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- BT PYRAMID MUTUAL FUNDS -
-------------------------
BT INVESTMENT
EQUITY APPRECIATION FUND
-------------------------
ANNUAL REPORT
-----------------
SEPTEMBER-1997
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BT INVESTMENT EQUITY APPRECIATION FUND
TABLE OF CONTENTS
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LETTER TO SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
BT INVESTMENT EQUITY APPRECIATION FUND
Schedule of Portfolio Investments . . . . . . . . . . . . . . . . . . . . .5
Statement of Assets and Liabilities . . . . . . . . . . . . . . . . . . . .7
Statement of Operations . . . . . . . . . . . . . . . . . . . . . . . . . .7
Statement of Changes in Net Assets. . . . . . . . . . . . . . . . . . . . .8
Financial Highlights. . . . . . . . . . . . . . . . . . . . . . . . . . . .8
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . .9
Report of Independent Accountants . . . . . . . . . . . . . . . . . . . . 11
2
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BT INVESTMENT EQUITY APPRECIATION FUND
LETTER TO SHAREHOLDERS
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We are pleased to present you with this annual report for the BT Investment
Equity Appreciation Fund, providing a review of the market, the portfolio, and
our outlook, as well as a complete financial summary of the Fund's operations
and a listing of its holdings.
The BT Investment Equity Appreciation Fund (the "Fund") had a total return of
15.82%* for the twelve months ended September 30, 1997, as compared to 39.10%
for the S&P MidCap 400 Index** and 26.88% for the Lipper Growth Average+. Since
its inception on October 12, 1993, the Fund delivered a total return of 84.17%
cumulatively, or 16.64% annualized as of September 30, 1997.
MARKET ACTIVITY
Overall, the last fiscal year has been disappointing from a performance
perspective, due to the severe underperformance of the mid capitalization growth
stocks in the first part of the year. The first seven months ended April 30,
1997 may best be characterized by a "glass half empty" point of view in the
midcap growth arena, as investors' concerns regarding inflation, corporate
earnings, the direction of interest rates, and market valuation levels
dominated. As a result, investors tended to focus more on large capitalization
and more value-oriented companies. These stocks, then, significantly
outperformed the midcap growth stocks during these seven months. What finally
changed was the Federal Reserve Board's rate hike on March 25, 1997. This set
the stage for what turned into a dramatic turnaround in midcap growth stocks.
There are three major factors that came together at this time, which led to this
rebound.
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OBJECTIVE
Seeks capital growth over the long term through investment in medium-sized
companies that show growth potential.++
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First, relative valuations in the midcap market had reached their lowest levels
since 1991 as compared to large caps, due to severe and somewhat indiscriminate
selling. Many very good growth companies were trading at significant discounts
to the levels of six to nine months previous with no change in business
fundamentals. Second, earnings reports from the first calendar quarter showed
that growth rates were still relatively robust and actually started to
accelerate relative to the large caps after over a year of underperformance.
Third, there was a significant shift in investor sentiment, presaged by the
Federal Reserve Board's rate hike in March and the weaker than expected economic
reports in April, which gave investors confidence that the Fed would not raise
rates again.
The combination of reasonable valuation levels, improving relative earnings
growth, and positive investor sentiment led to a strong rebound in the midcap
stocks. Overall, for the period from May through September 1997, midcap stocks
outperformed the large cap segment of the market, though they lagged the small
cap sector somewhat. It is important to note, however, that the growth stocks
within the midcap sector lagged the midcap stocks in general, making it
difficult for growth investors to outperform the benchmark during this period.
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INVESTMENT INSTRUMENTS
Primarily common stocks of medium-sized U.S. corporations and, to a lesser
extent, foreign corporations.
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INVESTMENT REVIEW
While the Fund's relative performance was hampered by its investment style
during the first seven months of the fiscal year, the growth style recovered
enough to perform in line during the midcap rebound of the last five months. In
fact, the Fund outperformed the midcap stocks in general during the rebound,
even though the average midcap growth stock did not outperform the average
midcap stock. Relative sector positioning and effective stock picking also
added value during the last five months of the year. More specifically, the
Fund benefited from overweighted positions in technology, energy, communications
services, and consumer discretionary stocks as well as from underweighted
positions in utilities and basic industries. To a certain degree, performance
was mitigated by an underweighted position in the strong performing sector of
financials.
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TEN LARGEST STOCK HOLDINGS
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U.S. Filter Corp. Starwood Lodging Trust
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McKesson Corp. Cooper Cameron Corp.
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Ace Ltd. Elan Corp., ADR
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ASM Lithography Holding NV Mylan Laboratories
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Compuware Corp. Everest Reinsurance Holdings, Inc.
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MANAGER OUTLOOK
That midcap growth stocks have exhibited fairly strong performance over the last
five months is very encouraging. We believe that these stocks are well
positioned for continued good performance as we head into 1998. The three macro
factors remain in place--reasonable valuations, good relative earnings growth,
and positive investor sentiment--and also, midcap growth stocks are now more
relatively attractive because they have not rebounded as much as either the
small cap growth stocks or the large caps. The Fund has performed well during
the rebound since May, and we believe that it continues to be well positioned in
the midcap growth names for the near future.
We are also optimistic about the midcap growth stocks over the longer term.
Although there can be periods of underperformance as we experienced this year,
it has been shown that not only do midcap growth stocks tend to have higher
earnings growth rates than large caps, but they also tend to outperform the
large caps over the long term. In addition, it has been shown that our
investment style and disciplined process have enabled the Fund to outperform the
midcap stocks in general over the long term, and thus we have strictly adhered
to our growth style and investment process. This hindered performance during
the the painful period, but it has been rewarding during the rebound.
- ---------------
* Performance quoted represents past performance and is not indicative of
future results. Investment return and principal value will fluctuate, so
that an investor's shares, when redeemed, may be worth more or less than
their original cost.
** The S&P 500 MiidCap 400 Index is an unmanaged, capitalization-weighted
index that measures the peformance of the mid-range of the U.S. stock
markets. Indexes are unmanaged, and investments cannot be made in an index.
+ Lipper figures represent the average of the total returns reported by all
of the mutual funds designated by Lipper Analytical Services, Inc., as
falling into the respective categories indicated. These figures do not
reflect sales charges.
++ Mid sized company stocks are more volatile and inolve more risk to
principal than large company stocks.
3
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BT INVESTMENT EQUITY APPRECIATION FUND
LETTER TO SHAREHOLDERS
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DIVERSIFICATION OF PORTFOLIO INVESTMENTS
By Theme as of September 30, 1997
(percentages are based on market value)
[CHART]
New Consumer 5%
Stores of Value 5%
New Healthcare Paradigm 6%
The Ubiquitous Semiconductor 8%
Life Sciences Revolution 8%
Our Strengthening Financial Structure 10%
Telecommunications 10%
Environmental Crisis 5%
Client-Server Computing 5%
Cash 4%
Other 21%+
Energizing the Globe 13%
- ---------------
+ Includes themes with weightings of less than 4%.
We continue to use extensive fundamental research, as well as our thematic
approach and screening process, to identify attractive investment opportunities
in unrecognized growth companies and sectors. We remain focused on companies
that have strong, consistent revenue and earnings growth, which are selling at
compelling valuations relative to their growth rates. We have confidence that
over the long term, these names will be rewarded for their sound fundamentals.
Finally, we continue to adhere to our sell discipline to help mitigate risk and
to use the volatility of the marketplace to our investors' advantage by
initiating or adding to positions on weakness.
We are disappointed with the Fund's performance over the last year, but we also
believe that the causes are both explainable and short term in nature. We are
encouraged regarding the outlook, because the Fund has shown excellent
performance during the rebound and is well positioned for what we believe will
be a continually improving environment for midcap growth stock investing.
We will continue to monitor economic conditions and their effect on financial
markets, as we seek capital growth over the long term.
We value your ongoing support of the BT Investment Equity Appreciation Fund and
look forward to continuing to serve your investment needs in the years ahead.
/s/ Anthony Takazawa
Anthony Takazawa
Portfolio Manager of the
BT INVESTMENT EQUITY APPRECIATION FUND
September 30, 1997
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BT INVESTMENT EQUITY APPRECIATION FUND
PERFORMANCE COMPARISON
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COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE BT INVESTMENT
EQUITY APPRECIATION FUND AND THE S&P MIDCAP 400 INDEX SINCE OCTOBER 31, 1993.
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TOTAL RETURN FOR THE PERIOD
ENDED SEPTEMBER 30, 1997
One year Since 10/12/93*
-------- ---------------
15.82% 16.64%**
* The Fund's inception date.
** Annualized.
Investment return and principal value may fluctuate so that shares, when
redeemed, may be worth more or less than their original cost.
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[GRAPH]
BT Investment Equity S&P MidCap
Appreciation Fund - $18,603 400 Index - $20,199
--------------------------- -------------------
Oct-93 10000 10000
Dec-93 9899 10233
Mar-94 9657 9844
Jun-94 9051 9485
Sep-94 9939 10217
Dec-94 10242 9866
Mar-95 10909 10664
Jun-95 12111 11605
Sep-95 14283 12737
Dec-95 14095 12919
Mar-96 14262 13715
Jun-96 15354 14110
Sep-96 16061 14521
Dec-96 15448 15400
Mar-97 13679 15171
Jun-97 15771 17408
Sep-97 18603 20199
Past performance is not indicative of future performance.
4
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BT INVESTMENT EQUITY APPRECIATION FUND
SCHEDULE OF PORTFOLIO INVESTMENTS SEPTEMBER 30, 1997
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Shares Description Value
------ ----------- -----
COMMON STOCKS - 94.25%
AMERICA'S CHANGING LEISURE TIME - 3.49%
28,300 Carnival Corp.-Cl. A . . . . . . . . . . . $1,308,875
43,700 Royal Caribbean Cruises, Ltd.. . . . . . . 1,911,875
47,100 Starwood Lodging Trust . . . . . . . . . . 2,705,306
----------
5,926,056
----------
----------
AMERICA'S INDUSTRIAL RENAISSANCE - 1.77%
33,500 BE Aerospace, Inc. (a) . . . . . . . . . . 1,206,000
40,648 Sunbeam Corporation, Inc.. . . . . . . . . 1,803,755
----------
3,009,755
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CLIENT SERVER COMPUTING - 4.51%
45,200 Autodesk, Inc. . . . . . . . . . . . . . . 2,050,950
45,172 Compuware Corp. (a). . . . . . . . . . . . 2,732,906
83,600 Platinum Technology, Inc. (a). . . . . . . 1,797,400
28,400 Quantum Corp. (a). . . . . . . . . . . . . 1,088,075
----------
7,669,331
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----------
CONSOLIDATING AMERICA - 3.04%
27,600 Clear Channel Communications, Inc. (a) . . 1,790,550
36,600 MSC Industrial Direct (a). . . . . . . . . 1,683,600
64,750 Outdoor Systems, Inc. (a). . . . . . . . . 1,699,688
----------
5,173,838
----------
----------
ENERGIZING THE GLOBE - 12.18%
35,000 AES Corp. (a). . . . . . . . . . . . . . . 1,531,250
27,966 BJ Services Co. (a). . . . . . . . . . . . 2,076,476
37,176 Cooper Cameron Corp. (a) . . . . . . . . . 2,669,702
48,000 ENSCO International, Inc.. . . . . . . . . 1,893,000
48,900 Falcon Drilling Co., Inc. (a). . . . . . . 1,726,781
62,100 Global Industries Ltd. (a) . . . . . . . . 2,476,237
49,700 Nabors Industries, Inc. (a). . . . . . . . 1,935,194
58,500 Noble Drilling Corp. (a) . . . . . . . . . 1,886,625
29,300 Nuevo Energy Co. (a) . . . . . . . . . . . 1,402,737
133,300 Santa Fe Energy Resources, Inc. (a). . . . 1,666,250
39,400 United Meridian Corp. (a). . . . . . . . . 1,447,950
----------
20,712,202
----------
----------
ENVIRONMENTAL CRISIS - 4.71%
76,500 Allied Waste Industries, Inc. (a). . . . . 1,463,063
30,900 Culligan Water Technologies, Inc. (a). . . 1,421,400
40,078 USA Waste Services, Inc. (a) . . . . . . . 1,598,110
81,845 U.S. Filter Corp. (a). . . . . . . . . . . 3,524,450
----------
8,007,023
----------
----------
FLOURISHING IN THE MANAGED CARE
ENVIRONMENT - 1.84%
36,600 Concentra Managed Care, Inc. (a) . . . . . 1,292,438
85,200 MedPartners, Inc. (a). . . . . . . . . . . 1,826,475
----------
3,118,913
----------
----------
INTERACTIVE MEDIA - 2.66%
44,100 Electronic Arts, Inc. (a). . . . . . . . . 1,703,363
89,000 Metromedia International Group, Inc. (a) . 1,079,125
63,300 Snyder Communications, Inc. (a). . . . . . 1,740,750
----------
4,523,238
----------
----------
LIFE ON THE NET - 2.79%
53,200 E*TRADE Group, Inc. (a). . . . . . . . . . 2,500,400
62,515 Sterling Commerce, Inc. (a). . . . . . . . 2,246,633
----------
4,747,033
----------
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LIFE SCIENCES REVOLUTION - 8.32%
30,600 Agouron Pharmaceuticals, Inc. (a). . . . . $1,472,625
61,300 BioChem Pharma, Inc. (a) . . . . . . . . . 1,930,950
22,300 Dura Pharmaceuticals, Inc. (a) . . . . . 972,837
53,118 Elan Corp., ADR (a). . . . . . . . . . . . 2,659,220
29,100 Immunex Corp. (a). . . . . . . . . . . . . 1,956,975
116,000 Mylan Laboratories . . . . . . . . . . . . 2,602,750
9,900 Perkin-Elmer Corp. . . . . . . . . . . . . 723,319
30,400 Watson Pharmaceuticals, Inc. (a) . . . . . 1,816,400
----------
14,135,076
----------
----------
MANAGING THE INFORMATION AGE - 1.73%
53,200 Cambridge Technology Partners, Inc. (a). . 1,905,225
32,600 Keane, Inc. (a). . . . . . . . . . . . . . 1,035,050
----------
2,940,275
----------
----------
MOVE TO OUTSOURCING - 3.72%
61,600 AccuStaff, Inc. (a). . . . . . . . . . . . 1,940,400
57,900 Coca-Cola Enterprises, Inc.. . . . . . . . 1,559,681
38,400 Corporate Express, Inc. (a). . . . . . . . 811,200
45,112 Danka Business Systems, ADR. . . . . . . . 2,007,484
----------
6,318,765
----------
----------
NEW CONSUMER - 4.81%
34,728 Jones Apparel Group, Inc. (a). . . . . . . 1,875,312
36,100 Liz Claiborne, Inc.. . . . . . . . . . . . 1,983,244
65,100 Polo Ralph Lauren Corp.-Cl. A (a). . . . . 1,704,806
20,100 Stage Stores, Inc. (a) . . . . . . . . . . 866,813
56,900 TJX Companies, Inc.. . . . . . . . . . . . 1,739,006
----------
8,169,181
----------
----------
NEW HEALTHCARE PARADIGM - 6.06%
17,500 Arterial Vascular Engineering, Inc. (a). . 971,250
49,800 HBO & Co.. . . . . . . . . . . . . . . . . 1,879,950
72,754 HEALTHSOUTH Corp. (a). . . . . . . . . . . 1,941,622
34,300 McKesson Corp. . . . . . . . . . . . . . . 3,496,456
45,500 Safeskin Corp. (a) . . . . . . . . . . . . 2,019,062
----------
10,308,340
----------
----------
OUR STRENGTHENING FINANCIAL STRUCTURE - 9.68%
36,500 Ace Ltd. . . . . . . . . . . . . . . . . . 3,431,000
62,500 Everest Reinsurance Holdings, Inc. . . . . 2,562,500
8,600 Finova Group, Inc. . . . . . . . . . . . . 813,775
46,200 Frontier Insurance Group, Inc. . . . . . . 1,755,600
80,700 HCC Insurance Holdings, Inc. . . . . . . . 2,143,594
17,400 Mercury General Corp.. . . . . . . . . . . 1,522,500
47,300 Ocwen Financial Corp. (a). . . . . . . . . 1,992,512
32,000 Provident Companies, Inc.. . . . . . . . . 2,238,000
----------
16,459,481
----------
----------
RETURN TO HOME OWNERSHIP - 0.36%
32,800 Furniture Brands International, Inc. (a) . 619,100
----------
SPECIAL SITUATIONS - 0.45%
27,000 Ispat International NV-Cl. A (a) . . . . . 772,875
----------
STORES OF VALUE - 4.86%
70,784 Borders Group, Inc. (a). . . . . . . . . . 1,946,560
35,600 Brylane, Inc. (a). . . . . . . . . . . . . 1,633,150
44,650 Consolidated Stores Corp. (a). . . . . . . 1,869,719
58,750 Dollar General Corp. . . . . . . . . . . . 2,001,172
24,000 Linens 'N Things, Inc. (a) . . . . . . . . 814,500
----------
8,265,101
----------
----------
See Notes to Financial Statements on Pages 9 and 10
5
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BT INVESTMENT EQUITY APPRECIATION FUND
SCHEDULE OF PORTFOLIO INVESTMENTS SEPTEMBER 30, 1997
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Shares Description Value
------ ----------- -----
TELECOMMUNICATIONS - 9.74%
22,000 Advanced Fibre Communications (a). . . . . $ 902,000
45,600 Brooks Fiber Properties, Inc. (a). . . . . 2,128,950
21,300 Ciena Corp. (a). . . . . . . . . . . . . . 1,055,016
32,700 Comverse Technology, Inc. (a). . . . . . . 1,724,925
46,200 DSC Communications Corp. (a) . . . . . . . 1,244,512
70,100 General Cable Corp. (a). . . . . . . . . . 2,488,550
50,277 McLeod, Inc.-Cl. A (a) . . . . . . . . . . 1,982,799
33,800 Newbridge Networks Corp. (a) . . . . . . . 2,023,775
24,800 Qwest Communications International, Inc. (a) 1,143,900
41,599 Teleport Communications Group, Inc.-Cl. A (a) 1,866,755
----------
16,561,182
----------
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THE UBIQUITOUS SEMICONDUCTOR - 7.53%
53,800 Analog Devices, Inc. (a) . . . . . . . . . 1,802,300
34,400 ASM Lithography Holding NV (a) . . . . . . 3,397,000
54,200 Cymer, Inc. (a). . . . . . . . . . . . . . 1,483,725
22,000 General Semiconductor, Inc. (a). . . . . . 283,250
26,300 KLA Instruments Corp. (a). . . . . . . . . 1,776,894
30,700 Lam Research (a) . . . . . . . . . . . . . 1,427,550
43,000 PMC Sierra, Inc. (a) . . . . . . . . . . . 1,096,500
30,200 Xilinx, Inc. (a) . . . . . . . . . . . . . 1,528,875
----------
12,796,094
----------
----------
TOTAL COMMON STOCKS (Cost $120,956,945). . . . . . . . . . . 160,232,859
----------
PREFERRED STOCK CONVERTIBLE - 1.21%
ENERGIZING THE GLOBE - 1.21%
30,200 AES Trust I-Ser. A, 5.375%, 3/31/27
(Cost $1,510,000) . . . . . . . . . . . . . . $ 2,061,150
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SHORT TERM INSTRUMENT - 4.17%
MUTUAL FUNDS - 4.17%
7,079,784 BT Institutional Cash Management Fund,
(Cost $7,079,784) . . . . . . . . . . . . . . 7,079,784
-----------
TOTAL INVESTMENTS (Cost $129,546,729). . . . . . . 99.63% 169,373,793
Assets in Excess of Other Liabilities. . . . . . . 0.37% 634,521
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NET ASSETS . . . . . . . . . . . . . . . . . . . .100.00% $ 170,008,314
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- --------------
(a) Non-Income Producing Security
The following abbreviation is used in portfolio descriptions:
ADR -- American Depository Receipt
See Notes to Financial Statements on Pages 9 and 10
6
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BT INVESTMENT EQUITY APPRECIATION FUND
STATEMENT OF ASSETS AND LIABILITIES SEPTEMBER 30, 1997
- --------------------------------------------------------------------------------
ASSETS
Investments, at Value (Cost of $129,546,729) . . . . . . . $ 169,373,793
Receivable for Securities Sold . . . . . . . . . . . . . . 3,753,210
Receivable for Shares of Beneficial Interest Subscribed. . 10,467
Dividends and Interest Receivable. . . . . . . . . . . . . 55,985
Prepaid Expenses and Other . . . . . . . . . . . . . . . . 11,746
-------------
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . 173,205,201
-------------
-------------
LIABILITIES
Payable for Securities Purchased . . . . . . . . . . . . . 2,186,667
Payable for Shares of Beneficial Interest Redeemed . . . . 22,323
Due to Custodian . . . . . . . . . . . . . . . . . . . . . 835,742
Due to Bankers Trust . . . . . . . . . . . . . . . . . . . 122,968
Accrued Expenses and Other . . . . . . . . . . . . . . . . 29,187
-------------
Total Liabilities. . . . . . . . . . . . . . . . . . . . . . 3,196,887
-------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . $ 170,008,314
-------------
-------------
COMPOSITION OF NET ASSETS
Paid-in Capital. . . . . . . . . . . . . . . . . . . . . . $ 124,077,002
Accumulated Net Realized Gain from
Investment Transactions. . . . . . . . . . . . . . . . . . 4,466,623
Net Unrealized Appreciation on Investments . . . . . . . . 41,464,689
-------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . $ 170,008,314
-------------
-------------
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
PER SHARE (net assets divided by shares outstanding). . . . $ 16.70
-------------
-------------
SHARES OUTSTANDING ($0.001 par value per share,
unlimited number of shares of beneficial interest
authorized) . . . . . . . . . . . . . . . . . . . . . . . . 10,179,900
-------------
-------------
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STATEMENT OF OPERATIONS FOR THE YEAR ENDED SEPTEMBER 30, 1997
- --------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends (net of foreign withholding tax of $3,014) . . . $ 346,213
Interest . . . . . . . . . . . . . . . . . . . . . . . . . 560,105
-------------
TOTAL INVESTMENT INCOME. . . . . . . . . . . . . . . . . . . 906,318
-------------
EXPENSES
Advisory Fees. . . . . . . . . . . . . . . . . . . . . . . 971,676
Administration and Services Fees . . . . . . . . . . . . . 747,443
Professional Fees. . . . . . . . . . . . . . . . . . . . . 26,500
Shareholder Reports. . . . . . . . . . . . . . . . . . . . 19,000
Registration Fees. . . . . . . . . . . . . . . . . . . . . 18,757
Trustees Fees. . . . . . . . . . . . . . . . . . . . . . . 8,140
Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . 7,861
-------------
Total Expenses . . . . . . . . . . . . . . . . . . . . . . 1,799,377
Less Expenses Absorbed by Bankers Trust. . . . . . . . . . (304,491)
Net Expenses . . . . . . . . . . . . . . . . . . . . . . 1,494,886
-------------
NET INVESTMENT LOSS. . . . . . . . . . . . . . . . . . . . . (588,568)
-------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net Realized Gain from Investment Transactions. . . . . . 5,456,749
Net Change in Unrealized Appreciation on Investments. . . 15,660,007
-------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS. . . . . . . 21,116,756
-------------
NET INCREASE IN NET ASSETS FROM OPERATIONS . . . . . . . . . $ 20,528,188
-------------
See Notes to Financial Statements on Pages 9 and 10
7
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BT INVESTMENT EQUITY APPRECIATION FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE FOR THE
YEAR ENDED YEAR ENDED
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
------------------ ------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS
Net Investment Loss. . . . . . . . . . . . . . . . $ (588,568) $ (522,948)
Net Realized Gain from Investment Transactions . . 5,456,749 12,547,154
Net Change in Unrealized Appreciation
on Investments. . . . . . . . . . . . . . . . . . 15,660,007 4,988,588
------------ -------------
Net Increase in Net Assets from Operations . . . . . 20,528,188 17,012,794
------------ -------------
DISTRIBUTIONS TO SHAREHOLDERS
Net Realized Gain from Investment Transactions . . (8,100,387) (4,998,705)
------------ -------------
CAPITAL TRANSACTIONS IN SHARES OF BENEFICIAL
Interest Proceeds from Sales of Shares . . . . . . 51,997,331 76,035,829
Dividend Reinvestments . . . . . . . . . . . . . . 8,100,387 4,998,705
Cost of Shares Redeemed. . . . . . . . . . . . . . (62,504,915) (27,513,098)
Other Capital Transaction. . . . . . . . . . . . . 2,419,383 --
------------ -------------
Net Increase (Decrease) from Capital
Transactions in Shares of Beneficial Interest . . . 12,186 53,521,436
------------ -------------
TOTAL INCREASE IN NET ASSETS . . . . . . . . . . . . 12,439,987 65,535,525
NET ASSETS
Beginning of Year. . . . . . . . . . . . . . . . . . 157,568,327 92,032,802
------------ -------------
End of Year. . . . . . . . . . . . . . . . . . . . . $170,008,314 $ 157,568,327
------------ -------------
------------ -------------
</TABLE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Contained below are selected data for a share outstanding, total investment
return, other supplemental data and ratios to average net assets for the periods
indicated for the Equity Appreciation Fund.
<TABLE>
<CAPTION>
FOR THE PERIOD
OCTOBER 12, 1993
FOR THE FOR THE FOR PERIOD FOR THE (COMMENCEMENT
YEAR ENDED YEAR ENDED JANUARY 1, 1995 TO YEAR ENDED OF OPERATIONS) TO
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1997 1996 1995+ 1994 1993
------------- ------------- ------------------ ------------ -----------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . $15.23 $14.14 $10.14 $9.80 $10.00
-------- --------- --------- --------- -----------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Loss. . . . . . . . . . . . . (0.06) (0.05) (0.02) (0.03) (0.00)
Net Realized and Unrealized Gain (Loss) on
Investment Transactions . . . . . . . . . . 2.31 1.72 4.02 0.37 (0.20)
-------- --------- --------- --------- -----------
Total Income (Loss) from Investment
Operations . . . . . . . . . . . . . . . . . 2.25 1.67 4.00 0.34 (0.20)
-------- --------- --------- --------- -----------
DISTRIBUTIONS TO SHAREHOLDERS
Net Realized Gain from Investment
Transactions. . . . . . . . . . . . . . . . (0.78) (0.58) -- -- --
-------- --------- --------- --------- -----------
NET ASSET VALUE, END OF PERIOD . . . . . . . . $16.70 $15.23 $14.14 $10.14 $9.80
-------- --------- --------- --------- -----------
-------- --------- --------- --------- -----------
TOTAL INVESTMENT RETURN. . . . . . . . . . . . 15.82% 12.45% 39.45% 3.47% (8.81)%*
SUPPLEMENTAL DATA AND RATIOS:
Net Assets, End of Period (000s omitted) . . $170,008 $157,568 $92,033 $29,973 $19,465
Ratios to Average Net Assets:
Net Investment Loss. . . . . . . . . . . . (0.39)% (0.42)% (0.38)%* (0.32)% (0.11)%*
Expenses . . . . . . . . . . . . . . . . . 1.00% 1.00% 1.00%* 1.00% 1.00%*
Decrease Reflected in Above Expense
Ratio Due to Absorption of Expenses by
Bankers Trust. . . . . . . . . . . . . . 0.20% 0.24% 0.33%* 0.46% 0.60%*
Portfolio Turnover Rate. . . . . . . . . . . 188% 271%++ 125%++ 157%++ 137%++
Average Commission Per Share** . . . . . . . $0.0341 $0.0554++
</TABLE>
- ---------------
+ Board of Trustees approved the change of the BT Investment Equity
Appreciation Fund's year end from December 31 to September 30.
++ Amounts were previously included in the Capital Appreciation Portfolio
Financial Highlights.
* Annualized
** For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share for security
trades upon which commissions are charged.
See Notes to Financial Statements on Pages 9 and 10
8
<PAGE>
- --------------------------------------------------------------------------------
BT INVESTMENT EQUITY APPRECIATION FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1--ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
A. ORGANIZATION
BT Pyramid Mutual Funds (the "Trust") is registered under the Investment Company
Act of 1940 (the "Act"), as amended, as an open-end management investment
company. The Trust was organized on February 28, 1992, as a business trust under
the laws of the Commonwealth of Massachusetts. The BT Investment Equity
Appreciation Fund (the "Fund") is one of the funds offered to investors by the
Trust. The Fund commenced operations and began offering shares of beneficial
interest on October 12, 1993.
B. SECURITY VALUATION
The Fund's investments listed or traded on National Stock Exchanges or other
domestic or foreign exchanges are valued based on the closing price of a
security traded on that exchange prior to the time when the Fund assets are
valued. Short-term obligations with remaining maturities of 60 days or less are
valued at amortized cost. Other short-term debt securities are valued on a mark-
to-market basis until such time as they reach a remaining maturity of 60 days,
whereupon they will be valued at amortized cost using their value on the 61st
day. All other securities and other assets are valued at their fair value as
determined in good faith under procedures established by and under the general
supervision of the Trustees.
C. SECURITY TRANSACTIONS AND INTEREST INCOME
Security transactions are accounted for on a trade date basis. Dividend income
is recorded on the ex-dividend date. Interest income is recorded on the accrual
basis and includes amortization of premium and discount on investments.
Realized gains and losses from securities transactions are recorded on the
identified cost basis.
D. REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements with financial institutions deemed
to be creditworthy by the Fund's investment adviser, subject to the seller's
agreement to repurchase such securities at a mutually agreed upon price.
Securities purchased subject to repurchase agreements are deposited with the
Fund's custodian and pursuant to the terms of the repurchase agreement must have
an aggregate market value greater than or equal to the repurchase price plus
accrued interest at all times. If the value of the underlying securities fall
below the value of the repurchase price plus accrued interest, the Fund will
require the seller to deposit additional collateral by the next business day. If
the request for additional collateral is not met, or the seller defaults on its
repurchase obligation, the Fund maintains the right to sell the underlying
securities at market value and may claim any resulting loss against the seller.
However, in the event of default or bankruptcy by the seller, realization and/or
retention of the collateral may be subject to legal proceedings.
E. DIVIDENDS
It is the Fund's policy to declare and distribute dividends quarterly to
shareholders from net investment income, if any. Dividends and distributions
payable to shareholders are recorded by the Fund on the ex-dividend date.
Distributions of net realized short-term and long-term capital gains, if any,
earned by the Fund will be made annually to the extent they are not offset by
any capital loss carryforwards.
F. FEDERAL INCOME TAXES
It is the Fund's policy to comply with the requirements of the Internal Revenue
Code applicable to regulated investment companies and to distribute
substantially all of its taxable income to shareholders. Therefore, no federal
income tax provision is required.
The Fund may periodically make reclassifications among certain of its capital
accounts as a result of the timing and characterization of certain income and
capital gains distributions determined annually in accordance with federal tax
regulations which may differ from generally accepted accounting principles. For
the year ended September 30, 1997, $588,568 of undistributed net investment loss
was reclassified as paid-in-capital, $1,968,137 of net realized gain was
reclassified as paid-in-capital and $1,637,625 of unrealized depreciation was
classified as net realized gain.
G. OTHER
The Trust accounts separately for the assets, liabilities, and operations of the
Fund. Expenses directly attributable to the Fund are charged to that Fund, while
expenses which are attributable to all of the Trust's funds are allocated among
them.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts in the financial statements. Actual results could
differ from those estimates.
NOTE 2--FEES AND TRANSACTIONS WITH AFFILIATES
The Fund has entered into an Administration and Services Agreement with Bankers
Trust Company ("Bankers Trust"). Under this Administration and Services
Agreement, Bankers Trust provides administrative, custody, transfer agency and
shareholder services to the Fund in return for a fee computed daily and paid
monthly at an annual rate of 0.50 of 1% of the Fund's average daily net assets.
For the year ended September 30, 1997, this fee aggregated $747,443.
The Fund has entered into an Advisory Agreement in which the Fund pays Bankers
Trust an advisory fee computed daily and paid monthly at an annual rate 0.65 of
1% of the Fund's average daily net assets. For the year ended September 30,
1997, this fee aggregated $971,676.
The Trust has entered into a Distribution Agreement with Edgewood Services, Inc.
("Edgewood"). Under the Distribution Agreement with the Trust, pursuant to Rule
12b-1 of the 1940 Act, Edgewood may seek reimbursement, at an annual rate not
exceeding 0.20 of 1% of the Fund's average daily net assets, for expenses
incurred in connection with any activities primarily intended to result in the
sale of the Fund's shares. For the year ended September 30, 1997, there were no
reimbursable expenses incurred under this agreement.
Bankers Trust has voluntarily undertaken to waive and reimburse expenses of the
Fund, to the extent necessary, to limit all expenses to 1.00 of 1% of the
average daily net assets of the Fund. For the year ended September 30, 1997,
expenses of the Fund have been reduced by $304,491.
9
<PAGE>
- --------------------------------------------------------------------------------
BT INVESTMENT EQUITY APPRECIATION FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Certain trustees and officers of the Fund are also directors, officers and/or
employees of Edgewood. None of the trustees so affiliated received compensation
for services as trustee of the Fund. Similarly, none of the Fund's officers
received compensation from the Fund.
For the year ended September 30, 1997, the Fund paid brokerage commissions of
$459,197.
NOTE 3--SHARES OF BENEFICIAL INTEREST
At September 30, 1997, there were an unlimited number of shares of beneficial
interest authorized. Transactions in shares of beneficial interest were as
follows:
<TABLE>
<CAPTION>
FOR THE FOR THE
YEAR ENDED YEAR ENDED
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
------------------------------- -------------------------------
SHARES AMOUNT SHARES AMOUNT
------------------------------- -------------------------------
<S> <C> <C> <C> <C>
Sold 3,685,748 $ 51,997,331 5,437,029 $ 76,035,829
Reinvested 582,292 8,100,387 370,819 4,998,705
Redeemed (4,432,111) (62,504,915) (1,973,734) (27,513,098)
Other Capital
Transaction -- $ 2,419,383 -- --
---------- ------------- ---------- -------------
Net Increase (Decrease) (164,071) $ 12,186 3,834,114 $ 53,521,436
---------- ------------- ---------- -------------
---------- ------------- ---------- -------------
</TABLE>
NOTE 4--PURCHASES AND SALES OF INVESTMENT SECURITIES
The aggregate cost of purchases and proceeds from sales of investments, other
than short-term obligations, for the year ended September 30, 1997 were
$261,366,841 and $259,606,934, respectively. For federal income tax purposes,
the tax basis of investments held at September 30, 1997 was $129,730,468. The
aggregate gross unrealized appreciation for all investments was $41,584,421 and
the aggregate gross unrealized depreciation for all investments was $1,941,096.
10
<PAGE>
- --------------------------------------------------------------------------------
BT INVESTMENT EQUITY APPRECIATION FUND
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Trustees and Shareholders of BT Pyramid Mutual Funds:
We have audited the accompanying statement of assets and liabilities, including
the schedule of portfolio investments, of BT Investment Equity Appreciation Fund
(one of the Funds comprising BT Pyramid Mutual Funds) as of September 30, 1997,
and the related statement of operations for the year then ended, the statement
of changes in net assets for each of the two years in the period then ended and
the financial highlights for the years ended September 30, 1997 and 1996, the
period January 1, 1995 to September 30, 1995, the year ended December 31, 1994
and the period October 12, 1993 (commencement of operations) to December 31,
1993. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
September 30, 1997 by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of BT
Investment Equity Appreciation Fund of BT Pyramid Mutual Funds as of September
30, 1997, the results of its operations for the year then ended, the changes in
its net assets for each of the two years in the period then ended and the
financial highlights for the periods referred to above, in conformity with
generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Kansas City, Missouri
November 5, 1997
11
<PAGE>
BT PYRAMID MUTUAL FUNDS
BT INVESTMENT EQUITY APPRECIATION FUND
INVESTMENT ADVISER OF THE PORTFOLIO AND ADMINISTRATOR
BANKERS TRUST COMPANY
130 Liberty Street
New York, NY 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
New York, NY 10006
INDEPENDENT ACCOUNTANTS
COOPERS & LYBRAND L.L.P.
1100 Main Street, Suite 900
Kansas City, MO 64105
COUNSEL
WILLKIE FARR & GALLAGHER
153 East 53rd Street
New York, NY 10022
For information on how to invest, shareholder account information and current
price and yield information, please contact your relationship manager or the BT
Mutual Fund Service Center at (800) 730-1313.
