BT PYRAMID MUTUAL FUNDS
BT PRESERVATIONPLUS FUND
INVESTMENT CLASS
Seeks a high level of current income while seeking to maintain a stable value
per share.
PROSPECTUS: April 28, 1997 (revised August 7, 1997)
BT Pyramid Mutual Funds (the "Trust") is an open-end management
investment company (mutual fund). The BT PreservationPlus Fund ("the
"Fund") is a separate series of the Trust and offers separate classes
of shares. The shares offered by this prospectus are the Investment
Class of shares (the "Shares"). The Fund seeks a high level of current
income while seeking to maintain a stable value per share. The Fund is
offered solely to participant-directed employee benefit plans meeting
specified criteria.
UNLIKE OTHER MUTUAL FUNDS, THE FUND SEEKS TO ACHIEVE ITS INVESTMENT
OBJECTIVE BY INVESTING ALL OF ITS NET INVESTABLE ASSETS IN BT
PRESERVATIONPLUS PORTFOLIO (THE "PORTFOLIO"), A SEPARATE SUBTRUST OF
BT INVESTMENT PORTFOLIOS, A NEW YORK MASTER TRUST FUND (THE "PORTFOLIO
TRUST"), WITH AN IDENTICAL INVESTMENT OBJECTIVE. SEE "SPECIAL
INFORMATION CONCERNING THE MASTER-FEEDER FUND STRUCTURE." THE FUND IS
NOT A MONEY MARKET FUND, AND THERE CAN BE NO ASSURANCE THAT IT WILL BE
ABLE TO MAINTAIN A STABLE VALUE PER SHARE OR OTHERWISE ACHIEVE ITS
OBJECTIVE.
Please read this Prospectus before investing and keep it on file for
future reference. It contains important information concerning the
Fund and the Portfolio, including how the Portfolio invests and the
services available to the Fund's shareholders. Bankers Trust Company
("Bankers Trust") is the investment adviser ("Adviser") of the
Portfolio.
LIKE SHARES OF ALL MUTUAL FUNDS, THESE SECURITIES HAVE NOT BEEN
APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
To learn more about the Fund and the Portfolio, investors can obtain a
copy of the Fund's Statement of Additional Information ("SAI"), dated
April 28, 1997, which has been filed with the Securities and Exchange
Commission (the "SEC") and is incorporated herein by this reference.
For a free copy of this document, please call the Trust's service
agent at 1-800-677-7596.
SHARES OF THE FUND ARE NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, BANKERS TRUST COMPANY, AND THE SHARES ARE
NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY. AN INVESTMENT IN THE
FUND IS SUBJECT TO RISK THAT MAY CAUSE THE VALUE OF THE INVESTMENT TO
FLUCTUATE, AND WHEN THE INVESTMENT IS REDEEMED, THE VALUE MAY BE
HIGHER OR LOWER THAN THE AMOUNT ORIGINALLY INVESTED BY THE INVESTOR.
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TABLE OF CONTENTS
PAGE
THE FUND................................................................ 3
WHO MAY INVEST.........................................................3
INVESTMENT PRINCIPLES AND RISKS........................................4
EXPENSE SUMMARY........................................................4
THE FUND IN DETAIL.......................................................6
INVESTMENT OBJECTIVE AND POLICIES......................................6
RISK FACTORS: MATCHING THE FUND TO YOUR INVESTMENT NEEDS..............7
SPECIAL INFORMATION CONCERNING THE MASTER-FEEDER FUND STRUCTURE.......10
SECURITIES AND INVESTMENT PRACTICES OF THE PORTFOLIO .................11
PERFORMANCE...........................................................14
MANAGEMENT OF THE TRUST AND PORTFOLIO ................................14
NET ASSET VALUE.......................................................16
SHAREHOLDER AND ACCOUNT POLICIES........................................17
ACCOUNT INFORMATION...................................................17
TRANSACTIONS IN FUND SHARES...........................................17
DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS..............................19
TAX CONSIDERATIONS ...................................................19
ADDITIONAL INFORMATION................................................19
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THE FUND
The Fund's investment objective is a high level of current income
while seeking to maintain a stable value per Share. The Fund seeks to
achieve its investment objective by investing all of its net
investable assets in the Portfolio. The Portfolio will seek to achieve
this objective by investing in a diversified portfolio of fixed income
securities, money market instruments, futures, options and other
instruments ("Portfolio Securities") and by entering into contracts
("Wrapper Agreements") with financial institutions, such as insurance
companies and banks, that are intended to stabilize the value per
Share of the Fund. See "Risk Factors: Matching the Fund to Your
Investment Needs."
There can be no assurance that the Fund will achieve its objective.
WHO MAY INVEST
Shares of the Fund are offered solely to participant-directed employee
benefit plans meeting specified criteria (each a "Plan" and together
"Plans"). Shares are offered to Plans either directly or through
vehicles such as bank collective funds or insurance company separate
accounts consisting solely of such Plans. The Fund is designed for
investors seeking preservation and stability of principal and a level
of current income higher than money market mutual funds over most time
periods.
The Fund is not in itself a balanced investment plan. Plan
participants should consider their investment objective and tolerance
for risk when making an investment decision. When Shares are redeemed,
they may be worth more or less than what they originally cost,
although the nature of the Portfolio's investments -- particularly the
Wrapper Agreements -- are intended by the Fund to stabilize the value
per Share. A Plan offering investments in the Fund must impose certain
restrictions on the ability of a Plan participant to exchange Shares
for similar investment options. See "Account Information."
INVESTMENT PRINCIPLES AND RISKS
The value of most of the Portfolio Securities will fluctuate based
upon changes in domestic or foreign interest rates, the credit quality
of the issuer, market conditions, and other economic and political
news. In general, the prices of Portfolio Securities will rise when
interest rates fall, and fall when interest rates rise. The Wrapper
Agreements are intended to stabilize the value per Share by offsetting
fluctuations in the value of the Portfolio Securities under certain
conditions. Under most circumstances, the combination of Portfolio
Securities and Wrapper Agreements held by the Portfolio is expected to
provide Fund shareholders with a constant net asset value ("NAV") per
Share and a current rate of return that is higher than most money
market mutual funds over most time periods. However, there can be no
guarantee that the Portfolio will maintain a constant NAV, and
consequently that the Fund will be able to maintain a constant NAV per
Share. There is also no guarantee that any Fund shareholder or Plan
participant will realize the same investment return as might be
realized by a direct investment in the Portfolio Securities without
the Wrapper Agreements or that the Fund's rate of return will be
higher than that of most money market mutual funds.
The Portfolio incurs costs in connection with its investment in
Wrapper Agreements which will reduce the Fund's investment return. The
Wrapper Agreements may not insulate the Portfolio from loss if an
issuer of Portfolio Securities defaults on payments of interest or
principal. Additionally, an issuer of a Wrapper Agreement could
default on its obligations under the agreement or the Portfolio might
be unable to obtain Wrapper Agreements covering all of its assets.
Either type of default or the inability to obtain Wrapper Agreements
might result in a decline in the value of the Shares. Moreover, in
valuing a Wrapper Agreement, the Board of Trustees of the Portfolio
Trust may determine that such agreement should not be carried by the
Portfolio at a value sufficient to maintain the Portfolio's NAV per
Share.
Bankers Trust may use various investment techniques to hedge the
Portfolio's risks, but there is no guarantee that these strategies
will work as intended. See "Risk Factors: Matching the Fund to Your
Investment Needs" for more information.
EXPENSE SUMMARY
Annual operating expenses are paid out of the assets of the Portfolio
and the Fund. The Portfolio pays an investment advisory fee and an
administrative services fee to Bankers Trust. The Fund incurs
additional administrative expenses such as maintaining shareholder
records and furnishing shareholder statements. The Fund must also
provide semi-annual financial reports.
The following tables are intended to assist investors in understanding
the expenses associated with investing in the Fund. The expenses shown
on the following pages are estimates for the first full year of
operations. The table provides (i) a summary of expenses related to
purchases and redemptions (sales) of Shares and the anticipated annual
operating expenses of the Fund and the Portfolio, in the aggregate, as
a percentage of average daily net assets and (ii) an example
illustrating the dollar cost of such expenses on a $1,000 investment
in the Fund. THE TRUSTEES OF THE TRUST BELIEVE THAT THE AGGREGATE
EXPENSES OF THE FUND (INCLUDING ITS PROPORTIONATE SHARE OF THE
PORTFOLIO'S EXPENSES) WILL BE LESS THAN OR APPROXIMATELY EQUAL TO THE
EXPENSES THAT THE FUND WOULD INCUR IF THE TRUST RETAINED THE SERVICES
OF AN INVESTMENT ADVISER AND THE ASSETS OF THE FUND WERE INVESTED
DIRECTLY IN PORTFOLIO SECURITIES AND WRAPPER AGREEMENTS.
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge on Purchases None
Maximum Sales Charge on Reinvested Dividends None
Maximum Redemption Fee 2.0%
Shareholder transaction expenses are charges paid when investors buy,
redeem or exchange Shares. Under normal circumstances, redemptions of
Shares that are directed by Plan participants are not subject to a
redemption fee. Redemptions of Shares that are not directed by Plan
participants and that are made on less than twelve months' prior
written notice to the Fund are subject to a redemption fee payable to
the Fund of 2% of the proceeds of the redemption. See "Transactions in
Fund Shares."
ANNUAL OPERATING EXPENSES (as a percentage of the Fund's projected average
daily net assets)
Investment advisory fee (after reimbursement or waiver)* 0.20%
12b-1 fee None
Other expenses (after reimbursement or waiver)** 0.35%
Total operating expenses (after reimbursement or waiver) 0.55%
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* The Fund does not directly pay an investment advisory fee; the
amount shown reflects the Fund's proportionate share of the
Portfolio's investment advisory fee.
** "Other expenses" include premiums paid for Wrapper Agreements and
certain additional services provided to the Fund and the Portfolio by
Bankers Trust. Wrapper Agreements are contracts entered into by the
Portfolio that are intended to stabilize the value per Share of the
Fund (see "Investment Principles and Risks").
EXPENSE TABLE EXAMPLE:
An investor would pay the following expenses on a $1,000 investment assuming
(1) 5% annual return and (2) redemption at the end of each time period. No
redemption fee has been included.
ONE YEAR THREE YEARS
$6 $18
The expense table and the example above show the estimated costs and
expenses that an investor will bear directly or indirectly as a
shareholder of the Fund. Bankers Trust has voluntarily agreed to waive
a portion of its investment advisory fee payable by the Portfolio.
Without such waiver, the Portfolio's investment advisory fee would be
0.35% of its average daily net assets. Bankers Trust has also
voluntarily agreed to waive a portion of its administration fees
(included in "Other Expenses") payable by the Portfolio. Without such
waiver, the Portfolio's "Other Expenses" would be 0.66%. Bankers Trust
may terminate these voluntary waivers and reimbursements at any time
in its sole discretion without notice to shareholders. In the absence
of these waivers, assuming total class assets of $100 million, it is
estimated that "Total Operating Expenses" of the Shares would be
1.01%.
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST
OR FUTURE EXPENSES, AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN
THOSE SHOWN.
Moreover, while the example assumes a 5% annual return,
actual performance will vary and may result in a return greater or
less than 5%.
Shares of the Fund are sold by Edgewood Services, Inc. ("Edgewood") as
the Trust's distributor (the "Distributor"). For more information
about the Fund's and the Portfolio's expenses see "Management of the
Fund" and "Valuation Details" herein.
As of the date of this prospectus, the Fund has issued two classes of
shares, and may issue additional classes in the future. The Fund
offers each class of shares by a separate prospectus. Because the
expenses vary between classes, performance will vary with respect to
each class. Additional information concerning each class of shares is
available from Bankers Trust, as Administrator, at 1-800-677-7596.
FUND FINANCIAL HIGHLIGHTS
The Fund will have a fiscal year end of September 30. As this is the
Fund's first fiscal year, financial information with respect to the
Fund is not available at this time.
THE FUND IN DETAIL
INVESTMENT OBJECTIVE AND POLICIES
The Fund seeks to achieve its investment objective by investing all of
its net investable assets in the Portfolio, which has the same
investment objective as the Fund. Since the investment characteristics
of the Fund will correspond directly to those of the Portfolio, the
following is a discussion of the various investments of and techniques
employed by the Portfolio. Additional information about the investment
policies of the Portfolio appears in "Risk Factors: Matching the Fund
to Your Investment Needs" herein and in the SAI. There can be no
assurance that the Fund's and the Portfolio's investment objective
will be achieved.
The Portfolio's investment objective is a high level of current income
while seeking to maintain a stable value per Share. The Portfolio
expects to invest at least 65% of its total assets in fixed income
securities ("Fixed Income Securities") of varying maturities rated, at
the time of purchase, in one of the top three long-term rating
categories by Standard & Poor's ("S&P"), Moody's Investors Service,
Inc. ("Moody's"), or Duff & Phelps Credit Rating Co., or comparably
rated by another nationally recognized statistical rating organization
("NRSRO"), or, if not rated by a NRSRO, of comparable quality as
determined by Bankers Trust in its sole discretion.
In addition, the Portfolio will enter into Wrapper Agreements with
insurance companies, banks or other financial institutions ("Wrapper
Providers") that are rated, at the time of purchase, in one of the top
two long-term rating categories by Moody's or S&P. There is no active
trading market for Wrapper Agreements, and none is expected to
develop; therefore, they will be considered illiquid. At the time of
purchase, the value of all of the Wrapper Agreements and any other
illiquid securities will not exceed 15% of the Portfolio's net assets.
The Fixed Income Securities include fixed income securities issued
or guaranteed by the U.S. government, or any agency or instrumentality
thereof; publicly or privately issued U.S. dollar-denominated debt of
domestic or foreign entities, including corporate, sovereign or
supranational entities; publicly issued U.S. dollar denominated
asset-backed securities issued by domestic or foreign entities;
mortgage pass-through securities issued by the Government National
Mortgage Association ("GNMA"), the Federal Home Loan Mortgage
Corporation ("FHLMC") or the Federal National Mortgage Association
("FNMA"); mortgage pass-through securities issued by non-government
entities such as banks, mortgage lenders, or other financial
institutions, including private label mortgage pass-through securities
and whole loans; collateralized mortgage obligations ("CMOs") and real
estate mortgage investment conduits ("REMICs"), which are
mortgage-backed debt instruments that make payments of principal and
interest at a variety of intervals and are collateralized by any of
the aforementioned mortgage pass-through securities or whole loans;
and obligations issued or guaranteed, or backed by securities issued
or guaranteed by, the U.S. government, or any of its agencies or
instrumentalities, including Certificates of Accrual Treasury
Securities ("CATS"), Treasury Income Growth Receipts ("TIGRs"), and
Treasury Receipts ("TRs") and zero coupon securities (securities
consisting solely of the principal or interest component of a U.S.
Treasury bond).
The Portfolio Securities purchased by the
Portfolio also include short-term investments rated, at the time of
purchase, in one of the top two short-term rating categories by an
NRSRO or, if unrated, of comparable quality in the opinion of the
Adviser, including commercial paper and time deposits, certificates of
deposit, bankers' acceptances and other instruments of foreign and
domestic banks and thrift institutions. The Portfolio may invest up to
35% of its total assets in such short-term investments for purposes of
liquidity and up to 100% of its total assets in such instruments for
temporary defensive purposes. The Portfolio may also invest in and
utilize the following investments and investment techniques and
practices: Rule 144A securities (as defined in "Securities and
Investment Practices of the Portfolio"), when-issued and delayed
delivery securities, repurchase agreements, reverse repurchase
agreements and dollar rolls, and options and futures contracts. See
"Risk Factors: Matching the Fund to Your Investment Needs" in this
Prospectus and in the SAI for more information.
In selecting securities for the Portfolio, the Adviser attempts to
maintain an average portfolio duration of the Portfolio Securities
within a range of 2.5 to 4.5 years. Duration is a measure of the
expected life of a Fixed Income Security on a present value basis
which incorporates the security's yield, coupon interest payments,
final maturity and call features into a single measure.
RISK FACTORS: MATCHING THE FUND TO YOUR INVESTMENT NEEDS
The following pages contain more detailed information about types of
instruments in which the Portfolio may invest and strategies the
Adviser may employ in pursuit of the Portfolio's investment objective.
A summary of the risks and restrictions associated with these
investments and investment practices is included as well. The
Adviser may not buy all of these instruments or use all of these
techniques to the full extent permitted unless it believes that doing
so will help the Portfolio achieve its objective. Current holdings and
investment strategies will be described in the financial reports of
the Fund and the Portfolio, which will be sent to Fund shareholders
twice a year.
RISKS OF INVESTING IN FIXED INCOME SECURITIES All
fixed income investments have exposure to three types of risks. Credit
risk is the possibility that the issuer of a Fixed Income Security
will fail to make timely payments of either interest or principal to
the Portfolio. Interest rate risk is the potential for fluctuations in
the prices of Fixed Income Securities due to changing interest rates.
Income risk is the potential for decline in the Portfolio's income due
to the investment or reinvestment of assets in Fixed Income Securities
when market interest rates are falling.
Although there is no assurance that it will achieve its objective, the
Portfolio attempts to enhance yield while minimizing these risks. If
an issuer of a Fixed Income Security or a Wrapper Provider becomes
financially impaired, it may default on its obligations and the
Portfolio's interest income may be reduced or the Portfolio may incur
a loss of principal. This is an example of credit risk. In order to
minimize credit risk, the Portfolio's assets are allocated among a
diversified group of issuers. Credit analysis is applied to every
security and Wrapper Provider selected for the Portfolio. Once
purchased, a security and, in the case of a Wrapper Agreement, the
Wrapper Provider is monitored regularly by Bankers Trust for
maintenance of adequate credit characteristics. In the event that the
rating of a security or Wrapper Provider is downgraded by one or more
NRSRO, the Portfolio may elect to retain the security or applicable
Wrapper Agreement. However, some Wrapper Agreements may require that
Fixed Income Securities that fall below investment grade be liquidated
within a set time period, typically within one year or less. The
Portfolio may elect not to cover with Wrapper Agreements any Fixed
Income Securities with a remaining maturity of 60 days or less and any
cash or short term investments.
When interest rates rise, Fixed Income Security prices generally
decline. When interest rates fall, Fixed Income Security prices
generally increase. Generally, the longer the maturity of the Fixed
Income Security, the higher its yield, although longer-term Fixed
Income Securities tend to offer less price stability in response to
changes in interest rates than do shorter-term investments. Therefore,
portfolios with shorter average maturities tend to have less risk and
lower returns than portfolios with longer average maturities. This is
an example of interest rate risk. In order to help maintain an average
portfolio duration of 2.5 to 4.5 years, the Portfolio will invest
primarily in Fixed Income Securities of short- to intermediate-term
maturities. This will help to minimize interest rate risk. In
addition, unlike most traditional fixed income portfolios, the
Portfolio purchases Wrapper Agreements that should offset
substantially all of the price fluctuations typically associated with
longer-term Fixed Income Securities.
It is important to note the distinction between the Portfolio and
short-term investments such as money market funds. The securities held
by the Portfolio have a longer average maturity than those of money
market funds. Because a money market fund has a shorter average
maturity, its yield will track the direction of current market rates
of return more closely than the Portfolio. For example, in a rising
interest rate environment, money market yields may rise more quickly
than will the Portfolio's. In a falling interest rate environment,
money market yields may fall more quickly than the Portfolio's. Over
the long-term, however, intermediate and long-term Fixed Income
Securities such as those purchased by the Portfolio have historically
offered higher yields than short-term investments (I.E., money market
funds).
RISKS OF WRAPPER AGREEMENTS Each Wrapper Agreement
obligates the Wrapper Provider to maintain the "Book Value" of a
portion of the Portfolio's assets ("Covered Assets") up to a specified
maximum dollar amount, upon the occurrence of certain specified
events. The Book Value of the Covered Assets is their purchase price
(i) plus interest on the Covered Assets at a rate specified in the
Wrapper Agreement ("Crediting Rate"), and (ii) less an adjustment to
reflect any defaulted securities. The Crediting Rate used in computing
Book Value is calculated by a formula specified in the Wrapper
Agreement and is adjusted periodically. In the case of Wrapper
Agreements purchased by the Portfolio, the Crediting Rate is the
actual interest earned on the Covered Assets, or an index-based
approximation thereof, plus or minus an adjustment for an amount
receivable from or payable to the Wrapper Provider based on
fluctuations in the market value of the Covered Assets. As a result,
while the Crediting Rate will generally reflect movements in the
market rates of interest, it may at any time be more or less than
these rates or the actual interest income earned on the Covered
Assets. The Crediting Rate may also be impacted by defaulted
securities and by increases and decreases of the amount of Covered
Assets as a result of contributions and withdrawals tied to the sale
and redemption of Shares. Furthermore, the premiums due Wrapper
Providers in connection with the Portfolio's investments in Wrapper
Agreements are offset against and thus reduce the Crediting Rate.
These premiums are generally paid quarterly. In no event will the
Crediting Rate fall below zero percent under the Wrapper Agreements
entered into by the Portfolio.
Under the terms of a typical Wrapper Agreement, if the market value
(plus accrued interest on the underlying securities) of the Covered
Assets is less than their Book Value at the time the Covered Assets
are liquidated in order to provide proceeds for withdrawals of Portfolio
interests resulting from redemptions of Shares by Plan participants,
the Wrapper Provider becomes obligated to pay to the Portfolio the
difference. Conversely, the Portfolio becomes obligated to make a
payment to the Wrapper Provider if it is necessary for the Portfolio
to liquidate Covered Assets at a price above their Book Value in order
to make withdrawal payments. (Withdrawals generally will arise when the
Fund must pay shareholders who redeem their Shares.) Because it is
anticipated that each Wrapper Agreement will cover all Covered Assets up
to a specified dollar amount, if more than one Wrapper Provider becomes
obligated to pay to the Portfolio the difference between Book Value and market
value (plus accrued interest on the underlying securities), each
Wrapper Provider will be obligated to pay a pro-rata amount in
proportion to the maximum dollar amount of coverage provided. Thus,
the Portfolio will not have the option of choosing which Wrapper
Agreement to draw upon in any such payment situation.
The terms of the Wrapper Agreements vary concerning when these
payments must actually be made between the Portfolio and the Wrapper
Provider. In some cases, payments may be due upon disposition of the
Covered Assets; other Wrapper Agreements provide for settlement only
upon termination of the Wrapper Agreement or total liquidation of the
Covered Assets. A Wrapper Provider's obligation to make payments to
the Portfolio may be subject to prior notice requirements for certain
types of withdrawals from the Portfolio. For example, the Wrapper
Agreement may require that one year's notice be provided to obtain
Book Value payments with respect to withdrawals to provide liquidity
for Fund redemptions that are not directed by Plan participants. The
Portfolio does not anticipate that it will be required to liquidate
Covered Assets for the purpose of paying such withdrawals before any
such notice period has expired. However, in the unlikely event that
this occurs, the NAV of the Portfolio, and hence of the Shares, may be
reduced. Additionally, a Wrapper Provider's obligation to make
payments for Plan withdrawals after twelve months' prior notice (as
opposed to those directed by Plan participants) may require
adjustments to the Crediting Rate and increases in the Portfolio's
holdings of short term investments, which might adversely affect the
return of the Portfolio and the Fund. Please see discussion of
"Liquidity Reserve" herein.
The Fund expects that the use of Wrapper Agreements by the Portfolio
will under most circumstances permit the Fund to maintain a constant
NAV per Share and to pay dividends that will generally reflect over
time both the interest income of, and market gains and losses on, the
Covered Assets held by the Portfolio less the expenses of the Fund and
the Portfolio. However, there can be no guarantee that the Fund will
maintain a constant NAV per Share or that any Fund shareholder or Plan
participant will realize the same investment return as might be
realized by investing directly in the Portfolio assets other than the
Wrapper Agreements. For example, a default by the issuer of a
Portfolio Security or a Wrapper Provider on its obligations might
result in a decrease in the value of the Portfolio assets and,
consequently, the Shares. The Wrapper Agreements generally do not
protect the Portfolio from loss if an issuer of Portfolio Securities
defaults on payments of interest or principal. Additionally, a Fund
shareholder may realize more or less than the actual investment return
on the Portfolio Securities depending upon the timing of the
shareholder's purchases and redemption of Shares, as well as those of
other shareholders. Furthermore, there can be no assurance that the
Portfolio will be able at all times to obtain Wrapper Agreements.
Although it is the current intention of the Portfolio to obtain such
agreements covering all of its assets (with the exceptions noted), the
Portfolio may elect not to cover some or all of its assets with
Wrapper Agreements should Wrapper Agreements become unavailable or
should other conditions such as cost, in Bankers Trust's sole
discretion, render their purchase inadvisable.
If, in the event of a default of a Wrapper Provider, the Portfolio
were unable to obtain a replacement Wrapper Agreement, participants
redeeming Shares might experience losses if the market value of the
Portfolio's assets no longer covered by the Wrapper Agreement is below
Book Value. The combination of the default of a Wrapper Provider and
an inability to obtain a replacement agreement could render the
Portfolio and the Fund unable to achieve their investment objective of
maintaining a stable NAV per Share. If the Board of Trustees of the
Portfolio Trust (the "Portfolio Trust Board") determines that a
Wrapper Provider is unable to make payments when due, that Board may
assign a fair value to the Wrapper Agreement that is less than the
difference between the Book Value and the market value (plus accrued
interest on the underlying securities) of the applicable Covered
Assets and the Portfolio might be unable to maintain NAV stability.
Some Wrapper Agreements require that the Portfolio maintain a
specified percentage of its total assets in short-term investments
("Liquidity Reserve"). These short-term investments must be used for
the payment of withdrawals from the Portfolio and Portfolio expenses.
To the extent the Liquidity Reserve falls below the specified
percentage of total assets, the Portfolio is obligated to direct all
net cash flow to the replenishment of the Liquidity Reserve. The
obligation to maintain a Liquidity Reserve may result in a lower
return for the Portfolio and the Fund than if these funds were
invested in longer-term Fixed Income Securities. The Liquidity Reserve
required by all Wrapper Agreements is not expected to exceed 20% of
the Portfolio's total assets. However, the Liquidity Reserve amount
may be required to be increased above this limit as a result of
anticipated Plan redemptions within one year.
Wrapper Agreements also require that the Covered Assets have a
specified duration or maturity, consist of specified types of
securities or be of a specified investment quality. The Portfolio will
purchase Wrapper Agreements whose criteria in this regard are
consistent with the Portfolio's (and the Fund's) investment objective
and policies as described in this Prospectus. Wrapper Agreements may
also require the disposition of securities whose ratings are
downgraded below a certain level. This may limit the Portfolio's
ability to hold such downgraded securities. Please see the SAI for
additional information concerning Wrapper Agreements.
DERIVATIVES
The Portfolio may invest in various instruments, including the Wrapper
Agreements, 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 investments, although they may be
more volatile or less liquid than more traditional debt securities.
There are, in fact, many different types of derivatives and many
different ways to use them. There are a range of risks associated with
those uses. Futures contracts and options are commonly used for
traditional hedging purposes to attempt to protect an investor from
exposure to changing interest rates, securities prices or currency
exchange rates and for cash management purposes as a low cost method
of gaining exposure to a particular securities market without
investing directly in those securities. However, some derivatives are
used for leverage, which tends to magnify the effect of an
instrument's price changes as market conditions change. Leverage
involves the use of a small amount of money to control a large amount
of financial assets and can, in some circumstances, lead to
significant losses. Bankers Trust uses derivatives only in
circumstances where it believes they offer the most economic means of
improving the risk/reward profile of the Portfolio. Derivatives will
not be used to increase portfolio risk above the level that could be
achieved using only traditional investment securities or to acquire
exposure to changes in the value of assets or indexes that by
themselves would not be purchased for the Portfolio. The use of
derivatives for non-hedging purposes may be considered speculative. A
further description of the derivatives that the Portfolio may use and
some of their associated risks is found in "Securities and Investment
Practices of the Portfolio."
SPECIAL INFORMATION CONCERNING THE MASTER-FEEDER FUND STRUCTURE
Unlike other mutual funds that directly acquire and manage their own
portfolio securities, the Fund seeks to achieve its investment
objective by investing all of its net investable assets in the
Portfolio, a separate subtrust of a registered investment company with
the same investment objective as the Fund. Therefore, a Fund
shareholder's interest in the Portfolio's assets is indirect. In
addition to selling a beneficial interest to the Fund, the Portfolio
may sell beneficial interests to other mutual funds or institutional
investors. Such investors will invest in the Portfolio on the same
terms and conditions and will pay a proportionate share of the
Portfolio's expenses. However, the other investors investing in the
Portfolio are not required to sell their shares or other interests at
the same public offering price as the Fund, due to variations in sales
commissions and other operating expenses. Therefore, investors in the
Fund should be aware that these differences may result in differences
in returns experienced by investors in the different entities that
invest in the Portfolio. Such differences in returns are also present
in other mutual fund structures. Information concerning other holders
of interests in the Portfolio is available from Bankers Trust, as the
Administrator, at 1-800-677-7596.
The master-feeder structure is relatively complex, so shareholders
should carefully consider this investment approach. Smaller investors
in the Portfolio may be materially affected by the actions of larger
investors in the Portfolio. For example, if a large investor withdraws
from the Portfolio, the remaining investors may experience higher pro
rata operating expenses, thereby producing lower returns (however,
this possibility exists as well for traditionally structured funds
that have large investors). Additionally, the Portfolio may become
less diverse, resulting in increased portfolio risk. Also, investors
with a greater pro rata ownership in the Portfolio could have
effective voting control of its operations. Except as permitted by the
SEC, whenever the Trust is requested to vote on matters pertaining to
the Portfolio, the Trust will hold a meeting of shareholders of the
Fund and will cast all of its votes in the same proportion as the
votes of the Fund's shareholders. Fund shareholders who do not vote
will not affect the Trust's votes on the Portfolio's matters; the
Trust's votes representing Fund shareholders not voting will be voted
by the Trustees or officers of the Trust in the same proportion as the
Fund shareholders who do, in fact, vote. Certain changes in the
Portfolio's investment objective, policies or restrictions may require
the Fund to withdraw its interest in the Portfolio. Any such
withdrawal could result in a distribution "in kind" of Portfolio
assets (as opposed to a cash distribution from the Portfolio). If
securities are distributed, the Fund could incur brokerage, tax or
other charges in converting the securities to cash. In addition, the
distribution in kind may result in a less diversified portfolio of
investments or adversely affect the liquidity of the Fund.
Notwithstanding the above, there are other means for meeting
redemption requests, such as borrowing. The Fund may withdraw its
investment from the Portfolio at any time, if the Board of Trustees of
the Trust (the "Trust Board") determines that it is in the best
interests of the shareholders of the Fund to do so. Upon any such
withdrawal, the Trust Board would consider what action might be taken,
including the investment of all the assets of the Fund in another
pooled investment entity having the same investment objective as the
Fund or the retaining of an investment adviser to manage the Fund's
assets in accordance with the investment policies described herein
with respect to the Portfolio.
The Fund's investment objective is not a fundamental policy and may be
changed upon notice to, but without the need for approval of, its
shareholders. If there is a change in the Fund's investment objective,
its shareholders should consider whether the Fund remains an
appropriate investment in light of their then-current needs. The
investment objective of the Portfolio also is not a fundamental
policy. Shareholders of the Fund will receive 30 days' prior written
notice with respect to any change in the investment objective of the
Fund or the Portfolio. See "Investment Restrictions" in the SAI for a
description of the fundamental policies of the Portfolio that cannot
be changed without approval by "the vote of a majority of the
outstanding voting securities" (as defined in the Investment Company
Act of 1940 (the "1940 Act")) of the Portfolio.
SECURITIES AND INVESTMENT PRACTICES OF THE PORTFOLIO
U.S. GOVERNMENT SECURITIES. U.S. government securities are
high-quality debt securities issued or guaranteed by the U.S. Treasury
or by an agency or instrumentality of the U.S. government. Not all
U.S. government securities are backed by the full faith and credit of
the United States. For example, securities issued by the Farm Credit
Banks or by the FNMA are supported by the instrumentality's right to
borrow money from the U.S. Treasury under certain circumstances.
However, securities issued by certain other U.S. agencies or
instrumentalities are supported only by the credit of the entity that
issued them.
OTHER U.S. DOLLAR-DENOMINATED FIXED INCOME SECURITIES. Bonds and other
debt instruments are used by issuers to borrow money from investors.
The issuer pays the investor a fixed or variable rate of interest and
must repay the amount borrowed at maturity. Some debt securities, such
as zero coupon bonds, do not pay current interest but are purchased at
a discount from their face values. Debt securities, loans and other
direct debt have varying degrees of quality and varying levels of
sensitivity to changes in interest rates. Longer-term bonds are
generally more sensitive to interest rate changes than short-term
bonds.
U.S. DOLLAR-DENOMINATED SOVEREIGN AND SUPRANATIONAL FIXED INCOME
SECURITIES. Debt instruments issued or guaranteed by foreign
governments, agencies and supranational organizations ("sovereign debt
obligations"), especially sovereign debt obligations of developing
countries, may involve a high degree of risk. The issuer of the
obligation or the governmental authorities that control the repayment
of the debt may be unable or unwilling to repay principal and interest
when due and may require renegotiation or rescheduling of debt
payments. In addition, prospects for repayment of principal and
interest may depend on political as well as economic factors.
MORTGAGE-BACKED SECURITIES. The Portfolio may purchase mortgage-backed
securities issued by the U.S. government, its agencies or
instrumentalities and non-governmental entities such as banks,
mortgage lenders or other financial institutions. Mortgage-backed
securities include mortgage pass-through securities, mortgage-backed
bonds and mortgage pay-through securities. A mortgage pass-through
security is a pro rata interest in a pool of mortgages where the cash
flow generated from the mortgage collateral is passed through to the
security holder. A mortgage-backed bond is a general obligation of the
issuer, payable out of the issuer's general funds and additionally
secured by a first lien on a pool of mortgages. Mortgage pay-through
securities exhibit characteristics of both pass-through and
mortgage-backed bonds. The mortgage pass-through securities issued by
non-governmental entities such as banks, mortgage lenders or other
financial institutions in which the Portfolio may invest include
private label mortgage pass-through securities and whole loans.
Mortgage-backed securities also include other debt obligations secured
by mortgages on commercial real estate or residential properties.
Other types of mortgage-backed securities will likely be developed in
the future, and the Portfolio may invest in them if Bankers Trust
determines they are consistent with the Portfolio's investment
objective and policies. Unlike ordinary Fixed Income Securities,
which generally pay a fixed rate of interest and return principal upon
maturity, mortgage-backed securities repay both interest income and
principal as part of their periodic payments. Because the mortgages
underlying mortgage-backed certificates can be prepaid at any time by
homeowners or corporate borrowers, mortgage-backed securities give
rise to certain unique "pre-payment" risks. Prepayment risk or call
risk is the likelihood that, during periods of falling interest rates,
securities with high stated interest rates will be prepaid (or
"called") prior to maturity, requiring the Portfolio to invest the
proceeds at generally lower interest rates.
COLLATERALIZED MORTGAGE OBLIGATIONS. CMOs are pay-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. The issuer of a series of CMOs may elect to
be treated as a REMIC.
ASSET-BACKED SECURITIES. Asset-backed securities have structural
characteristics similar to mortgage-backed securities. However, the
underlying assets are not first lien mortgage loans or interests
therein but include assets such as motor vehicle installment sale
contracts, other installment sale contracts, home equity loans, leases
of various types of real and personal property, and receivables from
revolving credit (credit card) agreements. Such assets are securitized
through the use of trusts or special purpose corporations. Payments or
distributions of principal and interest on asset-backed securities may
be guaranteed up to certain amounts and for a certain time period by a
letter of credit or a pool insurance policy issued by a financial
institution unaffiliated with the issuer, or other credit enhancements
may be present.
Asset-backed securities present certain risks that are not presented
by mortgage-backed securities. Primarily, these securities do not have
the benefit of the same type of security interest in the related
collateral. Credit card receivables are generally unsecured, and the
debtors are entitled to the protection of a number of state and
federal consumer credit laws, many of which give such debtors the
right to avoid payment of certain amounts owed on the credit cards,
thereby reducing the balance due. There is the risk in connection with
automobile receivables that recoveries on repossessed collateral may
not, in some cases, be available to support payments on those
securities.
U.S. DOLLAR-DENOMINATED FOREIGN SECURITIES. The Portfolio may invest a
portion of its assets in the dollar-denominated debt securities of
foreign companies. Investing in the securities of foreign companies
involves more risks than investing in securities of U.S. companies.
Their value is subject to economic and political developments in the
countries where the companies operate and to changes in foreign
currency values. Values may also be affected by foreign tax laws,
changes in foreign economic or monetary policies, exchange control
regulations and regulations involving prohibitions on the repatriation
of foreign currencies.
In general, less information may be available about foreign companies
than about U.S. companies, and foreign companies are generally not
subject to the same accounting, auditing and financial reporting
standards as are U.S. companies. Foreign securities markets may be
less liquid and subject to less regulation than the U.S. securities
markets. The costs of investing outside the United States frequently
are higher than those in the United States. These costs include
relatively higher brokerage commissions and foreign custody expenses.
ZERO COUPON SECURITIES. Zero Coupon Securities including CATS, TIGRs
and TRs, are the separate income or principal components of a debt
instrument. These involve risks that are similar to those of other
debt securities, although they may be more volatile, and the value of
certain zero coupon securities moves in the same direction as interest
rates. Zero coupon bonds do not make regular interest payments.
RULE 144A SECURITIES. Rule 144A Securities are securities that are not
registered for sale under the federal securities laws but can be
resold to institutions pursuant to Rule 144A under the Securities Act
of 1933. Provided that a dealer or institutional trading market in
such securities exists, these restricted securities are treated as
exempt from the Portfolio's 15% limit on illiquid securities. Under
the supervision of the Portfolio Trust Board, Bankers Trust determines
the liquidity of restricted securities; and through reports from
Bankers Trust, the Portfolio Trust Board monitors trading activity in
restricted securities. If institutional trading in restricted
securities were to decline, the liquidity of the Portfolio could be
adversely affected.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The Portfolio may
purchase securities on a when-issued or delayed delivery basis.
Delivery of and payment for these securities may take place as late 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.
REPURCHASE AGREEMENTS. In a repurchase agreement, the Portfolio buys a
security at one price and simultaneously agrees to sell it back to the
seller on a specific date and at a higher price reflecting a market
rate of interest unrelated to the coupon rate or maturity of the
underlying security. Delays or losses could result if the other party
to the agreement defaults or becomes insolvent.
REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLLS. In a reverse
repurchase agreement, the Portfolio temporarily transfers possession
of a portfolio instrument to another party in return for cash. This
could increase the risk of fluctuation in the Fund's yield or in the
market value of its interest in the Portfolio. In a dollar roll, the
Portfolio sells mortgage-backed or other securities for delivery in
the current month and simultaneously contracts to purchase
substantially similar securities on a specified future date. Reverse
repurchase agreements and dollar rolls are forms of borrowing and will
be counted towards the Portfolio's borrowing restrictions. See
"Borrowing" on the following pages and in the SAI. Wrapper Agreements
would cover the cash proceeds of such transactions but not the
portfolio instruments transferred to another party until possession of
such instruments is returned to the Portfolio.
SHORT-TERM INVESTMENTS. The Portfolio's assets may be invested in high
quality short-term investments with remaining maturities of 397 days
or less to maintain the Liquidity Reserve, to meet anticipated
redemptions and expenses for day-to-day operating purposes and when,
in Bankers Trust's opinion, it is advisable to adopt a temporary
defensive position because of unusual and adverse conditions affecting
the respective markets.
BORROWING. The Portfolio will not borrow
money (including through reverse repurchase agreements or dollar roll
transactions) for any purpose in excess of 5% of its total assets,
except that it may borrow for temporary or emergency purposes up to
1/3 of its total assets. Under the 1940 Act, the Portfolio is required
to maintain continuous asset coverage of 300% with respect to such
borrowings and to sell (within three days) sufficient portfolio
holdings to restore such coverage if it should decline to less than
300% due to market fluctuations or otherwise, even if such liquidation
of the Portfolio's holdings may be disadvantageous from an investment
standpoint.
Leveraging by means of borrowing may exaggerate the
effect of any increase or decrease in the value of the Portfolio's
securities and the Fund's NAV per Share, and money borrowed by the
Portfolio will be subject to interest and other costs (which may
include commitment fees and/or the cost of maintaining minimum average
balances) that may exceed the income received from the securities
purchased with the borrowed funds. It is not the intention of Bankers
Trust to use leverage as a normal practice in the investment of the
Portfolio's assets.
HEDGING STRATEGIES. The Portfolio may use certain strategies designed
to adjust the overall risk of its investment portfolio. These
"hedging" strategies involve derivative contracts, including U.S.
Treasury and Eurodollar futures contracts and exchange-traded put and
call options on such futures contracts. New financial products and
risk management techniques continue to be developed and may be used if
consistent with the Portfolio's investment objective and policies.
Among other purposes, these hedging strategies may be used to
effectively maintain a desired portfolio duration or to protect
against market risk should the Portfolio change its investments among
different types of Fixed Income Securities. In this respect, these
hedging strategies are designed for different purposes than the
investments in Wrapper Agreements. The SAI contains further
information on these strategies.
The Portfolio might not use any hedging strategies, and there can be
no assurance that any strategy used will succeed. If the Adviser is
incorrect in its judgment on market values, interest rates or other
economic factors in using a hedging strategy, the Portfolio may have
lower net income and a net loss on the investment. Each of these
strategies involves certain risks, which include:
o the fact that the skills needed to use hedging instruments are
different from those needed to select securities for the Portfolio;
o the possibility of imperfect correlation, or even no
correlation, between the price movements of hedging
instruments and price movements of the securities or
currencies being hedged;
o possible constraints placed on the Portfolio's ability to
purchase or sell portfolio investments at advantageous times
due to the need for the Portfolio to maintain "cover" or to
segregate securities; and
o the possibility that the Portfolio is unable to close out or liquidate
its hedged position.
ASSET COVERAGE. To assure that the Portfolio's use of futures
contracts and related options, as well as when-issued and
delayed-delivery securities, are not used to achieve investment
leverage, the Portfolio will cover such transactions, as required
under applicable interpretations of the SEC, either by owning the
underlying securities or by segregating liquid securities with the
Portfolio's custodian (Bankers Trust) in an amount at all times equal
to or exceeding the Portfolio's commitment with respect to these
instruments or contracts. Assets that are segregated for purposes of
providing cover need not be physically segregated in a separate
account provided that the custodian notes on its books that such
assets are segregated. The Portfolio will also cover its use of
Wrapper Agreements to the extent required to avoid the creation of a
"senior security" (as defined in the 1940 Act) in connection with its
use of such agreements.
PERFORMANCE
The Fund's performance may be used from time to time in
advertisements, shareholders reports or other communications to
shareholders or prospective shareholders. Performance information may
include investment results and/or comparisons of its investment
results to the IBC Averages, Lipper Averages, an appropriate
guaranteed interest contract ("GIC") average, or other various
unmanaged indices or results of other mutual funds or investment or
saving vehicles. The Portfolio's strategies, holdings and performance
will be detailed twice a year in the Fund's financial reports, which
are sent to all Fund shareholders.
Mutual fund performance is commonly measured as total return and/or
yield. The performance of a class of shares is affected by its
expenses and those of the Portfolio.
EXPLANATION OF TERMS
TOTAL RETURN is the change in value of an investment in the Shares
over a given period, assuming reinvestment of any dividends and
capital gain distributions. A CUMULATIVE total return reflects actual
performance over a stated period of time. An AVERAGE annual total
return is a hypothetical rate of return that, if achieved annually,
would have produced the same cumulative total return if performance
had been constant over the entire period. Average annual total return
calculations smooth out variations in performance; they are not the
same as actual year-by-year results. Average annual total returns
covering periods of less than one year assume that performance will
remain constant for the rest of the year.
YIELD refers to the income generated by an investment in the Shares
over a given period of time, expressed as an annual percentage rate.
Yields are calculated according to a standard that is required for all
stock and bond funds. Because this differs from other accounting
methods, the quoted yield may not equal the income actually paid to
shareholders.
Performance information or advertisements may include comparisons of
the Shares' investment results to various unmanaged indices or results
of other mutual funds or investment or savings vehicles. From time to
time, the Shares' ranking may be quoted from various sources, such as
Lipper Analytical Services, Inc., Value Line, Inc. and Morningstar,
Inc.
Unlike some bank deposits or other investments that pay a fixed yield
for a stated period of time, the total return of the Shares will vary
depending upon interest rates, the current market value of the
Portfolio Securities and the Wrapper Agreements and changes in the
expenses of the Shares and the Portfolio. In addition, during certain
periods for which total return may be provided, Bankers Trust may have
voluntarily agreed to waive portions of its fees, or to reimburse
certain operating expenses of the Fund or the Portfolio, on a
month-to-month basis. Such waivers will have the effect of increasing
the Fund's net income (and therefore its yield and total return)
during the period such waivers are in effect.
TOTAL RETURNS AND YIELDS ARE BASED ON PAST RESULTS AND ARE NOT AN
INDICATION OF FUTURE PERFORMANCE.
MANAGEMENT OF THE TRUSTS
BOARDS OF TRUSTEES
The Trust and the Portfolio Trust (collectively the "Trusts") are each
governed by a Board of Trustees that is responsible for protecting the
interests of investors. A majority of the Trustees who are not
"interested persons" (as defined in the 1940 Act) of either Trust have
adopted written procedures reasonably appropriate to deal with
potential conflicts of interest arising from the fact that some of the
same individuals may be Trustees of both Trusts, up to and including
creating separate boards of trustees. See "Management of the Trusts"
in the SAI for more information with respect to the Trustees and
officers of the Trusts.
INVESTMENT ADVISER
The Fund has not retained the services of an investment adviser
because it seeks to achieve its investment objective by investing all
of its net investable assets in the Portfolio. The Portfolio has
retained the services of Bankers Trust as its investment adviser
pursuant to an Investment Advisory Agreement between the Portfolio
Trust and Bankers Trust dated April 28, 1993 (the "Investment Advisory
Agreement").
BANKERS TRUST COMPANY AND ITS AFFILIATES
Bankers Trust Company, a New York banking corporation with principal
offices at 130 Liberty Street (One Bankers Trust Plaza), New York, New
York 10006, is a wholly owned subsidiary of Bankers Trust New York
Corporation. Bankers Trust conducts a variety of general banking and
trust activities and is a major wholesale supplier of financial
services to the international and domestic institutional market.
As of March 31, 1997, Bankers Trust New York Corporation was the
seventh largest bank holding company in the United States with total
assets of approximately $122 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 80 offices in more than 48 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. Bankers Trust is one of the nation's largest and most
experienced investment managers, with over $233 billion in assets
under management globally. 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's officers have had extensive experience in managing investment
portfolios having objectives similar to those of the Fund and the
Portfolio. Bankers Trust has more than 50 years of experience managing
retirement assets for the nation's largest corporations and
institutions.
Bankers Trust, subject to the supervision and direction of the Portfolio
Trust's Board, manages the Portfolio in accordance with the Portfolio's
investment objective and stated investment policies, makes investment
decisions for the Portfolio, places orders to purchase and sell
securities and other financial instruments on behalf of the Portfolio
and employs professional investment managers and securities analysts who
provide research services to the Portfolio. Bankers Trust may utilize the
expertise of any of its worldwide subsidiaries and affiliates to assist it in
its role as investment adviser. All orders for investment transactions on
behalf of the Portfolio are placed by Bankers Trust with
broker-dealers and other financial intermediaries that it selects,
including those affiliated with Bankers Trust. A Bankers Trust
affiliate will be used in connection with a purchase or sale of an
investment for the Portfolio only if Bankers Trust believes that the
affiliate's charge for the transaction does not exceed usual and
customary levels. The Portfolio will not invest in obligations,
including Wrapper Agreements, for which Bankers Trust or any of its
affiliates is the ultimate obligor or accepting bank. The Portfolio
may, however, invest in the obligations of correspondents and
customers of Bankers Trust.
The Investment Advisory Agreement provides for the Portfolio Trust to pay
Bankers Trust a fee, accrued daily and paid monthly, equal to 0.35% per
year of the average daily net assets of the Portfolio. Bankers Trust has
indicated that it will voluntarily waive all but 0.20% of this fee.
Bankers Trust has been advised by its counsel that, in counsel's
opinion, Bankers Trust currently may perform the services for the
Trusts 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.
PORTFOLIO MANAGEMENT Eric Kirsch (CFA), a Managing
Director of Bankers Trust, has been responsible for the day-to-day
investment management of the Portfolio since its inception. Mr. Kirsch
heads the stable value investment group of Bankers Trust's Global
Investment Management business. In this capacity, he manages stable
value portfolios and coordinates fixed income portfolio management and
trading functions with regards to these portfolios' investments. He
joined Bankers Trust in 1980.
Louis R. DArienzo, a Vice President and Portfolio Manager of the
structured fixed income group at Bankers Trust, manages the Fixed
Income Securities of the Portfolio. Mr. DArienzo has 16 years of
trading and investment experience in structured portfolios and
quantitative analysis of fixed income and derivative securities. He
joined Bankers Trust in 1981.
Bankers Trust investment personnel may invest in securities for their
own account pursuant to a code of ethics that establishes procedures
for personal investing and restricts certain transactions.
ADMINISTRATOR
Under an Administration and Services Agreement with the Trust, Bankers
Trust calculates the NAV per Share of the Fund and generally assists
the Trust Board in all aspects of the administration and operation of
the Fund. This Administration and Services Agreement provides for the
Trust to pay Bankers Trust a fee, accrued daily and paid monthly, to
0.25% per year of the average daily net assets of the Fund.
Under an Administration and Services Agreement with the Portfolio
Trust, Bankers Trust calculates the NAV of the Portfolio and generally
assists the Portfolio in all aspects of the administration and
operation of the Portfolio. This Administration and Services Agreement
provides for the Portfolio to pay Bankers Trust a fee, accrued daily
and paid monthly, equal to 0.05% per year of the Portfolio's average
daily net assets. Under this Administration and Services Agreement,
Bankers Trust may delegate one or more of its responsibilities to
others, including the Distributor, at Bankers Trust's expense.
In addition, subject to certain conditions, Bankers Trust may, out of
its own resources, make ongoing payments to brokerage firms, plan
administrators and fiduciaries, financial institutions (including
banks) and others that facilitate the administration and servicing of
shareholder accounts.
DISTRIBUTOR Edgewood, as Distributor,
serves as the Trust's principal underwriter on a best efforts basis.
In addition, Edgewood and its affiliates provide the Trust with office
facilities, and currently provide administration and distribution
services for other registered investment companies. Edgewood is a New
York corporation and a wholly-owned subsidiary of Federated Investors.
Its principal offices are at Clearing Operations, P.O. Box 897,
Pittsburgh, PA 15230.
CUSTODIAN AND TRANSFER AGENT
Bankers Trust acts as custodian for the assets of the Portfolio and
serves as the Trust's transfer agent (the "Transfer Agent") under the
Administration and Services Agreement with the Trust. It is not
separately compensated for these services and may, at its own expense,
delegate certain services to other service providers.
NET ASSET VALUE
The NAV per Share 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 Day,
Presidents' Day (the third Monday in February), Good Friday, Memorial
Day (the last Monday in May), July 4th, Labor Day (the first Monday in
September), Thanksgiving Day (the last Thursday in November) and
December 25th; and (b) the preceding Friday or the subsequent Monday
when one of the calendar-determined holidays falls on a Saturday or
Sunday, respectively.
The NAV per Share is calculated once on each Valuation Day as of the
close of regular trading on the NYSE (the "Valuation Time"), which is
currently 4:00 p.m., Eastern time, or if the NYSE closes early, at the
time of the early closing. The NAV per Share is computed by dividing
the value of the Fund's assets (I.E., the value of its investment in
the Portfolio and other assets, if any), less all liabilities, by the
total number of its Shares outstanding. The Portfolio's securities and
other assets are valued primarily on the basis of market quotations
or, if quotations are not readily available, by a method that the
Portfolio Trust Board believes accurately reflects fair value.
Pursuant to procedures adopted by the Portfolio Trust Board, the fair
value of a Wrapper Agreement ("Wrapper Value") generally will be equal
to the difference between the Book Value and the market value (plus
accrued interest on the underlying securities) of the applicable
Covered Assets. If the market value (plus accrued interest on the
underlying securities) of the Covered Assets is greater than their
Book Value, the Wrapper Value will be reflected as a liability of the
Portfolio in the amount of the difference, I.E., a negative value,
reflecting the potential liability of the Portfolio to the Wrapper
Provider. If the market value (plus accrued interest on the underlying
securities) of the Covered Assets is less than their Book Value, the
Wrapper Value will be reflected as an asset of the Portfolio in the
amount of the difference, I.E., a positive value, reflecting the
potential liability of the Wrapper Provider to the Portfolio. In
performing its fair value determination, the Portfolio Trust Board
expects to consider the creditworthiness and ability of a Wrapper
Provider to pay amounts due under the Wrapper Agreement. If the
Portfolio Trust Board determines that a Wrapper Provider is unable to
make such payments, that Board may assign a fair value to the Wrapper
Agreement that is less than the difference between the Book Value and
the market value (plus accrued interest on the underlying securities)
of the applicable Covered Assets and the Portfolio might be unable to
maintain NAV stability.
Under procedures adopted by the Trust Board, an NAV per Share later
determined to have been inaccurate for any reason will be
recalculated. Purchases and redemptions made at an NAV per Share
determined to have been inaccurate will be adjusted, although in
certain circumstances, such as where the difference between the
original NAV per Share and the recalculated NAV per Share divided by
the latter is 0.005 ( 1/2 of 1%) or less or shareholder transactions
are otherwise insubstantially affected, action is not required.
SHAREHOLDER AND ACCOUNT POLICIES
ACCOUNT INFORMATION
The Fund is offered solely to Plans that limit their participants'
ability to direct a withdrawal from the Fund to the following
circumstances:
o upon the Plan participant's death, retirement, disability or termination;
o to fund Plan participant loans and other "in service" withdrawals made
pursuant to the terms of the Plan; and
o for transfers to other Plan investment options that are not
"competing funds." "Competing funds" are any fixed income investment
options with a targeted average duration of three years or less, or
any investment option that seeks to maintain a stable value per unit
or share, including money market funds.. Transfers between the Fund
and a non-competing fund will be required to remain in the
non-competing fund for a period of at least three months before
transfer to a competing fund.
Fund Shares will be owned by the Plans, either directly or
beneficially through vehicles such as bank collective funds or
insurance company separate accounts consisting solely of such Plans
(collectively, "Plan Pools"), which will in turn offer the Fund as an
investment option to their participants. Investments in the Fund may
by themselves represent an investment option for a Plan or may be
combined with other investments as part of a pooled investment option
for the Plan. In the latter case, the Fund will require Plans to
provide information regarding the withdrawal order and other
characteristics of any pooled investment option in which the Shares
are included prior to a Plan's initial investment in the Fund.
Thereafter, the Fund will require the Plan to provide information
regarding any changes to the withdrawal order and other
characteristics of the pooled investment option before such changes
are implemented. The Fund in its sole discretion may decline to sell
Shares to Plans if the governing withdrawal order or other
characteristics of any pooled investment option in which the Shares
are included is determined at any time to be disadvantageous to the
Fund.
Plan participants should contact their Plan administrator
or the organization that provides recordkeeping services if they have
questions concerning their account. Plan administrators and
fiduciaries should call 1-800-677-7596 for information regarding a
Plan's account with the Fund.
TRANSACTIONS IN FUND SHARES
Plan participant-directed purchases, exchanges and redemptions of
Shares are handled in accordance with each Plan's specific provisions.
Plans may have different provisions with respect to the timing and
method of purchases, exchanges and redemptions by Plan participants.
Plan participants should contact their Plan administrator for details
concerning how they may direct transactions in Shares. It is the
responsibility of the Plan administrator or other Plan service
provider to forward instructions for these transactions to Bankers
Trust.
Purchase orders for Shares that are received by Bankers
Trust, as the Transfer Agent, or other authorized agent of the Fund,
prior to the Valuation Time on any Valuation Day will be effective at
that Valuation Time. The Trust and the Distributor reserve the right
to reject any purchase order. Certificates for Shares will not be
issued. Redemption requests will be processed at the NAV next
determined after a request for redemption is received in good order by
Bankers Trust. The Fund reserves the right to require written
verification of whether a redemption request is directed by Plan
participants in accordance with Plan provisions or is otherwise made
by a withdrawing Plan and to establish the authenticity of this
information before processing a redemption request. Normally, the Fund
will make payment for all Shares redeemed under this procedure within
one business day after a request is received. In no event will payment
be made more than seven days after receipt of a redemption request in
good order. The Fund may suspend the right of redemption or postpone
the date at times when both the NYSE and the Fund's custodian bank
(Bankers Trust) are closed, or under any emergency circumstances as
determined by the SEC.
The Fund reserves the right to honor any request for redemption by
making payment in whole or in part in securities and in Wrapper
Agreements, selected solely in the discretion of Bankers Trust. To the
extent that payment is made in securities, a shareholder may incur
brokerage expenses in converting these securities into cash. To the
extent that a redemption in kind includes Wrapper Agreements, the Fund
will obtain from the Portfolio and assign to the redeeming Plan or
Plan Pool one or more Wrapper Agreements issued by the Wrapper
Providers covering the Portfolio Securities distributed in kind. The
terms and conditions of Wrapper Agreements provided to a redeeming
shareholder will be the same or substantially similar to the terms and
conditions of the Wrapper Agreements held by the Portfolio. The
redeeming Plan or Plan Pool must execute the assigned Wrapper
Agreement(s) in order to obtain the benefits provided thereunder.
Wrapper Agreements are not liquid securities and may impose
restrictions on termination or withdrawal, including notice periods of
one year or longer for non-participant directed withdrawals. The
maintenance of Wrapper Agreements distributed in kind will also
require that a Plan or Plan Pool pay fees to the Wrapper Provider
directly, rather than through the Fund, and that the securities
covered by the Wrapper Agreement continue to have a specified duration
or maturity, consist of specified types of securities or be of a
specified investment quality. Accordingly, although a redeeming Plan
or Plan Pool may freely buy and sell securities covered by a Wrapper
Agreement, its management of the securities must be consistent with
Wrapper Agreement requirements in order for it to obtain the benefits
of the Wrapper Agreement. Moreover, a Plan or Plan Pool may be
required to obtain at its own expense the services of a qualified
investment manager to execute the Wrapper Agreement and to manage the
securities distributed in kind in conformity with the Wrapper
Agreement provisions and may incur additional administrative expenses
in managing this portfolio. Please see the SAI for additional
information concerning Wrapper Agreements and redemptions in kind.
The Fund has elected, however, to redeem Shares solely in cash up to
the lesser of $500,000 or 1% of the NAV of the Fund during any 90-day
period for any one shareholder. The Fund anticipates that it will
exercise the right to redeem in kind in the case of redemptions of
Shares that are not directed by Plan participants and that are made on
less than twelve months' prior written notice to Bankers Trust. In
such case, or in the case where 5% or more of Plan assets invested in
the Fund are redeemed on any business day, a redemption request will
not be considered received in good order unless the Plan has provided
to Bankers Trust: (i) its current name; (ii) a listing of its
trustee(s); (iii) copies of Plan documents or summaries thereof
describing the investment options available to and the restrictions
imposed upon Plan participants; (iv) information indicating the
allocation of Plan assets among available investment options; (v) for
the immediately preceding three year period, a monthly summary of all
cash flow activity for the Plan's investment option in which the
Shares are included, detailed by contribution and benefit payment
amounts and amounts transferred to and from other investment options;
and (vi) in the case of Plans subject to ERISA, identification of a
"Qualified Professional Asset Manager" within the meaning of
Department of Labor Prohibited Transaction Class Exemption 84-14
(March 8, 1984). Redemptions of Shares that are not directed by Plan
participants and that are made on less than twelve months' prior
written notice will also be subject to a redemption fee, payable to
the Fund, of 2.0% of the proceeds of the redemption, whether in kind
or in cash. However, this redemption fee shall not apply to
redemptions, the proceeds of which are immediately reinvested in
another class of shares of the Fund or in interests in another
investment company or entity that invests exclusively in the
Portfolio. The Fund reserves the right to withhold from redemption
proceeds the 2.0% redemption fee if 5% or more of Plan assets invested
in the Fund are redeemed on any business day pending a determination
of whether the redemption fee is applicable. The Fund may incur costs
in obtaining new Wrapper Agreements from Wrapper Providers to be
distributed in kind. These costs will be payable from, and are not
expected to exceed, the 2.0% redemption fee. The redemption price may
be more or less than the shareholder's cost, depending upon the market
value of the Fund's assets (its interest in the Portfolio) at the
time.
The offering price is the NAV per Share. Shares may be purchased only
in those states where they may be lawfully sold.
DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS
The Fund intends to distribute all of its net investment income and
net capital gains, if any, to its shareholders each year. Dividends
from net investment income are declared daily and are paid monthly,
and any net capital gains are distributed annually. An additional
annual distribution ("Additional Distribution") may be paid to satisfy
the tax requirements (outlined below) that the Fund distribute each
year substantially all of its investment company taxable income (see
"Tax Considerations").
Dividends and other distributions paid on each class of the Fund's
shares are calculated at the same time and in the same manner.
Dividends on the shares may be expected to differ based upon each
class's respective expenses. Dividends and other distributions are
automatically reinvested in additional Shares unless the Plan
participant directs otherwise.
The Fund may declare and pay dividends in amounts which are not equal
to the amount of the net investment income it actually earns.
Consequently, in any year the amount actually distributed may differ
from the income earned. If, for any year, those distributions exceed
the income earned, the excess may be considered a return of capital.
On the other hand, if the income earned exceeds the amount of the
dividends distributed, the Fund may make an Additional Distribution of
that excess. To enable the Fund to maintain a stable NAV per Share in
the event of an Additional Distribution, the Trust Board may declare,
effective on the ex-distribution date of an Additional Distribution, a
reverse split of the Shares in an amount that will cause the total
number of Shares held by each shareholder, including Shares acquired
on reinvestment of that distribution, to remain the same as before
that distribution was paid.
For example, if the Fund declares an Additional Distribution of
10(cent) per Share at a time when the NAV per Share is $10.00, a
shareholder holding one Share would receive 0.01 additional Shares on
reinvestment of that distribution. If there were no reverse split, the
per Share NAV of the 1.01 Shares held by the shareholder would be
approximately $9.90, and the aggregate value thereof would be $10.00.
If a 1.01-for-1 reverse Share split were declared, however, the
shareholder's holdings would be consolidated back into one Share
having an NAV of $10.00. Thus, a reverse Share split will not affect
the value of the total holdings of a shareholder.
TAX CONSIDERATIONS
The Fund intends to qualify to be treated as a regulated investment
company under the Internal Revenue Code of 1986, as amended.
As a regulated investment company, the Fund will not be subject to
U.S. federal income tax on its investment company taxable income
(generally consisting of net investment income and the excess of net
short-term capital gain over net long-term capital loss, if any) and
net capital gain (the excess of net long-term capital gain over net
short-term capital loss), if any, that it distributes to its
shareholders. The Fund intends to distribute to its shareholders all
of its investment company taxable income and net capital gain at least
annually, if necessary through Additional Distributions, and therefore
does not anticipate incurring any federal income tax liability.
For Plan participants utilizing the Fund as an investment option under
their Plan, dividend and capital gain distributions from the Fund
generally will not be subject to current taxation, but will accumulate
on a tax-deferred basis. In general, Plans are governed by a complex
set of tax rules. See your Plan administrator, your plan's Summary
Plan Description, and/or a professional tax adviser regarding the tax
consequences of your participation in your Plan and of any Plan
contributions or withdrawals.
ADDITIONAL INFORMATION ABOUT THE TRUSTS
The Fund is a mutual fund: an investment that pools shareholders'
money and invests it toward a specified goal. The Fund is a separate
series of the Trust, a Massachusetts business trust organized pursuant
to a Declaration of Trust dated February 28, 1992. The Portfolio is a
separate subtrust of the Portfolio Trust, a New York master trust fund
organized pursuant to a Declaration of Trust dated March 27, 1993.
Each Trust reserves the right to add additional series/subtrusts in
the future. There are currently no other funds investing in the
Portfolio. Other funds investing in the Portfolio may have sales
charges and/or different expenses than the Fund, which may affect
performance. The Trust also reserves the right to issue additional
classes of shares of the Fund. Each class represents an identical
interest in the Fund's investment portfolio. As a result, the classes
have the same rights, privileges and preferences, except with respect
to: (1) the designation of each class; (2) the expenses allocated
exclusively to each class; and (3) voting rights on matters
exclusively affecting a single class. The Trust Board does not
anticipate that there will be any conflicts among the interests of the
holders of the different classes and will take appropriate action if
any such conflict arises. For more information about the different
classes of shares of the Fund, please call 1-800-677-7596.
Each Trust may hold special meetings and mail proxy materials. These
meetings may be called to elect or remove Trustees, change fundamental
policies, approve the Portfolio's investment advisory agreement, or
for other purposes. Shareholders not attending a Trust meeting are
encouraged to vote by proxy. The Transfer Agent will mail proxy
materials in advance, including a voting card and information about
the proposals to be voted on.
When matters are submitted for shareholder vote, shareholders of the
Fund will have one vote for each full Share held and proportionate,
fractional votes for fractional Shares held. A separate vote of the
Fund is required on any matter affecting only the Fund on which
shareholders are entitled to vote; shareholders of the Fund are not
entitled to vote on Trust matters that do not affect the Fund and do
not require a separate vote of the Fund. All series of the Trust will
vote together on certain matters, such as electing Trustees or
approving independent public auditors. Under certain circumstances,
the shareholders of one of series of the Trust could control the
outcome of these votes. There normally will be no meetings of
shareholders for the purpose of electing Trustees unless and until
such time as less than a majority of Trustees holding office has been
elected by shareholders, at which time the Trustees then in office
will call a shareholders' meeting for the election of Trustees. Any
Trustee may be removed from office upon the vote of shareholders
holding at least two-thirds of the Trust's outstanding shares at a
meeting called for that purpose. The Trustees are required to call
such a meeting upon the written request of shareholders holding at
least 10% of the Trust's outstanding shares. The Trust will also
assist shareholders in communicating with one another as provided for
in the 1940 Act.
Each subtrust of the Portfolio Trust, including the Portfolio, will
vote separately on any matter involving that subtrust. Holders of
interests in all the subtrusts of the Portfolio Trust, however, will
vote together to elect Trustees of the Portfolio Trust and for certain
other matters. The subtrusts of the Portfolio Trust will vote together
or separately on matters in the same manner, and in the same
circumstances, as do the series of the Trust. As with the Trust, the
investors in one or more subtrusts of the Portfolio Trust could
control the outcome of these votes. No subtrust of the Portfolio Trust
has any preference over any other subtrust.
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's incurring financial loss on account of shareholder
liability is limited to circumstances in which both inadequate
insurance existed and the Trust itself was unable to meet its
obligations.
The Portfolio Trust was organized as a trust under the laws of the
State of New York. The Portfolio Trust's Declaration of Trust provides
that the entities investing in the Portfolio (E.G., investment
companies such as the Fund and common and commingled trust funds) will
each be liable for all obligations of the Portfolio. However, the risk
of the Fund's incurring financial loss on account of such liability is
limited to circumstances in which both inadequate insurance existed
and the Portfolio itself was unable to meet its obligations.
Accordingly, the Trustees of the Trust believe that neither the Fund
nor its shareholders will be adversely affected by reason of the
Fund's investing in the Portfolio.
<PAGE>
BT PYRAMID MUTUAL FUNDS
BT PRESERVATIONPLUS FUND
INVESTMENT CLASS
INVESTMENT ADVISER OF THE PORTFOLIO AND ADMINISTRATOR
BANKERS TRUST COMPANY
130 Liberty Street
(One Bankers Trust Plaza)
New York, New York 10006
DISTRIBUTOR
EDGEWOOD SERVICES, INC.
Clearing Operations
P.O. Box 897
Pittsburgh, PA 15230-0897
CUSTODIAN AND TRANSFER AGENT
BANKERS TRUST COMPANY
130 Liberty Street
(One Bankers Trust Plaza)
New York, New York 10006
INDEPENDENT ACCOUNTANTS
ERNST & YOUNG LLP
787 Seventh Avenue
New York, NY 10019
COUNSEL
WILLKIE FARR & GALLAGHER
153 East 53rd Street
New York, NY 10022
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus, the SAI
or the Fund's official sales literature in connection with the
offering of the Shares and, if given or made, such other information
or representations must not be relied on as having been authorized by
the Fund. This Prospectus does not constitute an offer in any state in
which, or to any person to whom, such offer may not lawfully be made.
Cusip #055847842
STA508300(8/97)
BT PYRAMID MUTUAL FUNDS
BT PRESERVATIONPLUS FUND
SERVICE CLASS
Seeks a high level of current income while seeking to maintain a stable value
per share.
PROSPECTUS: April 28, 1997 (revised August 7, 1997)
BT Pyramid Mutual Funds (the "Trust") is an open-end management
investment company (mutual fund). The BT PreservationPlus Fund ("the
"Fund") is a separate series of the Trust and offers separate classes
of shares. The shares offered by this prospectus are the Service Class
of shares (the "Shares"). The Fund seeks a high level of current
income while seeking to maintain a stable value per share. The Fund is
offered solely to participant-directed employee benefit plans meeting
specified criteria.
UNLIKE OTHER MUTUAL FUNDS, THE FUND SEEKS TO ACHIEVE ITS INVESTMENT
OBJECTIVE BY INVESTING ALL OF ITS NET INVESTABLE ASSETS IN BT
PRESERVATIONPLUS PORTFOLIO (THE "PORTFOLIO"), A SEPARATE SUBTRUST OF
BT INVESTMENT PORTFOLIOS, A NEW YORK MASTER TRUST FUND (THE "PORTFOLIO
TRUST"), WITH AN IDENTICAL INVESTMENT OBJECTIVE. SEE "SPECIAL
INFORMATION CONCERNING THE MASTER-FEEDER FUND STRUCTURE." THE FUND IS
NOT A MONEY MARKET FUND, AND THERE CAN BE NO ASSURANCE THAT IT WILL BE
ABLE TO MAINTAIN A STABLE VALUE PER SHARE OR OTHERWISE ACHIEVE ITS
OBJECTIVE.
Please read this Prospectus before investing and keep it on file for
future reference. It contains important information concerning the
Fund and the Portfolio, including how the Portfolio invests and the
services available to the Fund's shareholders. Bankers Trust Company
("Bankers Trust") is the investment adviser ("Adviser") of the
Portfolio.
LIKE SHARES OF ALL MUTUAL FUNDS, THESE SECURITIES HAVE NOT BEEN
APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
To learn more about the Fund and the Portfolio, investors can obtain a
copy of the Fund's Statement of Additional Information ("SAI"), dated
April 28, 1997, which has been filed with the Securities and Exchange
Commission (the "SEC") and is incorporated herein by this reference.
For a free copy of this document, please call the Trust's service
agent at 1-800-677-7596.
SHARES OF THE FUND ARE NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, BANKERS TRUST COMPANY, AND THE SHARES ARE
NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY. AN INVESTMENT IN THE
FUND IS SUBJECT TO RISK THAT MAY CAUSE THE VALUE OF THE INVESTMENT TO
FLUCTUATE, AND WHEN THE INVESTMENT IS REDEEMED, THE VALUE MAY BE
HIGHER OR LOWER THAN THE AMOUNT ORIGINALLY INVESTED BY THE INVESTOR.
<PAGE>
TABLE OF CONTENTS
PAGE
THE FUND.............................................................. 3
WHO MAY INVEST.......................................................3
INVESTMENT PRINCIPLES AND RISKS......................................4
EXPENSE SUMMARY......................................................4
THE FUND IN DETAIL.....................................................6
INVESTMENT OBJECTIVE AND POLICIES....................................6
RISK FACTORS: MATCHING THE FUND TO YOUR INVESTMENT NEEDS............7
SPECIAL INFORMATION CONCERNING THE MASTER-FEEDER FUND STRUCTURE.....10
SECURITIES AND INVESTMENT PRACTICES OF THE PORTFOLIO ...............11
PERFORMANCE.........................................................14
MANAGEMENT OF THE TRUST AND PORTFOLIO ..............................14
NET ASSET VALUE.....................................................16
SHAREHOLDER AND ACCOUNT POLICIES......................................17
ACCOUNT INFORMATION.................................................17
TRANSACTIONS IN FUND SHARES.........................................17
DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS............................19
TAX CONSIDERATIONS .................................................19
ADDITIONAL INFORMATION .............................................19
<PAGE>
- 3 -
THE FUND
The Fund's investment objective is a high level of current income
while seeking to maintain a stable value per Share. The Fund seeks to
achieve its investment objective by investing all of its net
investable assets in the Portfolio. The Portfolio will seek to achieve
this objective by investing in a diversified portfolio of fixed income
securities, money market instruments, futures, options and other
instruments ("Portfolio Securities") and by entering into contracts
("Wrapper Agreements") with financial institutions, such as insurance
companies and banks, that are intended to stabilize the value per
Share of the Fund. See "Risk Factors: Matching the Fund to Your
Investment Needs."
There can be no assurance that the Fund will achieve its objective.
WHO MAY INVEST
Shares of the Fund are offered solely to participant-directed employee
benefit plans meeting specified criteria (each a "Plan" and together
"Plans"). Shares are offered to Plans either directly or through
vehicles such as bank collective funds or insurance company separate
accounts consisting solely of such Plans. The Fund is designed for
investors seeking preservation and stability of principal and a level
of current income higher than money market mutual funds over most time
periods.
The Fund is not in itself a balanced investment plan. Plan
participants should consider their investment objective and tolerance
for risk when making an investment decision. When Shares are redeemed,
they may be worth more or less than what they originally cost,
although the nature of the Portfolio's investments -- particularly the
Wrapper Agreements -- are intended by the Fund to stabilize the value
per Share. A Plan offering investments in the Fund must impose certain
restrictions on the ability of a Plan participant to exchange Shares
for similar investment options. See "Account Information."
INVESTMENT PRINCIPLES AND RISKS
The value of most of the Portfolio Securities will fluctuate based
upon changes in domestic or foreign interest rates, the credit quality
of the issuer, market conditions, and other economic and political
news. In general, the prices of Portfolio Securities will rise when
interest rates fall, and fall when interest rates rise. The Wrapper
Agreements are intended to stabilize the value per Share by offsetting
fluctuations in the value of the Portfolio Securities under certain
conditions. Under most circumstances, the combination of Portfolio
Securities and Wrapper Agreements held by the Portfolio is expected to
provide Fund shareholders with a constant net asset value ("NAV") per
Share and a current rate of return that is higher than most money
market mutual funds over most time periods. However, there can be no
guarantee that the Portfolio will maintain a constant NAV, and
consequently that the Fund will be able to maintain a constant NAV per
Share. There is also no guarantee that any Fund shareholder or Plan
participant will realize the same investment return as might be
realized by a direct investment in the Portfolio Securities without
the Wrapper Agreements or that the Fund's rate of return will be
higher than that of most money market mutual funds.
The Portfolio incurs costs in connection with its investment in
Wrapper Agreements which will reduce the Fund's investment return. The
Wrapper Agreements may not insulate the Portfolio from loss if an
issuer of Portfolio Securities defaults on payments of interest or
principal. Additionally, an issuer of a Wrapper Agreement could
default on its obligations under the agreement or the Portfolio might
be unable to obtain Wrapper Agreements covering all of its assets.
Either type of default or the inability to obtain Wrapper Agreements
might result in a decline in the value of the Shares. Moreover, in
valuing a Wrapper Agreement, the Board of Trustees of the Portfolio
Trust may determine that such agreement should not be carried by the
Portfolio at a value sufficient to maintain the Portfolio's NAV per
Share.
Bankers Trust may use various investment techniques to hedge the
Portfolio's risks, but there is no guarantee that these strategies
will work as intended. See "Risk Factors: Matching the Fund to Your
Investment Needs" for more information.
EXPENSE SUMMARY
Annual operating expenses are paid out of the assets of the Portfolio
and the Fund. The Portfolio pays an investment advisory fee and an
administrative services fee to Bankers Trust. The Fund incurs
additional administrative expenses such as maintaining shareholder
records and furnishing shareholder statements. The Fund must also
provide semi-annual financial reports.
The following tables are intended to assist investors in understanding
the expenses associated with investing in the Fund. The expenses shown
on the following pages are estimates for the first full year of
operations. The table provides (i) a summary of expenses related to
purchases and redemptions (sales) of Shares and the anticipated annual
operating expenses of the Fund and the Portfolio, in the aggregate, as
a percentage of average daily net assets and (ii) an example
illustrating the dollar cost of such expenses on a $1,000 investment
in the Fund. THE TRUSTEES OF THE TRUST BELIEVE THAT THE AGGREGATE
EXPENSES OF THE FUND (INCLUDING ITS PROPORTIONATE SHARE OF THE
PORTFOLIO'S EXPENSES) WILL BE LESS THAN OR APPROXIMATELY EQUAL TO THE
EXPENSES THAT THE FUND WOULD INCUR IF THE TRUST RETAINED THE SERVICES
OF AN INVESTMENT ADVISER AND THE ASSETS OF THE FUND WERE INVESTED
DIRECTLY IN PORTFOLIO SECURITIES AND WRAPPER AGREEMENTS.
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge on Purchases None
Maximum Sales Charge on Reinvested Dividends None
Maximum Redemption Fee 2.0%
Shareholder transaction expenses are charges paid when investors buy,
redeem or exchange Shares. Under normal circumstances, redemptions of
Shares that are directed by Plan participants are not subject to a
redemption fee. Redemptions of Shares that are not directed by Plan
participants and that are made on less than twelve months' prior
written notice to the Fund are subject to a redemption fee payable to
the Fund of 2% of the proceeds of the redemption. See "Transactions in
Fund Shares."
ANNUAL OPERATING EXPENSES (as a percentage of the Fund's projected average
daily net assets)
Investment advisory fee (after reimbursement or waiver)* 0.20%
12b-1 fee None
Other expenses (after reimbursement or waiver)** 0.50%
Total operating expenses (after reimbursement or waiver) 0.70%
- -----------
* The Fund does not directly pay an investment advisory fee; the
amount shown reflects the Fund's proportionate share of the
Portfolio's investment advisory fee.
** "Other expenses" include premiums paid for Wrapper Agreements and
certain additional services provided to the Fund and the Portfolio by
Bankers Trust, including a shareholder servicing fee of 0.15%. Wrapper
Agreements are contracts entered into by the Portfolio that are
intended to stabilize the value per Share of the Fund (see "Investment
Principles and Risks").
EXPENSE TABLE EXAMPLE:
An investor would pay the following expenses on a $1,000 investment assuming
(1) 5% annual return and (2) redemption at the end of each time period. No
redemption fee has been included.
ONE YEAR THREE YEARS
$7 $22
The expense table and the example above show the estimated costs and
expenses that an investor will bear directly or indirectly as a
shareholder of the Fund. Bankers Trust has voluntarily agreed to waive
a portion of its investment advisory fee payable by the Portfolio.
Without such waiver, the Portfolio's investment advisory fee would be
0.35% of its average daily net assets. Bankers Trust has also
voluntarily agreed to waive a portion of its administration fees
(included in "Other Expenses") payable by the Portfolio. Without such
waiver, the Portfolio's "Other Expenses" would be 0.81%. Bankers Trust
may terminate these voluntary waivers and reimbursements at any time
in its sole discretion without notice to shareholders. In the absence
of these waivers, assuming total class assets of $100 million, it is
estimated that "Total Operating Expenses" of the Shares would be
1.16%.
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST
OR FUTURE EXPENSES, AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN
THOSE SHOWN.
Moreover, while the example assumes a 5% annual return,
actual performance will vary and may result in a return greater or
less than 5%.
Service Class Shares are subject to shareholder
servicing fees in the maximum amount of 0.15% of the average daily net
assets of the Shares. The shareholder services provided in exchange
for these fees may include establishing and maintaining shareholder
and Plan participant accounts, processing purchase and redemption
transactions, arranging for bank wires, performing shareholder
sub-accounting, answering investor/shareholder's inquiries regarding
the Fund and/or its classes, providing periodic statements showing the
investor/shareholder's account balance and those of Plan participants,
transmitting proxy statements, periodic reports, updated prospectuses
and other communications to shareholders and, with respect to meetings
of shareholders, collecting, tabulating and forwarding to the Trust
executed proxies and obtaining such other information and performing
such other services as may reasonably be required. Shares of the
Fund are sold by Edgewood Services, Inc. ("Edgewood") as the Trust's
distributor (the "Distributor"). For more information about the Fund's
and the Portfolio's expenses see "Management of the Fund" and
"Valuation Details" herein.
As of the date of this prospectus, the Fund has issued two classes of
shares, and may issue additional classes in the future. The Fund
offers each class of shares by a separate prospectus. Because the
expenses vary between classes, performance will vary with respect to
each class. Additional information concerning each class of shares is
available from Bankers Trust, as Administrator, at 1-800-677-7596.
FUND FINANCIAL HIGHLIGHTS
The Fund will have a fiscal year end of September 30. As this is the
Fund's first fiscal year, financial information with respect to the
Fund is not available at this time.
THE FUND IN DETAIL
INVESTMENT OBJECTIVE AND POLICIES
The Fund seeks to achieve its investment objective by investing all of
its net investable assets in the Portfolio, which has the same
investment objective as the Fund. Since the investment characteristics
of the Fund will correspond directly to those of the Portfolio, the
following is a discussion of the various investments of and techniques
employed by the Portfolio. Additional information about the investment
policies of the Portfolio appears in "Risk Factors: Matching the Fund
to Your Investment Needs" herein and in the SAI. There can be no
assurance that the Fund's and the Portfolio's investment objective
will be achieved.
The Portfolio's investment objective is a high level of current income
while seeking to maintain a stable value per Share. The Portfolio
expects to invest at least 65% of its total assets in fixed income
securities ("Fixed Income Securities") of varying maturities rated, at
the time of purchase, in one of the top three long-term rating
categories by Standard & Poor's ("S&P"), Moody's Investors Service,
Inc. ("Moody's"), or Duff & Phelps Credit Rating Co., or comparably
rated by another nationally recognized statistical rating organization
("NRSRO"), or, if not rated by a NRSRO, of comparable quality as
determined by Bankers Trust in its sole discretion.
In addition, the Portfolio will enter into Wrapper Agreements with
insurance companies, banks or other financial institutions ("Wrapper
Providers") that are rated, at the time of purchase, in one of the top
two long-term rating categories by Moody's or S&P. There is no active
trading market for Wrapper Agreements, and none is expected to
develop; therefore, they will be considered illiquid. At the time of
purchase, the value of all of the Wrapper Agreements and any other
illiquid securities will not exceed 15% of the Portfolio's net assets.
The Fixed Income Securities include fixed income securities issued
or guaranteed by the U.S. government, or any agency or instrumentality
thereof; publicly or privately issued U.S. dollar-denominated debt of
domestic or foreign entities, including corporate, sovereign or
supranational entities; publicly issued U.S. dollar denominated
asset-backed securities issued by domestic or foreign entities;
mortgage pass-through securities issued by the Government National
Mortgage Association ("GNMA"), the Federal Home Loan Mortgage
Corporation ("FHLMC") or the Federal National Mortgage Association
("FNMA"); mortgage pass-through securities issued by non-government
entities such as banks, mortgage lenders, or other financial
institutions, including private label mortgage pass-through securities
and whole loans; collateralized mortgage obligations ("CMOs") and real
estate mortgage investment conduits ("REMICs"), which are
mortgage-backed debt instruments that make payments of principal and
interest at a variety of intervals and are collateralized by any of
the aforementioned mortgage pass-through securities or whole loans;
and obligations issued or guaranteed, or backed by securities issued
or guaranteed by, the U.S. government, or any of its agencies or
instrumentalities, including Certificates of Accrual Treasury
Securities ("CATS"), Treasury Income Growth Receipts ("TIGRs"), and
Treasury Receipts ("TRs") and zero coupon securities (securities
consisting solely of the principal or interest component of a U.S.
Treasury bond).
The Portfolio Securities purchased by the Portfolio also include short-term
investments rated, at the time of purchase, in one of the top two short-term
rating categories by an NRSRO or, if unrated, of comparable quality in the
opinion of the Adviser, including commercial paper and time deposits,
certificates of deposit, bankers' acceptances and other instruments of foreign
and domestic banks and thrift institutions. The Portfolio may invest up to
35% of its total assets in such short-term investments for purposes of
liquidity and up to 100% of its total assets in such instruments for
temporary defensive purposes. The Portfolio may also invest in and
utilize the following investments and investment techniques and
practices: Rule 144A securities (as defined in "Securities and
Investment Practices of the Portfolio"), when-issued and delayed
delivery securities, repurchase agreements, reverse repurchase
agreements and dollar rolls, and options and futures contracts. See
"Risk Factors: Matching the Fund to Your Investment Needs" in this
Prospectus and in the SAI for more information.
In selecting securities for the Portfolio, the Adviser attempts to
maintain an average portfolio duration of the Portfolio Securities
within a range of 2.5 to 4.5 years. Duration is a measure of the
expected life of a Fixed Income Security on a present value basis
which incorporates the security's yield, coupon interest payments,
final maturity and call features into a single measure.
RISK FACTORS: MATCHING THE FUND TO YOUR INVESTMENT NEEDS
The following pages contain more detailed information about types of
instruments in which the Portfolio may invest and strategies the
Adviser may employ in pursuit of the Portfolio's investment objective.
A summary of the risks and restrictions associated with these
investments and investment practices is included as well. The
Adviser may not buy all of these instruments or use all of these
techniques to the full extent permitted unless it believes that doing
so will help the Portfolio achieve its objective. Current holdings and
investment strategies will be described in the financial reports of
the Fund and the Portfolio, which will be sent to Fund shareholders
twice a year.
RISKS OF INVESTING IN FIXED INCOME SECURITIES All
fixed income investments have exposure to three types of risks. Credit
risk is the possibility that the issuer of a Fixed Income Security
will fail to make timely payments of either interest or principal to
the Portfolio. Interest rate risk is the potential for fluctuations in
the prices of Fixed Income Securities due to changing interest rates.
Income risk is the potential for decline in the Portfolio's income due
to the investment or reinvestment of assets in Fixed Income Securities
when market interest rates are falling.
Although there is no assurance that it will achieve its objective, the
Portfolio attempts to enhance yield while minimizing these risks. If
an issuer of a Fixed Income Security or a Wrapper Provider becomes
financially impaired, it may default on its obligations and the
Portfolio's interest income may be reduced or the Portfolio may incur
a loss of principal. This is an example of credit risk. In order to
minimize credit risk, the Portfolio's assets are allocated among a
diversified group of issuers. Credit analysis is applied to every
security and Wrapper Provider selected for the Portfolio. Once
purchased, a security and, in the case of a Wrapper Agreement, the
Wrapper Provider is monitored regularly by Bankers Trust for
maintenance of adequate credit characteristics. In the event that the
rating of a security or Wrapper Provider is downgraded by one or more
NRSRO, the Portfolio may elect to retain the security or applicable
Wrapper Agreement. However, some Wrapper Agreements may require that
Fixed Income Securities that fall below investment grade be liquidated
within a set time period, typically within one year or less. The
Portfolio may elect not to cover with Wrapper Agreements any Fixed
Income Securities with a remaining maturity of 60 days or less and any
cash or short term investments.
When interest rates rise, Fixed Income Security prices generally
decline. When interest rates fall, Fixed Income Security prices
generally increase. Generally, the longer the maturity of the Fixed
Income Security, the higher its yield, although longer-term Fixed
Income Securities tend to offer less price stability in response to
changes in interest rates than do shorter-term investments. Therefore,
portfolios with shorter average maturities tend to have less risk and
lower returns than portfolios with longer average maturities. This is
an example of interest rate risk. In order to help maintain an average
portfolio duration of 2.5 to 4.5 years, the Portfolio will invest
primarily in Fixed Income Securities of short- to intermediate-term
maturities. This will help to minimize interest rate risk. In
addition, unlike most traditional fixed income portfolios, the
Portfolio purchases Wrapper Agreements that should offset
substantially all of the price fluctuations typically associated with
longer-term Fixed Income Securities.
It is important to note the distinction between the Portfolio and
short-term investments such as money market funds. The securities held
by the Portfolio have a longer average maturity than those of money
market funds. Because a money market fund has a shorter average
maturity, its yield will track the direction of current market rates
of return more closely than the Portfolio. For example, in a rising
interest rate environment, money market yields may rise more quickly
than will the Portfolio's. In a falling interest rate environment,
money market yields may fall more quickly than the Portfolio's. Over
the long-term, however, intermediate and long-term Fixed Income
Securities such as those purchased by the Portfolio have historically
offered higher yields than short-term investments (I.E., money market
funds).
RISKS OF WRAPPER AGREEMENTS Each Wrapper Agreement
obligates the Wrapper Provider to maintain the "Book Value" of a
portion of the Portfolio's assets ("Covered Assets") up to a specified
maximum dollar amount, upon the occurrence of certain specified
events. The Book Value of the Covered Assets is their purchase price
(i) plus interest on the Covered Assets at a rate specified in the
Wrapper Agreement ("Crediting Rate"), and (ii) less an adjustment to
reflect any defaulted securities. The Crediting Rate used in computing
Book Value is calculated by a formula specified in the Wrapper
Agreement and is adjusted periodically. In the case of Wrapper
Agreements purchased by the Portfolio, the Crediting Rate is the
actual interest earned on the Covered Assets, or an index-based
approximation thereof, plus or minus an adjustment for an amount
receivable from or payable to the Wrapper Provider based on
fluctuations in the market value of the Covered Assets. As a result,
while the Crediting Rate will generally reflect movements in the
market rates of interest, it may at any time be more or less than
these rates or the actual interest income earned on the Covered
Assets. The Crediting Rate may also be impacted by defaulted
securities and by increases and decreases of the amount of Covered
Assets as a result of contributions and withdrawals tied to the sale
and redemption of Shares. Furthermore, the premiums due Wrapper
Providers in connection with the Portfolio's investments in Wrapper
Agreements are offset against and thus reduce the Crediting Rate.
These premiums are generally paid quarterly. In no event will the
Crediting Rate fall below zero percent under the Wrapper Agreements
entered into by the Portfolio.
Under the terms of a typical Wrapper Agreement, if the market value
(plus accrued interest on the underlying securities) of the Covered
Assets is less than their Book Value at the time the Covered Assets
are liquidated in order to provide proceeds for withdrawals of
Portfolio interests resulting from redemptions of Shares by Plan
participants, the Wrapper Provider becomes obligated to pay to the
Portfolio the difference. Conversely, the Portfolio becomes obligated
to make a payment to the Wrapper Provider if it is necessary for the
Portfolio to liquidate Covered Assets at a price above their Book
Value in order to make withdrawal payments. (Withdrawals generally
will arise when the Fund must pay shareholders who redeem their
Shares.) Because it is anticipated that each Wrapper Agreement will
cover all Covered Assets up to a specified dollar amount, if more than
one Wrapper Provider becomes obligated to pay to the Portfolio the
difference between Book Value and market value (plus accrued interest
on the underlying securities), each Wrapper Provider will be obligated
to pay a pro-rata amount in proportion to the maximum dollar amount of
coverage provided. Thus, the Portfolio will not have the option of
choosing which Wrapper Agreement to draw upon in any such payment
situation.
The terms of the Wrapper Agreements vary concerning when these
payments must actually be made between the Portfolio and the Wrapper
Provider. In some cases, payments may be due upon disposition of the
Covered Assets; other Wrapper Agreements provide for settlement only
upon termination of the Wrapper Agreement or total liquidation of the
Covered Assets. A Wrapper Provider's obligation to make payments to
the Portfolio may be subject to prior notice requirements for certain
types of withdrawals from the Portfolio. For example, the Wrapper
Agreement may require that one year's notice be provided to obtain
Book Value payments with respect to withdrawals to provide liquidity
for Fund redemptions that are not directed by Plan participants. The
Portfolio does not anticipate that it will be required to liquidate
Covered Assets for the purpose of paying such withdrawals before any
such notice period has expired. However, in the unlikely event that
this occurs, the NAV of the Portfolio, and hence of the Shares, may be
reduced. Additionally, a Wrapper Provider's obligation to make
payments for Plan withdrawals after twelve months' prior notice (as
opposed to those directed by Plan participants) may require
adjustments to the Crediting Rate and increases in the Portfolio's
holdings of short term investments, which might adversely affect the
return of the Portfolio and the Fund. Please see discussion of
"Liquidity Reserve" herein.
The Fund expects that the use of Wrapper Agreements by the Portfolio
will under most circumstances permit the Fund to maintain a constant
NAV per Share and to pay dividends that will generally reflect over
time both the interest income of, and market gains and losses on, the
Covered Assets held by the Portfolio less the expenses of the Fund and
the Portfolio. However, there can be no guarantee that the Fund will
maintain a constant NAV per Share or that any Fund shareholder or Plan
participant will realize the same investment return as might be
realized by investing directly in the Portfolio assets other than the
Wrapper Agreements. For example, a default by the issuer of a
Portfolio Security or a Wrapper Provider on its obligations might
result in a decrease in the value of the Portfolio assets and,
consequently, the Shares. The Wrapper Agreements generally do not
protect the Portfolio from loss if an issuer of Portfolio Securities
defaults on payments of interest or principal. Additionally, a Fund
shareholder may realize more or less than the actual investment return
on the Portfolio Securities depending upon the timing of the
shareholder's purchases and redemption of Shares, as well as those of
other shareholders. Furthermore, there can be no assurance that the
Portfolio will be able at all times to obtain Wrapper Agreements.
Although it is the current intention of the Portfolio to obtain such
agreements covering all of its assets (with the exceptions noted), the
Portfolio may elect not to cover some or all of its assets with
Wrapper Agreements should Wrapper Agreements become unavailable or
should other conditions such as cost, in Bankers Trust's sole
discretion, render their purchase inadvisable.
If, in the event of a default of a Wrapper Provider, the Portfolio
were unable to obtain a replacement Wrapper Agreement, participants
redeeming Shares might experience losses if the market value of the
Portfolio's assets no longer covered by the Wrapper Agreement is below
Book Value. The combination of the default of a Wrapper Provider and
an inability to obtain a replacement agreement could render the
Portfolio and the Fund unable to achieve their investment objective of
maintaining a stable NAV per Share. If the Board of Trustees of the
Portfolio Trust (the "Portfolio Trust Board") determines that a
Wrapper Provider is unable to make payments when due, that Board may
assign a fair value to the Wrapper Agreement that is less than the
difference between the Book Value and the market value (plus accrued
interest on the underlying securities) of the applicable Covered
Assets and the Portfolio might be unable to maintain NAV stability.
Some Wrapper Agreements require that the Portfolio maintain a
specified percentage of its total assets in short-term investments
("Liquidity Reserve"). These short-term investments must be used for
the payment of withdrawals from the Portfolio and Portfolio expenses.
To the extent the Liquidity Reserve falls below the specified
percentage of total assets, the Portfolio is obligated to direct all
net cash flow to the replenishment of the Liquidity Reserve. The
obligation to maintain a Liquidity Reserve may result in a lower
return for the Portfolio and the Fund than if these funds were
invested in longer-term Fixed Income Securities. The Liquidity Reserve
required by all Wrapper Agreements is not expected to exceed 20% of
the Portfolio's total assets. However, the Liquidity Reserve amount
may be required to be increased above this limit as a result of
anticipated Plan redemptions within one year.
Wrapper Agreements also require that the Covered Assets have a
specified duration or maturity, consist of specified types of
securities or be of a specified investment quality. The Portfolio will
purchase Wrapper Agreements whose criteria in this regard are
consistent with the Portfolio's (and the Fund's) investment objective
and policies as described in this Prospectus. Wrapper Agreements may
also require the disposition of securities whose ratings are
downgraded below a certain level. This may limit the Portfolio's
ability to hold such downgraded securities. Please see the SAI for
additional information concerning Wrapper Agreements.
DERIVATIVES
The Portfolio may invest in various instruments, including the Wrapper
Agreements, 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 investments, although they may be
more volatile or less liquid than more traditional debt securities.
There are, in fact, many different types of derivatives and many
different ways to use them. There are a range of risks associated with
those uses. Futures contracts and options are commonly used for
traditional hedging purposes to attempt to protect an investor from
exposure to changing interest rates, securities prices or currency
exchange rates and for cash management purposes as a low cost method
of gaining exposure to a particular securities market without
investing directly in those securities. However, some derivatives are
used for leverage, which tends to magnify the effect of an
instrument's price changes as market conditions change. Leverage
involves the use of a small amount of money to control a large amount
of financial assets and can, in some circumstances, lead to
significant losses. Bankers Trust uses derivatives only in
circumstances where it believes they offer the most economic means of
improving the risk/reward profile of the Portfolio. Derivatives will
not be used to increase portfolio risk above the level that could be
achieved using only traditional investment securities or to acquire
exposure to changes in the value of assets or indexes that by
themselves would not be purchased for the Portfolio. The use of
derivatives for non-hedging purposes may be considered speculative. A
further description of the derivatives that the Portfolio may use and
some of their associated risks is found in "Securities and Investment
Practices of the Portfolio."
SPECIAL INFORMATION CONCERNING THE MASTER-FEEDER FUND STRUCTURE
Unlike other mutual funds that directly acquire and manage their own
portfolio securities, the Fund seeks to achieve its investment
objective by investing all of its net investable assets in the
Portfolio, a separate subtrust of a registered investment company with
the same investment objective as the Fund. Therefore, a Fund
shareholder's interest in the Portfolio's assets is indirect. In
addition to selling a beneficial interest to the Fund, the Portfolio
may sell beneficial interests to other mutual funds or institutional
investors. Such investors will invest in the Portfolio on the same
terms and conditions and will pay a proportionate share of the
Portfolio's expenses. However, the other investors investing in the
Portfolio are not required to sell their shares or other interests at
the same public offering price as the Fund, due to variations in sales
commissions and other operating expenses. Therefore, investors in the
Fund should be aware that these differences may result in differences
in returns experienced by investors in the different entities that
invest in the Portfolio. Such differences in returns are also present
in other mutual fund structures. Information concerning other holders
of interests in the Portfolio is available from Bankers Trust, as the
Administrator, at 1-800-677-7596.
The master-feeder structure is relatively complex, so shareholders
should carefully consider this investment approach. Smaller investors
in the Portfolio may be materially affected by the actions of larger
investors in the Portfolio. For example, if a large investor withdraws
from the Portfolio, the remaining investors may experience higher pro
rata operating expenses, thereby producing lower returns (however,
this possibility exists as well for traditionally structured funds
that have large investors). Additionally, the Portfolio may become
less diverse, resulting in increased portfolio risk. Also, investors
with a greater pro rata ownership in the Portfolio could have
effective voting control of its operations. Except as permitted by the
SEC, whenever the Trust is requested to vote on matters pertaining to
the Portfolio, the Trust will hold a meeting of shareholders of the
Fund and will cast all of its votes in the same proportion as the
votes of the Fund's shareholders. Fund shareholders who do not vote
will not affect the Trust's votes on the Portfolio's matters; the
Trust's votes representing Fund shareholders not voting will be voted
by the Trustees or officers of the Trust in the same proportion as the
Fund shareholders who do, in fact, vote. Certain changes in the
Portfolio's investment objective, policies or restrictions may require
the Fund to withdraw its interest in the Portfolio. Any such
withdrawal could result in a distribution "in kind" of Portfolio
assets (as opposed to a cash distribution from the Portfolio). If
securities are distributed, the Fund could incur brokerage, tax or
other charges in converting the securities to cash. In addition, the
distribution in kind may result in a less diversified portfolio of
investments or adversely affect the liquidity of the Fund.
Notwithstanding the above, there are other means for meeting
redemption requests, such as borrowing. The Fund may withdraw its
investment from the Portfolio at any time, if the Board of Trustees of
the Trust (the "Trust Board") determines that it is in the best
interests of the shareholders of the Fund to do so. Upon any such
withdrawal, the Trust Board would consider what action might be taken,
including the investment of all the assets of the Fund in another
pooled investment entity having the same investment objective as the
Fund or the retaining of an investment adviser to manage the Fund's
assets in accordance with the investment policies described herein
with respect to the Portfolio.
The Fund's investment objective is not a fundamental policy and may be
changed upon notice to, but without the need for approval of, its
shareholders. If there is a change in the Fund's investment objective,
its shareholders should consider whether the Fund remains an
appropriate investment in light of their then-current needs. The
investment objective of the Portfolio also is not a fundamental
policy. Shareholders of the Fund will receive 30 days' prior written
notice with respect to any change in the investment objective of the
Fund or the Portfolio. See "Investment Restrictions" in the SAI for a
description of the fundamental policies of the Portfolio that cannot
be changed without approval by "the vote of a majority of the
outstanding voting securities" (as defined in the Investment Company
Act of 1940 (the "1940 Act")) of the Portfolio.
SECURITIES AND INVESTMENT PRACTICES OF THE PORTFOLIO
U.S. GOVERNMENT SECURITIES. U.S. government securities are
high-quality debt securities issued or guaranteed by the U.S. Treasury
or by an agency or instrumentality of the U.S. government. Not all
U.S. government securities are backed by the full faith and credit of
the United States. For example, securities issued by the Farm Credit
Banks or by the FNMA are supported by the instrumentality's right to
borrow money from the U.S. Treasury under certain circumstances.
However, securities issued by certain other U.S. agencies or
instrumentalities are supported only by the credit of the entity that
issued them.
OTHER U.S. DOLLAR-DENOMINATED FIXED INCOME SECURITIES. Bonds and other
debt instruments are used by issuers to borrow money from investors.
The issuer pays the investor a fixed or variable rate of interest and
must repay the amount borrowed at maturity. Some debt securities, such
as zero coupon bonds, do not pay current interest but are purchased at
a discount from their face values. Debt securities, loans and other
direct debt have varying degrees of quality and varying levels of
sensitivity to changes in interest rates. Longer-term bonds are
generally more sensitive to interest rate changes than short-term
bonds.
U.S. DOLLAR-DENOMINATED SOVEREIGN AND SUPRANATIONAL FIXED INCOME
SECURITIES. Debt instruments issued or guaranteed by foreign
governments, agencies and supranational organizations ("sovereign debt
obligations"), especially sovereign debt obligations of developing
countries, may involve a high degree of risk. The issuer of the
obligation or the governmental authorities that control the repayment
of the debt may be unable or unwilling to repay principal and interest
when due and may require renegotiation or rescheduling of debt
payments. In addition, prospects for repayment of principal and
interest may depend on political as well as economic factors.
MORTGAGE-BACKED SECURITIES. The Portfolio may purchase mortgage-backed
securities issued by the U.S. government, its agencies or
instrumentalities and non-governmental entities such as banks,
mortgage lenders or other financial institutions. Mortgage-backed
securities include mortgage pass-through securities, mortgage-backed
bonds and mortgage pay-through securities. A mortgage pass-through
security is a pro rata interest in a pool of mortgages where the cash
flow generated from the mortgage collateral is passed through to the
security holder. A mortgage-backed bond is a general obligation of the
issuer, payable out of the issuer's general funds and additionally
secured by a first lien on a pool of mortgages. Mortgage pay-through
securities exhibit characteristics of both pass-through and
mortgage-backed bonds. The mortgage pass-through securities issued by
non-governmental entities such as banks, mortgage lenders or other
financial institutions in which the Portfolio may invest include
private label mortgage pass-through securities and whole loans.
Mortgage-backed securities also include other debt obligations secured
by mortgages on commercial real estate or residential properties.
Other types of mortgage-backed securities will likely be developed in
the future, and the Portfolio may invest in them if Bankers Trust
determines they are consistent with the Portfolio's investment
objective and policies.
Unlike ordinary Fixed Income Securities,
which generally pay a fixed rate of interest and return principal upon
maturity, mortgage-backed securities repay both interest income and
principal as part of their periodic payments. Because the mortgages
underlying mortgage-backed certificates can be prepaid at any time by
homeowners or corporate borrowers, mortgage-backed securities give
rise to certain unique "pre-payment" risks. Prepayment risk or call
risk is the likelihood that, during periods of falling interest rates,
securities with high stated interest rates will be prepaid (or
"called") prior to maturity, requiring the Portfolio to invest the
proceeds at generally lower interest rates.
COLLATERALIZED MORTGAGE OBLIGATIONS. CMOs are pay-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. The issuer of a series of CMOs may elect to
be treated as a REMIC.
ASSET-BACKED SECURITIES. Asset-backed securities have structural
characteristics similar to mortgage-backed securities. However, the
underlying assets are not first lien mortgage loans or interests
therein but include assets such as motor vehicle installment sale
contracts, other installment sale contracts, home equity loans, leases
of various types of real and personal property, and receivables from
revolving credit (credit card) agreements. Such assets are securitized
through the use of trusts or special purpose corporations. Payments or
distributions of principal and interest on asset-backed securities may
be guaranteed up to certain amounts and for a certain time period by a
letter of credit or a pool insurance policy issued by a financial
institution unaffiliated with the issuer, or other credit enhancements
may be present.
Asset-backed securities present certain risks that are not presented
by mortgage-backed securities. Primarily, these securities do not have
the benefit of the same type of security interest in the related
collateral. Credit card receivables are generally unsecured, and the
debtors are entitled to the protection of a number of state and
federal consumer credit laws, many of which give such debtors the
right to avoid payment of certain amounts owed on the credit cards,
thereby reducing the balance due. There is the risk in connection with
automobile receivables that recoveries on repossessed collateral may
not, in some cases, be available to support payments on those
securities.
U.S. DOLLAR-DENOMINATED FOREIGN SECURITIES. The Portfolio may invest a
portion of its assets in the dollar-denominated debt securities of
foreign companies. Investing in the securities of foreign companies
involves more risks than investing in securities of U.S. companies.
Their value is subject to economic and political developments in the
countries where the companies operate and to changes in foreign
currency values. Values may also be affected by foreign tax laws,
changes in foreign economic or monetary policies, exchange control
regulations and regulations involving prohibitions on the repatriation
of foreign currencies.
In general, less information may be available about foreign companies
than about U.S. companies, and foreign companies are generally not
subject to the same accounting, auditing and financial reporting
standards as are U.S. companies. Foreign securities markets may be
less liquid and subject to less regulation than the U.S. securities
markets. The costs of investing outside the United States frequently
are higher than those in the United States. These costs include
relatively higher brokerage commissions and foreign custody expenses.
ZERO COUPON SECURITIES. Zero Coupon Securities including CATS, TIGRs
and TRs, are the separate income or principal components of a debt
instrument. These involve risks that are similar to those of other
debt securities, although they may be more volatile, and the value of
certain zero coupon securities moves in the same direction as interest
rates. Zero coupon bonds do not make regular interest payments.
RULE 144A SECURITIES. Rule 144A Securities are securities that are not
registered for sale under the federal securities laws but can be
resold to institutions pursuant to Rule 144A under the Securities Act
of 1933. Provided that a dealer or institutional trading market in
such securities exists, these restricted securities are treated as
exempt from the Portfolio's 15% limit on illiquid securities. Under
the supervision of the Portfolio Trust Board, Bankers Trust determines
the liquidity of restricted securities; and through reports from
Bankers Trust, the Portfolio Trust Board monitors trading activity in
restricted securities. If institutional trading in restricted
securities were to decline, the liquidity of the Portfolio could be
adversely affected.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The Portfolio may
purchase securities on a when-issued or delayed delivery basis.
Delivery of and payment for these securities may take place as late 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.
REPURCHASE AGREEMENTS. In a repurchase agreement, the Portfolio buys a
security at one price and simultaneously agrees to sell it back to the
seller on a specific date and at a higher price reflecting a market
rate of interest unrelated to the coupon rate or maturity of the
underlying security. Delays or losses could result if the other party
to the agreement defaults or becomes insolvent.
REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLLS. In a reverse
repurchase agreement, the Portfolio temporarily transfers possession
of a portfolio instrument to another party in return for cash. This
could increase the risk of fluctuation in the Fund's yield or in the
market value of its interest in the Portfolio. In a dollar roll, the
Portfolio sells mortgage-backed or other securities for delivery in
the current month and simultaneously contracts to purchase
substantially similar securities on a specified future date. Reverse
repurchase agreements and dollar rolls are forms of borrowing and will
be counted towards the Portfolio's borrowing restrictions. See
"Borrowing" on the following pages and in the SAI. Wrapper Agreements
would cover the cash proceeds of such transactions but not the
portfolio instruments transferred to another party until possession of
such instruments is returned to the Portfolio.
SHORT-TERM INVESTMENTS. The Portfolio's assets may be invested in high
quality short-term investments with remaining maturities of 397 days
or less to maintain the Liquidity Reserve, to meet anticipated
redemptions and expenses for day-to-day operating purposes and when,
in Bankers Trust's opinion, it is advisable to adopt a temporary
defensive position because of unusual and adverse conditions affecting
the respective markets.
BORROWING. The Portfolio will not borrow
money (including through reverse repurchase agreements or dollar roll
transactions) for any purpose in excess of 5% of its total assets,
except that it may borrow for temporary or emergency purposes up to
1/3 of its total assets. Under the 1940 Act, the Portfolio is required
to maintain continuous asset coverage of 300% with respect to such
borrowings and to sell (within three days) sufficient portfolio
holdings to restore such coverage if it should decline to less than
300% due to market fluctuations or otherwise, even if such liquidation
of the Portfolio's holdings may be disadvantageous from an investment
standpoint.
Leveraging by means of borrowing may exaggerate the
effect of any increase or decrease in the value of the Portfolio's
securities and the Fund's NAV per Share, and money borrowed by the
Portfolio will be subject to interest and other costs (which may
include commitment fees and/or the cost of maintaining minimum average
balances) that may exceed the income received from the securities
purchased with the borrowed funds. It is not the intention of Bankers
Trust to use leverage as a normal practice in the investment of the
Portfolio's assets.
HEDGING STRATEGIES. The Portfolio may use certain strategies designed
to adjust the overall risk of its investment portfolio. These
"hedging" strategies involve derivative contracts, including U.S.
Treasury and Eurodollar futures contracts and exchange-traded put and
call options on such futures contracts. New financial products and
risk management techniques continue to be developed and may be used if
consistent with the Portfolio's investment objective and policies.
Among other purposes, these hedging strategies may be used to
effectively maintain a desired portfolio duration or to protect
against market risk should the Portfolio change its investments among
different types of Fixed Income Securities. In this respect, these
hedging strategies are designed for different purposes than the
investments in Wrapper Agreements. The SAI contains further
information on these strategies.
The Portfolio might not use any hedging strategies, and there can be
no assurance that any strategy used will succeed. If the Adviser is
incorrect in its judgment on market values, interest rates or other
economic factors in using a hedging strategy, the Portfolio may have
lower net income and a net loss on the investment. Each of these
strategies involves certain risks, which include:
o the fact that the skills needed to use hedging instruments are
different from those needed to select securities for the Portfolio;
o the possibility of imperfect correlation, or even no
correlation, between the price movements of hedging
instruments and price movements of the securities or
currencies being hedged;
o possible constraints placed on the Portfolio's ability to
purchase or sell portfolio investments at advantageous times
due to the need for the Portfolio to maintain "cover" or to
segregate securities; and
o the possibility that the Portfolio is unable to close out or liquidate
its hedged position.
ASSET COVERAGE. To assure that the Portfolio's use of futures
contracts and related options, as well as when-issued and
delayed-delivery securities, are not used to achieve investment
leverage, the Portfolio will cover such transactions, as required
under applicable interpretations of the SEC, either by owning the
underlying securities or by segregating liquid securities with the
Portfolio's custodian (Bankers Trust) in an amount at all times equal
to or exceeding the Portfolio's commitment with respect to these
instruments or contracts. Assets that are segregated for purposes of
providing cover need not be physically segregated in a separate
account provided that the custodian notes on its books that such
assets are segregated. The Portfolio will also cover its use of
Wrapper Agreements to the extent required to avoid the creation of a
"senior security" (as defined in the 1940 Act) in connection with its
use of such agreements.
PERFORMANCE
The Fund's performance may be used from time to time in
advertisements, shareholders reports or other communications to
shareholders or prospective shareholders. Performance information may
include investment results and/or comparisons of its investment
results to the IBC Averages, Lipper Averages, an appropriate
guaranteed interest contract ("GIC") average, or other various
unmanaged indices or results of other mutual funds or investment or
saving vehicles. The Portfolio's strategies, holdings and performance
will be detailed twice a year in the Fund's financial reports, which
are sent to all Fund shareholders.
Mutual fund performance is commonly measured as total return and/or
yield. The performance of a class of shares is affected by its
expenses and those of the Portfolio.
EXPLANATION OF TERMS
TOTAL RETURN is the change in value of an investment in the Shares
over a given period, assuming reinvestment of any dividends and
capital gain distributions. A CUMULATIVE total return reflects actual
performance over a stated period of time. An AVERAGE annual total
return is a hypothetical rate of return that, if achieved annually,
would have produced the same cumulative total return if performance
had been constant over the entire period. Average annual total return
calculations smooth out variations in performance; they are not the
same as actual year-by-year results. Average annual total returns
covering periods of less than one year assume that performance will
remain constant for the rest of the year.
YIELD refers to the income generated by an investment in the Shares
over a given period of time, expressed as an annual percentage rate.
Yields are calculated according to a standard that is required for all
stock and bond funds. Because this differs from other accounting
methods, the quoted yield may not equal the income actually paid to
shareholders.
Performance information or advertisements may include comparisons of
the Shares' investment results to various unmanaged indices or results
of other mutual funds or investment or savings vehicles. From time to
time, the Shares' ranking may be quoted from various sources, such as
Lipper Analytical Services, Inc., Value Line, Inc. and Morningstar,
Inc.
Unlike some bank deposits or other investments that pay a fixed yield
for a stated period of time, the total return of the Shares will vary
depending upon interest rates, the current market value of the
Portfolio Securities and the Wrapper Agreements and changes in the
expenses of the Shares and the Portfolio. In addition, during certain
periods for which total return may be provided, Bankers Trust may have
voluntarily agreed to waive portions of its fees, or to reimburse
certain operating expenses of the Fund or the Portfolio, on a
month-to-month basis. Such waivers will have the effect of increasing
the Fund's net income (and therefore its yield and total return)
during the period such waivers are in effect.
TOTAL RETURNS AND YIELDS ARE BASED ON PAST RESULTS AND ARE NOT AN
INDICATION OF FUTURE PERFORMANCE.
MANAGEMENT OF THE TRUSTS
BOARDS OF TRUSTEES
The Trust and the Portfolio Trust (collectively the "Trusts") are each
governed by a Board of Trustees that is responsible for protecting the
interests of investors. A majority of the Trustees who are not
"interested persons" (as defined in the 1940 Act) of either Trust have
adopted written procedures reasonably appropriate to deal with
potential conflicts of interest arising from the fact that some of the
same individuals may be Trustees of both Trusts, up to and including
creating separate boards of trustees. See "Management of the Trusts"
in the SAI for more information with respect to the Trustees and
officers of the Trusts.
INVESTMENT ADVISER
The Fund has not retained the services of an investment adviser
because it seeks to achieve its investment objective by investing all
of its net investable assets in the Portfolio. The Portfolio has
retained the services of Bankers Trust as its investment adviser
pursuant to an Investment Advisory Agreement between the Portfolio
Trust and Bankers Trust dated April 28, 1993 (the "Investment Advisory
Agreement").
BANKERS TRUST COMPANY AND ITS AFFILIATES
Bankers Trust Company, a New York banking corporation with principal
offices at 130 Liberty Street (One Bankers Trust Plaza), New York, New
York 10006, is a wholly owned subsidiary of Bankers Trust New York
Corporation. Bankers Trust conducts a variety of general banking and
trust activities and is a major wholesale supplier of financial
services to the international and domestic institutional market.
As of March 31, 1997, Bankers Trust New York Corporation was the
seventh largest bank holding company in the United States with total
assets of approximately $122 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 80 offices in more than 48 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. Bankers Trust is one of the nation's largest and most
experienced investment managers, with over $233 billion in assets
under management globally. 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's officers have had extensive experience in managing investment
portfolios having objectives similar to those of the Fund and the
Portfolio. Bankers Trust has more than 50 years of experience managing
retirement assets for the nation's largest corporations and
institutions.
Bankers Trust, subject to the supervision and
direction of the Portfolio Trust's Board, manages the Portfolio in
accordance with the Portfolio's investment objective and stated
investment policies, makes investment decisions for the Portfolio,
places orders to purchase and sell securities and other financial
instruments on behalf of the Portfolio and employs professional
investment managers and securities analysts who provide research
services to the Portfolio. Bankers Trust may utilize the expertise of
any of its worldwide subsidiaries and affiliates to assist it in its
role as investment adviser. All orders for investment transactions on
behalf of the Portfolio are placed by Bankers Trust with
broker-dealers and other financial intermediaries that it selects,
including those affiliated with Bankers Trust. A Bankers Trust
affiliate will be used in connection with a purchase or sale of an
investment for the Portfolio only if Bankers Trust believes that the
affiliate's charge for the transaction does not exceed usual and
customary levels. The Portfolio will not invest in obligations,
including Wrapper Agreements, for which Bankers Trust or any of its
affiliates is the ultimate obligor or accepting bank. The Portfolio
may, however, invest in the obligations of correspondents and
customers of Bankers Trust.
The Investment Advisory Agreement
provides for the Portfolio Trust to pay Bankers Trust a fee, accrued
daily and paid monthly, equal to 0.35% per year of the average daily
net assets of the Portfolio. Bankers Trust has indicated that it will
voluntarily waive all but 0.20% of this fee.
Bankers Trust has been advised by its counsel that, in counsel's
opinion, Bankers Trust currently may perform the services for the
Trusts 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.
PORTFOLIO MANAGEMENT Eric Kirsch (CFA), a Managing
Director of Bankers Trust, has been responsible for the day-to-day
investment management of the Portfolio since its inception. Mr. Kirsch
heads the stable value investment group of Bankers Trust's Global
Investment Management business. In this capacity, he manages stable
value portfolios and coordinates fixed income portfolio management and
trading functions with regards to these portfolios' investments. He
joined Bankers Trust in 1980.
Louis R. D'Arienzo, a Vice President and Portfolio Manager of the
structured fixed income group at Bankers Trust, manages the Fixed
Income Securities of the Portfolio. Mr. D'Arienzo has 16 years of
trading and investment experience in structured portfolios and
quantitative analysis of fixed income and derivative securities. He
joined Bankers Trust in 1981.
Bankers Trust investment personnel may invest in securities for their
own account pursuant to a code of ethics that establishes procedures
for personal investing and restricts certain transactions.
ADMINISTRATOR
Under an Administration and Services Agreement with the Trust, Bankers
Trust calculates the NAV per Share of the Fund and generally assists
the Trust Board in all aspects of the administration and operation of
the Fund. This Administration and Services Agreement provides for the
Trust to pay Bankers Trust a fee, accrued daily and paid monthly, to
0.25% per year of the average daily net assets of the Fund.
Under an Administration and Services Agreement with the Portfolio
Trust, Bankers Trust calculates the NAV of the Portfolio and generally
assists the Portfolio in all aspects of the administration and
operation of the Portfolio. This Administration and Services Agreement
provides for the Portfolio to pay Bankers Trust a fee, accrued daily
and paid monthly, equal to 0.05% per year of the Portfolio's average
daily net assets. Under this Administration and Services Agreement,
Bankers Trust may delegate one or more of its responsibilities to
others, including the Distributor, at Bankers Trust's expense.
In addition, subject to certain conditions, Bankers Trust may, out of
its own resources, make ongoing payments to brokerage firms, plan
administrators and fiduciaries, financial institutions (including
banks) and others that facilitate the administration and servicing of
shareholder accounts.
DISTRIBUTOR Edgewood, as Distributor,
serves as the Trust's principal underwriter on a best efforts basis.
In addition, Edgewood and its affiliates provide the Trust with office
facilities, and currently provide administration and distribution
services for other registered investment companies. Edgewood is a New
York corporation and a wholly-owned subsidiary of Federated Investors.
Its principal offices are at Clearing Operations, P.O. Box 897,
Pittsburgh, PA 15230.
CUSTODIAN AND TRANSFER AGENT
Bankers Trust acts as custodian for the assets of the Portfolio and
serves as the Trust's transfer agent (the "Transfer Agent") under the
Administration and Services Agreement with the Trust. It is not
separately compensated for these services and may, at its own expense,
delegate certain services to other service providers.
NET ASSET VALUE
The NAV per Share 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 Day,
Presidents' Day (the third Monday in February), Good Friday, Memorial
Day (the last Monday in May), July 4th, Labor Day (the first Monday in
September), Thanksgiving Day (the last Thursday in November) and
December 25th; and (b) the preceding Friday or the subsequent Monday
when one of the calendar-determined holidays falls on a Saturday or
Sunday, respectively.
The NAV per Share is calculated once on each Valuation Day as of the
close of regular trading on the NYSE (the "Valuation Time"), which is
currently 4:00 p.m., Eastern time, or if the NYSE closes early, at the
time of the early closing. The NAV per Share is computed by dividing
the value of the Fund's assets (I.E., the value of its investment in
the Portfolio and other assets, if any), less all liabilities, by the
total number of its Shares outstanding. The Portfolio's securities and
other assets are valued primarily on the basis of market quotations
or, if quotations are not readily available, by a method that the
Portfolio Trust Board believes accurately reflects fair value.
Pursuant to procedures adopted by the Portfolio Trust Board, the fair
value of a Wrapper Agreement ("Wrapper Value") generally will be equal
to the difference between the Book Value and the market value (plus
accrued interest on the underlying securities) of the applicable
Covered Assets. If the market value (plus accrued interest on the
underlying securities) of the Covered Assets is greater than their
Book Value, the Wrapper Value will be reflected as a liability of the
Portfolio in the amount of the difference, I.E., a negative value,
reflecting the potential liability of the Portfolio to the Wrapper
Provider. If the market value (plus accrued interest on the underlying
securities) of the Covered Assets is less than their Book Value, the
Wrapper Value will be reflected as an asset of the Portfolio in the
amount of the difference, I.E., a positive value, reflecting the
potential liability of the Wrapper Provider to the Portfolio. In
performing its fair value determination, the Portfolio Trust Board
expects to consider the creditworthiness and ability of a Wrapper
Provider to pay amounts due under the Wrapper Agreement. If the
Portfolio Trust Board determines that a Wrapper Provider is unable to
make such payments, that Board may assign a fair value to the Wrapper
Agreement that is less than the difference between the Book Value and
the market value (plus accrued interest on the underlying securities)
of the applicable Covered Assets and the Portfolio might be unable to
maintain NAV stability.
Under procedures adopted by the Trust Board, an NAV per Share later
determined to have been inaccurate for any reason will be
recalculated. Purchases and redemptions made at an NAV per Share
determined to have been inaccurate will be adjusted, although in
certain circumstances, such as where the difference between the
original NAV per Share and the recalculated NAV per Share divided by
the latter is 0.005 ( 1/2 of 1%) or less or shareholder transactions
are otherwise insubstantially affected, action is not required.
SHAREHOLDER AND ACCOUNT POLICIES
ACCOUNT INFORMATION
The Fund is offered solely to Plans that limit their participants'
ability to direct a withdrawal from the Fund to the following
circumstances:
o upon the Plan participant's death, retirement, disability or
termination;
o to fund Plan participant loans and other "in service" withdrawals
made pursuant to the terms of the Plan; and
o for transfers to other Plan investment options that are not
"competing funds." "Competing funds" are any fixed income
investment options with a targeted average duration of three
years or less, or any investment option that seeks to maintain a
stable value per unit or share, including money market funds.
Transfers between the Fund and a non-competing fund will be
required to remain in the non-competing fund for a period of at
least three months before transfer to a competing fund.
Fund Shares will be owned by the Plans, either directly or
beneficially through vehicles such as bank collective funds or
insurance company separate accounts consisting solely of such Plans
(collectively, "Plan Pools"), which will in turn offer the Fund as an
investment option to their participants. Investments in the Fund may
by themselves represent an investment option for a Plan or may be
combined with other investments as part of a pooled investment option
for the Plan. In the latter case, the Fund will require Plans to
provide information regarding the withdrawal order and other
characteristics of any pooled investment option in which the Shares
are included prior to a Plan's initial investment in the Fund.
Thereafter, the Fund will require the Plan to provide information
regarding any changes to the withdrawal order and other
characteristics of the pooled investment option before such changes
are implemented. The Fund in its sole discretion may decline to sell
Shares to Plans if the governing withdrawal order or other
characteristics of any pooled investment option in which the Shares
are included is determined at any time to be disadvantageous to the
Fund.
Plan participants should contact their Plan administrator
or the organization that provides recordkeeping services if they have
questions concerning their account. Plan administrators and
fiduciaries should call 1-800-677-7596 for information regarding a
Plan's account with the Fund.
TRANSACTIONS IN FUND SHARES
Plan participant-directed purchases, exchanges and redemptions of
Shares are handled in accordance with each Plan's specific provisions.
Plans may have different provisions with respect to the timing and
method of purchases, exchanges and redemptions by Plan participants.
Plan participants should contact their Plan administrator for details
concerning how they may direct transactions in Shares. It is the
responsibility of the Plan administrator or other Plan service
provider to forward instructions for these transactions to Bankers
Trust.
Purchase orders for Shares that are received by Bankers
Trust, as the Transfer Agent, or other authorized agent of the Fund,
prior to the Valuation Time on any Valuation Day will be effective at
that Valuation Time. The Trust and the Distributor reserve the right
to reject any purchase order. Certificates for Shares will not be
issued. Redemption requests will be processed at the NAV next
determined after a request for redemption is received in good order by
Bankers Trust. The Fund reserves the right to require written
verification of whether a redemption request is directed by Plan
participants in accordance with Plan provisions or is otherwise made
by a withdrawing Plan and to establish the authenticity of this
information before processing a redemption request. Normally, the Fund
will make payment for all Shares redeemed under this procedure within
one business day after a request is received. In no event will payment
be made more than seven days after receipt of a redemption request in
good order. The Fund may suspend the right of redemption or postpone
the date at times when both the NYSE and the Fund's custodian bank
(Bankers Trust) are closed, or under any emergency circumstances as
determined by the SEC.
The Fund reserves the right to honor any request for redemption by
making payment in whole or in part in securities and in Wrapper
Agreements, selected solely in the discretion of Bankers Trust. To the
extent that payment is made in securities, a shareholder may incur
brokerage expenses in converting these securities into cash. To the
extent that a redemption in kind includes Wrapper Agreements, the Fund
will obtain from the Portfolio and assign to the redeeming Plan or
Plan Pool one or more Wrapper Agreements issued by the Wrapper
Providers covering the Portfolio Securities distributed in kind. The
terms and conditions of Wrapper Agreements provided to a redeeming
shareholder will be the same or substantially similar to the terms and
conditions of the Wrapper Agreements held by the Portfolio. The
redeeming Plan or Plan Pool must execute the assigned Wrapper
Agreement(s) in order to obtain the benefits provided thereunder.
Wrapper Agreements are not liquid securities and may impose
restrictions on termination or withdrawal, including notice periods of
one year or longer for non-participant directed withdrawals. The
maintenance of Wrapper Agreements distributed in kind will also
require that a Plan or Plan Pool pay fees to the Wrapper Provider
directly, rather than through the Fund, and that the securities
covered by the Wrapper Agreement continue to have a specified duration
or maturity, consist of specified types of securities or be of a
specified investment quality. Accordingly, although a redeeming Plan
or Plan Pool may freely buy and sell securities covered by a Wrapper
Agreement, its management of the securities must be consistent with
Wrapper Agreement requirements in order for it to obtain the benefits
of the Wrapper Agreement. Moreover, a Plan or Plan Pool may be
required to obtain at its own expense the services of a qualified
investment manager to execute the Wrapper Agreement and to manage the
securities distributed in kind in conformity with the Wrapper
Agreement provisions and may incur additional administrative expenses
in managing this portfolio. Please see the SAI for additional
information concerning Wrapper Agreements and redemptions in kind.
The Fund has elected, however, to redeem Shares solely in cash up to
the lesser of $500,000 or 1% of the NAV of the Fund during any 90-day
period for any one shareholder. The Fund anticipates that it will
exercise the right to redeem in kind in the case of redemptions of
Shares that are not directed by Plan participants and that are made on
less than twelve months' prior written notice to Bankers Trust. In
such case, or in the case where 5% or more of Plan assets invested in
the Fund are redeemed on any business day, a redemption request will
not be considered received in good order unless the Plan has provided
to Bankers Trust: (i) its current name; (ii) a listing of its
trustee(s); (iii) copies of Plan documents or summaries thereof
describing the investment options available to and the restrictions
imposed upon Plan participants; (iv) information indicating the
allocation of Plan assets among available investment options; (v) for
the immediately preceding three year period, a monthly summary of all
cash flow activity for the Plan's investment option in which the
Shares are included, detailed by contribution and benefit payment
amounts and amounts transferred to and from other investment options;
and (vi) in the case of Plans subject to ERISA, identification of a
"Qualified Professional Asset Manager" within the meaning of
Department of Labor Prohibited Transaction Class Exemption 84-14
(March 8, 1984). Redemptions of Shares that are not directed by Plan
participants and that are made on less than twelve months' prior
written notice will also be subject to a redemption fee, payable to
the Fund, of 2.0% of the proceeds of the redemption, whether in kind
or in cash. However, this redemption fee shall not apply to
redemptions, the proceeds of which are immediately reinvested in
another class of shares of the Fund or in interests in another
investment company or entity that invests exclusively in the
Portfolio. The Fund reserves the right to withhold from redemption
proceeds the 2.0% redemption fee if 5% or more of Plan assets invested
in the Fund are redeemed on any business day pending a determination
of whether the redemption fee is applicable. The Fund may incur costs
in obtaining new Wrapper Agreements from Wrapper Providers to be
distributed in kind. These costs will be payable from, and are not
expected to exceed, the 2.0% redemption fee. The redemption price may
be more or less than the shareholder's cost, depending upon the market
value of the Fund's assets (its interest in the Portfolio) at the
time.
The offering price is the NAV per Share. Shares may be purchased only
in those states where they may be lawfully sold.
DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS
The Fund intends to distribute all of its net investment income and
net capital gains, if any, to its shareholders each year. Dividends
from net investment income are declared daily and are paid monthly,
and any net capital gains are distributed annually. An additional
annual distribution ("Additional Distribution") may be paid to satisfy
the tax requirements (outlined below) that the Fund distribute each
year substantially all of its investment company taxable income (see
"Tax Considerations").
Dividends and other distributions paid on each class of the Fund's
shares are calculated at the same time and in the same manner.
Dividends on the shares may be expected to differ based upon each
class's respective expenses. Dividends and other distributions are
automatically reinvested in additional Shares unless the Plan
participant directs otherwise.
The Fund may declare and pay dividends in amounts which are not equal
to the amount of the net investment income it actually earns.
Consequently, in any year the amount actually distributed may differ
from the income earned. If, for any year, those distributions exceed
the income earned, the excess may be considered a return of capital.
On the other hand, if the income earned exceeds the amount of the
dividends distributed, the Fund may make an Additional Distribution of
that excess. To enable the Fund to maintain a stable NAV per Share in
the event of an Additional Distribution, the Trust Board may declare,
effective on the ex-distribution date of an Additional Distribution, a
reverse split of the Shares in an amount that will cause the total
number of Shares held by each shareholder, including Shares acquired
on reinvestment of that distribution, to remain the same as before
that distribution was paid.
For example, if the Fund declares an Additional Distribution of
10(cent) per Share at a time when the NAV per Share is $10.00, a
shareholder holding one Share would receive 0.01 additional Shares on
reinvestment of that distribution. If there were no reverse split, the
per Share NAV of the 1.01 Shares held by the shareholder would be
approximately $9.90, and the aggregate value thereof would be $10.00.
If a 1.01-for-1 reverse Share split were declared, however, the
shareholder's holdings would be consolidated back into one Share
having an NAV of $10.00. Thus, a reverse Share split will not affect
the value of the total holdings of a shareholder.
TAX CONSIDERATIONS
The Fund intends to qualify to be treated as a regulated investment
company under the Internal Revenue Code of 1986, as amended.
As a regulated investment company, the Fund will not be subject to
U.S. federal income tax on its investment company taxable income
(generally consisting of net investment income and the excess of net
short-term capital gain over net long-term capital loss, if any) and
net capital gain (the excess of net long-term capital gain over net
short-term capital loss), if any, that it distributes to its
shareholders. The Fund intends to distribute to its shareholders all
of its investment company taxable income and net capital gain at least
annually, if necessary through Additional Distributions, and therefore
does not anticipate incurring any federal income tax liability.
For Plan participants utilizing the Fund as an investment option under
their Plan, dividend and capital gain distributions from the Fund
generally will not be subject to current taxation, but will accumulate
on a tax-deferred basis. In general, Plans are governed by a complex
set of tax rules. See your Plan administrator, your plan's Summary
Plan Description, and/or a professional tax adviser regarding the tax
consequences of your participation in your Plan and of any Plan
contributions or withdrawals.
ADDITIONAL INFORMATION ABOUT THE TRUSTS
The Fund is a mutual fund: an investment that pools shareholders'
money and invests it toward a specified goal. The Fund is a separate
series of the Trust, a Massachusetts business trust organized pursuant
to a Declaration of Trust dated February 28, 1992. The Portfolio is a
separate subtrust of the Portfolio Trust, a New York master trust fund
organized pursuant to a Declaration of Trust dated March 27, 1993.
Each Trust reserves the right to add additional series/subtrusts in
the future. There are currently no other funds investing in the
Portfolio. Other funds investing in the Portfolio may have sales
charges and/or different expenses than the Fund, which may affect
performance. The Trust also reserves the right to issue additional
classes of shares of the Fund. Each class represents an identical
interest in the Fund's investment portfolio. As a result, the classes
have the same rights, privileges and preferences, except with respect
to: (1) the designation of each class; (2) the expenses allocated
exclusively to each class; and (3) voting rights on matters
exclusively affecting a single class. The Trust Board does not
anticipate that there will be any conflicts among the interests of the
holders of the different classes and will take appropriate action if
any such conflict arises. For more information about the different
classes of shares of the Fund, please call 1-800-677-7596.
Each Trust may hold special meetings and mail proxy materials. These
meetings may be called to elect or remove Trustees, change fundamental
policies, approve the Portfolio's investment advisory agreement, or
for other purposes. Shareholders not attending a Trust meeting are
encouraged to vote by proxy. The Transfer Agent will mail proxy
materials in advance, including a voting card and information about
the proposals to be voted on.
When matters are submitted for shareholder vote, shareholders of the
Fund will have one vote for each full Share held and proportionate,
fractional votes for fractional Shares held. A separate vote of the
Fund is required on any matter affecting only the Fund on which
shareholders are entitled to vote; shareholders of the Fund are not
entitled to vote on Trust matters that do not affect the Fund and do
not require a separate vote of the Fund. All series of the Trust will
vote together on certain matters, such as electing Trustees or
approving independent public auditors. Under certain circumstances,
the shareholders of one of series of the Trust could control the
outcome of these votes. There normally will be no meetings of
shareholders for the purpose of electing Trustees unless and until
such time as less than a majority of Trustees holding office has been
elected by shareholders, at which time the Trustees then in office
will call a shareholders' meeting for the election of Trustees. Any
Trustee may be removed from office upon the vote of shareholders
holding at least two-thirds of the Trust's outstanding shares at a
meeting called for that purpose. The Trustees are required to call
such a meeting upon the written request of shareholders holding at
least 10% of the Trust's outstanding shares. The Trust will also
assist shareholders in communicating with one another as provided for
in the 1940 Act.
Each subtrust of the Portfolio Trust, including the Portfolio, will
vote separately on any matter involving that subtrust. Holders of
interests in all the subtrusts of the Portfolio Trust, however, will
vote together to elect Trustees of the Portfolio Trust and for certain
other matters. The subtrusts of the Portfolio Trust will vote together
or separately on matters in the same manner, and in the same
circumstances, as do the series of the Trust. As with the Trust, the
investors in one or more subtrusts of the Portfolio Trust could
control the outcome of these votes. No subtrust of the Portfolio Trust
has any preference over any other subtrust.
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's incurring financial loss on account of shareholder
liability is limited to circumstances in which both inadequate
insurance existed and the Trust itself was unable to meet its
obligations.
The Portfolio Trust was organized as a trust under the laws of the
State of New York. The Portfolio Trust's Declaration of Trust provides
that the entities investing in the Portfolio (E.G., investment
companies such as the Fund and common and commingled trust funds) will
each be liable for all obligations of the Portfolio. However, the risk
of the Fund's incurring financial loss on account of such liability is
limited to circumstances in which both inadequate insurance existed
and the Portfolio itself was unable to meet its obligations.
Accordingly, the Trustees of the Trust believe that neither the Fund
nor its shareholders will be adversely affected by reason of the
Fund's investing in the Portfolio.
<PAGE>
BT PYRAMID MUTUAL FUNDS
BT PRESERVATIONPLUS FUND
SERVICE CLASS
INVESTMENT ADVISER OF THE PORTFOLIO AND ADMINISTRATOR
BANKERS TRUST COMPANY
130 Liberty Street
(One Bankers Trust Plaza)
New York, New York 10006
DISTRIBUTOR
EDGEWOOD SERVICES, INC.
Clearing Operations
P.O. Box 897
Pittsburgh, PA 15230-0897
CUSTODIAN AND TRANSFER AGENT
BANKERS TRUST COMPANY
130 Liberty Street
(One Bankers Trust Plaza)
New York, New York 10006
INDEPENDENT ACCOUNTANTS
ERNST & YOUNG LLP
787 Seventh Avenue
New York, NY 10019
COUNSEL
WILLKIE FARR & GALLAGHER
153 East 53rd Street
New York, NY 10022
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus, the SAI
or the Fund's official sales literature in connection with the
offering of the Shares and, if given or made, such other information
or representations must not be relied on as having been authorized by
the Fund. This Prospectus does not constitute an offer in any state in
which, or to any person to whom, such offer may not lawfully be made.
Cusip #055847834
STA495300 (8/97)
