For
the year ended September 30, 1996, this fee aggregated $2,784.
On September 30, 1996, the Trust entered into a Distribution Agreement with
Edgewood Services, Inc. (`Edgewood''). Prior to September 30, Signature
Broker-Dealer Services, Inc. (`Signature'') was the Trust's distributor.
Under the Distribution Agreement with the Trust, pursuant to Rule 12b-1 of
the 1940 Act, Edgewood, and previously Signature, may seek reimbursement,
at an annual rate not exceeding 0.20 of 1% of the Fund's average daily net
assets, for expenses incurred in connection with any activities primarily
intended to result in the sale of the Fund's shares. For the year ended
September 30, 1996, there were no reimbursable expenses incurred under this
agreement.
Bankers Trust has voluntarily undertaken to waive and reimburse expenses of
the Fund, to the extent necessary, to limit all expenses to 1.00 of 1% of
the average daily net assets of the Fund. For the year ended September 30,
1996, expenses of the Fund have been reduced by $94,051.
The Fund is subject to such limitations as may from time to time be imposed
by the Blue Sky laws of states in which of the Fund sells its shares.
Currently, the most restrictive jurisdiction imposes expense limitations of
2.5% of the first $30,000,000 of the average daily net assets, 2.0% of the
next $70,000,000, and 1.5% of any excess over $100,000,000.
Certain trustees and officers of the Fund are also directors, officers
and/or employees of Edgewood and/or Signature. None of the trustees so
affiliated received compensation for services as trustee of the Fund.
Similarly, none of the Fund's officers received compensation from the Fund.
Note 3-Shares of Beneficial Interest
At September 30, 1996, there were an unlimited number of shares of
beneficial interest authorized. Transactions in shares of beneficial
interest were as follows:
For the For the period
year ended January 1, 1995 to
September 30, 1996 September 30, 1995
Shares Amount Shares Amount
Sold 5,437,029 $76,035,829 4,288,109 $51,174,959
Reinvested 370,819 4,998,705 - -
Redeemed (1,973,734) (27,513,098) (733,661) (8,333,769)
Net Increase 3,834,114 $53,521,436 3,554,448 $42,841,190
Note 4-Purchases of Investment Securities
The aggregate cost of purchases of investments, other than short-term
obligations, for the year ended September 30, 1996 was $2,521,813. For
federal income tax purposes, the tax basis of investments held at September
30, 1996 was $135,777,297. The aggregate gross unrealized appreciation for
all investments was $24,331,238 and the aggregate gross unrealized
depreciation for all investments was $2,785,805
10
BT Investment Equity Appreciation Fund
Report of Independent Accountants
To the Trustees and Shareholders of BT Pyramid Mutual Funds:
We have audited the accompanying statement of assets and liabilities,
including the schedule of portfolio investments, of the BT Investment
Equity Appreciation Fund (one of the Funds comprising BT Pyramid Mutual
Funds) as of September 30, 1996, and the related statement of operations
for the year then ended, the statement of changes in net assets for the
year then ended and for the nine months ended September 30, 1995 and the
financial highlights for the year then ended, the nine months ended
September 30, 1995, the year ended December 31, 1994 and for the period
October 12, 1993 (commencement of operations) to December 31, 1993. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of September 30, 1996 by correspondence with the
custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position
of the BT Investment Equity Appreciation Fund of BT Pyramid Mutual Funds as
of September 30, 1996, the results of its operations, the changes in its
net assets and the financial highlights for the periods referred to above,
in conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Kansas City, Missouri
November 7, 1996
<TABLE>
<CAPTION>
Capital Appreciation Portfolio
Schedule of Portfolio Investments September 30, 1996
<C> <S> <C> <C>
Shares Description Value
COMMON STOCKS - 91.90%
America's Changing Leisure Time - 7.78%
20,364 Applebees International, Inc. (a) $ 539,646
8,865 Callaway Golf Co. 302,518
16,247 Circus Circus Enterprises, Inc. (a) 574,738
3,842 Gemstar International Group Ltd. (a) 113,339
35,249 GT Interactive Software Corp. (a) 801,915
11,225 HFS, Inc. (a) 750,672
38,455 International Game Technology 788,327
26,655 Mirage Resorts, Inc. (a) 683,034
23,175 Starbucks Corp. (a) 764,775
5,318,964
America's Industrial Renaissance - 5.75%
28,228 Agco Corp. 719,814
10,650 Harman International Industries, Inc. 519,187
19,091 Input/Output, Inc. (a) 567,957
9,167 Potash Corporation of Saskatchewan, Inc. 670,337
10,287 Raychem Corp. 771,525
10,983 Western Atlas, Inc. (a) 683,692
3,932,512
Client-Server Computing - 5.02%
15,550 Adaptec, Inc. (a) 933,000
20,725 Cadence Design System, Inc. (a) 740,919
30,104 Cognos, Inc. (a) 982,143
9,350 Peoplesoft, Inc. (a) 778,387
3,434,449
Environmental Crisis - 1.33%
26,655 U.S. Filter Corp. (a) 909,602
Flourishing In the Managed Care
Environment - 2.30%
16,761 Oxford Health Plans, Inc. 833,860
48,350 Physician Reliance Network, Inc. (a) 737,337
1,571,197
Interactive Media - 5.22%
10,350 Clear Channel Communications, Inc. (a) 915,975
16,399 CUC International, Inc. (a) 653,910
14,915 Intuit, Inc. (a) 469,823
16,822 Outdoor Systems, Inc. (a) 790,634
17,185 The Providence Journal Co. -Cl. A (a) 504,809
6,989 Univision Communications, Inc. (a) 234,132
3,569,283
Life On the Net - 4.05%
10,439 America Online, Inc. (a) 371,889
4,630 McAfee Associates, Inc. (a) 319,470
7,808 Netscape Communications Corp. (a) 362,096
45,443 Network General Corp. (a) 1,039,509
15,068 VeriFone, Inc. (a) 674,293
2,767,257
Life Sciences Revolution - 6.20%
17,790 BioChem Pharma, Inc. (a) 713,824
20,998 Centocor, Inc. (a) 745,429
22,782 Elan Corp., ADR (a) 680,612
10,347 Genetics Institute, Inc. (a) 719,117
24,355 Genzyme Corp. (a) 621,052
17,850 U.S. Surgical Corp. 758,625
4,238,659
Shares Description Value
Managing the Information Age - 3.72%
34,431 Cheyenne Software, Inc. (a) $ 740,266
10,167 Electronics for Imaging, Inc 729,482
19,697 Pure Atria Corp. (a) 743,562
11,285 Sterling Commerce, Inc. 332,907
2,546,217
Move to Outsourcing - 8.97%
25,475 AccuStaff, Inc. (a) 659,166
18,698 APAC Teleservices, Inc. (a) 958,272
10,878 CoreStaff, Inc. (a) 290,986
21,482 Corporate Express, Inc. (a) 835,113
11,588 Danka Business Systems, ADR 460,623
17,578 Global DirectMail Corp. (a) 839,350
18,049 Paychex, Inc. 1,046,842
4,477 Quintiles Transnational Corp. (a) 327,940
22,722 USA Waste Services, Inc. (a) 715,743
6,134,035
New Consumer - 8.70%
10,044 Abercrombie & Fitch Co. (a) 246,078
10,257 Blyth Industries, Inc. (a) 497,465
6,807 Fila Holdings, ADR 654,323
12,042 Gucci Group NV 873,045
12,586 Jones Apparel Group, Inc. (a) 802,358
19,576 Saks Holdings, Inc. (a) 685,160
34,369 Staples, Inc. (a) 762,562
11,314 Tommy Hilfiger Corp. (a) 670,354
26,747 Williams-Sonoma, Inc. (a) 758,946
5,950,291
New Health Care Paradigm - 4.27%
9,470 Cardinal Health, Inc. (a) 782,459
16,973 Healthsouth Corp. (a) 651,339
23,417 Omnicare, Inc. 714,218
20,363 PhyCor, Inc. (a) 775,067
2,923,083
Other - 1.47%
16,490 IMC Global, Inc. 645,171
15,552 Sunbeam Corporation, Inc 359,640
1,004,811
Productivity Enhancement - 4.04%
15,976 Catalina Marketing Corp. (a) 850,722
13,101 Checkpoint Systems, Inc. (a) 347,176
15,914 Compuware Corp. (a) 728,066
17,003 Parametric Technology Co. 839,523
2,765,487
Redistribution of Debt - 0.88%
22,601 The Money Store, Inc. 598,927
Re-Energizing America - 4.56%
20,634 BJ Services Co. (a) 747,983
13,312 Cooper Cameron Corp. (a) 763,776
42,933 Global Marine, Inc. (a) 676,195
24,991 Tidewater, Inc. 934,039
3,121,993
Special Situations - 0.38%
13,433 Softkey International, Inc. (a) 260,264
See Notes to Financial Statements on Pages 16 and 17
Capital Appreciation Portfolio
Schedule of Portfolio Investments September 30, 1996
Shares Description Value
Stores of Value - 7.65%
19,908 Borders Group, Inc. (a) $ 741,573
22,328 Consolidated Stores Corp. (a) 893,120
12,859 Nine West Group, Inc. (a) 697,601
17,276 Oakley, Inc. (a) 734,230
28,501 PETsMART, Inc. (a) 737,463
30,013 Price/Costco, Inc. (a) 615,267
22,631 U.S. Office Products Co. (a) 811,887
5,231,141
Telecommunications - 6.96%
13,645 Andrew Corp. (a) 680,544
11,013 Aspect Telecommunication Corp. (a) 685,559
12,101 Excel Communications, Inc. (a) 382,694
27,623 McLeod, Inc.-Cl. A (a) 911,559
7,684 Omnipoint Corp. (a) 223,797
14,191 QUALCOMM, Inc. (a) 603,118
34,401 Teleport Communications Group Inc. (a) 812,724
21,420 WorldCom, Inc. (a) 457,853
4,757,848
The Ubiquitous Semiconductor - 0.43%
8,683 Xilinx, Inc. 295,222
Shares Description Value
The Greying of America - 2.22%
11,165 Guidant Corp. $ 616,866
8,230 Loewen Group, Inc. (a) 344,631
25,234 Nellcor Puritan Bennett, Inc. (a) 555,148
1,516,645
Total Common Stocks (Cost $47,822,620) $ 62,847,887
Principal
Amount
Short Term Investments - 7.90%
U.S. Treasury Bills - 7.90%
$3,105,740 5.00%, 10/24/96 $ 3,095,765
2,325,145 5.12%, 12/5/96 2,304,491
Total Short Term Investments (Cost $5,399,135) $ 5,400,256
Total Investments (Cost $53,221,755) - 99.80% $ 68,248,143
Other Assets in Excess of Liabilities - 0.20% 137,352
Net Assets - 100.00% $ 68,385,495
(a) Non-Income Producing Security
See Notes to Financial Statements on Pages 16 and 17
Capital Appreciation Portfolio
Statement of Assets and Liabilities September 30, 1996
Assets
Investments, at Value (Cost of $53,221,755) $ 68,248,143
Cash 148,138
Receivable for Securities Sold 4,203,285
Dividends and Interest Receivable 939
Prepaid Expenses and Other 163
Total Assets 72,600,668
Liabilities
Due to Bankers Trust 117,231
Payable for Securities Purchased 3,762,530
Payable to Equity Appreciation Fund 317,783
Accrued Expenses 17,629
Total Liabilities 4,215,173
Net Assets $ 68,385,495
Composition of Net Assets
Paid-in Capital $ 53,359,107
Net Unrealized Appreciation on Investments 15,026,388
Net Assets, September 30, 1996 $ 68,385,495
Statement of Operations For the year ended September 30, 1996
Investment Income
Dividends (net of foreign withholding taxes of $5,815) $ 215,459
Interest 890,485
Total Investment Income 1,105,944
Expenses
Advisory 1,225,764
Administration and Services 188,579
Professional 31,708
Trustees 2,628
Miscellaneous 2,319
Total Expenses 1,450,998
Less: Expenses Absorbed by Bankers Trust (319,524)
Net Expenses 1,131,474
Net Investment Loss (25,530)
Realized and Unrealized Gain (Loss) on Investments
Net Realized Gain from Investment Transactions 18,986,988
Net Change in Unrealized Depreciation on Investments (17,719,598)
Net Realized and Unrealized Gain (Loss) on Investments 1,267,390
Net Increase in Net Assets from Operations $ 1,241,860
See Notes to Financial Statements on Pages 16 and 17
</TABLE>
<TABLE>
<CAPTION>
Capital Appreciation Portfolio
Statement of Changes in Net Assets
For the For the period
year ended January 1, 1995 to
September 30, 1996 September 30, 1995#
Increase (Decrease) in Net Assets from:
Operations
<S> <C> <C>
Net Investment Income (Loss) $ (25,530) $ 10,500
Net Realized Gain from Investments 18,986,988 11,774,764
Net Change in Unrealized Appreciation (Depreciation) on Investments (17,719,598) 23,909,639
Net Increase in Net Assets from Operations 1,241,860 35,694,903
Capital Transactions
Proceeds from Capital Invested 110,885,692 63,887,608
Value of Capital Withdrawn (193,629,946) (23,328,952)
Net Increase (Decrease) in Net Assets from Capital Transactions (82,744,254) 40,558,656
Total Increase (Decrease) in Net Assets (81,502,394) 76,253,559
Net Assets
Beginning of Period 149,887,889 73,634,330
End of Period $ 68,385,495 $ 149,887,889
Financial Highlights
Contained below are selected supplemental data and ratios to average
net assets for the periods indicated for the Capital Appreciation Portfolio.
For the period
March 9, 1993
For the For the period For the (Commencement
year ended January 1, 1995 to year ended of Operations) to
September 30, 1996 September 30, 1995# December 31, 1994 December 31, 1993
Supplemental Data and Ratios:
Net Assets, End of Period (000's omitted) $ 68,385 $ 149,888 $ 73,634 $ 37,076
Ratios to Average Net Assets:
Net Investment Income (Loss) (0.01)% 0.01%* 0.08% 0.38%*
Expenses 0.60% 0.60%* 0.60% 0.60%*
Decrease Reflected in Above Expense Ratios Due
to Absorption of Expenses by Bankers Trust 0.17% 0.18%* 0.23% 0.41%*
Portfolio Turnover Rate 271% 125% 157% 137%
Average Commission Per Share** $0.055
</TABLE>
* Annualized
** For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share for security
trades on which commissions are charged.
# The Board of Trustees approved the change of the fiscal year end from
December 31 to September 30.
See Notes to Financial Statements on Pages 16 and 17
Capital Appreciation Portfolio
Notes to Financial Statements
Note 1-Organization and Significant Accounting Policies
A. Organization
The Capital Appreciation Portfolio (the `Portfolio'') is registered under
the Investment Company Act of 1940 (the `Act''), as amended, as an open-
end management investment company. The Portfolio was organized on October
28, 1992 as an unincorporated trust under the laws of New York and
commenced operations on March 9, 1993. The Declaration of Trust permits
the Board of Trustees (the `Trustees'') to issue beneficial interests in
the Portfolio.
B. Security Valuation
The Portfolio's investments listed or traded on National Stock Exchanges
or other domestic or foreign exchanges are valued based on the closing
price of a security traded on that exchange prior to the time when the
Portfolio assets are valued. Short-term obligations with remaining
maturities of 60 days or less are valued at amortized cost. Other short-
term debt securities are valued on a mark-to-market basis until such time
as they reach a remaining maturity of 60 days, whereupon they will be
valued at amortized cost using their value on the 61st day. All other
securities and other assets are valued at their fair value as determined
in good faith under procedures established by and under the general
supervision of the Trustees.
C. Security Transactions and Investment Income
Security transactions are accounted for on a trade date basis. Dividend
income is recorded on the ex-dividend date. Interest income is recorded on
the accrual basis and includes amortization of premium and discount on
investments. Realized gains and losses from securities transactions are
recorded on the identified cost basis.
All of the net investment income and realized and unrealized gains and
losses from the securities transactions of the Portfolio are allocated pro
rata among the investors in the Portfolio at the time of such
determination.
D. Repurchase Agreements
The Portfolio may enter into repurchase agreements with financial
institutions deemed to be creditworthy by the Portfolio's Investment
Adviser, subject to the seller's agreement to repurchase such securities
at a mutually agreed upon price. Securities purchased subject to
repurchase agreements are deposited with the Portfolio's custodian and
pursuant to the terms of the repurchase agreement must have an aggregate
market value greater than or equal to the repurchase price plus accrued
interest at all times. If the value of the underlying securities fall
below the value of the repurchase price plus accrued interest, the
Portfolio will require the seller to deposit additional collateral by the
next business day. If the request for additional collateral is not met, or
the seller defaults on its repurchase obligation, the Portfolio maintains
the right to sell the underlying securities at market value and may claim
any resulting loss against the seller.
E. Federal Income Taxes
It is the Portfolio's policy to comply with the requirements of the
Internal Revenue Code. Therefore, no federal income tax provision is
required.
F. Option Contracts
The Portfolio may enter into option contracts. Upon the purchase of a put
option or a call option by the Portfolio, the premium paid is recorded as
an investment, the value of which is marked-to-market daily to reflect the
current market value. When a purchased option expires, the Portfolio will
realize a gain or loss in the amount of the cost of the option. When the
Portfolio enters into a closing sale transaction, the Portfolio will
realize a gain or loss depending on whether the sale proceeds from the
closing sale transaction are greater or less than the cost of the option.
When the Portfolio exercises a put option, it realizes a gain or loss from
the sale of the underlying security and the proceeds from such sale will
be decreased by the premium originally paid. When the Portfolio exercises
a call option, the cost of the security which the Portfolio purchases upon
exercise will be increased by the premium originally paid.
G. Other
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts in the financial statements.
Note 2-Fees and Transactions with Affiliates
The Portfolio has entered into an Administration and Services Agreement
with Bankers Trust Company (`Bankers Trust''). Under this Administration
and Services Agreement, Bankers Trust provides administrative, custody,
transfer agency and shareholder services to the Portfolio in return for a
fee computed daily and paid monthly at an annual rate of 0.10 of 1% of the
Portfolio's average daily net assets. For the year ended September 30,
1996, this fee aggregated $188,579.
The Portfolio has entered into an Advisory Agreement with Bankers Trust.
Under this Advisory Agreement, Bankers Trust manages the Portfolio in
accordance with the Portfolio's investment objective and stated investment
policies in return for a fee computed daily and paid monthly at an annual
rate of 0.65 of 1% of the Portfolio's average daily net assets. For the
year ended September 30, 1996, this fee aggregated $1,225,764.
Bankers Trust has voluntarily undertaken to waive and reimburse expenses
of the Portfolio to the extent necessary, to limit all expenses to 0.60 of
1% of the average daily net assets of the Portfolio. For the year ended
September 30, 1996, expenses of the Portfolio have been reduced by
$319,524.
Capital Appreciation Portfolio
Notes to Financial Statements (continued)
On September 30, 1996, the Trust entered into a Distribution Agreement
with Edgewood Services, Inc. (`Edgewood''). Prior to September 30,
Signature Broker-Dealer Services, Inc. (`Signature'') was the Trust's
Distributor.
Certain trustees and officers of the Portfolio are also directors,
officers and/or employees of Edgewood and/or Signature. None of the
trustees so affiliated received compensation for services as trustee of
the Portfolio. Similarly, none of the Portfolio's officers received
compensation from the Portfolio.
For the year ended September 30, 1996, Capital Appreciation Portfolio paid
brokerage commissions of $648,897.
Note 3-Purchases and Sales of Investment Securities
The aggregate cost of purchases and proceeds from sales of investments,
other than short-term obligations, for the year ended September 30, 1996
were $489,610,608 and $437,250,028, respectively.
For federal income tax purposes, the tax basis of investments held at
September 30, 1996 was $53,971,519. The aggregate gross unrealized
appreciation for all investments was $14,799,536 and the aggregate gross
unrealized depreciation for all investments was $522,912.
Capital Appreciation Portfolio
Report of Independent Accountants
To the Trustees and Holders of Beneficial Interest of the Capital
Appreciation Portfolio:
We have audited the accompanying statement of assets and liabilities,
including the schedule of portfolio investments, of the Capital
Appreciation Portfolio as of September 30, 1996, and the related
statement of operations for the year then ended, the statement of changes
in net assets for the year then ended September 30, 1996, and the nine
months ended September 30, 1995, and the financial highlights for the year
then ended September 30, 1996, the nine months ended September 30, 1995,
the year ended December 31, 1994 and for the period March 9, 1993
(commencement of operations) to December 31, 1993. These financial
statements and financial highlights are the responsibility of the
Portfolio's management. Our responsibility is to express an opinion on
these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included
confirmation of securities owned as of September 30, 1996 by
correspondence with the custodian and brokers. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position
of the Capital Appreciation Portfolio as of September 30, 1996, the
results of its operations, the changes in its net assets and the financial
highlights for the periods referred to above, in conformity with generally
accepted accounting principles.
Coopers & Lybrand L.L.P.
Kansas City, Missouri
October 29, 1996
This page intentionally left blank.
BT PYRAMID MUTUAL FUNDS
BT Investment Equity Appreciation Fund
For shareholder account information and current price and yield
quotations, shareholders may call their relationship manager or servicing
agent. Prospectuses containing more extensive information regarding the BT
Investment Equity Appreciation Fund may be obtained by calling or writing
to Investors Fiduciary Trust Company or Edgewood Services,Inc., the
primary Servicing Agent and Distributor, respectively, of BT Pyramid
Mutual Funds:
BT Pyramid Mutual Funds
DST Systems, Inc.
210 West 10th St.
Kansas City, MO 64105
BT Pyramid Mutual Funds
Edgewood Securities
Clearing Operations
P.O. Box 897
Pittsburgh, PA 15230-0897
You may write to the BT Investment Equity Appreciation Fund at the following
address:
BT Pyramid Mutual Funds
Clearing Operations
P.O. Box 897
Pittsburgh, PA 15230-0897
APPENDIX
Line Graph-Page 4
The graphic representation here displayed consists of a boxed legend in
the upper left-hand corner of the corresponding line graph. The solid
black line represents BT Investment Equity Appreciation Fund (the
`Fund''); the dashed line represents the S&P MidCap 400 Index. The graph
represents a comparison of change in value of a $10,000 investment in the
Fund and in the S&P MidCap 400 Index begining October 31, 1993. The `y''
axis reflects quarterly computation periods from October 1993 to September
1996. The `x'' axis reflects investment values in $2,000 increments ranging
from $8,000 to $18,000.
